<PAGE> 1
FILED PURSUANT TO RULE 424B(5)
FILE NO. 333-36577
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER 18, 1997)
$100,000,000
BRADLEY OPERATING LIMITED PARTNERSHIP
7.2% NOTES DUE 2008
------------------------
Bradley Operating Limited Partnership (the "Operating Partnership") will
issue its 7.2% Notes due 2008 (the "Notes") offered hereby in an aggregate
principal amount of $100,000,000 (the "Offering"). Interest on the Notes is
payable semi-annually in arrears on January 15 and July 15 of each year
commencing July 15, 1998. See "Description of Notes -- Principal and Interest."
The Notes will mature on January 15, 2008. The Notes may be redeemed at any time
at the option of the Operating Partnership, in whole or in part, at a redemption
price equal to the sum of (i) the principal amount of the Notes being redeemed
plus accrued interest to the redemption date, and (ii) the Make-Whole Amount (as
defined in "Description of the Notes -- Optional Redemption"), if any. See
"Description of Notes -- Optional Redemption." The Notes are unsecured
obligations of the Operating Partnership and will rank equally with all other
unsecured and unsubordinated indebtedness of the Operating Partnership,
including the Operating Partnership's outstanding $100,000,000 of 7% Notes due
2004 (the "2004 Notes"). The Notes are not subject to any mandatory sinking
fund. The Notes contain certain restrictions on the Operating Partnership's
ability to incur additional indebtedness. See "Description of Notes."
The Notes will be represented by a single fully registered global note in
book-entry form without coupons (a "Global Note") registered in the name of The
Depository Trust Company ("DTC") or its nominee. Beneficial interests in the
Global Note will be shown on, and transfers thereof will be effected only
through, records maintained by DTC (with respect to beneficial interests of
participants) or by participants or persons that hold interests through
participants (with respect to beneficial interests of beneficial owners). Owners
of beneficial interests in the Global Note will be entitled to physical delivery
of Notes in certificated form equal in principal amount to their respective
beneficial interests only under the limited circumstances described under
"Description of Notes -- Book-Entry System." Settlement of the Notes will be
made in immediately available funds. The Notes will trade in DTC's Same-Day
Funds Settlement System until maturity or earlier redemption, as the case may
be, or until the Notes are issued in certificated form, and secondary market
trading activity in the Notes will therefore settle in immediately available
funds. All payments of principal and interest in respect of the Notes will be
made by the Operating Partnership in immediately available funds. See
"Description of Notes -- Same-Day Settlement and Payment."
SEE "RISK FACTORS" ON PAGE S-6 OF THIS PROSPECTUS SUPPLEMENT AND BEGINNING ON
PAGE 3 OF THE ACCOMPANYING PROSPECTUS FOR CERTAIN FACTORS RELATING TO AN
INVESTMENT IN THE NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===========================================================================================================
Underwriting
Price to Discounts and Proceeds to Operating
Public(1) Commissions(2) Partnership(1)(3)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note.............................. 99.701% 0.650% 99.051%
- -----------------------------------------------------------------------------------------------------------
Total................................. $99,701,000 $650,000 $99,051,000
===========================================================================================================
</TABLE>
(1) Plus accrued interest, if any, from January 15, 1998.
(2) The Company and the Operating Partnership have agreed to indemnify the
Underwriters (as defined herein) against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(3) Before deducting expenses payable by the Operating Partnership estimated at
$700,000.
------------------------
The Notes are offered by the Underwriters subject to prior sale, when, as
and if delivered to and accepted by them, subject to approval of certain legal
matters by counsel for the Underwriters. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the Notes will be made on or about January 28,
1998 through the book-entry facilities of DTC, against payment therefor in
immediately available funds.
------------------------
PaineWebber Incorporated is Sole Bookrunning Manager
PAINEWEBBER INCORPORATED SALOMON SMITH BARNEY
------------------------
BT ALEX. BROWN A.G. EDWARDS & SONS, INC.
------------------------
The date of this Prospectus Supplement is January 23, 1998.
<PAGE> 2
------------------------
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY ENGAGE IN
TRANSACTIONS WHICH STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
NOTES. SPECIFICALLY, THE UNDERWRITERS MAY STABILIZE OR MAY BID FOR, AND
PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DISCUSSION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
S-2
<PAGE> 3
PROSPECTUS SUPPLEMENT SUMMARY
The following information contained in this Prospectus Supplement is
qualified in its entirety by the detailed information appearing elsewhere in
this Prospectus Supplement or the accompanying Prospectus or incorporated
therein by reference. As used herein, the term "Bradley Real Estate, Inc."
refers also to its predecessor Bradley Real Estate Trust, and the term "Company"
or "Bradley" as used herein refers to Bradley Real Estate, Inc. and its
subsidiaries on a consolidated basis (including Bradley Operating Limited
Partnership and its subsidiaries) or, where the context so requires, Bradley
Real Estate, Inc. only. The term "Operating Partnership" as used herein means
Bradley Operating Limited Partnership and its subsidiaries on a consolidated
basis, or, where the context so requires, Bradley Operating Limited Partnership
only.
THE OPERATING PARTNERSHIP
Bradley Operating Limited Partnership is the entity through which Bradley
Real Estate, Inc., a self-administered and self-managed real estate investment
trust ("REIT"), conducts substantially all of its business and owns (either
directly or through subsidiaries) substantially all of its assets. As of
December 31, 1997, the Operating Partnership owned, directly or indirectly, 53
properties (52 shopping centers and one office/retail property) in 11 states,
aggregating approximately 10.1 million square feet of rentable space,
substantially all of which are located in Midwest markets. The portfolio of
properties owned by the Operating Partnership has over 1,000 tenants, with no
single tenant accounting for more than 6.0% of gross revenues. The majority of
the properties have been constructed or renovated within the past five to eight
years. As of December 31, 1997, the Operating Partnership's portfolio was
approximately 95% occupied. (Properties owned by the Operating Partnership from
time to time are hereinafter sometimes referred to individually as a "Property"
and collectively referred to as the "Properties" or the "Portfolio.")
The Operating Partnership owns and operates and seeks to acquire
grocery-anchored, open-air community and neighborhood shopping centers in the
Midwest states of Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan,
Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin.
The Operating Partnership currently owns properties in nine states in this
region. Through past experience as well as current research, the Operating
Partnership believes that this region is economically strong and diverse and
provides a favorable environment for the acquisition, ownership and operation of
retail properties. The Operating Partnership evaluates prospects in both
metropolitan statistical areas defined by the U.S. Census Bureau ("MSAs") and
secondary markets within this region that offer opportunities for favorable
investment returns and long-term cash flow growth. The Operating Partnership
favors grocery-anchored centers because, based on its past experience, such
properties offer strong and predictable daily consumer traffic and are less
susceptible to downturns in the general economy than apparel or leisure anchored
shopping center properties.
As part of its ongoing business, the Operating Partnership regularly
evaluates and engages in discussions with public and private entities regarding
possible portfolio or individual asset acquisitions or business combinations.
During 1997, the Operating Partnership acquired 25 shopping centers which meet
its investment criteria for an aggregate acquisition price of $189.7 million,
although there can be no assurance that further acquisitions will be made within
its target markets or that acquisitions that are made will be on as economically
advantageous terms to the Operating Partnership as those made during 1997. In
evaluating potential acquisitions, the Operating Partnership focuses principally
on community and neighborhood shopping centers in its Midwest target market that
are anchored by strong national, regional and independent grocery store chains.
The Operating Partnership seeks to create an income stream diversity across its
Midwest markets to achieve sustainable growth through varied economic
conditions.
The Company currently owns an approximately 95% economic interest in and is
the sole general partner of the Operating Partnership (this structure is
commonly referred to as an umbrella partnership REIT or "UPREIT"). The board of
directors of the Company manages the affairs of the Operating Partnership by
directing the affairs of the Company. Economic interests in the Operating
Partnership are evidenced by units of partnership interest ("Units") with the
interest of the general partner evidenced by general partner units ("GP Units").
The interests of persons who have contributed direct or indirect interests in
certain properties to the Operating Partnership are evidenced by limited partner
units ("LP Units").
S-3
<PAGE> 4
In August 1997, Standard & Poor's Investment Services ("Standard & Poor's")
assigned a corporate rating of "BBB-" to the Operating Partnership, and on
November 4, 1997 Moody's Investors Service ("Moody's") assigned a prospective
rating of "(P)Baa3" to the unissued shelf registration of debt securities filed
by the Operating Partnership. Moody's subsequently assigned a rating of "Baa3"
to the Operating Partnership's $100 million offering of the 2004 Notes which was
completed in November 1997.
The Operating Partnership is organized under the laws of the State of
Delaware. Its offices are located at 40 Skokie Boulevard, Suite 600, Northbrook,
Illinois 60062-1626. Its telephone number is (847) 272-9800.
THE PROPERTIES
Set forth below are summary descriptions of the Properties owned by the
Operating Partnership as of December 31, 1997 and rental information for leases
in effect as of September 30, 1997 or, for Properties acquired after September
30, 1997, as of the date of acquisition. The Properties listed in italics have
been acquired since September 30, 1997.
<TABLE>
<CAPTION>
GROSS
LEASABLE
YEAR AREA (GLA) PERCENT ANNUALIZED
SHOPPING CENTERS ACQUIRED SQUARE FEET LEASED BASE RENT(1)
-------------------------------------------- -------- ------------- ------- -------------
<C> <S> <C> <C> <C> <C>
ILLINOIS
1. Commons of Chicago Ridge and Annex.......... 1996 309,000 93% $ 2,837,116
2. Commons of Crystal Lake(2).................. 1996 273,000 71 2,261,841
3. Crossroads Center........................... 1992(3) 242,000 97 1,382,014
4. Fairhills Shopping Center................... 1997 106,000 90 594,917
5. Heritage Square............................. 1996 212,000 100 2,609,091
6. High Point Centre........................... 1996 240,000 99 2,151,908
7. Parkway Pointe.............................. 1997 39,000 100 463,101
8. Rivercrest Center........................... 1994(3) 458,000 99 3,585,615
9. Rollins Crossing............................ 1996 66,000(4) 82 489,939
10. Sangamon Center North....................... 1997 140,000 98 1,002,405
11. Sheridan Village............................ 1996 296,000 98 2,246,202
12. Sterling Bazaar............................. 1997 82,000 94 646,884
13. Wardcliffe Center........................... 1997 62,000 100 317,196
14. Westview Center............................. 1993(3) 328,000 72 2,121,997
---------- --- -----------
TOTAL/WEIGHTED AVERAGE ILLINOIS............. 2,853,000 91% $22,710,226
INDIANA
15. Martin's Bittersweet Plaza.................. 1997 78,000 98 553,135
16. County Line Mall............................ 1997 261,000 94 1,598,100
17. Speedway SuperCenter and Outlots............ 1996 541,000 97 3,883,929
18. The Village................................. 1996 356,000 86 1,651,191
19. Washington Lawndale Commons................. 1996 333,000 98 1,642,978
---------- --- -----------
TOTAL/WEIGHTED AVERAGE INDIANA.............. 1,569,000 94% $ 9,329,333
IOWA
20. Burlington Plaza West....................... 1997 88,000 94 573,685
21. Davenport Retail............................ 1997 63,000 100 604,355
22. Holiday Plaza............................... 1997 46,000 87 282,219
23. Parkwood Plaza.............................. 1997 125,000 93 1,019,873
24. Southgate Shopping Center................... 1997 163,000 93 512,520
25. Spring Village.............................. 1997 91,000 100 567,715
26. Warren Plaza................................ 1997(3) 90,000 100 660,828
---------- --- -----------
TOTAL/WEIGHTED AVERAGE IOWA................. 666,000 95% $ 4,221,195
KANSAS
27. Mid State Plaza............................. 1997 287,000 84 767,676
28. Santa Fe Square............................. 1996(3) 134,000 94 1,100,219
29. Westchester Square.......................... 1997 165,000 93 1,231,672
---------- --- -----------
TOTAL/WEIGHTED AVERAGE KANSAS............... 586,000 89% $ 3,099,567
KENTUCKY
30. Stony Brook................................. 1996 136,000 98 1,384,869
---------- --- -----------
TOTAL/WEIGHTED AVERAGE KENTUCKY............. 136,000 98% $ 1,384,869
</TABLE>
S-4
<PAGE> 5
<TABLE>
<CAPTION>
GROSS
LEASABLE
YEAR AREA (GLA) PERCENT ANNUALIZED
SHOPPING CENTERS ACQUIRED SQUARE FEET LEASED BASE RENT(1)
-------------------------------------------- ---------- --- -----------
<C> <S> <C> <C> <C> <C>
MINNESOTA
31. Brookdale Square............................ 1996(3) 185,000 86% $ 1,175,468
32. Burning Tree Plaza.......................... 1993(3) 139,000 93 1,165,599
33. Central Valu................................ 1997 123,000 93 836,208
34. Elk Park.................................... 1997 155,000 99 1,320,432
35. Har Mar Mall................................ 1992(3) 430,000 92 3,797,782
36. Hub West Shopping Center.................... 1991(3) 78,000 100 839,271
37. Richfield Hub Shopping Center............... 1988(3) 138,000 98 1,262,477
38. Roseville Center............................ 1997 75,000 92 624,708
39. Sun Ray Shopping Center..................... 1961(3) 258,000 82 1,615,111
40. Terrace Mall................................ 1993(3) 137,000 94 913,871
41. Westview Valu............................... 1997 163,000 93 1,026,156
42. Westwind Plaza.............................. 1994(3) 88,000 92 891,960
43. White Bear Hills............................ 1993(3) 73,000 100 592,781
---------- --- -----------
TOTAL/WEIGHTED AVERAGE MINNESOTA............ 2,042,000 92% $16,061,824
MISSOURI
44. Grandview Plaza............................. 1971(3) 316,000 78 2,127,323
45. Liberty Corners............................. 1997 121,000 100 720,941
---------- --- -----------
TOTAL/WEIGHTED AVERAGE MISSOURI............. 437,000 84% $ 2,848,264
NEW MEXICO
46. St. Francis Plaza........................... 1995 30,000 100 357,000
---------- --- -----------
TOTAL/WEIGHTED AVERAGE NEW MEXICO........... 30,000 100% $ 357,000
SOUTH DAKOTA
47. Baken Park.................................. 1997 184,000 94 998,208
---------- --- -----------
TOTAL/WEIGHTED AVERAGE SOUTH DAKOTA......... 184,000 94% $ 998,208
TENNESSEE
48. Williamson Square(5)........................ 1996 335,000 90 2,109,757
---------- --- -----------
TOTAL/WEIGHTED AVERAGE TENNESSEE............ 335,000 90% $ 2,109,757
WISCONSIN
49. Madison Plaza............................... 1997 128,000 100 991,131
50. Mequon Pavilions............................ 1996 212,000 98 2,269,611
51. Park Plaza.................................. 1997 108,000 100 599,892
52. Spring Mall................................. 1997 180,000 92 1,014,864
---------- --- -----------
TOTAL/WEIGHTED AVERAGE WISCONSIN............ 628,000 97% $ 4,875,498
---------- --- -----------
TOTAL/WEIGHTED AVERAGE SHOPPING CENTERS..... 9,466,000 92% $67,995,741
RETAIL/OFFICE BUILDING
ILLINOIS
53. One North State(6).......................... 1996 639,000 98 9,849,135
---------- --- -----------
GRAND TOTAL/WEIGHTED AVERAGE................ 10,105,000 93% $77,844,876
========== === ===========
</TABLE>
- ---------------
(1) Annualized base rent is calculated by multiplying monthly base rent for
September 1997 by 12. For Properties acquired after September 1997,
annualized base rent is calculated by multiplying the first month's pro
forma base rent by 12.
