<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: August 11, 1998
Date of earliest event reported: July 31, 1998
_______________________
BRADLEY OPERATING LIMITED PARTNERSHIP
(Exact name of Registrant as specified in its charter)
DELAWARE 0-23065 04-336041
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
40 SKOKIE BOULEVARD, NORTHBROOK, ILLINOIS 60062
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:
(847) 272-9800
<PAGE>
Item 2. Acquisition or Disposition of Assets.
------------------------------------
Sale of One North State Property
--------------------------------
Bradley Operating Limited Partnership (the "Partnership") is the entity
through which Bradley Real Estate, Inc. ("Bradley") conducts substantially all
of its business and owns (either directly or through subsidiaries) substantially
all of its assets. On July 31, 1998, the Partnership sold its One North State
property, a "mixed use" retail/office building located in downtown Chicago, for
a gross sales price of approximately $84.5 million, subject to certain closing
adjustments, to two private institutional buyers, Whitehall Street Real Estate
Limited Partnership IX and the Archon Group (the "Purchasers"). The purchase
price was the result of a bidding process established by the Partnership for the
property and subsequent arms' length negotiations between the Partnership and
the Purchasers concerning certain adjustments to the bid price. There had been
no material relationship between the Purchasers and the Partnership, Bradley or
any of its affiliates, directors or officers or any associate of a director or
officer of the Partnership.
Acquisition of Mid-America Realty Investments, Inc. by Merger
-------------------------------------------------------------
On August 6, 1998, pursuant to an Agreement and Plan of Merger dated as of
May 30, 1998 (the "Merger Agreement") between Mid-America Realty Investments,
Inc., a Maryland corporation ("Mid-America"), and Bradley, Mid-America was
merged with and into Bradley (the "Merger") with Bradley as the surviving
corporation in the Merger. The Merger and the Merger Agreement were approved by
the stockholders of Mid-America at its Special Meeting of Stockholders held on
August 5, 1998.
At the effective time of the Merger (the "Effective Time"), the separate
corporate existence of Mid-America ceased and each issued and outstanding share
of common stock, par value $.01 per share (the "Mid-America Common Stock"), of
Mid-America was converted into the right to receive forty-two hundredths (0.42)
of a share of 8.4% Series A Convertible Preferred Stock, par value $.01 per
share ("Series A Preferred Stock"), of Bradley. In lieu of fractional shares,
holders of Mid-America Common Stock ("Mid-America Stockholders") are being paid
an amount in cash (without interest), rounded to the nearest cent, determined by
multiplying $25.00 by the fraction of a share of Series A Preferred Stock, if
any, to which such holder would otherwise be entitled. The Series A Preferred
Stock will pay an annual dividend equal to 8.4% of the $25.00 liquidation
preference and is convertible into shares of common stock, par value $.01 per
share ("Bradley Common Stock"), of Bradley at a conversion price of $24.49 per
share, subject to certain adjustments (the "Conversion Price"). At any time
after five years, the Series A Preferred Stock is redeemable at Bradley's option
for $25.00 per share so long as the Bradley Common Stock is trading at or above
the Conversion Price. The Series A Preferred Stock has been listed on the New
York Stock Exchange.
Based upon the number of shares of Mid-America Common Stock outstanding at
the Effective Time, the former Mid-America stockholders received approximately
3,480,210 shares of Series A Preferred Stock as a result of the Merger,
convertible into approximately 12.21% of the aggregate number of outstanding
shares of Bradley Common Stock on a fully diluted basis. There was no material
relationship between Mid-America or its stockholders and Bradley or any of its
affiliates, directors or officers, or any associate of a director or officer of
Bradley.
Mid-America, which had elected to qualify as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), was a
self-administered REIT, which owned, managed and operated income producing real
estate consisting primarily of community and neighborhood shopping centers and
enclosed malls. Upon consummation of the Merger, Bradley effectively acquired
Mid-America's 22 properties, certain office equipment and other assets described
in Bradley's Registration Statement on Form S-4 (No. 333-57123) effective July
1, 1998 (the "Registration Statement") and succeeded to Mid-America's 50%
general partner interest in Mid-America Bethal Limited Partnership, a joint
venture which owns two neighborhood shopping centers and one enclosed mall.
2
<PAGE>
Following the Merger, Bradley contributed title to 15 of the properties it
acquired from Mid-America and its 50% general partner interest in Mid-America
Bethal Limited Partnership to the Partnership (a 95% owned subsidiary) in
exchange for 3,480,210 preferred units of limited partnership interest of a
newly created class with substantially similar economic rights as the Series A
Preferred Stock. Bradley holds title to the remaining seven properties acquired
from Mid-America and any proceeds therefrom for the benefit of the Partnership.
As a consequence, the Partnership has effectively acquired all of the business
and assets (subject to the liabilities) of Mid-America. The contribution will
have no effect upon the consolidated financial statements of Bradley.
The Partnership intends to continue to use the acquired assets in the same
manner and to conduct the same type of business as Mid-America did prior to the
Merger, although it may seek to dispose of the enclosed malls or certain of the
other properties that may not be consistent with Bradley's strategic focus.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
------------------------------------------------------------------
The following financial statements and pro forma financial information
accompany this report:
(a) Financial Statements of the business acquired
---------------------------------------------
Mid-America Realty Investments, Inc. - Index to Financial Statements
--------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report 6
Consolidated Balance Sheets, December 31, 1997 and 1996 7
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 8
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995 9
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 10
Notes to Consolidated Financial Statements 12
Schedule III - Real Estate and Accumulated Depreciation 20
Unaudited Consolidated Balance Sheets at March 31, 1998 and
December 31, 1997 23
Unaudited Consolidated Statements of Operations for the Three
Months Ended March 31, 1998 and 1997 24
Unaudited Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1998 and 1997 25
Notes to Unaudited Consolidated Financial Statements 26
</TABLE>
(b) Pro Forma Financial Information - Bradley Real Estate, Inc.