(2) The amount of rentable square feet at Commons of Crystal Lake does not
include approximately 81,000 square feet which is owned by Metropolitan Life
and leased to Venture Stores, Inc.
(3) Date represents the year the Property was acquired by the Company. The
Company contributed the Property to the Operating Partnership in August 1997
in order to consolidate the ownership of the Properties in one entity.
(4) The amount of rentable square feet at Rollins Crossing does not include
approximately 190,000 square feet which is owned by Kmart Corporation.
(5) The Operating Partnership is the 60% general partner of a partnership owning
this Property, whose limited partner interests are owned by an unrelated
investor.
(6) This Property is held for sale.
S-5
<PAGE> 6
RISK FACTORS
An investment in the Notes involves various risks, and prospective
investors should carefully consider the matters discussed under "Risk Factors"
in the accompanying Prospectus prior to any investment in the Operating
Partnership. The first "Risk Factor" noted on page 3 of the accompanying
Prospectus has been significantly mitigated by the prepayment on November 26,
1997 of the $100 million REMIC Note due September 2000 (the "REMIC Note"). Such
prepayment was accompanied by a prepayment yield maintenance fee of
approximately $4.3 million and was effected primarily with the proceeds of an
offering by the Operating Partnership of the 2004 Notes, with the balance of the
prepayment paid with borrowings under the Company's line of credit then in
effect. The Operating Partnership remains subject to the risk of payment or
refinancing of the 2004 Notes upon their balloon maturity in November 2004.
Except for interest rate and maturity, the 2004 Notes have the same terms and
conditions as, and rank equally with, the Notes offered hereby. See "The
Operating Partnership -- Indebtedness."
RECENT EVENTS
The following is a summary of certain significant events involving the
Operating Partnership and the Company since September 30, 1997:
- In November 1997, the Company prepaid the REMIC Note which resulted in
the discharge from the mortgage securing the REMIC Note of six
Properties, including One North State Street in Chicago, having an
aggregate gross book value of $181.2 million.
- On November 24, 1997, the Operating Partnership completed an offering of
$100 million of 7% Notes due 2004, the proceeds of which were used to
prepay the REMIC Note. Except for interest rate and maturity, the 2004
Notes have the same terms and conditions as, and rank equally with, the
Notes offered hereby. See "Prospectus Supplement Summary -- Risk
Factors" and "The Operating Partnership -- Indebtedness."
- In December 1997, the Operating Partnership entered into a new $200
million unsecured revolving credit facility with a syndicate of banks
(the "Line of Credit"), replacing the previous $150 million unsecured
line of credit. The Line of Credit matures in December 2000 and
outstanding borrowings under the Line of Credit bear interest at a
variable rate, depending upon the rating assigned by recognized rating
agencies, which rate is currently the lowest of (i) the lead bank's base
rate, (ii) 1.00% over the London InterBank Offer Rate ("LIBOR"), or
(iii) for amounts outstanding up to $100 million, a competitive bid rate
solicited from the syndicate of banks. The line is available for the
acquisition, development, renovation and expansion of new and existing
properties, working capital and general business purposes. See "The
Operating Partnership -- Indebtedness."
- On December 1, 1997, the Company completed an offering of 990,000 shares
of its common stock, par value $.01 per share (the "Common Stock"), at a
price to the public of $20.375 per share. The shares were sold under a
Forward Equity Program entered into with PaineWebber Incorporated
("PaineWebber") on October 21, 1997, pursuant to which the Company has
the right, until April 21, 1998, to sell shares of its Common Stock with
an aggregate value up to $60 million to PaineWebber, acting as
underwriter, in amounts ranging from $5 million to $20 million per
transaction. Although no further shares have been sold under the Forward
Equity Program, the Company completed an additional offering of 300,000
shares of its Common Stock on December 10, 1997 at a price to the public
of $20.50 per share.
- Subsequent to September 30, 1997, the Operating Partnership has acquired
11 shopping centers for an aggregate price of $93,734,000, three of
which centers were acquired subject to existing mortgage indebtedness
aggregating $21,503,000. Accordingly, as of December 31, 1997, only
eight of the Company's 53 properties were encumbered by mortgage debt
aggregating approximately $51.2 million. See "The Operating
Partnership -- Properties" and "-- Indebtedness."
S-6
<PAGE> 7
- Consistent with its strategy of focusing on shopping centers located in
the Midwestern region of the United States, in October and December
1997, respectively, the last of the Company's New England properties
(Augusta Plaza in Augusta, Maine, and 585 Boylston Street in Boston,
Massachusetts) were sold for an aggregate net sales price of $8.0
million. In January 1998, the Operating Partnership listed for sale its
only remaining non-shopping center asset, One North State Street in
downtown Chicago. See "The Operating Partnership -- Recent Events."
- In November 1997, the Board of Directors of the Company increased the
rate of the Company's quarterly dividend from $.33 per share to $.35 per
share, effective with the dividend paid on December 31, 1997.
S-7
<PAGE> 8
THE OFFERING
All capitalized terms used herein and not defined herein have the meaning
provided in the Indenture (as defined herein) or under "Description of Notes."
SECURITIES OFFERED......... $100,000,000 aggregate principal amount of Notes.
MATURITY................... January 15, 2008.
INTEREST PAYMENT DATES..... Semi-annually in arrears on January 15 and July 15
commencing July 15, 1998.
RANKING.................... The Notes will be unsecured obligations of the
Operating Partnership and will rank equally with
all other unsecured and unsubordinated indebtedness
of the Operating Partnership including the 2004
Notes. The Notes will be effectively subordinated
to mortgages and other secured indebtedness of the
Operating Partnership and to indebtedness and other
liabilities of the Operating Partnership's
subsidiaries. In addition, the Notes will be repaid
solely from the assets of the Operating
Partnership; the Indenture provides that holders of
the Notes will not have recourse against any
partner of the Operating Partnership for the
repayment of the Notes.
USE OF PROCEEDS............ The net proceeds from the sale of the Notes will be
used to reduce outstanding indebtedness incurred
under the Operating Partnership's Line of Credit,
with the expectation that the Operating Partnership
may reborrow under the line for the acquisition,
development, renovation and expansion of
properties. The outstanding balance of the Line of
Credit as of December 31, 1997 was $151.7 million.
OPTIONAL REDEMPTION........ The Notes are redeemable at any time at the option
of the Operating Partnership, in whole or in part,
at a redemption price equal to the sum of (i) the
principal amount of the Notes being redeemed plus
accrued interest to the redemption date and (ii)
the Make-Whole Amount (as hereinafter defined), if
any. See "Description of Notes -- Optional
Redemption."
CERTAIN COVENANTS.......... The Notes contain various covenants including the
following:
- Neither the Operating Partnership nor any
Subsidiary (as hereinafter defined) may incur any
Indebtedness (as hereinafter defined) if, after
giving effect thereto, the aggregate principal
amount of all outstanding Indebtedness of the
Operating Partnership and its Subsidiaries on a
consolidated basis is greater than 60% of the sum
of (i) the Total Assets (as hereinafter defined)
of the Operating Partnership and its Subsidiaries
as of the end of the most recent calendar quarter
prior to the incurrence of such additional
Indebtedness, (ii) the purchase price of any real
estate assets or mortgages receivable acquired by
the Operating Partnership and its Subsidiaries
since the end of such calendar quarter, and (iii)
the amount of any securities offering proceeds
received (to the extent that such proceeds were
not used to acquire real estate assets or
mortgages receivable or used to reduce
Indebtedness), by the Operating Partnership or
any Subsidiary since the end of such calendar
quarter, including those proceeds obtained in
connection with the incurrence of such additional
Indebtedness, less (iv) the decrease, if any, in
the Total Assets of the Operating Partnership and
its Subsidiaries since the end of such quarter.
S-8
<PAGE> 9
- Neither the Operating Partnership nor any
Subsidiary may incur any Indebtedness secured by
any mortgage or other lien upon any of the
property of the Operating Partnership or any
Subsidiary if, after giving effect thereto, the
aggregate principal amount of all outstanding
Indebtedness of the Operating Partnership and its
Subsidiaries on a consolidated basis which is
secured by any mortgage or other lien on the
property of the Operating Partnership or any
Subsidiary is greater than 40% of the sum of (i)
the Total Assets of the Operating Partnership and
its Subsidiaries as of the end of the most recent
calendar quarter prior to the incurrence of such
additional Indebtedness and (ii) the purchase
price of any real estate assets or mortgages
receivable acquired by the Operating Partnership
and its Subsidiaries since the end of such
calendar quarter, and (iii) the amount of any
securities offering proceeds received (to the
extent that such proceeds were not used to
acquire real estate assets or mortgages
receivable or used to reduce Indebtedness), by
the Operating Partnership or any Subsidiary since
the end of such calendar quarter, including those
proceeds obtained in connection with the
incurrence of such additional Indebtedness, less
(iv) the decrease, if any, in the Total Assets of
the Operating Partnership and its Subsidiaries
since the end of such quarter.
- The Operating Partnership and its Subsidiaries
will maintain Total Unencumbered Assets (as
hereinafter defined) of not less than 150% of the
aggregate outstanding principal amount of the
Unsecured Indebtedness (as hereinafter defined)
of the Operating Partnership and its Subsidiaries
on a consolidated basis.
- Neither the Operating Partnership nor any
Subsidiary may incur any Indebtedness if, after
giving effect thereto, the ratio of Consolidated
Income Available for Debt Service (as hereinafter
defined) to the Annual Service Charge (as
hereinafter defined) for the four consecutive
fiscal quarters most recently ended prior to the
date on which such additional Indebtedness is to
be incurred shall have been less than 1.5:1 on a
pro forma basis after giving effect to certain
assumptions.
The foregoing covenants do not restrict the
Operating Partnership from refinancing existing
Indebtedness, provided that the outstanding
principal amount of such Indebtedness is not
increased. For a more complete description of the
terms and definitions used in the foregoing
limitations, see "Description of Notes -- Certain
Covenants."
S-9
<PAGE> 10
THE OPERATING PARTNERSHIP
GENERAL
Bradley Operating Limited Partnership is the entity through which Bradley
Real Estate, Inc., a self-administered and self-managed REIT, conducts
substantially all of its business and owns (either directly or through
subsidiaries) substantially all of its assets. Bradley Real Estate, Inc., has
elected to qualify as a REIT for federal income tax purposes since its
organization in 1961. The Company is the nation's oldest continuously qualified
real estate investment trust. The Operating Partnership owns and operates and
seeks to acquire grocery-anchored, open-air neighborhood and community shopping
centers in the Midwestern region of the United States and is engaged in the
business of acquiring and actively managing and leasing such properties. As of
December 31, 1997, the Operating Partnership owned 53 Properties in 11 states,
aggregating approximately 10.1 million square feet of gross leasable area.
In March 1996, the Company completed the acquisition (the "Tucker
Acquisition") of Tucker Properties Corporation ("Tucker"). The Tucker
Acquisition was consummated through the issuance by the Company of approximately
7.4 million shares of its Common Stock valued at $13.96 per share, and was
accounted for using the purchase method of accounting. Tucker held title to all
of its properties through two partnerships; eight properties through Tucker
Operating Limited Partnership ("TOP"), in which Tucker had a 95.9% general
partnership interest, and six properties through Tucker Financing Partnership
("TFP"), a general partnership of which TOP owned 99% and a wholly owned Tucker
corporate subsidiary owned the remaining 1%. Upon the acquisition of Tucker, the
Company succeeded to Tucker's interest in TOP, TFP and the wholly owned Tucker
corporate subsidiary, and the name "Bradley" was substituted for "Tucker" in
each subsidiary and partnership. In August 1997, the Company contributed to the
Operating Partnership its economic interests in 18 properties that it had
previously held directly in order to consolidate the ownership of the Properties
in one entity. The Operating Partnership therefore succeeded Bradley as the
entity through which the Company expects to expand its ownership and operation
of properties primarily located in the Midwestern region of the country. In
addition, in August 1997, Standard & Poor's assigned a corporate rating of
"BBB-" to the Operating Partnership, and on November 4, 1997 Moody's assigned a
prospective rating of "(P)Baa3" to the unissued shelf registration of debt
securities filed by the Operating Partnership. Moody's subsequently assigned a
rating of "Baa3" to the Operating Partnership's offering of the 2004 Notes which
was completed in November 1997.
Of the 53 Properties owned by the Operating Partnership at December 31,
1997, 39 were grocery-anchored, open-air shopping centers located in the
Midwestern region of the United States. The Portfolio owned by the Operating
Partnership has over 1,000 tenants, with no single tenant accounting for more
than 6.0% of gross revenues. The majority of the Properties have been
constructed or renovated within the past five to eight years. As of December 31,
1997, the Operating Partnership's Portfolio was approximately 95% occupied.
As part of its ongoing business, the Operating Partnership regularly
evaluates, and engages in discussions with public and private real estate
entities regarding possible portfolio or individual asset acquisitions or
business combinations. The Operating Partnership is in the process of actively
evaluating several properties and, accordingly, expects to complete additional
acquisitions of retail properties during 1998, although no assurance can be
given that any acquisitions will be consummated. However, the Operating
Partnership does not currently have any properties under agreement which
individually or in the aggregate would have a material affect on the financial
condition of the Operating Partnership. In evaluating potential acquisitions,
the Operating Partnership focuses principally on community and neighborhood
shopping centers in the Midwest states of Illinois, Indiana, Iowa, Kansas,
Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South
Dakota and Wisconsin that are anchored by strong national, regional and
independent grocery store chains. The Operating Partnership favors
grocery-anchored shopping centers because, based on its experience and current
research, such properties offer better prospects for sustainable cash flow
growth over time due to their strong and predictable daily consumer traffic and
are less susceptible to downturns in the general economy than apparel or leisure
anchored shopping center properties.
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<PAGE> 11
The Company currently owns an approximately 95% economic interest in and is
the sole general partner of the Operating Partnership. The board of directors of
the Company manages the affairs of the Operating Partnership by directing the
affairs of the Company. Economic interests in the Operating Partnership are
evidenced by Units with the interest of the general partner evidenced by GP
Units.
The Operating Partnership is a Delaware limited partnership and the Company
is a Maryland corporation. The executive offices of both the Operating
Partnership and the Company are located at 40 Skokie Boulevard, Suite 600,
Northbrook, Illinois 60062-1626 and their telephone number is (847) 272-9800.
RECENT EVENTS
On November 26, 1997 the Company prepaid the REMIC Note. Such prepayment
was accompanied by a prepayment yield maintenance fee of approximately $4.3
million and was effected primarily with the proceeds of the offering by the
Operating Partnership of the 2004 Notes in November 1997, with the balance of
the prepayment paid with borrowings under the Company's line of credit then in
effect. The prepayment of the REMIC Note resulted in the discharge from the
mortgage securing the REMIC Note of six properties, including One North State
Street in Chicago, having an aggregate gross book value of $181.2 million.
In December 1997, the Operating Partnership entered into the Line of
Credit, replacing the previous $150 million unsecured line of credit. The Line
of Credit bears interest at a rate equal to the lowest of (i) the lead bank's
base rate, (ii) a spread over LIBOR ranging from 0.70% to 1.25% depending on the
credit rating assigned by national credit rating agencies, or (iii) for amounts
outstanding up to $100 million, a competitive bid rate solicited from the
syndicate of banks. Based on the Operating Partnership's current credit rating
assigned by Standard & Poor's and Moody's, the spread over LIBOR is 1.00%.
Additionally, there is a facility fee currently equal to $300,000 per annum. In
the event the current credit rating were downgraded by either Standard & Poor's
or Moody's, the facility fee would increase to $500,000 per annum, and the
spread over the base rate would increase by 0.25% and the spread over LIBOR
would increase to 1.25%. The Line of Credit is guaranteed by the Company and
matures in December 2000. The Line of Credit is available for the acquisition,
development, renovation and expansion of new and existing properties, working
capital and general business purposes.
On December 1, 1997, the Company completed an offering of 990,000 shares of
its Common Stock. Such shares were sold to the public at $20.375 per share with
net proceeds to the Company of $19,342,600 after deducting the underwriting
discount and expenses. The shares were sold under a Forward Equity Program
previously entered into with PaineWebber on October 21, 1997, pursuant to which
the Company, at its option, has the right, until April 21, 1998, to sell shares
of its Common Stock with an aggregate value of up to $60 million to PaineWebber,
acting as underwriter, in amounts ranging from $5 million to $20 million per
transaction. Although no further shares have been sold under the Forward Equity
Program, the Company completed an additional offering of 300,000 shares of its
Common Stock on December 10, 1997. These additional shares were sold to the
public at $20.50 per share with net proceeds to the Company of approximately
$5.9 million after deducting the underwriting discount and expenses.
Subsequent to September 30, 1997, the Operating Partnership has acquired 11
shopping centers for an aggregate price of $93,734,000, three of which centers
were acquired subject to existing mortgage indebtedness aggregating $21,503,000.
Accordingly, as of December 31, 1997, only eight of the Company's 53 properties
were encumbered by mortgage debt aggregating approximately $51.2 million.
Consistent with its strategy of focusing on shopping centers located in the
Midwestern region of the United States, in October and December 1997,
respectively, the last of the Company's New England properties (Augusta Plaza in
Augusta, Maine, and 585 Boylston Street in Boston, Massachusetts) were sold for
an aggregate net sales price of $8.0 million. In January 1998, the Operating
Partnership listed for sale its only remaining non-shopping center asset, One
North State Street in downtown Chicago. One North Street was the only Property
in the Portfolio at December 31, 1996 that represented 10% or more of the
historic book value of the Portfolio at December 31, 1996, or accounted for 10%
or more of the Portfolio's gross revenues in 1996. One North State aggregates
approximately 639,000 square feet of gross leasable area of which only
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<PAGE> 12
approximately 159,000 square feet is retail space and the remainder is office
space. The aggregate cost basis of the Property for reporting purposes as of
December 31, 1996 was $54,692,000, and the aggregate cost for federal income tax
purposes was $73,611,000.
In November 1997, the Board of Directors of the Company increased the rate
of the Company's quarterly dividend from $.33 per share to $.35 per share,
effective with the dividend paid on December 31, 1997.
BUSINESS OBJECTIVES AND STRATEGIES
Philosophy:
The Operating Partnership believes grocery-anchored, open-air properties
offer risk-adjusted returns that are superior to alternative retail formats.
Grocery-anchored centers generally perform better than alternative retail
formats through varied economic conditions because they are usually located
close to residential areas, are convenience driven, promote repeat customer
traffic and cross-shopping and tend to be less affected by changing
demographics. The Operating Partnership intends to grow by improving cash flows
from existing Properties through innovative, proactive management and leasing
that focuses on tenant satisfaction and retention, increases in rents and
occupancy levels and the control of operating expenses. The Operating
Partnership also intends to grow through the acquisition of additional
grocery-anchored shopping centers located throughout its Midwest target market.
The Operating Partnership believes it is well positioned to achieve these
objectives given Bradley's 37-year operating history in the Midwest region of
the country, its existing management infrastructure in several key Midwestern
markets and its depth of management and management information systems.
Management Structure:
The Operating Partnership provides a full range of fully integrated real
estate services with over 90 professionals involved in management, leasing,
acquisition and financing of the Operating Partnership's Properties. Senior
management consists of seven individuals with an average of 19 years of real
estate experience, ranging from 13 to 31 years in the business. The Operating
Partnership maintains regional offices in Chicago, Minneapolis, St. Louis,
Indianapolis, Milwaukee and Cincinnati, in order that as many Properties as
practicable have a manager located within a one to two hour drive. The Operating
Partnership believes that operational success is driven by its employees and
seeks to provide a challenging and congenial work environment which offers
personal and career growth to all employees. The finance, accounting and
administrative functions for the Operating Partnership are handled by a central
office staff located in the Northbrook, Illinois headquarters.
Property Operations:
The Asset Management Department operates the Portfolio with the objective
of maximizing current cash flows while at the same time enhancing long-term
value. The Properties are operated by 14 professional property managers, all of
whom have or are working toward professional designations. Each property manager
currently manages an average of 600,000 square feet in slightly over three
Properties. Property managers all have comprehensive written goals focusing on
the following objectives:
Tenant Coverage and Retention: The Operating Partnership believes
that the maintenance of good relationships and communications is imperative
to tenant retention. Managers meet with tenants on a regular basis, with
such communication considered essential not only in the lease renewal
process but also in identifying mutual needs and expectations while
clarifying and resolving issues. In general, leases are renewed at market
rates with standard escalation clauses. The property manager negotiates the
renewal terms with tenants, in conjunction with the leasing agent assigned
to the Property.
Property Maintenance and Expense Control: Maintenance of the
Portfolio is performed by both internal and third-party contract personnel.
The Operating Partnership's construction and property management personnel
ensure each Property is maintained in optimal condition while ensuring all
opportunities to minimize operating costs are considered. These
opportunities include property tax
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<PAGE> 13
protestation, competitive bidding for third party services, conducting
routine preventative maintenance and enforcing strict accounting and
collection controls.
Financial Performance: Revenues from the Portfolio are maximized by
providing property managers and leasing agents with significant input in
the setting of financial goals for each Property and enabling property
managers and leasing agents to make decisions with respect to new and
renewal leases. Property managers are also required to follow strict
policies with respect to competitive bidding of contracts and the
collection procedures to be followed at each Property, as well as
aggressively to seek property tax reductions.
Leasing:
The Leasing Department is focused on attracting and retaining quality
tenants on economically favorable terms, leveraging off established tenant
relationships and capitalizing on the Operating Partnership's ability to offer
multiple locations. Each leasing representative is responsible for, on average,
1.7 million square feet of retail space or approximately five to nine shopping
centers. Leasing representatives are assigned specific Properties and are
responsible for the following objectives:
Creating an annual leasing plan including an analysis of the competition
for each center which is an integral part of the annual budget.
Managing all leasing activities including sourcing new tenants,
negotiating lease parameters, lease analysis and closing lease
transactions.
Working with property managers on lease renewals.
Monitoring and working with the construction department on tenant
improvements in order to insure that all lease occupancy requirements
are met.
Establishing tenant and industry relationships.
The Operating Partnership commits significant resources to market research
efforts. Leasing representatives have access to demographic programs detailing
existing and projected population, income and retail sales growth within a trade
area, as well as the macro and micro economic data provided by the Research
Department. In addition to this internal market data, leasing representatives
are required to prepare a site specific market analysis for each Property,
taking into consideration competitive centers, market rental rates, local tenant
concentration, traffic patterns and vacancies within competing centers.
Acquisitions:
The Operating Partnership focuses its efforts on the acquisition of
grocery-anchored, open-air neighborhood and community shopping centers in its
Midwest target area. Acquisition efforts are focused on both MSAs and secondary
markets in this area. The Operating Partnership seeks acquisitions in MSAs and
secondary markets where it can establish a strong market presence by owning
multiple properties. The Operating Partnership primarily seeks grocery-anchored,
open-air neighborhood and community shopping centers containing 60,000 to
200,000 square feet of rentable area and that have the following additional
characteristics:
Anchored by grocery stores that are operated by national or regional
Midwest chains or by top-tier independent operators with leading
positions in their trade areas.
Contain service retailer tenants, such as banks, related financial
service, brokerage, medical offices, auto service, restaurants, drug
stores, video stores and florists.
Have an appropriate balance of "small shop" space to the amount of
anchor square footage.
Have been sufficiently well-maintained so as not to have significant
deferred maintenance costs.
The Operating Partnership seeks to acquire properties that management
believes are priced below replacement cost, are located in strong Midwestern
MSAs or secondary markets, and that are capable of
S-13
<PAGE> 14
producing minimum acceptable threshold yields which management believes can be
increased through the Operating Partnership's operating and leasing experience
and in certain instances through strategic capital improvements. In conjunction
with extensive internal research and product sourcing efforts, the Operating
Partnership has established relationships with external brokers in a number of
its markets, enabling it to diversify its search throughout its Midwestern
target area. Such relationships give the Operating Partnership broad geographic
coverage while minimizing fixed general and administrative expenses.
Research:
The Research Department supports the overall strategic planning process as
well as the Acquisition, Leasing and Asset Management Departments. The Operating
Partnership maintains its own internal demographic, retailer and shopping center
databases with the assistance and support of outside consultants. Research
efforts are ongoing and focus on analyzing selected counties and MSAs throughout
the Operating Partnership's target markets in the Midwest. The research process
focuses on four major elements:
Demographic and economic trends in the Operating Partnership's trade
areas.
Detailed databases on shopping center inventory and owners.
Credit and operating information on the region's grocery operators, as
well as other national, regional and local tenants.
Supply and demand balances for retail space in the targeted markets'
trade areas.
Management Information Systems:
The Operating Partnership has integrated property management information
systems which include distributive processing features that make available next
day information to field and corporate office personnel of data and transactions
entered at each location. The system also includes a comprehensive lease
database containing all relevant economic and compliance provisions contained in
each lease. The system is designed with significant security, control and
efficiency features and includes automated billings, daily updates of
receivables and open payables and operational reports for both leasing and
property management personnel. Management of the Operating Partnership is
committed to continued investment in information technology so that information
systems will continue to be adequate to support the growth of the Operating
Partnership.
CAPITAL STRUCTURE
Management intends to finance the Operating Partnership's future growth
through the maintenance of a flexible capital structure that management believes
will allow the Operating Partnership to take advantage of acquisition and
development opportunities while providing access to the public debt and equity
capital markets on favorable terms. The Operating Partnership intends to
maintain a strong financial position by: (i) maintaining a low level of leverage
(i.e., a ratio of debt and preferred stock to Real Estate Value of 50% or less,
with "Real Estate Value" defined as annualized net operating income of the most
recent fiscal quarter divided by 10.25%), (ii) maintaining a large pool of
unencumbered properties, (iii) managing its exposure to variable interest rates,
and (iv) extending and staggering its debt maturities. Management currently
expects that all future indebtedness will be issued by the Operating
Partnership.
S-14
<PAGE> 15
PROPERTIES
The following table and notes describe the Properties owned by the Operating
Partnership as of December 31, 1997 and rental information for leases in effect
as of September 30, 1997 or, for Properties acquired after September 30, 1997,
as of the date of acquisition. All Properties are wholly owned by the Operating
Partnership in fee simple unless otherwise indicated. The Operating Partnership
currently has no major proposed program for the renovation, improvement or
development of any of its Properties and, unless otherwise indicated, the
Operating Partnership is holding the Properties for investment purposes. All of
the Properties are located in developed areas and, accordingly, must compete
with other similar properties for tenants and consumers. The Properties listed
in italics have been acquired since September 30, 1997.