-----------------------------------------------------------
Incorporated herein by reference to pages 75-91 of Bradley's Registration
Statement on Form S-4 (No. 333-57123) effective July 1, 1998. The pro forma
financial statements for the Partnership are
3
<PAGE>
substantially similar to the pro forma financial statements for Bradley.
However, certain differences exist between such financial statements. On a pro
forma basis, if the Merger and the other pro forma adjustments (including the
sale of One North State) as more fully described on pages 84 and 89 of Bradley's
Registration Statement on Form S-4, had been consummated on January 1, 1997, pro
forma net income of the Partnership would have been $7,246 and $27,231 for the
three months ended March 31, 1998 and the year ended December 31, 1997,
respectively. The primary differences between the Partnership's pro forma net
income and Bradley's pro forma net income relate to general and administrative
expenses and minority interests.
Presented below is summarized unaudited pro forma condensed balance sheet
information for the Partnership at March 31, 1998, as if the Merger and the
contribution by Bradley of Mid-America's assets and liabilities had been
consummated on March 31, 1998 (dollars in thousands). The pro forma condensed
balance sheet has been prepared based on pro forma adjustments to pro forma and
historical financial statements of the Partnership (including the disposition of
One North State) and historical financial statements of Mid-America. The
primary differences between the Partnership's pro forma balance sheet and
Bradley's pro forma balance sheet relate to differences in ownership interests.
<TABLE>
<S> <C>
Total assets $960,045
========
Total liabilities 494,760
--------
Minority interest 1,046
--------
Partnership equity
General partner, common 356,458
General partner, preferred 87,000
Limited partners 20,781
--------
Total partners' capital 464,239
--------
Total liabilities and partners' capital $960,045
========
</TABLE>
(c) Exhibits
--------
NUMBER DESCRIPTION
------ -----------
2.1 Agreement and Plan of Merger, dated as of May 30, 1998,
between Mid-America Realty Investments, Inc. and Bradley
Real Estate, Inc. (the "Merger Agreement"), attached as
Annex A to the Proxy Statement/Prospectus included in
Part I of the Registration Statement on Form S-4
(No. 333-57123) and incorporated herein by reference.
A list briefly identifying the contents of all omitted
Exhibits is incorporated by reference to page (iv) of the
Merger Agreement. Bradley agrees to furnish
supplementally to the Commission, upon request, a copy of
any Exhibit. Pursuant to Item 601(b)(2) of Regulation S-
K, the Schedules and the Disclosure Letters to the Merger
Agreement are omitted. Bradley hereby undertakes to
furnish supplementally a copy of any omitted Schedule to
the Commission upon request.
4
<PAGE>
2.2 Purchase and Sale Agreement, dated as of June 15, 1998, by
and among Bradley Real Estate, Inc. and Whitehall Street
Real Estate Limited Partnership IX and the Archon Group,
incorporated by reference to Exhibit 2.2 of Bradley's
Current Report on Form 8-K dated August 7, 1998.
4.1 Articles of Merger between Bradley Real Estate, Inc. and
Mid-America Realty Investments, Inc. dated August 6, 1998,
incorporated by reference to Exhibit 4.1 of Bradley's
Current Report on Form 8-K dated August 7, 1998.
4.2 Form of Articles Supplementary Establishing and Fixing the
Rights and Preferences of a Series of Shares of Preferred
Stock for the 8.4% Series A Convertible Preferred Stock of
Bradley Real Estate, Inc. attached as Annex B to the Proxy
Statement/Prospectus included in Part I to the Registration
Statement on Form S-4 (No. 333-57123) and incorporated
herein by reference.
4.3 Articles of Amendment and Restatement of Bradley Real
Estate, Inc., incorporated by reference to Exhibit 3.1 of
Bradley's Current Report on Form 8-K dated October 17,
1994.
4.4 By-laws of Bradley Real Estate, Inc., incorporated by
reference to Exhibit 3.3 of Bradley's Current Report on
Form 8-K dated October 17, 1994.
10.1 Amendment to Second Restated Agreement of Limited
Partnership of Bradley Operating Limited Partnership, dated
August 6, 1998, designating the 8.4% Series A Convertible
Preferred Units.
*23.1 Consent of Deloitte & Touche LLP.
99.1 Press Release announcing the consummation of the merger of
Mid-America Realty Investments, Inc. with and into Bradley
Real Estate, Inc., incorporated by reference to Exhibit
99.1 of Bradley's Current Report on Form 8-K dated
August 7, 1998.
*99.2 Pages 75-91 of Bradley's Registration Statement on Form S-4
(No. 333-57123).
____________________
* Filed herewith.
5
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Mid-America Realty Investments, Inc.