<TABLE>
<CAPTION>
GROSS
LEASABLE ANNUALIZED
YEAR AREA (GLA) PERCENT ANNUALIZED BASE RENT PER
SHOPPING CENTERS ACQUIRED SQUARE FEET LEASED BASE RENT(1) LEASED SF(2)
- -------------------------------------------- -------- -------------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ILLINOIS
Commons of Chicago Ridge and Annex 1996 309,000 93% $ 2,837,116 $ 9.85
Chicago Ridge, IL
Commons of Crystal Lake(4) 1996 273,000 71 2,261,841 11.61
Crystal Lake, IL
Crossroads Center 1992(5) 242,000 97 1,382,014 5.85
Fairview Heights, IL
Fairhills Shopping Center 1997 106,000 90 594,917 6.21
Springfield, IL
Heritage Square 1996 212,000 100 2,609,091 12.29
Naperville, IL
High Point Centre 1996 240,000 99 2,151,908 9.03
Lombard, IL
Parkway Pointe 1997 39,000 100 463,101 12.00
Springfield, IL
<CAPTION>
MAJOR TENANTS AND CERTAIN SQUARE BASE LEASE
SHOPPING CENTERS OTHER TENANTS(3) FEET EXPIRATION DATE
- -------------------------------------------- -------------------------- ------- ---------------
<S> <C> <C> <C>
ILLINOIS
Commons of Chicago Ridge and Annex T.J. Maxx* 25,082 1998
Chicago Ridge, IL Marshalls* 27,000 1999
Office Depot* 27,680 2002
Cineplex Odeon* 25,000 2008
Michaels Stores* 17,550 1999
Pep Boys* 22,354 2015
JC Penney Home Store* 55,000 2007
For Eyes Optical 2,188 2000
Dollar Bills 5,396 1999
Factory Card Outlet 11,085 2000
Commons of Crystal Lake(4) Jewel/Osco* 59,804 2007
Crystal Lake, IL Venture Stores (not
owned)* 81,338 2006
Jewelry 3 4,200 2005
Old Country Buffet 9,750 1998
Ulta 3 10,446 2000
Crossroads Center Kmart (ground lease)* 96,268 2001
Fairview Heights, IL T.J. Maxx* 32,200 2006
Sally Beauty 2,000 1999
Old Country Buffet 9,550 2003
Dress Barn 12,642 2002
Fairhills Shopping Center Jewel/Osco* 49,330 1998
Springfield, IL Baskin Robbins 1,170 1999
Heritage Square Montgomery Ward(6)* 111,016 2013
Naperville, IL Circuit City* 28,351 2009
Stroud's* 26,703 2003
Walter E. Smithe 5,000 2002
Coconuts 6,000 2003
Super Crown Books 10,497 2002
High Point Centre Cub Foods* 62,000 2008
Lombard, IL T.J. Maxx* 25,200 1998
Office Depot* 36,416 2003
MacFrugal's* 17,040 2006
Payless Shoesource 3,000 1998
Hollywood Video 8,100 2006
David's Bridal 13,205 2005
Parkway Pointe Shoe Carnival* 10,186 2004
Springfield, IL Dress Barn* 8,200 2002
Liberty Mutual 1,350 2001
Hollywood Video 6,000 2007
</TABLE>
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<PAGE> 16
<TABLE>
<CAPTION>
GROSS
LEASABLE ANNUALIZED
YEAR AREA (GLA) PERCENT ANNUALIZED BASE RENT PER
SHOPPING CENTERS ACQUIRED SQUARE FEET LEASED BASE RENT(1) LEASED SF(2)
- -------------------------------------------- -------- ----------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Rivercrest Center 1994(5) 458,000 99% $ 3,585,615 $ 7.87
Crestwood, IL
Rollins Crossing 1996 66,000(7) 82 489,939 9.08
Round Lake Beach, IL
Sangamon Center North 1997 140,000 98 1,002,405 7.31
Springfield, IL
Sheridan Village 1996 296,000 98 2,246,202 7.75
Peoria, IL
Sterling Bazaar 1997 82,000 94 646,884 8.40
Peoria, IL
Wardcliffe Center 1997 62,000 100 317,196 5.11
Peoria, IL
Westview Center 1993(5) 328,000 72 2,121,997 9.01
Hanover Park, IL
--------- --- ----------- -------
TOTAL/WEIGHTED AVERAGE ILLINOIS 2,853,000 91% $22,710,226 $ 8.69
INDIANA
Martin's Bittersweet Plaza(8) 1997 78,000 98 553,135 7.24
Mishawaka, IN
County Line Mall 1997 261,000 94 1,598,100 6.49
Indianapolis, IN
<CAPTION>
MAJOR TENANTS AND CERTAIN SQUARE BASE LEASE
SHOPPING CENTERS OTHER TENANTS(3) FEET EXPIRATION DATE
- -------------------------------------------- ------------------------- ------- ---------------
<S> <C> <C> <C>
Rivercrest Center Omni Foods* 87,937 2011
Crestwood, IL Venture Stores* 79,903 2011
Sears Roebuck and Co.* 55,000 2001
T.J. Maxx* 34,425 2004
PETsMART* 31,639 2010
Best Buy* 25,000 2008
OfficeMax* 24,000 2007
Hollywood Park* 15,000 2000
Funcoland 1,925 1998
Famous Footwear 6,000 2001
Lone Star Steakhouse 12,315 2001
Rollins Crossing Super Kmart (not owned)* 190,000 2033
Round Lake Beach, IL Sears Hardware* 21,083 2005
Pet Care Superstore 6,600 2000
Super Trak 10,000 2005
MC Sports 13,800 2005
Sangamon Center North Schnucks* 63,257 2016
Springfield, IL U.S. Post Office* 16,000 2005
Subway 1,400 1999
The Book Emporium 5,522 2001
Revco 12,468 2000
Sheridan Village Bergner's Dept. Store* 162,852 2006
Peoria, IL Cohen's Furniture* 16,600 2006
Radio Shack 3,510 2001
First of America 5,697 2001
Fashion Bug 11,020 2002
Sterling Bazaar Kroger* 52,337 2011
Peoria, IL Garner's Pizza & Wings 2,100 1999
Wardcliffe Center Big Lots* 26,741 2001
Peoria, IL Little Caesar's 2,617 1998
Golf Discount 5,175 1998
Westview Center Cub Foods* 67,163 2009
Hanover Park, IL Marshalls* 34,302 2004
H&R Block 1,200 1998
Bakers Square 5,510 2005
Giant Auto 12,000 1999
TOTAL/WEIGHTED AVERAGE ILLINOIS
INDIANA
Martin's Bittersweet Plaza(8) Martin's Supermarket* 45,079 2012
Mishawaka, IN Osco Drug* 16,000 2012
Mail Boxes, Etc. 1,000 1999
County Line Mall Kroger* 52,337 2011
Indianapolis, IN Target* 99,321 2002
Office Max/Furniture Max* 32,208 2004
The Book Rack 1,495 1998
Joann Fabrics 13,506 2001
</TABLE>
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<PAGE> 17
<TABLE>
<CAPTION>
GROSS
LEASABLE ANNUALIZED
YEAR AREA (GLA) PERCENT ANNUALIZED BASE RENT PER
SHOPPING CENTERS ACQUIRED SQUARE FEET LEASED BASE RENT(1) LEASED SF(2)
- -------------------------------------------- -------- ----------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Speedway SuperCenter and Outlots 1996 541,000 97% $ 3,883,929 $ 7.43
Speedway, IN
The Village 1996 356,000 86 1,651,191 5.38
Gary, IN
Washington Lawndale Commons 1996 333,000 98 1,642,978 5.05
Evansville, IN
--------- --- ----------- -------
TOTAL/WEIGHTED AVERAGE INDIANA 1,569,000 94% $ 9,329,333 $ 6.32
IOWA
Burlington Plaza West 1997 88,000 94 573,685 6.94
Burlington, IA
Davenport Retail 1997 63,000 100 604,355 9.66
Davenport, IA
Holiday Plaza 1997 46,000 87 282,219 6.98
Cedar Falls, IA
Parkwood Plaza 1997 125,000 93 1,019,873 8.77
Urbandale, IA
Southgate Shopping Center(9) 1997 163,000 93 512,520 3.37
Des Moines, IA
<CAPTION>
MAJOR TENANTS AND CERTAIN SQUARE BASE LEASE
SHOPPING CENTERS OTHER TENANTS(3) FEET EXPIRATION DATE
- -------------------------------------------- ------------------------- ------- ---------------
<S> <C> <C> <C>
Speedway SuperCenter and Outlots Kohl's* 90,072 2004
Speedway, IN Kroger* 59,515 2013
Sears Roebuck and Co.* 30,825 2004
Old Navy* 15,000 2005
Kittles* 25,320 2000
PETsMART* 21,781 2002
Factory Card Outlet* 16,675 2003
Lindo Super Spa* 16,589 2000
Indy PC 1,445 1999
Applebees 5,400 2010
CVS Pharmacy 10,700 2006
The Village JC Penney* 60,600 1999
Gary, IN Goldblatt's* 55,000 2000
Post-Tribune Publishing* 19,246 1999
Indiana Employment* 18,050 2000
Kids Foot Locker 3,750 2005
Fagen Pharmacy 5,760 1998
Aldi's 13,099 2001
Washington Lawndale Commons Target* 83,110 2005
Evansville, IN Sears Homelife* 34,527 2003
Allied Sporting Goods* 20,285 1997
Jo-Ann Fabrics* 15,262 2003
Books-A-Million* 20,515 2002
Mazzio's Pizza 4,000 1999
U.S. Postal Service 9,400 2000
Revco Drugstore 10,500 2008
TOTAL/WEIGHTED AVERAGE INDIANA
IOWA
Burlington Plaza West Festival Foods* 52,468 2009
Burlington, IA The Book Emporium 4,000 2002
Circus Video 8,000 1999
Davenport Retail Staples* 24,153 2011
Davenport, IA PETsMART* 26,280 2011
Factory Card Outlet 12,155 2006
Holiday Plaza West Music* 8,450 2002
Cedar Falls, IA Little Caesar's 1,480 1999
Tan Down Under 6,000 2001
Parkwood Plaza FoodSaver* 63,075 2008
Urbandale, IA We Care Hair 1,350 2002
Hollywood Video 6,000 2007
Southgate Shopping Center(9) Hy Vee* 78,388 2014
Des Moines, IA Walgreens* 22,000 2012
Big Lots* 23,677 2001
Community State Bank 10,000 2002
Arona Corporation 8,500 2002
Clariborne Brothers 2,609 2007
</TABLE>
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<PAGE> 18
<TABLE>
<CAPTION>
GROSS
LEASABLE ANNUALIZED
YEAR AREA (GLA) PERCENT ANNUALIZED BASE RENT PER
SHOPPING CENTERS ACQUIRED SQUARE FEET LEASED BASE RENT(1) LEASED SF(2)
- -------------------------------------------- -------- ----------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Spring Village 1997 91,000 100% $ 567,715 $ 6.22
Davenport, IA
Warren Plaza 1997(5) 90,000 100 660,828 7.33
Dubuque, IA
------- --- ----------- -------
TOTAL/WEIGHTED AVERAGE IOWA 666,000 95% $ 4,221,195 $ 6.65
KANSAS
Mid State Plaza 1997 287,000 84 767,676 3.17
Salina, KS
Santa Fe Square 1996(5) 134,000 94 1,100,219 8.75
Olathe, KS
Westchester Square 1997 165,000 93 1,231,672 8.03
Lenexa, KS
------- --- ----------- -------
TOTAL/WEIGHTED AVERAGE KANSAS 586,000 89% $ 3,099,567 $ 5.96
KENTUCKY
Stony Brook 1996 136,000 98 1,384,869 10.35
Louisville, KY
------- --- ----------- -------
TOTAL/WEIGHTED AVERAGE KENTUCKY 136,000 98% $ 1,384,869 $ 10.35
------- --- ----------- -------
MINNESOTA
Brookdale Square 1996(5) 185,000 86 1,175,468 7.34
Brooklyn, MN
Burning Tree Plaza 1993(5) 139,000 93 1,165,599 9.03
Duluth, MN
Central Valu 1997 123,000 93 836,208 7.28
Elk River, MN
<CAPTION>
MAJOR TENANTS AND CERTAIN SQUARE BASE LEASE
SHOPPING CENTERS OTHER TENANTS(3) FEET EXPIRATION DATE
- -------------------------------------------- ------------------------- ------- ---------------
<S> <C> <C> <C>
Spring Village Eagle Foods* 45,763 2005
Davenport, IA Cost Cutters 1,200 2000
Movie Gallery 5,400 2000
Walgreens 10,800 2000
Warren Plaza Hy-Vee Supermarket* 51,492 2013
Dubuque, IA Subway 1,300 2002
Perkins Restaurant 5,000 2000
Renier Company 7,200 2001
TOTAL/WEIGHTED AVERAGE IOWA
KANSAS
Mid State Plaza Food 4 Less* 32,579 2004
Salina, KS Sutherlands* 80,155 2002
Dollar General 10,700 2002
Mid States Cinema 7,449 2002
Cellular One 1,000 1998
Santa Fe Square Hy-Vee Supermarket* 55,820 2007
Olathe, KS Papa John's Pizza 1,250 2002
Paper Warehouse 9,490 2005
Fashion Bug 11,500 2004
Westchester Square Hy-Vee Supermarket* 63,000 2006
Lenexa, KS Pizza Hut 2,775 2002
Treasury Drug 8,468 2001
TOTAL/WEIGHTED AVERAGE KANSAS
KENTUCKY
Stony Brook Kroger* 79,625 2021
Louisville, KY Fantastic Sams 1,260 1999
Shogun Japanese 6,170 2000
Gatti's Pizza 10,258 2000
TOTAL/WEIGHTED AVERAGE KENTUCKY
MINNESOTA
Brookdale Square Circuit City* 36,391 2014
Brooklyn, MN Office Depot* 30,395 2004
Drug Emporium* 25,782 2000
United Artists* 24,534 2002
USA Karate 2,317 1998
Blockbuster Video 6,008 2004
Burning Tree Plaza T.J. Maxx* 30,000 2004
Duluth, MN Best Buy* 28,000 1999
Piece Goods Shops* 17,682 1999
Disc Go Round 1,200 2000
Memorial Blood 5,400 1997
Only Deals 10,000 2002
Central Valu Rainbow Foods* 66,314 1999
Elk River, MN Slumberland Clearance* 24,632 1999
Walgreens 12,000 2015
Top Valu Liquor 11,838 1999
</TABLE>
S-18
<PAGE> 19
<TABLE>
<CAPTION>
GROSS
LEASABLE ANNUALIZED
YEAR AREA (GLA) PERCENT ANNUALIZED BASE RENT PER
SHOPPING CENTERS ACQUIRED SQUARE FEET LEASED BASE RENT(1) LEASED SF(2)
- -------------------------------------------- -------- ----------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Elk Park(10) 1997 155,000 99% $ 1,320,432 $ 8.59
Elk River, MN
Har Mar Mall 1992(5) 430,000 92 3,797,782 9.61
Roseville, MN
Hub West Shopping Center(12)(13) 1991(5) 78,000 100 839,271 10.72
Richfield, MN
Richfield Hub Shopping Center(12)(14) 1988(5) 138,000 98 1,262,477 9.35
Richfield, MN
Roseville Center 1997 75,000 92 624,708 9.14
Roseville, MN
Sun Ray Shopping Center 1961(5) 258,000 82 1,615,111 7.67
St. Paul, MN
Terrace Mall 1993(5) 137,000 94 913,871 7.09
Robbinsdale, MN
Westview Valu 1997 163,000 93 1,026,156 6.75
West St. Paul, MN
Westwind Plaza 1994(5) 88,000 92 891,960 11.07
Minnetonka, MN
<CAPTION>
MAJOR TENANTS AND CERTAIN SQUARE BASE LEASE
SHOPPING CENTERS OTHER TENANTS(3) FEET EXPIRATION DATE
- -------------------------------------------- ------------------------- ------- ---------------
<S> <C> <C> <C>
Elk Park(10) Cub Foods* 60,066 2016
Elk River, MN Fashion Bug 12,053 2006
Only Deals 6,020 2003
Vision World 1,406 2000
Har Mar Mall HomePlace(11)* 54,489 2010
Roseville, MN Barnes & Noble* 44,856 2010
Marshalls* 34,858 1998
T.J. Maxx* 25,025 1998
General Cinema* 22,252 2001
General Cinema* 19,950 2000
Michaels Stores* 17,907 2003
Binding Memories 1,970 2002
The Ground Round 5,796 2002
Petters Warehouse* 17,386 2006
Hub West Shopping Center(12)(13) Rainbow Foods* 50,817 2012
Richfield, MN U.S. Swim & Fitness* 26,185 2001
Great Clips 1,300 1999
Richfield Hub Shopping Center(12)(14) Marshalls* 26,785 2003
Richfield, MN Michaels Stores* 24,235 1999
Burger King 4,401 2016
Famous Footwear 6,000 1998
Walgreens 12,000 2000
Roseville Center Minnesota Fabrics* 12,000 2004
Roseville, MN Snyder Drugs* 8,250 1998
Snuffy's Malt Shoppe 2,750 2001
Big Wheel Auto 5,800 2003
Blockbuster Video 8,162 2003
Sun Ray Shopping Center JC Penney* 40,451 1999
St. Paul, MN Marshalls* 26,256 2005
T.J. Maxx* 23,955 2000
Petter's* 20,000 2007
Michaels Stores* 18,127 2004
Bruegger's Bagels 2,400 2006
Petland 5,141 2000
Snyder's Drugstore 13,800 2002
Terrace Mall Rainbow Foods* 59,232 2013
Robbinsdale, MN North Memorial* 32,000 1999
Mail Boxes, Etc. 1,358 1999
Blockbuster Video 7,826 1999
Westview Valu Burlington Coat Factory* 41,248 2004
West St. Paul, MN Cub Foods* 92,646 1999
Mill End Textiles 7,826 2000
David V. Sass, D.D.S. 1,900 2005
Westwind Plaza Northern Hydraulics* 18,165 2002
Minnetonka, MN Caribou Coffee 2,880 2007
Big Wheel Auto 6,200 2000
Walgreens 11,009 2024
</TABLE>
S-19
<PAGE> 20
<TABLE>
<CAPTION>
GROSS
LEASABLE ANNUALIZED
YEAR AREA (GLA) PERCENT ANNUALIZED BASE RENT PER
SHOPPING CENTERS ACQUIRED SQUARE FEET LEASED BASE RENT(1) LEASED SF(2)
- -------------------------------------------- -------- ----------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C>
White Bear Hills 1993(5) 73,000 100% $ 592,781 $ 8.11
White Bear Lake, MN
--------- --- ----------- -------
TOTAL/WEIGHTED AVERAGE MINNESOTA 2,042,000 92% $16,061,824 $ 8.54
MISSOURI
Grandview Plaza 1971(5) 316,000 78 2,127,323 8.61
Florissant, MO
Liberty Corners 1997 121,000 100 720,941 5.94
Liberty, MO
--------- --- ----------- -------
TOTAL/WEIGHTED AVERAGE MISSOURI 437,000 84% $ 2,848,264 $ 7.73
NEW MEXICO
St. Francis Plaza(12)(15) 1995 30,000 100 357,000 11.90
Santa Fe, NM
--------- --- ----------- -------
TOTAL/WEIGHTED AVERAGE NEW MEXICO 30,000 100% $ 357,000 $ 11.90
SOUTH DAKOTA
Baken Park 1997 184,000 94 998,208 5.76
Rapid City, SD
--------- --- ----------- -------
TOTAL/WEIGHTED AVERAGE SOUTH DAKOTA 184,000 94% $ 998,208 $ 5.76
TENNESSEE
Williamson Square(16)(17) 1996 335,000 90 2,109,757 6.99
Franklin, TN
--------- --- ----------- -------
TOTAL/WEIGHTED AVERAGE TENNESSEE 335,000 90% $ 2,109,757 $ 6.99
WISCONSIN
Madison Plaza 1997 128,000 100 991,131 7.77
Madison, WI
Mequon Pavilions 1996 212,000 98 2,269,611 10.90
Mequon, WI
<CAPTION>
MAJOR TENANTS AND CERTAIN SQUARE BASE LEASE
SHOPPING CENTERS OTHER TENANTS(3) FEET EXPIRATION DATE
- -------------------------------------------- ------------------------- ------- ---------------
<S> <C> <C> <C>
White Bear Hills Festival Foods* 45,679 2011
White Bear Lake, MN Cost Cutters 1,200 2002
Video Update 6,000 2006
Walgreens 11,890 2030
TOTAL/WEIGHTED AVERAGE MINNESOTA
MISSOURI
Grandview Plaza Home Quarters* 84,611 2013
Florissant, MO Schnucks* 68,025 2011
Walgreens* 15,984 2008
Custom Cellular 2,400 2004
Thoughtful Cards 6,121 2000
Liberty Corners Price Chopper* 56,000 2007
Liberty, MO Famous Footwear 4,500 1998
Bette's Hallmark 8,450 1999
Fashion Bug 10,770 2000
TOTAL/WEIGHTED AVERAGE MISSOURI
NEW MEXICO
St. Francis Plaza(12)(15) Walgreens* 14,950 2013
Santa Fe, NM Wild Oats* 14,850 2006
TOTAL/WEIGHTED AVERAGE NEW MEXICO
SOUTH DAKOTA
Baken Park Nash Finch* 44,337 2017
Rapid City, SD Ben Franklin* 27,155 2003
Boyd's Drugs* 19,200 2004
Hardware Hank 11,000 1999
Crown Gallery 6,147 2000
Baken Park Barber Shop 700 2002
TOTAL/WEIGHTED AVERAGE SOUTH DAKOTA
TENNESSEE
Williamson Square(16)(17) Wal-Mart* 117,493 2008
Franklin, TN Kroger* 63,986 2008
Carmike Cinemas* 29,000 2008
Pearle Vision Center 3,180 2000
Comfort Source 7,743 2003
YMCA 14,450 2002
TOTAL/WEIGHTED AVERAGE TENNESSEE
WISCONSIN
Madison Plaza Supersaver* 73,309 2008
Madison, WI Subway 1,200 1999
Planet Video 6,000 2004
Walgreens 13,500 2045
Mequon Pavilions Kohl's Food Emporium* 45,697 2010
Mequon, WI Furniture Clearance* 19,900 1997
The Men's Warehouse 4,738 2000
Mequon Pharmacy 6,500 1998
Bedtime 11,512 2001
</TABLE>
S-20
<PAGE> 21
<TABLE>
<CAPTION>
GROSS
LEASABLE ANNUALIZED
YEAR AREA (GLA) PERCENT ANNUALIZED BASE RENT PER
SHOPPING CENTERS ACQUIRED SQUARE FEET LEASED BASE RENT(1) LEASED SF(2)
- -------------------------------------------- -------- ----------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Park Plaza 1997 108,000 100% $ 599,892 $ 5.55
Manitiwoc, WI
Spring Mall(18) 1997 180,000 92 1,014,864 6.12
Greenfield, WI
--------- --- ----------- -------
TOTAL/WEIGHTED AVERAGE WISCONSIN 628,000 97% $ 4,875,498 $ 8.00
--------- --- ----------- -------
TOTAL/WEIGHTED AVERAGE SHOPPING CENTERS 9,466,000 92% $67,995,741 $ 7.78
RETAIL/OFFICE BUILDING
ILLINOIS
One North State(19) 1996 639,000 98 9,849,135 15.72
Chicago, IL
GRAND TOTAL/WEIGHTED AVERAGE 10,105,000 93% $77,844,876 $ 8.31
========== === =========== =======
<CAPTION>
MAJOR TENANTS AND CERTAIN SQUARE BASE LEASE
SHOPPING CENTERS OTHER TENANTS(3) FEET EXPIRATION DATE
- -------------------------------------------- ------------------------- ------- ---------------
<S> <C> <C> <C>
<CAPTION>
Park Plaza Sentry Foods* 45,000 2006
Manitiwoc, WI Big Lots* 29,063 1998
Associated Bank 7,837 2003
Rent A Center 3,093 1998
Spring Mall(18) Pick N Save 77,150 2004
Greenfield, WI Walgreens 17,600 2007
TJ Maxx 32,658 2003
Spring Mall Theatre 16,000 2004
Fashion Bug 16,000 2004
Sally Beauty 2,146 1998
TOTAL/WEIGHTED AVERAGE WISCONSIN
TOTAL/WEIGHTED AVERAGE SHOPPING CENTERS
RETAIL/OFFICE BUILDING
ILLINOIS
One North State(19) First Chicago* 296,782 2003
Chicago, IL Arthur Andersen(20)* 126,533 1998
T.J. Maxx* 77,675 2001
Filene's Basement* 50,000 2002
Int'l Academy of Design* 44,000 2003
Bruegger's Bagels 2,845 2002
Group USA 6,200 2004
GRAND TOTAL/WEIGHTED AVERAGE
</TABLE>
- ---------------
(1) Annualized base rent is calculated by multiplying monthly base rent for
September 1997 by 12. For Properties acquired after September 1997,
annualized base rent is calculated by multiplying the first month's pro
forma base rent by 12.
(2) Calculated by dividing annualized base rent (calculated as described in
note (1) above) by the square footage that the Operating Partnership had
leased at September 30, 1997 or at the date of acquisition for Properties
acquired thereafter.
(3) This column lists each of the "Major Tenants" at the Properties (indicated
with an asterisk) and certain other tenants to provide a representative
sample of the Operating Partnership's tenant base. Major Tenants are
defined as tenants leasing 15,000 square feet or more of the rentable
square footage, with the exception of Parkway Pointe, Holiday Plaza,
Roseville Center and St. Francis Plaza. In some cases, the named tenant
occupies the premises as a sublessee.
(4) The amount of rentable square feet at Commons of Crystal Lake does not
include approximately 81,000 square feet which is owned by Metropolitan
Life and leased to Venture Stores, Inc.
(5) Date represents the year the Property was acquired by the Company. The
Company contributed the Property to the Operating Partnership in August
1997 in order to consolidate the ownership of the Properties in one entity.
(6) Montgomery Ward, which has sought protection under Chapter 11 of the United
States Bankruptcy Code, notified the Operating Partnership that it intended
to close this store on or about December 31, 1997. As of the date of this
Prospectus Supplement, this store was still open.
(7) The amount of rentable square feet at Rollins Crossing does not include
approximately 190,000 square feet which is owned by Kmart Corporation.
(8) This Property secures certain indebtedness due June 2003 which bears
interest at an effective rate of 8.875% per annum. As of December 31, 1997,
such indebtedness had an outstanding balance of $3,679,000.
(9) This Property secures certain indebtedness due October 2007 which bears
interest at an effective rate of 7.25% per annum. As of December 31, 1997,
such indebtedness had an outstanding balance of $3,159,000.
(10) This Property secures certain indebtedness due August 2016 which bears
interest at an effective rate of 7.64% per annum. As of December 31, 1997,
such indebtedness had an outstanding balance of $9,796,000.
(11) HomePlace has sought protection under Chapter 11 of the United States
Bankruptcy Code.
(12) Title to this Property is held by the Company for the benefit of the
Operating Partnership.
S-21
<PAGE> 22
(13) This Property secures certain indebtedness due September 1998 which bears
interest at an effective rate of 9.875% per annum. As of December 31, 1997,
such indebtedness had an outstanding balance of $4,865,000.
(14) This Property secures certain indebtedness due September 1998 which bears
interest at an effective rate of 9.875% per annum. As of December 31, 1997,
such indebtedness had an outstanding balance of $5,270,000.
(15) This Property secures certain indebtedness due December 2008 which bears
interest at an effective rate of 8.125% per annum. As of December 31, 1997,
such indebtedness had an outstanding balance of $1,845,000.
(16) The Operating Partnership is the 60% general partner of a partnership
owning this property, whose limited partner interests are owned by an
unrelated investor.
(17) This Property secures certain indebtedness due August 2005 which bears
interest at an effective rate of 8.0% per annum. As of December 31, 1997,
such indebtedness had an outstanding balance of $12,709,000.
(18) This Property secures certain indebtedness due August 2006 which bears
interest at an effective rate of 7.25% per annum. As of December 31, 1997,
such indebtedness had an outstanding balance of $9,904,000.
(19) This Property is held for sale.
(20) This tenant exercised its option on April 1, 1996, to terminate its lease,
effective as of April 1, 1998, and has paid a $1.8 million cancellation
fee.
S-22
<PAGE> 23
INDEBTEDNESS
The Operating Partnership is a party to the $200 million Line of Credit
with a syndicate of banks led by The First National Bank of Chicago and
BankBoston, N.A. The Line of Credit, which matures in December 2000, is
available for the acquisition, development, renovation and expansion of existing
and new properties and for working capital purposes. As of December 31, 1997,
the outstanding balance of the Line of Credit was $151.7 million. The line bears
interest at a rate equal to the lowest of (i) the lead bank's base rate, (ii) a
spread over LIBOR ranging from 0.70% to 1.25% depending on the credit rating
assigned by national credit rating agencies, or (iii) for amounts outstanding up
to $100 million, a competitive bid rate solicited from the syndicate of banks.
As a result of the investment grade corporate rating of "BBB-" assigned to the
Operating Partnership by Standard & Poor's in August 1997 and the investment
grade rating of "Baa3" assigned by Moody's to the offering of the 2004 Notes
which was completed in November 1997, the spread over LIBOR is 1.00%.
Additionally, there is a facility fee currently equal to $300,000 per annum. In
the event the current credit ratings were downgraded by either Standard & Poor's
or Moody's, the facility fee would increase to $500,000 per annum, and the
spread over the base rate would increase by 0.25% and the spread over LIBOR
would increase to 1.25%. The Line of Credit contains certain financial and
operational covenants that, among other provisions, limit the amount of secured
and unsecured indebtedness the Company and the Operating Partnership may have
outstanding at any time, and provide for the maintenance of certain financial
tests including minimum net worth and debt service coverage requirements.
Management believes that such covenants will not adversely affect the business
or the operation of its Properties. In addition, the lenders may accelerate the
maturity of the Line of Credit in the event that the Operating Partnership fails
to pay at maturity or the Operating Partnership or the Company fails to perform
any other material obligation under any other indebtedness, singly or in the
aggregate, in excess of (i) $5 million with respect to all indebtedness other
than non-recourse indebtedness or (ii) $20 million with respect to indebtedness
which is non-recourse.