We have audited the accompanying consolidated balance sheets of Mid-America
Realty Investments, Inc. and subsidiary as of December 31, 1997 and 1996, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
Our audits also included the financial statement schedule listed in the Index at
Item 14(a)(2). These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Mid-America Realty Investments,
Inc. and subsidiary as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
January 28, 1998
Omaha, Nebraska
6
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(COLUMNAR DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
--------------------
ASSETS 1997 1996
-------- --------
<S> <C> <C>
Cash $ ---- $ ----
Accounts receivable, net of allowance
of $175,000 and $195,000 1,744 1,571
Notes receivable, net of allowance of
$70,000 400 498
Property:
Land and land improvements 37,129 37,352
Buildings 114,935 114,913
Equipment and fixtures 559 555
-------- --------
152,623 152,820
Less: Accumulated depreciation (33,033) (28,508)
-------- --------
Property, net 119,590 124,312
Investment in Mid-America Bethal
Limited Partnership 15,027 15,201
Intangible assets, less accumulated
amortization of $3,834,000 and $3,422,000 1,382 1,623
Other assets 2,387 2,635
-------- --------
$140,530 $145,840
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages and notes payable $ 61,522 $ 64,348
Accrued liabilities 2,095 1,957
-------- --------
Total Liabilities 63,617 66,305
Commitments and Contingencies
Shareholders' Equity:
Common stock, $.01 par value; authorized
25,000,000 shares; issued and outstanding
8,284,743 and 8,283,255 shares 83 83
Capital in excess of par value 119,720 119,700
Distributions in excess of net income (42,890) (40,248)
-------- --------
Total Shareholders' Equity 76,913 79,535
-------- --------
$140,530 $145,840
======== ========
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(COLUMNAR DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Rental income $ 17,348 $ 17,012 $ 16,564
Reimbursement income 5,130 5,097 4,834
Property management and leasing income 172 194 200
Other income 615 763 735
---------- ---------- ----------
Total Revenues 23,265 23,066 22,333
EXPENSES
Real estate taxes 2,952 3,076 3,063
Other property costs 3,813 3,584 3,674
Interest expense 5,539 5,787 5,965
Administrative expenses 1,370 1,268 1,458
Property management and leasing expenses 1,118 1,062 812
Depreciation and amortization 4,981 5,066 5,125
---------- ---------- ----------
Total Expenses 19,773 19,843 20,097
---------- ---------- ----------
Income Before Equity in
Earnings of Mid-America Bethal
Limited Partnership and Gain (Loss) on
Sales of Real Estate, net 3,492 3,223 2,236
Equity in Earnings of Mid-America Bethal
Limited Partnership 1,026 955 959
---------- ---------- ----------
INCOME FROM OPERATIONS 4,518 4,178 3,195
Gain (Loss) on Sales of Real Estate, net 130 (289) 189
---------- ---------- ----------
NET INCOME $ 4,648 $ 3,889 $ 3,384
========== ========== ==========
Weighted Average Shares
Outstanding During Period 8,283,850 8,281,696 8,280,051
========== ========== ==========
NET INCOME PER COMMON SHARE $.56 $.47 $.41
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
8
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(COLUMNAR DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Capital in Distributions
Common Excess of in Excess of
Stock Par Value Net Income Total
------------ --------------- -------------- --------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 83 $119,677 $(32,947) $86,813
Issuance of shares ---- 5 ---- 5
Net income ---- ---- 3,384 3,384
Dividends declared and paid -
$.88 per share ---- ---- (7,286) (7,286)
-------- ------- -------- -------
BALANCE, DECEMBER 31, 1995 83 119,682 (36,849) 82,916
Issuance of shares ---- 18 ---- 18
Net income ---- ---- 3,889 3,889
Dividends declared and paid -
$.88 per share ---- ---- (7,288) (7,288)
-------- ------- -------- -------
BALANCE, DECEMBER 31, 1996 83 119,700 (40,248) 79,535
Issuance of shares ---- 20 ---- 20
Net income ---- ---- 4,648 4,648
Dividends declared and paid -
$.88 per share ---- ---- (7,290) (7,290)
-------- -------- -------- -------
BALANCE, DECEMBER 31, 1997 $ 83 $119,720 $(42,890) $76,913
======== ======== ======== =======
</TABLE>
See notes to consolidated financial statements.
9
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(COLUMNAR DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 4,648 $ 3,889 $ 3,384
Adjustments:
Depreciation and amortization 4,981 5,066 5,125
Investment in Mid-America Bethal
Limited Partnership:
Equity in earnings (1,026) (955) (959)
Distributions received 1,200 1,350 1,500
(Gain) loss on sales of real estate, net (130) 289 (189)
(Decrease) increase in related liabilities (167) 145 537
Decrease (increase) in related assets 129 (358) (542)
-------- ------- --------
Net Cash Flows From Operating Activities 9,635 9,426 8,856
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of real estate 344 572 469
Principal repayments of notes receivable 157 334 123
Additions to property:
Expansion projects & other capital expenditures (1,107) (1,725) (1,184)
Tenant improvements (420) (280) (667)
Cash paid for leasing fees (88) (55) (263)
Payments from Yield Maintenance Agreement 1,517 19 1,027
Principal repayments of Tax Increment
Financing Bonds 160 242 71
-------- ------- --------
Net Cash Flows From Investing Activities 563 (893) (424)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on short-term debt, net (2,989) (119) (2,147)
Proceeds of mortgages payable 726 ---- 14,500
Principal payments on mortgages payable (563) (1,126) (13,279)
Cash paid for loan fees (82) ---- (220)
Dividends paid (7,290) (7,288) (7,286)
-------- ------- --------
Net Cash Flows From Financing Activities (10,198) (8,533) (8,432)
-------- ------- --------
NET CHANGE IN CASH ---- ---- ----
CASH, BEGINNING OF YEAR ---- ---- ----
-------- ------- --------
CASH, END OF YEAR $ ---- $ ---- $ ----
======== ======= ========
</TABLE>
See notes to consolidated financial statements.
10
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
1997: (A) Both of the Company's acquisition lines of credit were extended, one
to July 1998 and the other to July 1999.
(B) The Company extended its working line of credit two years to
July 1999.
(C) The Company refinanced the Miracle Hills Park Shopping Center fixed
rate mortgage for seven years to August 2004. Proceeds of $4,000,000
were used to repay the maturing $3,300,000 fixed rate mortgage
secured by Miracle Hills Shopping Center and to repay variable rate
acquisition line debt.
1996: (A) One of the Company's acquisition lines of credit was extended one
year to July 1997.
(B) The Company extended the two Twin Oaks Centre mortgages for three
years to April 1999.