On November 24, 1997, the Operating Partnership completed the offering of
the 2004 Notes. The price to the public was 99.78% of the principal amount of
the 2004 Notes. The Operating Partnership used the net proceeds to prepay a
portion of the REMIC Note, accrued interest thereon and a related prepayment
yield maintenance fee of approximately $4.3 million. Except for interest rate
and maturity, the 2004 Notes have the same terms and conditions as, and rank
equally with, the Notes offered hereby.
Eight Properties owned by the Operating Partnership as of December 31, 1997
secure an aggregate of approximately $51.2 million of mortgage debt, with
balloon maturities of approximately $10.0 million in September 1998, $2.9
million in 2003, $10.7 million in 2005, $7.9 million in 2006, $2.1 million in
2007 and $9.8 million in 2016. As of December 31, 1997, total debt outstanding
amounted to $302,710,000, and approximately 88.4% of the Operating Partnership's
Total Assets were unencumbered by any mortgage indebtedness.
USE OF INTEREST RATE AND EXCHANGE RATE HEDGING INSTRUMENTS AND RELATED RISKS
The Operating Partnership may enter into derivative financial instrument
transactions in order to mitigate its interest rate risk on a related financial
instrument. The Operating Partnership has designated these derivative financial
instruments as hedges and applies deferral accounting, as the instrument to be
hedged exposes the Operating Partnership to interest rate risk and the
derivative financial instrument reduces that exposure. Gains and losses related
to the derivative financial instrument are deferred and amortized over the terms
of the hedged instrument. If a derivative terminates or is sold, the gain or
loss is deferred and amortized over the remaining life of the derivative.
Derivatives that do not satisfy the criteria above are carried at market value,
and any changes in market value are recognized in other income. As of December
31, 1997, the Operating Partnership has only entered into derivative
transactions that satisfy the aforementioned criteria. By entering into such
hedging transactions, the Operating Partnership may be prevented from taking
advantage of lower interest rates if interest rates decline. The holders of the
Notes will be affected by any resulting impact on the general creditworthiness
of the Operating Partnership. In addition, in the event that debt securities are
not issued for the purpose of repaying unsecured indebtedness in the future, the
Operating Partnership will either settle or mark to market the forward Treasury
Note purchase agreements and any gain or loss on the difference between the
market value and the cost basis of the agreements will be recognized into
earnings.
S-23
<PAGE> 24
Subsequently, the forward Treasury Note purchase agreements will be carried at
market and any changes in market value will be recognized into earnings. In the
event that the Operating Partnership settles the forward Treasury Note purchase
agreements at a time when interest rates have decreased, the Operating
Partnership will be required to pay the counterparty to such agreement an amount
which could adversely affect the Operating Partnership's net income and cash
available for distribution and may affect the amount of distributions it can
make to the holders of Units, including the Company.
S-24
<PAGE> 25
USE OF PROCEEDS
The net proceeds to the Operating Partnership from the sale of the Notes
offered hereby, after deducting the underwriting discount and expenses are
estimated to be approximately $98,351,000. The Operating Partnership intends to
use the net proceeds to reduce the outstanding indebtedness incurred under the
Operating Partnership's Line of Credit, with the expectation that the Operating
Partnership may reborrow under the line for the acquisition, development,
renovation and expansion of properties. Following this Offering, the Operating
Partnership will have approximately $146.7 million of potential availability
under the Line of Credit. The Line of Credit matures on December 22, 2000 and
outstanding borrowings under the Line of Credit bear interest at a variable
rate, depending upon the rating assigned by recognized rating agencies, which
rate is currently 1.0% over LIBOR.
CAPITALIZATION
The following table sets forth the capitalization of the Operating
Partnership as of September 30, 1997 on an historical basis, on a pro forma
basis to give effect to certain events that occurred subsequent to September 30,
1997 and on an as adjusted basis to give effect to the issuance and sale of the
Notes and application of the net proceeds therefrom. See "Use of Proceeds." The
information set forth in the table should be read in conjunction with the
selected financial information presented elsewhere in this Prospectus Supplement
and the Consolidated Financial Statements and notes thereto incorporated by
reference into the accompanying Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------------------
PRO
HISTORICAL FORMA(1) AS ADJUSTED
---------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
DEBT:
Line of Credit(2)..................................... $ 121,800 $ 151,700 $ 53,349
Mortgage Notes Payable................................ 128,711 51,371 51,371
Notes due 2004........................................ -- 100,000 100,000
Notes due 2008........................................ -- -- 100,000
--------- --------- --------
Total debt.................................... 250,511 303,071 304,720
--------- --------- --------
PARTNERS' CAPITAL:
Operating Partnership Units -- 22,752,076 issued and
outstanding as of September 30, 1997 and 24,521,513
issued and outstanding as of December 31, 1997.....
GP Units -- 21,681,156 outstanding as of September 30,
1997 and 22,999,120 outstanding as of December 31,
1997............................................... 291,981 315,327 315,327
LP Units -- 1,070,920 outstanding as of September 30,
1997 and 1,522,393 outstanding as of December 31,
1997............................................... 14,422 25,123 25,123
--------- --------- --------
Total partners' capital............................ 306,403 340,450 340,450
--------- --------- --------
Total capitalization.......................... $ 556,914 $ 643,521 $644,459
========= ========= ========
</TABLE>
- ---------------
(1) Reflects changes to the Operating Partnership's capitalization resulting
from the public offering of the 2004 Notes, the proceeds of which were used
substantially to repay the REMIC Note, the issuance of an aggregate of
1,317,964 GP Units to correspond to the issuance of a like number of shares
of Common Stock by the Company, the issuance of 452,710 LP Units valued at
approximately $9,155,000, the assumption of $22,860,000 of mortgage debt
associated with acquisitions and draws of approximately $29.9 million under
the Line of Credit, all of which were consummated subsequent to September
30, 1997.
(2) The outstanding balance of the Line of Credit as of December 31, 1997 was
$151.7 million.
S-25
<PAGE> 26
SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Operating Partnership and is qualified by, and should be read in conjunction
with, the information included under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the "Consolidated Financial
Statements" included in the Operating Partnership's Form 10, as amended, and in
the Operating Partnership's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 incorporated herein by reference. In the opinion of
management, the consolidated historical financial information of the Operating
Partnership for the nine months ended September 30, 1997 and 1996 includes all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information set forth herein. See "Available Information" and
"Incorporation of Certain Documents by Reference" in the accompanying
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED) YEARS ENDED DECEMBER 31,
------------------------- ---------------------------------------------------------------
HISTORICAL HISTORICAL
------------------------- ---------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ----------- ----------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Rental income..................... $ 69,922 $ 54,643 $ 77,512 $ 36,405 $ 32,875 $ 22,875 $ 11,839
Other income...................... 1,093 996 1,327 167 112 594 308
Expenses.......................... 51,109 43,318 60,184 27,711 24,877 17,550 11,175
----------- ----------- ----------- ---------- ---------- ---------- ----------
Income before gain on sale and
provision for loss on real
estate investments.............. 19,906 12,321 18,655 8,861 8,110 5,919 972
Gain on sale of property.......... 3,073 9,379 9,379 -- 983 -- --
Provision for loss on real estate
investment...................... (1,300) -- -- -- -- -- --
----------- ----------- ----------- ---------- ---------- ---------- ----------
Income before allocation to
minority interest............... 21,679 21,700 28,034 8,861 9,093 5,919 972
Income allocated to minority
interest........................ (70) (54) (78) -- -- -- --
----------- ----------- ----------- ---------- ---------- ---------- ----------
Net income........................ $ 21,609 $ 21,646 $ 27,956 $ 8,861 $ 9,093 $ 5,919 $ 972
=========== =========== =========== ========== ========== ========== ==========
Total assets at end of period..... $ 577,870 $ 485,961 $ 502,284 $ 180,545 $ 166,579 $ 127,931 $ 93,326
=========== =========== =========== ========== ========== ========== ==========
Mortgage and bank loans payable at
end of period................... $ 250,511 $ 220,017 $ 188,894 $ 39,394 $ 66,748 $ 29,317 $ 44,085
=========== =========== =========== ========== ========== ========== ==========
Per Unit:
Net income...................... $ 0.97 $ 1.28 $ 1.56 $ 0.90 $ 1.11 $ 0.88 $ 0.49
Distributions................... $ 1.01 $ 0.99 $ 1.34 $ 1.37 $ 1.35 $ 1.29 $ 1.24
Weighted average units
outstanding..................... 22,372,142 16,859,016 17,932,769 9,863,767 8,191,831 6,715,813 1,972,054
</TABLE>
S-26
<PAGE> 27
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements the description of the general terms and provisions of the
"Senior Securities" set forth in the accompanying Prospectus under "Description
of Debt Securities," to which reference is hereby made. Unless otherwise defined
in this Prospectus Supplement, capitalized terms used under "Description of
Notes" have the meaning set forth in the Indenture.
GENERAL
The Notes constitute a separate series of Senior Securities (which are more
fully described in the accompanying Prospectus) to be issued under an indenture,
dated as of November 24, 1997 (the "Indenture") and a supplemental indenture
relating to the Notes (the "Supplemental Indenture") between the Operating
Partnership and LaSalle National Bank (the "Trustee"). The form of the Indenture
has been filed as an exhibit to the Registration Statement of which this
Prospectus Supplement is a part and it and the Supplemental Indenture are
available for inspection at the offices of the Operating Partnership. The
Indenture and the Supplemental Indenture are subject to, and governed by, the
Trust Indenture Act of 1939, as amended (the "TIA"). The statements made
hereunder relating to the Indenture, the Supplemental Indenture and the Notes to
be issued thereunder are descriptions of the material provisions thereof. All
section references appearing herein are to sections of the Indenture and
capitalized terms used but not defined herein shall have the respective meanings
set forth in the Indenture.
The Notes will be limited to an aggregate principal amount of $100,000,000.
The Notes will be direct, unsecured obligations of the Operating Partnership and
will rank equally with all other unsecured and unsubordinated indebtedness (as
defined below) of the Operating Partnership from time to time outstanding,
including the 2004 Notes. The Notes will be effectively subordinated to
mortgages and other secured indebtedness of the Operating Partnership and to
Indebtedness and other liabilities of any Subsidiaries (as defined below) which
may be formed by the Operating Partnership in the future. Accordingly, such
prior indebtedness will have to be satisfied in full before holders of the Notes
will be able to realize any value from encumbered or indirectly-held Properties.
In addition, the Notes will be repaid solely from the assets of the Operating
Partnership; holders of the Notes will not have recourse against any limited
partner of the Operating Partnership for the repayment of the Notes.
As of September 30, 1997, on a pro forma basis after giving effect to the
matters described in footnote (1) under "Capitalization" above, and as further
adjusted to give effect to the offering of the Notes hereby and the application
of the net proceeds therefrom, the Operating Partnership would have had
approximately $304.7 million of total indebtedness, of which approximately
$253.3 million would have been unsecured indebtedness and approximately $51.4
million would have been indebtedness secured by certain of the Properties. The
Operating Partnership may incur additional indebtedness, including secured
indebtedness, subject to the provisions described below under "-- Certain
Covenants -- Limitations on Incurrence of Indebtedness."
The Notes will only be issued in fully registered form in denominations of
$1,000 and integral multiples thereof.
PRINCIPAL AND INTEREST
The Notes will bear interest at 7.2% per annum and will mature on January
15, 2008. The Notes will bear interest from January 15, 1998 or from the
immediately preceding Interest Payment Date (as defined below) to which interest
has been paid, payable semi-annually in arrears on January 15 and July 15 of
each year, commencing July 15, 1998 (each, an "Interest Payment Date") and on
the applicable Maturity Date, to the Persons in whose name the Notes are
registered in the Security Register on the preceding January 1 or July 1
(whether or not a Business Day, as defined below), as the case may be (each, a
"Regular Record Date"). Interest on the Notes will be computed on the basis of a
360-day year of twelve 30-day months.
If any Interest Payment Date or the Stated Maturity Date falls on a day
that is not a Business Day, the required payment shall be made on the next
Business Day as if it were made on the date such payment was
S-27
<PAGE> 28
due and no interest shall accrue on the amount so payable for the period from
and after such Interest Payment Date or the Maturity Date, as the case may be.
"Business Day" means any day, other than a Saturday or Sunday, on which banks in
the City of New York or in the City of Chicago are not required or authorized by
law, regulation or executive order to close.
The principal of and interest on the Notes will be payable at the corporate
trust office of LaSalle National Bank (the "Paying Agent") in the City of
Chicago, Illinois, initially located at 135 South LaSalle Street, Chicago,
Illinois 60603, provided that at the option of the Operating Partnership,
payment of interest may be made by check mailed to the address of the Person
entitled thereto as it appears in the Security Register or by wire transfer of
funds to such Person at an account maintained within the United States.
OPTIONAL REDEMPTION
The Notes may be redeemed at any time at the option and in the sole
discretion of the Operating Partnership, in whole or from time to time in part,
at a redemption price equal to the sum of (i) the principal amount of the Notes
being redeemed plus accrued interest thereon to the redemption date, and (ii)
the Make-Whole Amount (as defined below), if any, with respect to such Notes
(the "Redemption Price").
If notice has been given as provided in the Indenture and funds for the
redemption of any Notes called for redemption shall have been made available on
the redemption date referred to in such notice, such Notes will cease to bear
interest on the date fixed for such redemption specified in such notice and the
only right of the Holders of the Note will be to receive payment of the
Redemption Price. The Operating Partnership would not have to repay any other
liabilities or obtain any consents or waivers before the redemption of the
Notes. In the event, however, that the Operating Partnership fails to redeem any
Notes submitted for redemption in an aggregate amount of $20 million or greater,
the lenders under the Operating Partnership's Line of Credit may accelerate such
Line of Credit. The terms of the Operating Partnership's other indebtedness do
not contain limits on the Operating Partnership's ability to repay any Notes
which have been submitted for redemption so long as the Operating Partnership
does not fail to repay such Notes in an aggregate amount of $20 million or
greater. In the event of such failure to repay the Notes, the lenders under the
Operating Partnership's Line of Credit may accelerate such Line of Credit.
Notice of any optional redemption of any Notes will be given to Holders at
their addresses, as shown in the Security Register for the Notes, not more than
60 nor less than 30 days prior to the date fixed for redemption. The notice of
redemption will specify, among other items, the Redemption Price and the
principal amount of the Notes held by each Holder to be redeemed.
If less than all of the Notes are to be redeemed at the option and in the
sole discretion of the Operating Partnership, the Operating Partnership will
notify the Trustee at least 45 days prior to the giving of the redemption notice
(or such shorter period as is satisfactory to the Trustee) of the aggregate
principal amount of Notes to be redeemed and their redemption date. The Trustee
shall select not more than 60 days prior to the redemption date, in such manner
as it shall deem fair and appropriate, Notes to be redeemed in whole or in part.