(C) The Company repaid the maturing fixed rate mortgage loan secured by
Bishop Heights Shopping Center with proceeds from one of the
Company's acquisition lines of credit.
1995: (A) Both of the Company's acquisition lines of credit were extended, one
to July 1996 and the other to July 1997.
(B) The Company extended its working line of credit two years to
July 1997.
(C) The Company extended the Lakewood Mall mortgage loan for three years
to August 1998.
(D) The Company assumed the Twin Oaks Centre loan. See Note B to the
Company's Consolidated Financial Statements.
See notes to consolidated financial statements.
11
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(COLUMNAR DOLLARS IN FOOTNOTES ARE IN THOUSANDS EXCEPT PER SHARE DATA)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Mid-America Realty Investments, Inc. (the "Company"),
a Maryland corporation, owns and manages income-producing properties, primarily
enclosed malls and neighborhood shopping centers. The Company has qualified as
a real estate investment trust ("REIT") under the provisions of the internal
Revenue Code.
At December 31, 1997, the Company owned 18 neighborhood shopping centers and
four enclosed malls located as follows: eight in Nebraska, three in Wisconsin,
two each in Indiana and Minnesota, and one each in Arkansas, Georgia, Illinois,
Iowa, Michigan, South Dakota and Tennessee. Additionally, the Company is a 50%
partner in Mid-America Bethal Limited Partnership ("Mid-America Bethal") which
owns two neighborhood shopping centers in Nebraska and Wisconsin and one
enclosed mail in Nebraska.
Use of Estimates - In preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Principles of Consolidation - The consolidated financial statements are
prepared on an accrual basis and include the accounts of the Company and its
wholly-owned subsidiary, Mid-America Centers Corp. All significant intercompany
balances and transactions have been eliminated.
Cash and Cash Equivalents - The Company considers short-term investments
with a maturity at acquisition of three months or less as cash equivalents. The
Company currently utilizes daily cash receipts to pay down any working capital
balances.
Investment in Mid-America Bethal Limited Partnership - The Company's 50%
investment in Mid-America Bethal is accounted for using the equity method.
Property - Property is stated at the lower of depreciated cost or the amount
estimated to be recoverable through future cash flows from property operations
and dispositions. Assets are depreciated using the straight-line method over
the following lives: land improvements - 15 years; buildings - 40 years; tenant
improvements -shorter of the term of the lease or the estimated useful life of
the improvement; and equipment and fixtures - 5 to 7 years. Real property
depreciation for the years ended December 31, 1997, 1996 and 1995 was
$4,487,000, $4,489,000 and $4,389,000, respectively. Statement of Financial
Accounting Standards "SFAS") No. 121, "Accounting for the Impairment of Long-
Lived Assets and Long-Lived Assets to be Disposed of" requires that long-lived
assets such as real estate assets be reviewed whenever events or changes in
circumstances indicate that the book value of the asset may not be recoverable.
If the sum of the estimated future net cash flows (undiscounted and without
interest charges) from an asset to be held and used is less than the book value
of the asset, an impairment loss must be recognized in the amount of the
difference between book value and fair value as opposed to the difference
between book value and net realizable value under the previous accounting
standard. For long-term assets like those held by the Company, the
determination of whether there is an impairment loss is dependent primarily on
the Company's estimates on occupancy, rent and expense increases, which involves
numerous
12
<PAGE>
assumptions and judgments as to future events over a period of many years. At
December 3 1, 1997, the Company does not hold any assets that meet the
impairment criteria of SFAS No. 121.
Intangible Assets - Fees paid for leasing commissions on new or renewed
leases are amortized using the straight-line method over the initial term or
extension of the lease. Costs incurred to obtain mortgages and notes payable
are being amortized over the term of the obligation or agreement. Other
intangible assets, primarily from the acquisition of Mid-America Centers Corp.,
are being amortized using the straight-line method over periods of 60-120
months.
Leases - All leases with tenants are classified as operating leases.
Revenue Recognition - Minimum rents from tenants are recognized monthly
based upon total fixed cash flow over the initial term of the lease, using the
straight-line method. Percentage rents are based upon tenant sales levels for a
specified period. Reimbursed expenses for real estate taxes, common area
maintenance, utilities, janitorial and building maintenance are recognized in
the period in which the expenses are incurred, based upon the provisions of the
tenant's lease.
Federal Income Taxes - The Company has qualified as a REIT under the
Internal Revenue Code and, accordingly, will not be subject to federal income
taxes on amounts distributed to shareholders provided certain requirements are
met, including the provision that at least 95% of its real estate investment
trust taxable income is distributed by March 15 of the following year.
The dividends paid during 1997, 1996 and 1995 were allocated between
ordinary income and non-taxable return of capital as follows (amounts are per
share):
1997 1996 1995
----- ----- -----
Ordinary income $ .74 $ .62 $ .05
Return of capital .14 .26 .83
----- ----- -----
$ .88 $ .88 $ .88
===== ===== =====
In 1995, a portion of previously recorded book losses associated with the
Company's interest in Twin Oaks Centre were utilized for income tax purposes.
As a result of the settlement described in footnote B, these losses affected the
taxation of dividends paid during 1995 by increasing the return of capital
portion and decreasing the ordinary income portion.
Repurchase of Common Stock - Under the laws of the state of Maryland, all
shares of common stock reacquired by the Company must be retired.
Net Income Per Share - Net income per share was determined by dividing net
income for the periods presented by the weighted average number of shares of
common stock outstanding for the period. Dilutive net income per share, which
includes the effect of common stock equivalents, as required by SFAS No. 128,
"Earnings Per Share", was determined to have no impact on earnings per share.
Other - In February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure." In June 1997, the FASB issued SFAS No.
130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", all of which are effective
for fiscal years beginning after December 15, 1997. The provisions of these
statements are of a disclosure nature only and will not have an impact on the
operations of the Company.
13
<PAGE>
B. PROPERTY TRANSACTIONS
Westview Plaza - In August 1996, the Company completed the sale of Westview
Plaza in McCook, Nebraska. The gross sales price was $425,000 resulting in a
book loss of approximately $314,000. Proceeds from the sale were used to reduce
bank debt.
Outlot Sales - During 1997, the Company sold two outlot parcels for total
proceeds of $344,000, resulting in a gain of $130,000. During 1996 and 1995,
the Company sold one and two outlot parcels, respectively, for total proceeds of
$183,000 and $469,000, respectively, resulting in book gains of $24,400 and
$189,000, respectively.
Twin Oaks Centre - On April 19, 1995, the Company entered into a settlement
agreement with the Twin Oaks Centre Limited Partnership (the "Partnership").
The Partnership was in default on a mortgage loan to the Company. Pursuant to
the settlement, the Company took ownership of the underlying collateral which
consisted of the Twin Oaks Centre ("TOC"), a 95,000 square foot neighborhood
shopping center in Silvis, Illinois and tax increment financing bonds ("TIF")
payable from incremental sales and real estate taxes generated by the shopping
center and adjacent properties. In conjunction with the Settlement, the Company
transferred from "Interest in Twin Oaks Centre" on the Consolidated Balance
Sheet, the estimated value of the TOC ($4,136,000) to "Property", the estimated
value of the TIF Bonds ($2,000,000) to "Other Assets", and the balance of a
first mortgage (the "TOC Loan"), which was assumed by the Company, to "Mortgages
and Notes Payable". The TOC Loan had a balance of $3,033,000 on April 19, 1995.
Since the settlement date, the Company has received approximately $1,144,000
from the City of Silvis, Illinois related to the TIF Bonds; approximately
$472,000 of this payment was recorded by the Company as principal reduction.
C. NOTES RECEIVABLE
Notes receivable at December 31, 1997 consists of two separate notes from
parties formerly related to the Company. The notes carry interest rates of
9.50% and 12%, mature in varying amounts through 2004 and are collateralized by
specific tangible assets and personal guarantees.
D. INVESTMENT IN MID-AMERICA BETHAL LIMITED PARTNERSHIP
The Company has a 50% general partnership interest in Mid-America Bethal, a
Nebraska limited partnership. The Company is the managing general partner of
Mid-America Bethal and a European investor is the limited partner. Mid-America
Bethal owns and operates two neighborhood shopping centers and one enclosed
mall.
Summarized financial information on Mid-America Bethal is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1996
------- -------
<S> <C> <C>
BALANCE SHEETS
Assets:
Cash and cash equivalents $ 823 $ 751
Property, net of accumulated depreciation
of $8,471,000 and $7,370,000 28,652 29,097
Other assets 592 572
------- -------
$30,067 $30,420
======= =======
Liabilities and Partners' Capital:
Accrued liabilities $ 13 $ 18
Partners' capital 30,054 30,402
------- -------
$30,067 $30,420
======= =======
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS
Total Revenues $4,561 $ 4,442 $ 4,330
====== ======= =======
Net Income $2,052 $ 1,909 $ 1,918
====== ======= =======
EQUITY IN EARNINGS OF MID-AMERICA
BETHAL RECORDED BY THE COMPANY
$1,026 $ 955 $ 959
====== ======= =======
</TABLE>
Mid-America Centers Corp. has agreements with Mid-America Bethal for the
management and leasing of properties owned by Mid-America Bethal. For the years
ended December 31, 1997, 1996 and 1995, Mid-America Bethal paid property
management fees of $178,000, $171,000, and $172,000, respectively, and incurred
and capitalized leasing commissions of $16,000, $32,000, and $28,000,
respectively. In addition, the Company administers the day-to-day activities of
Mid-America Bethal. For these services, the Company received administrative
fees from Mid-America Bethal of S25,000, $20,000 and $20,000 for the twelve
months ended December 31, 1997, 1996 and 1995, respectively.
E. MORTGAGES AND NOTES PAYABLE
Mortgages and notes payable are comprised of the following:
<TABLE>
<CAPTION>
December 31,
Maximum Interest Annual Maturity ---------------
Available Rate Payment Date 1997 1996
--------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Mortgage Debt:
Mortgages and Notes Payable:
Lakewood Mall 8.50% $ 768 Aug. 1998 $ 7,043 $7,204
Meadows S.C. 9.88% $ 346 Nov. 1998 2,950 3,002
Twin Oaks Centre 8.50% $ 84 Apr. 1999 688 699
Twin Oaks Centre (See Note B) 8.50% $ 342 Apr. 1999 2,854 2,915
Eastville Plaza 9.25% $ 292 Feb. 2001 2,902 2,925
Rivergate S.C. 10.00% $ 336 Jan. 2002 3,064 3,093
Shenandoah Plaza 10.00% $ 456 Jan. 2002 4,117 4,156
Edgewood S.C. 9.08% $ 590 Feb. 2002 6,500 6,500
Southport Centre 9.20% $ 736 Apr. 2002 8,000 8,000
Moorland Square 9.00% $ 384 Nov. 2002 3,539 3,600
Kimberly West 8.00% $ 403 Dec. 2002 4,014 4,092
Miracle Hills Park 8.28% $ 379 Aug. 2004 3,980 3,302
------- -------
Total Fixed-Rate Mortgage Debt 49,651 49,488
Adjustable-Rate Debt:
Revolving Credit Agreements:
Working Line of Credit $ 5,000 7.66% July 1999 ---- 545
Lines of Credit for Acquisitions $10,000 7.66% July 1999 10,000 4,756
$15,000 7.97% July 1998 1,871 9,559
------- -------
Total Adjustable Rate Debt 11,871 14,860
------- -------
Total Mortgages and Notes Payable $61,522 $64,348
======= =======
</TABLE>
During 1997, the Company finalized a $4,000,000, 8.28% fixed rate mortgage loan
secured by the Miracle Hills Park Shopping Center. The net proceeds from this
loan were used to repay the maturing $3,300,000 fixed rate mortgage secured by
the Miracle Hills Park Shopping Center and to repay variable rate acquisition
line debt. This loan has a seven (7) year term with payments based on a 25-year
amortization. The Company paid fees of approximately $46,000. In addition, the
Company renegotiated the terms of its revolving credit agreements. The
$5,000,000 working capital and the $10,000,000 acquisition lines of credit were
extended to July 1999 for an extension fee of $15,000. Both lines are priced at
200 basis points
15
<PAGE>
over LIBOR. The $15,000,000 acquisition line was extended until July 1998 with
the interest rate remaining at 250 basis points over LIBOR; non-use fee of 25
basis points was eliminated. The interest rate can be reduced by 25 basis points
if $100,000 of non-interest bearing deposits are kept with the lending
institution. At December 31,1997, the Company had $100,000 of deposits with the
lending institution and the interest rate of the acquisition line was LIBOR plus
225 basis points.