Notes may be redeemed in part in the minimum authorized denomination for Notes
or in any integral multiple thereof.
As used herein:
"Make-Whole Amount" means, in connection with any optional redemption or
accelerated payment of any Note the excess, if any, of (i) the aggregate present
value as of the date of such redemption or accelerated payment of each dollar of
principal being redeemed or paid and the amount of interest (exclusive of
interest accrued to the date of redemption or accelerated payment) that would
have been payable in respect of each such dollar if such redemption or
accelerated payment had not been made, determined by discounting, on a
semi-annual basis, such principal and interest at the Reinvestment Rate
(determined on the third Business Day preceding the date such notice of
redemption is given or declaration of acceleration is made) from the respective
dates on which such principal and interest would have been payable if such
redemption or accelerated payment had not been made to the date of redemption or
accelerated payment, over (ii) the aggregate principal amount of the respective
Notes being redeemed or paid. For purposes of the Indenture, all
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references to any "premium" on the Notes shall be deemed to refer to any
Make-Whole Amount, unless the context otherwise requires.
"Reinvestment Rate" means 0.25% (twenty-five one hundredths of one percent)
plus the arithmetic mean of the yields under the respective headings "This Week"
and "Last Week" published in the Statistical Release (as defined below) under
the caption "Treasury Constant Maturities" for the maturity (rounded to the
nearest month) corresponding to the remaining life to maturity, as of the
payment date of the principal being redeemed or paid. If no maturity exactly
corresponds to such maturity, yields for the two published maturities most
closely corresponding to such maturity shall be calculated pursuant to the
immediately preceding sentence and the Reinvestment Rate shall be interpolated
or extrapolated from such yields on a straight-line basis, rounding in each of
such relevant periods to the nearest month. For the purposes of calculating the
Reinvestment Rate, the most recent Statistical Release published prior to the
date of determination of the Make-Whole Amount shall be used.
"Statistical Release" means the statistical release designated "H.15(519)"
or any successor publication which is published weekly by the Board of Governors
of the Federal Reserve System and which reports yields on actively traded United
States government securities adjusted to constant maturities or, if such
Statistical Release is not published at the time of any determination of the
Make-Whole Amount, then such other reasonably comparable index which shall be
designated by the Operating Partnership.
CERTAIN COVENANTS
For so long as any of the Notes are outstanding, the Operating Partnership
will comply with the following Covenants:
Limitations on Incurrence of Indebtedness. The Operating Partnership will
not, and will not permit any Subsidiary to, incur any Indebtedness (as defined
below) if, immediately after giving effect to the incurrence of such additional
Indebtedness and the application of the proceeds thereof, the aggregate
principal amount of all outstanding Indebtedness of the Operating Partnership
and its Subsidiaries on a consolidated basis determined in accordance with GAAP
is greater than 60% of the sum of (without duplication) (i) the Total Assets (as
defined below) of the Operating Partnership and its Subsidiaries as of the end
of the calendar quarter covered in the Operating Partnership's Annual Report on
Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most recently
filed with the Securities and Exchange Commission (the "Commission") (or, if
such filing is not permitted under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), with the Trustee) prior to the incurrence of such
additional Indebtedness, and (ii) the purchase price of any real estate assets
or mortgages receivable acquired since the end of the most recent calendar
quarter, and (iii) the amount of any securities offering proceeds received (to
the extent that such proceeds were not used to acquire real estate assets or
mortgages receivable or used to reduce Indebtedness), by the Operating
Partnership or any Subsidiary since the end of such calendar quarter, including
those proceeds obtained in connection with the incurrence of such additional
Indebtedness, less (iv) the decrease, if any, in the Total Assets of the
Operating Partnership and its Subsidiaries since the end of such quarter.
In addition to the foregoing limitation on the incurrence of Indebtedness,
the Operating Partnership will not, and will not permit any Subsidiary to, incur
any Indebtedness secured by any Encumbrance (as defined below) upon any of the
Property of the Operating Partnership or any Subsidiary if, immediately after
giving effect to the incurrence of such additional Indebtedness and the
application of the proceeds thereof, the aggregate principal amount of all
outstanding Indebtedness of the Operating Partnership and its Subsidiaries on a
consolidated basis which is secured by any Encumbrance on property of the
Operating Partnership or any Subsidiary is greater than 40% of the sum of
(without duplication) (i) the Total Assets of the Operating Partnership and its
Subsidiaries as of the end of the calendar quarter covered in the Operating
Partnership's Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as
the case may be, most recently filed with the Commission (or, if such filing is
not permitted under the Exchange Act, with the Trustee) prior to the incurrence
of such additional Indebtedness and (ii) the purchase price of any real estate
assets or mortgages receivable acquired since the end of such calendar quarter,
and (iii) the amount of any securities offering proceeds received (to the extent
that such proceeds were not used to acquire real estate assets or mortgages
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receivable or used to reduce Indebtedness), by the Operating Partnership or any
Subsidiary since the end of such calendar quarter, including those proceeds
obtained in connection with the incurrence of such additional Indebtedness, less
(iv) the decrease, if any, in the Total Assets of the Operating Partnership and
its Subsidiaries since the end of such quarter.
The Operating Partnership and its Subsidiaries may not at any time own
Total Unencumbered Assets (as defined below) equal to less than 150% of the
aggregate outstanding principal amount of the Unsecured Indebtedness (as defined
below) of the Operating Partnership and its Subsidiaries on a consolidated
basis.
In addition to the foregoing limitations on the incurrence of Indebtedness,
the Operating Partnership will not, and will not permit any Subsidiary to, incur
any Indebtedness if the ratio of Consolidated Income Available for Debt Service
(as defined below) to the Annual Service Charge (as defined below) for the four
consecutive fiscal quarters most recently ended prior to the date on which such
additional Indebtedness is to be incurred shall have been less than 1.5:1 on a
pro forma basis after giving effect thereto and to the application of the
proceeds therefrom, and calculated on the assumption that (i) such Indebtedness
and any other Indebtedness incurred by the Operating Partnership and its
Subsidiaries since the first day of such four-quarter period and the application
of the proceeds therefrom, including to refinance other Indebtedness, had
occurred at the beginning of such period; (ii) the repayment or retirement of
any other Indebtedness by the Operating Partnership and its Subsidiaries since
the first day of such four-quarter period had been repaid or retired at the
beginning of such period (except that, in making such computation, the amount of
Indebtedness under any revolving credit facility shall be computed based upon
the average daily balance of such Indebtedness during such period); (iii) in the
case of Acquired Indebtedness (as defined below) or Indebtedness incurred in
connection with any acquisition since the first day of such four-quarter period,
the related acquisition had occurred as of the first day of such period with the
appropriate adjustments with respect to such acquisition being included in such
pro forma calculation; and (iv) in the case of any acquisition or disposition by
the Operating Partnership or its Subsidiaries of any asset or group of assets
since the first day of such four-quarter period, whether by merger, stock
purchase or sale, or asset purchase or sale, such acquisition or disposition or
any related repayment of Indebtedness had occurred as of the first day of such
period with the appropriate adjustments with respect to such acquisition or
disposition being included in such pro forma calculation.
The foregoing covenants do not restrict the Operating Partnership from
refinancing existing Indebtedness, provided that the outstanding principal
amount of such Indebtedness is not increased.
Provision of Financial Information. Whether or not the Operating
Partnership is subject to Section 13 or 15(d) of the Exchange Act, the Operating
Partnership will, to the extent permitted under the Exchange Act, file with the
Commission the annual reports, quarterly reports and other documents which the
Operating Partnership would have been required to file with the Commission
pursuant to such Section 13 or 15(d) if the Operating Partnership were so
subject, such documents to be filed with the Commission on or prior to the
respective dates (the "Required Filing Dates") by which the Operating
Partnership would have been required to file such documents if the Operating
Partnership were so subject. The Operating Partnership will also in any event
(x) within 15 days of each Required Filing Date (i) if the Operating Partnership
is not then subject to such Section 13 or 15(d), transmit by mail to all Holders
of Notes, as their names and addresses appear in the Security Register, without
cost to such Holders, copies of the annual reports and quarterly reports that
the Operating Partnership would have been required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act if the Operating Partnership
were subject to such Sections, (ii) file with the Trustee copies of the annual
reports, quarterly reports and other documents that the Operating Partnership
would have been required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act if the Operating Partnership were subject to such
Sections and (y) if filing such documents by the Operating Partnership with the
Commission is not permitted under the Exchange Act, promptly upon written
request and payment of the reasonable cost of duplication and delivery, supply
copies of such documents to any prospective Holder.
Waiver of Certain Covenants. The Operating Partnership may omit to comply
with any term, provision or condition of the foregoing covenants, and with any
other term, provision or condition with respect to the
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Notes, (except any such term, provision or condition which could not be amended
without the consent of all Holders of the Notes or such series thereof, as
applicable), if before or after the time for such compliance the Holders of at
least a majority in principal amount of all of the outstanding Notes, by Act of
such Holders, either waive such compliance in such instance or generally waive
compliance with such covenant or condition. Except to the extent so expressly
waived, and until such waiver shall become effective, the obligations of the
Operating Partnership and the duties of the Trustee in respect of any such term,
provision or condition shall remain in full force and effect.
As used herein, and in the Indenture:
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Subsidiary or (ii) assumed in connection with the
acquisition of assets from such Person, in each case, other than Indebtedness
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary or such acquisition. Acquired Indebtedness shall be deemed to be
incurred on the date of the related acquisition of assets from any Person or the
date the acquired Person becomes a Subsidiary.
"Annual Service Charge" for any period means the aggregate interest expense
for such period in respect of, and the amortization during such period of any
original issue discount of, Indebtedness of the Operating Partnership and its
Subsidiaries and the amount of dividends which are payable during such period in
respect of any Disqualified Stock.
"Capital Stock" means, with respect to any Person, any capital stock
(including preferred stock), shares, interests, participations or other
ownership interests (however designated) of such Person and any rights (other
than debt securities convertible into or exchangeable for corporate stock),
warrants or options to purchase any thereof.
"Consolidated Income Available for Debt Service" for any period means
Earnings from Operations (as defined below) of the Operating Partnership and its
Subsidiaries plus amounts which have been deducted, and minus amounts which have
been added, for the following (without duplication): (i) interest on
Indebtedness of the Operating Partnership and its Subsidiaries, (ii) provision
for taxes of the Operating Partnership and its Subsidiaries based on income,
(iii) amortization of debt discount, (iv) provisions for gains and losses on
properties and property depreciation and amortization, (v) the effect of any
noncash charge resulting from a change in accounting principles in determining
Earnings from Operations (as defined below) for such period and (vi)
amortization of deferred charges.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
of such Person which by the terms of such Capital Stock (or by the terms of any
security into which it is convertible or for which it is exchangeable or
exercisable), upon the happening of any event or otherwise (i) matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise
(other than Capital Stock which is redeemable solely in exchange for common
stock), (ii) is convertible into or exchangeable or exercisable for Indebtedness
or Disqualified Stock or (iii) is redeemable at the option of the holder
thereof, in whole or in part (other than Capital Stock which is redeemable
solely in exchange for Capital Stock which is not Disqualified Stock or the
redemption price of which may, at the option of such Person, be paid in Capital
Stock which is not Disqualified Stock), in each case on or prior to the Stated
Maturity of the Notes.
"Earnings from Operations" for any period means net earnings excluding
gains and losses on sales of investments, extraordinary items and property
valuation losses, as reflected in the financial statements of the Operating
Partnership and its Subsidiaries for such period determined on a consolidated
basis in accordance with GAAP.
"Encumbrance" means any mortgage, lien, charge, pledge or security interest
of any kind.
"Indebtedness" of the Operating Partnership or any Subsidiary means any
indebtedness of the Operating Partnership or any Subsidiary, whether or not
contingent, in respect of (i) borrowed money or evidenced by bonds, notes,
debentures or similar instruments whether or not such indebtedness is secured by
any Encumbrance existing on property owned by the Operating Partnership or any
Subsidiary, (ii) indebtedness for borrowed money of a Person other than the
Operating Partnership or a Subsidiary which is secured by any Encumbrance
existing on property owned by the Operating Partnership or any Subsidiary, to
the extent of the lesser of (x) the amount of indebtedness so secured and (y)
the fair market value of the property subject to
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such Encumbrance, (iii) the reimbursement obligations, contingent or otherwise,
in connection with any letters of credit actually issued or amounts representing
the balance deferred and unpaid of the purchase price of any property or
services except any such balance that constitutes an accrued expense or trade
payable, or all conditional sale obligations or obligations under any title
retention agreement, (iv) the principal amount of all obligations of the
Operating Partnership or any Subsidiary with respect to redemption, repayment or
other repurchase of any Disqualified Stock, (v) any lease of property by the
Operating Partnership or any Subsidiary as lessee which is reflected on the
Operating Partnership's consolidated balance sheet as a capitalized lease in
accordance with GAAP, or (vi) interest rate swaps, caps or similar agreements
and foreign exchange contracts, currency swaps or similar agreements, to the
extent, in the case of items of indebtedness under (i) through (iii) above, that
any such items (other than letters of credit) would appear as a liability on the
Operating Partnership's consolidated balance sheet in accordance with GAAP, and
also includes, to the extent not otherwise included, any obligation by the
Operating Partnership or any Subsidiary to be liable for, or to pay, as obligor,
guarantor or otherwise (other than for purposes of collection in the ordinary
course of business), Indebtedness of another Person (other than the Operating
Partnership or any Subsidiary) (it being understood that Indebtedness shall be
deemed to be incurred by the Operating Partnership or any Subsidiary whenever
the Operating Partnership or such Subsidiary shall create, assume, guarantee or
otherwise become liable in respect thereof).
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests of which are owned, directly
or indirectly, by such Person. For the purposes of this definition, "voting
equity securities" means equity securities having voting power for the election
of directors, whether at all times or only so long as no senior class of
security has such voting power by reason of any contingency.
"Total Assets" as of any date means the sum of (i) the Undepreciated Real
Estate Assets and (ii) all other assets of the Operating Partnership and its
Subsidiaries determined in accordance with GAAP (but excluding accounts
receivable and intangibles).
"Total Unencumbered Assets" means the sum of (i) those Undepreciated Real
Estate Assets not subject to an Encumbrance for borrowed money and (ii) all
other assets of the Operating Partnership and its Subsidiaries not subject to an
Encumbrance for borrowed money, determined in accordance with GAAP (but
excluding accounts receivable and intangibles).
"Undepreciated Real Estate Assets" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Operating
Partnership and its Subsidiaries on such date, before depreciation and
amortization, determined on a consolidated basis in accordance with GAAP.