Principal maturities of total mortgages and notes payable, after giving
effect to the commitments described above, for the next five years are as
follows: 1998 - $12,241,000; 1999 - $13,795,000; 2000 -$479,000; 2001
$3,351,000; 2002 - $27,982,000, and thereafter - $3,674,000.
Substantially all of the Company's properties serve as collateral on one or
more of the above-mentioned obligations. The Company was in compliance with all
debt covenants at December 31, 1997 which require, among other covenants, that
the Company's total debt will not exceed 50% of total assets.
F. COMMITMENTS AND CONTINGENCIES
Yield Maintenance Agreement - In June 1992, the Company entered into a Yield
Maintenance Agreement (as amended, the "YMA") with parties formerly related to
the Company. Under the YMA, the formerly related parties guaranteed a 10%
return from June 1, 1992 to December 31, 1996, calculated on a quarterly basis,
to the Company based upon the amount of the Company's Investment Base for five
specific properties purchased from the formerly related parties.
Under the YMA, the market value of these properties was determined as of
December 31, 1996. The determined market value was based on a 10.25%
capitalization rate applied to net operating income for the year ended December
31, 1996. The determined market value of the properties was less than the
Company's adjusted acquisition cost, and pursuant to the YMA, the difference was
owed to the Company, subject to certain limits. The obligations of the formerly
related parties under the YMA were limited to $2,800,000.
During second quarter 1997, the Company received the final settlement of
approximately $1,421,000 due under the YMA. The proceeds, which prior to
receipt were not reflected in the consolidated financial statements of the
Company, were used to reduce bank line debt. In addition, because receipt of
these amounts was not considered operating income, these amounts were not
considered net income and were applied against the carrying value of the
properties purchased from the formerly related parties.
Litigation - The Company is subject to a number of lawsuits and claims for
various amounts which arise out of the normal course of business. In the
opinion of management, the disposition of claims currently pending will not have
a material adverse effect on the Company's financial position or results of
operations.
G. EMPLOYEE BENEFIT AND STOCK PLANS
Retirement Savings Plan - In 1994, the Company established a qualified
savings 401(k) plan covering substantially all full-time employees.
Participants may contribute up to 15% of their pre-tax base pay with a
discretionary Company matching contribution. During 1996, the Company
contribution was equal to 25% of the first 4% of participant contributions.
Effective January 1, 1997, the Company contribution was increased to 50% of the
first 4% of participant contributions. Participants vest in Company
contributions over five years. Contribution expense for the years ended
December 31, 1997 and 1996 was $19,600 and $14,400, respectively.
Stock Plans - Pursuant to the Amended Stock Option Plan which was approved
by shareholders in 1992 and the 1995 Stock Plan approved by shareholders in 1995
(collectively, the "Plans"), the Compensation Committee of the Board of
Directors is authorized to issue options to purchase shares of common stock at
the then current market price of such shares and other stock awards to employees
of the Company and Mid-America Centers Corp. Stock options become exercisable
over discretionary periods not
16
<PAGE>
to exceed 10 years from the date of grant. At December 31, 1997, approximately
200,000 shares remained available for issuance under the Plans.
Following is a summary of the option activity under the Plans:
<TABLE>
<CAPTION>
Shares
Under Option Option Price Per Share
------------ ----------------------
<S> <C> <C>
Outstanding January 1, 1992 ---- ----
Granted 108,000 $10.375 to $25.375
--------
Outstanding December 31, 1992 108,000 $10.375 to $25.375
Granted 140,000 $10.75
Canceled (108,000) $10.375 to $25.375
--------
Outstanding December 31, 1993 140,000 $10.75
Forfeited (15,000) $10.75
--------
Outstanding at December 31, 1994 125,000 $10.75
Granted 100,000 $ 8.00
Forfeited (10,000) $10.75
--------
Outstanding at December 31, 1995, 1996 and 1997 215,000 $8.00 to $10.75
========
</TABLE>
At December 31, 1997, 215,000 stock options were exercisable.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock Based Compensation" (FAS 123), effective for fiscal
years beginning after December 15, 1995. The statement requires employers to
adopt a fair value method of accounting for the recognition of employee stock
based compensation expense or, as an alternative, supplemental disclosure of the
impact such expense recognition would have had on the Company's results of
operations. The Company has elected the supplemental disclosure option and has
determined, based on the use of the Black-Scholes option-pricing model and
appropriate Company-specific assumptions, that expense recognition of employee
stock based compensation would have had an immaterial impact on the Company's
consolidated operating results or net income per share.
H. DISCLOSURE OF FAIR VALUE
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company, using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1997. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since that date, and current estimates of fair value
may differ significantly from the amounts presented herein.
Notes receivable and TIF Bond:
The carrying amounts of these items represent the Company's reasonable
estimate of their fair value.
Mortgages and notes payable - Fixed rate mortgage debt:
At December 31, 1997, the carrying amount was $49,651,000 compared to an
estimated fair market value of approximately $50,102,000. Interest rates that
are currently available to the Company for the
17
<PAGE>
issuance of mortgages with similar terms and remaining maturities were used to
estimate fair value of these mortgages.
I. LEASING ACTIVITIES
Spaces in the Company's properties are leased under operating leases with
initial terms ranging from one to 40 years. Certain of the leases contain
options to renew. Leases generally provide for minimum rents and percentage
rents plus reimbursement of certain operating expenses. The majority of tenants
pay reimbursements for their pro rata share of certain operating expenses.
Rent income in excess of base rent from tenants with percentage rent
provisions (based upon tenant sales levels for a specified period) for the years
ended December 31, 1997, 1996 and 1995 was $597,000, $471,000, and $536,000,
respectively.
Wal-Mart, Herberger's, Hy-Vee grocery stores, Kmart, Walgreens, Target
and/or Shopko and J.C. Penney anchored a total of 17 of the Company's properties
either as tenants or as occupants of buildings adjacent to the properties and
lease in the aggregate approximately 39% of the total leasable space in the
Company's properties.
Additionally, Kmart, Hy-Vee grocery stores, Herberger's and/or Wal-Mart
anchored all Mid-America Bethal properties as either lessees or as occupants of
buildings adjacent to the properties and lease approximately 38% of the total
leasable space in the Mid-America Bethal properties.
The only tenant with rental commitments more than 10% of the gross leasable
space of the properties owned by the Company at December 31, 1997 is Wal-Mart,
whose five stores at properties owned by the Company account for approximately
15% of total gross leasable area. Wal-Mart also operates stores adjacent to
three of the Company's properties and to one of Mid-America Bethal's properties.
Future base rents under non-cancelable operating leases on properties owned
solely by the Company at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Other
Year Ending December 31, Wal-Mart Tenants Total
- -------------------------- -------- -------- --------
<S> <C> <C> <C>
1998 $ 1,232 $ 15,005 $ 16,237
1999 1,232 14,161 15,393
2000 1,232 13,256 14,488
2001 1,232 12,170 13,402
2002 1,232 10,940 12,172
Thereafter 4,457 76,092 80,549
------- -------- --------
$10,617 $141,624 $152,241
======= ======== ========
</TABLE>
The Company had no tenant which in any of the three years ended December 31,
1997 provided 10% or more of the Company's rental income or total revenues.
J. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997:
Total revenues $ 5,789 $ 5,815 $ 5,815 $ 5,846 $ 23,265
Net income $ 1,243 $ 1,082 $ 1,130 $ 1,193 $ 4,648
Net income per share $ .15 $ .13 $ .14 $ .14 $ .56
Dividends declared per share $ .22 $ .22 $ .22 $ .22 $ .88
Weighted average number
of shares outstanding 8,283,255 8,283,759 8,284,275 8,284,743 8,283,850
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996:
Total revenues $ 5,893 $ 5,797 $ 5,736 $ 5,640 $ 23,066
Net income $ 1,166 $ 950 $ 769 $ 1,004 $ 3,889
Net income per share $ .14 $ .11 $ .09 $ .13 $ .47
Dividends declared per share $ .22 $ .22 $ .22 $ .22 $ .88
Weighted average number
of shares outstanding 8,280,842 8,281,407 8,281,978 8,282,548 8,281,696
</TABLE>
K. SUBSEQUENT EVENT
On January 27, 1998, the Company declared a cash dividend of $.22 per common
share payable on February 24, 1998 to stockholders of record on
February 10, 1998.
19
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
(COLUMNAR DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Reductions
Additional from
Initial Cost to Company Costs Receipts
----------------------- Subsequent Subsequent
Buildings and to to
Description Encumbrances Land Improvements Acquisition Acquisition
- ----------- ------------ ------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Monument Mall, Line of Credit(2) $ 420 $ 9,691 $ 3,679 $ (1,612)
Scottsbluff, NE
Delta Plaza, Line of Credit(2) 527 6,949 4,814 (311)
Escanaba, MI
Thunderbird Mall, Line of Credit(2) 305 6,027 3,862 ---
Virginia, MN
Eastville Plaza, $ 2,902 706 3,529 678 (403)
Fremont, NE
Bishop Heights, Line of Credit(2) 710 723 156 ---
Lincoln, NE
Ille de Grand, Line of Credit(2) 690 2,880 1,061 ---
Grand Island, NE
Englewood-Phase I, {
Lincoln, NE { 1,396 1,993 1,512 ---
{ $ 6,500
Englewood-Phase II, {
Lincoln, NE { 1,387 4,327 776 ---
The Meadows, $ 2,950 1,179 3,121 75 ---
Lincoln NE
Miracle Hills Park, $ 3,980 2,250 4,972 461 (274)
Omaha, NE
Macon County, Line of Credit(2) 228 3,021 108 (40)