"Unsecured Indebtedness" means Indebtedness which is not secured by any
Encumbrance upon any of the properties of the Operating Partnership or any
Subsidiary.
See "Description of Notes -- Certain Covenants" in the accompanying
Prospectus for a description of additional covenants applicable to the Operating
Partnership.
MERGER, CONSOLIDATION OR SALE
The Indenture provides that the Operating Partnership may, without the
consent of the holders of the Notes, consolidate with, or sell, lease or convey
all or substantially all of its assets to, or merge with or into, any other
entity, provided that (a) either the Operating Partnership shall be the
continuing entity, or the successor entity shall be an entity organized and
existing under the laws of the United States or a State thereof and such
successor entity (if other than the Operating Partnership) formed by or
resulting from any such consolidation or merger or which shall have received the
transfer of such assets, shall expressly assume all of the Operating
Partnership's obligations under the Indenture; (b) immediately after giving
effect to such transaction and treating any indebtedness which becomes an
obligation of the Operating Partnership or any Subsidiary as a result thereof as
having been incurred by the Operating Partnership or such Subsidiary at the time
of such transaction, no Event of Default under the Indenture, and no event
which, after notice or the lapse of time, or both, would become such an Event of
Default, shall have occurred and be continuing and (c) an officer's certificate
and legal opinion covering such conditions shall be delivered to the Trustee.
Accordingly, while the Operating Partnership may transfer all or substantially
all of its assets, without the consent of the holders of
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the Notes, any transaction that would result in the Operating Partnership, or
any successor entity, breaching the limitations on the incurrence of
indebtedness contained in the covenants would result in an Event of Default
under the Indenture. Thus, the holders of the Notes are afforded some protection
in the event of a highly leveraged transaction, merger or similar transaction,
which may adversely affect the creditworthiness of the Notes and/or the
Operating Partnership.
The applicability of the covenants containing debt incurrence limitations
and the provisions regarding merger, consolidation or sale may be waived by the
holders of at least a majority in principal amount of all outstanding Notes but
not by the Trustee or by the Company, in its capacity as general partner. In
addition, the applicability of the Indenture provisions relating to mergers,
consolidations or sales are not limited in the event of a leveraged buyout
initiated or supported by the Operating Partnership, the management of the
Operating Partnership or any affiliate thereof.
EVENTS OF DEFAULT
The Indenture provides that the following events are "Events of Default"
with respect to the Notes: (a) default in the payment of any interest on any
Notes when such interest becomes due and payable that continues for a period of
30 days; (b) default in the payment of the principal of (or Make-Whole Amount,
if any, on) any Notes when due and payable; (c) default in the performance, or
breach, of any other covenant or warranty of the Operating Partnership in the
Indenture with respect to the Notes and continuance of such default or breach
for a period of 60 days after written notice as provided in the Indenture; (d)
default under any bond, debenture, note, mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Operating Partnership (or by any
Subsidiary, the repayment of which the Operating Partnership has guaranteed or
for which the Operating Partnership is directly responsible or liable as obligor
or guarantor), having an aggregate principal amount outstanding of at least $10
million, whether such indebtedness now exists or shall hereafter be created,
which default shall have resulted in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise have
become due and payable or such obligations being accelerated, without such
acceleration having been rescinded or annulled, within a period of 10 days after
written notice to the Operating Partnership as provided in the Indenture; (e)
the entry by a court of competent jurisdiction of one or more judgments, orders
or decrees against the Operating Partnership or any Subsidiary in an aggregate
amount (excluding amounts covered by insurance) in excess of $10 million and
such judgments, orders or decrees remain undischarged, unstayed and unsatisfied
in an aggregate amount (excluding amounts covered by insurance) in excess $10
million for a period of 30 consecutive days; and (f) certain events of
bankruptcy, insolvency or reorganization, on court appointment of a receiver,
liquidator or trustee of the Operating Partnership or any Significant
Subsidiary. The Term "Significant Subsidiary" has the meaning ascribed to such
term in Regulation S-X promulgated under the Securities Act. If an Event of
Default specified in clause (f) above, relating to the Operating Partnership or
any Significant Subsidiary occurs, the principal amount of and the Make-Whole
Amount on, all outstanding Notes shall become due and payable without any
declaration or other act on the part of the Trustee or of the Holders. In the
event that the Operating Partnership's obligations under the Notes are
accelerated in an amount of $10 million or greater the lenders under the
Operating Partnership's line of credit may accelerate the obligations under such
line of credit.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The provisions of Article 14 of the Indenture relating to defeasance and
covenant defeasance, which are described under "Description of
Notes -- Discharge, Defeasance and Covenant Defeasance" in the accompanying
Prospectus, will apply to the Notes. Each of the covenants described under
"-- Certain Covenants" herein and "Description of Notes -- Certain Covenants" in
the accompanying Prospectus will be subject to covenant defeasance.
BOOK-ENTRY SYSTEM
The provisions described under "Description of Debt Securities -- Global
Securities" in the accompanying Prospectus will apply to the Notes.
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The Notes will be issued in the form of a single fully registered global
note (the "Global Note") which will be deposited with, or on behalf of DTC, and
registered in the name of DTC's nominee, Cede & Co. Except under the
circumstance described below, the Notes will not be issuable in definitive form.
Unless and until it is exchanged in whole or in part for the individual Notes
represented thereby, the Global Note may not be transferred except as a whole by
DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC
or by DTC or any nominee of DTC to a successor depository or any nominee of such
successor.
Upon the issuance of the Global Note, DTC or its nominee will credit on its
book-entry registration and transfer system the respective principal amounts of
the individual Notes represented by such Global Note to the accounts of persons
that have accounts with DTC ("Participants"). Such accounts shall be designated
by the underwriters, dealers or agents with respect to the Notes. Ownership of
beneficial interests in the Global Note will be limited to Participants or
persons that may hold interests through Participants. Ownership of beneficial
interests in such Global Note will be shown on, and the transfer of that
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to beneficial interests of Participants) and records of
Participants (with respect to beneficial interests of persons who hold through
Participants). The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and laws may impair the ability to own, pledge or transfer any beneficial
interest in the Global Note.
So long as DTC or its nominee is the registered owner of such Global Note,
DTC or its nominee, as the case may be, will be considered the sole owner or
holder of the Notes represented by such Global Note for all purposes under the
Indenture and the beneficial owners of the Notes will be entitled only to those
rights and benefits afforded to them in accordance with DTC's regular operating
procedures. Except as provided below, owners of beneficial interest in a Global
Note will not be entitled to have any of the individual Notes registered in
their names, will not receive or be entitled to receive physical delivery of any
such notes in definitive form and will not be considered the owners or holders
thereof under the Indenture.
Payments of principal of and any interest on, individual Notes represented
by the Global Note registered in the name of DTC or its nominee will be made to
DTC or its nominee, as the case may be, as the registered owner of the Global
Note representing such Notes. None of the Operating Partnership, the Trustee,
any Paying Agent or the Security Registrar will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Note for such Notes or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The Operating Partnership expects that DTC or its nominee, upon receipt of
any payment of principal or interest in respect of the permanent Global Note
representing the Notes, immediately will credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Note as shown on the records of DTC or its
nominee. The Operating Partnership also expects that payments by Participants to
owners of beneficial interests in such Global Note held through such
Participants will be governed by standing instructions and customary practices,
as is the case with securities held for the account of customers in bearer form
or registered in "street name." Such payments will be the responsibility of such
Participants.
If DTC is at any time unwilling, unable or ineligible to continue as
depository and a successor depository is not appointed by the Operating
Partnership within 90 days, the Operating Partnership will issue individual
Notes in exchange for the Global Note representing the Notes. In addition, the
Operating Partnership may, at any time and in its sole discretion, determine not
to have any Notes represented by a Global Note and, in such event, will issue
individual Notes in exchange for the Global Note representing the Notes.
Individual Notes so issued will be issued in denominations unless otherwise
specified by the Operating Partnership, of $1,000 and integral multiples
thereof.
DTC has advised the Operating Partnership of the following information
regarding DTC: DTC is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC holds securities that its
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Participants deposit with DTC. DTC also facilities the settlement among its
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry charges in its
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants of DTC include securities brokers
and dealers (including the Underwriters), banks, trust companies, clearing
corporations, and certain other organizations. DTC is owned by a number of its
direct Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a direct Participant of DTC, either directly or indirectly.
The rules applicable to DTC and its participants are on file with the
Commission.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters in immediately
available funds. All payments of principal and interest in respect of the Notes
will be made by the Operating Partnership in immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing house or next-day funds. In contrast, the Notes
will trade in DTC's Same-Day Funds Settlement System until maturity or until the
Notes are issued in certificated form, and secondary market trading activity in
the Notes will therefore be required by DTC to settle in immediately available
funds. No assurance can be given as to the effect, if any, of settlement in
immediately available funds on trading activity in the Notes.
GOVERNING LAW
The Indenture will be governed by and shall be construed in accordance with
the laws of the State of New York.
NO PERSONAL LIABILITY OR RECOURSE
The Indenture provides that no recourse under or upon any obligation,
covenant or agreement contained in the Indenture or the Notes, or because of any
indebtedness evidenced thereby, or for any claim based thereon or otherwise in
respect thereof, shall be had (i) against any other past, present or future
partner in the Operating Partnership, (ii) against any other person or entity
which owns an interest, directly or indirectly, in any limited partner of the
Operating Partnership, or (iii) against any past, present or future stockholder,
employee, officer or director, as such, of the Company or any successor, either
directly or through the Operating Partnership or the Company or any successor,
under any rule of law, statute or constitutional provision or by the enforcement
of any assessment or by any legal or equitable proceeding or otherwise. Each
Holder of Notes waives and releases all such liability by accepting such Notes.
The waiver and release are part of the consideration for the issue of the Notes.
S-35
<PAGE> 36
UNDERWRITING
Subject to the terms and the conditions in the underwriting agreement dated
as of January 23, 1998 (the "Underwriting Agreement") by and among the Operating
Partnership and the underwriters named below (the "Underwriters"), the Operating
Partnership has agreed to sell to each of the Underwriters named below, and each
of such Underwriters has agreed severally to purchase from the Operating
Partnership the respective principal amount of Notes set forth opposite its name
below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
- ----------------------------------------------------------------------------- ----------------
<S> <C>
PaineWebber Incorporated..................................................... $ 32,500,000
Salomon Brothers Inc ........................................................ 32,500,000
BT Alex. Brown Incorporated.................................................. 17,500,000
A.G. Edwards & Sons, Inc. ................................................... 17,500,000
------------
Total.............................................................. $100,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, and that the
Underwriters will purchase all Notes offered hereby if any of such Notes are
purchased.
The Underwriters have advised the Operating Partnership that they propose
initially to offer the Notes directly to the public at the public offering
prices set forth on the cover page of this Prospectus Supplement, and to certain
dealers at such prices less a concession not in excess of 0.400% of the
principal amount of the Notes. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of 0.250% of the principal amount of the
Notes, to certain other dealers. After the initial offering of the Notes, the
public offering prices and other selling terms may from time to time be changed.
The Notes are a new issue of securities with no established trading market.
The Operating Partnership has been advised by the Underwriters that they intend
to make a market in the Notes but are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes.
The Company and the Operating Partnership have agreed to indemnify the
Underwriters against certain civil liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.
Until the distribution of the Notes is completed, the rules of the
Securities and Exchange Commission may limit the ability of the Underwriters to
bid for and purchase the Notes. As an exception to these rules, the Underwriters
are permitted to engage in certain transactions that stabilize the price of the
Notes. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Notes. In addition, if the
Underwriters create a short position in the Notes in connection with this
offering (i.e., they sell more Notes than are set forth on the cover page of
this Prospectus Supplement), the Underwriters may reduce the short position by
purchasing Notes in the open market. In general, purchases of a security for the
purpose of stabilization or to reduce a short position could cause the price of
the security to be higher than it might be in the absence of such purchases.
Neither the Operating Partnership nor the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above might have on the price of the Notes. In
addition, neither the Operating Partnership nor the Underwriters makes any
representation that the Underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
In the ordinary course of their businesses, certain of the Underwriters and
their affiliates have engaged and may in the future engage in investment
banking, financial advisory and other commercial services and transactions with
the Company and the Operating Partnership for which customary compensation has
been, and will be, received. In November 1997, three of the Underwriters
participated in the public offering of the Operating Partnership's 2004 Notes.
In addition, on October 21, 1997, the Company entered into a Forward Equity
Program with PaineWebber, pursuant to which the Company, at its option, has the
right, until April 21, 1998, to sell shares of its Common Stock with an
aggregate value up to $60 million to PaineWebber,
S-36
<PAGE> 37
acting as underwriter, in amounts ranging from $5 million to $20 million per
transaction. On December 1, 1997, the Company completed an offering of 990,000
shares of its Common Stock under this program. Such shares were sold to the
public at $20.375 per share with net proceeds to the Company of $19,342,600
after deducting the underwriting discount and expenses.
LEGAL MATTERS
Certain legal matters, including the legality of the Notes, will be passed
upon for the Operating Partnership by Goodwin, Procter & Hoar LLP, Boston,
Massachusetts. William B. King, whose professional corporation is a partner in
Goodwin, Procter & Hoar LLP, is Secretary of the Company, the general partner of
the Operating Partnership, and is the beneficial owner of approximately 9,000
shares of Common Stock of the Company. Certain legal matters for the
Underwriters will be passed upon by Rogers & Wells, New York, New York.
S-37
<PAGE> 38
[This Page Intentionally Left Blank]
<PAGE> 39
================================================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS (COLLECTIVELY, THE "PROSPECTUS") AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE OPERATING PARTNERSHIP OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary............. S-3
The Operating Partnership................. S-10
Use of Proceeds........................... S-25
Capitalization............................ S-25
Selected Financial Data................... S-26
Description of Notes...................... S-27
Underwriting.............................. S-36
Legal Matters............................. S-37
PROSPECTUS
Available Information..................... 2
Incorporation of Certain Documents by
Reference............................... 2
Risk Factors.............................. 3
The Operating Partnership................. 9
Use of Proceeds........................... 11
Ratios of Earnings to Fixed Charges....... 11
Description of Debt Securities............ 11
Plan of Distribution...................... 22
Legal Matters............................. 22
Experts................................... 23
</TABLE>
================================================================================
================================================================================
$100,000,000
BRADLEY OPERATING
LIMITED PARTNERSHIP
7.2% NOTES DUE 2008
--------------------------------
PROSPECTUS SUPPLEMENT
--------------------------------
PAINEWEBBER INCORPORATED
SALOMON SMITH BARNEY
BT ALEX. BROWN
A.G. EDWARDS & SONS, INC.
------------------------
JANUARY 23, 1998
================================================================================