Lafaytette, TN
Town Quest Center, Line of Credit(2) 366 4,263 169 ---
paragould, AR
Rivergate, $ 3,064 163 4,058 301 (25)
Shelbyville, IN
Germantown, Line of Credit(2) 488 8,766 602 (15)
Jasper, IN
<CAPTION>
Gross Amount at Which Accumulated
Carried at December 31, 1997 Depreciation Date of
------------------------------------- at Completion Acquisition
Buildings and December 31 Date for or
Description Land Improvements Total 1997 Construction Completion
- ----------- ---- ------------ ----- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Monument Mall, $ 353 $ 11,825 $ 12,178 $ (3,792) 08/1986 12/30/86
Scottsbluff, NE
Delta Plaza, 1,096 10,883 11,979 (3,267) 09/1971 12/30/86
Escanaba, MI
Thunderbird Mall, 305 9,889 10,194 (2,714) 09/1971 12/30/86
Virginia, MN
Eastville Plaza, 633 3,877 4,510 (1,376) 08/1986 12/30/86
Fremont, NE
Bishop Heights, 710 879 1,589 (334) 09/1971 12/30/86
Lincoln, NE
Ille de Grand, 690 3,941 4,631 (1,385) 07/1977 04/09/87
Grand Island, NE
Englewood-Phase I, 1,396 3,505 4,901 (1,343) 09/1980 06/01/87
Lincoln, NE
Englewood-Phase II, 1,387 5,103 6,490 (1,148) 06/1991 06/26/91
The Meadows, 1,179 3,196 4,375 (985) 12/1987 06/01/88
Lincoln NE
Miracle Hills Park, 2,147 5,262 7,409 (1,780) 03/1987 07/05/88
Omaha, NE
Macon County, 225 3,092 3,317 (944) 12/1985 12/21/88
Lafaytette, TN
Town Quest Center, 366 4,432 4,798 (1,236) 04,1987 12/21/88
paragould, AR
Rivergate, 162 4,335 4,497 (1,127) 03/1986 12/21/88
Shelbyville, IN
Germantown, 540 9,301 9,841 (2,443) 12/1985 12/21/88
Jasper, IN
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Reductions
Additional from
Initial Cost to Company Costs Receipts
----------------------- Subsequent Subsequent
Buildings and to to
Description Encumbrances Land Improvements Acquisition Acquisition
- ----------- ------------ ---- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Shenandoah Plaza, $ 4,117 485 5,281 130 ----
Newnan, GA
Cornhusker Plaza, Line of 1,185 3,143 62 ----
South Sioux City, Credit(2)
NE
Lakewood Mall, $ 7,043 600 13,890 2,008 (1,682)
Aberdeen, SD
Kimberly West, $ 4,014 1,700 4,691 281 (614)
Davenport, IA
Moorland Square, $ 3,539 1,550 3,750 1,162 (45)
New Berlin, WI
Fairacres, Line of 1,500 3,310 580 (635)
Oshkosh, WI Credit(2)
Southport Centre, $ 8,000 3,675 8,946 328 ----
Apple Valley, MN
Fitchburg Ridge, None 500 1,545 47 ----
Fitchburg, WI
Twin Oaks Centre $ 3,543 1,075 3,062 53 (208)
-------- ------- ------- -------
Silvis, IL $23,085 $111,938 $22,905 $(5,864)
======== ======== ======= =======
<CAPTION>
Gross Amount at Which Accumulated
Carried at December 31, 1997 Depreciation Date of
------------------------------------- at Completion Acquisition
Buildings and December 31 Date for or
Description Land Improvements Total 1997 Construction Completion
- ----------- ---- ------------ ----- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Shenandoah Plaza, 485 5,411 5,896 (1,576) 02/1988 12/21/88
Newnan, GA
Cornhusker Plaza, 1,185 3,205 4,390 (696) 02/1990 06/27/91
South Sioux City,
NE
Lakewood Mall, 766 14,050 14,816 (2,680) 08/1990 08/28/92
Aberdeen, SD
Kimberly West, 1,617 4,441 6,058 (795) 01/1989 12/14/92
Davenport, IA
Moorland Square, 1,750 4,667 6,417 (692) 02/1990 11/23/92
New Berlin, WI
Fairacres, 1,389 3,366 4,755 (705) 05/1992 12/22/92
Oshkosh, WI
Southport Centre, 3,675 9,274 12,949 (1,042) 01/1992 01/01/94
Apple Valley, MN
Fitchburg Ridge, 500 1,592 2,092 (113) 12/1980 08/31/94
Fitchburg, WI
Twin Oaks Centre 867 3,115 3,982 (245) 01/1992 04/19/95
-------- -------- -------- --------
Silvis, IL $23,423 $128,641 $152,064 $(32,538)
======== ======== ======== ========
</TABLE>
(1) The aggregate cost for federal income tax purposes for these properties is
approximately $152,064,000.
(2) Revolving credit agreements totaled $11,871,000 at December 31, 1997.
21
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
(COLUMNAR DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Buildings
Land and Tenant Equipment Construction-
Land Improvements Improvements and Fixtures in-Progress Total
------- ------------ ------------ ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C>
REAL ESTATE
Balance, January 1, 1995 $23,469 $13,343 $109,356 $599 $ 334 $147,061
Additions at cost 1,075 22 5,181 ---- 599 6,877
Retirements (250) ---- ---- ---- ---- (250)
Reductions for receipts under Yield
Maintenance Agreement (92) ---- (935) ---- ---- (1,027)
Transfer of assets when placed into
service ---- ---- ---- ---- (646) (646)
------- ------- -------- ---- ----------- --------
Balance, December 31, 1995 24,202 13,365 113,602 559 287 152,015
Additions at cost ---- 167 832 ---- 1,011 2,010
Retirements (232) (148) (801) (4) ---- (1,185)
Reductions for receipts under Yield
Maintenance Agreement (2) ---- (18) ---- ---- (20)
Transfer of Assets when placed into service ---- ---- 1,298 ---- (1,298) ----
------- ------- -------- ---- ----------- --------
Balance, December 31, 1996 23,968 13,384 114,913 555 ---- 152,820
Additions to cost and expenses 26 320 1,178 4 ---- 1,528
Retirements (208) ---- ---- ---- ----- (208)
Reductions for receipts under Yield
Maintenance Agreement (361) ---- (1,156) ---- ---- (1,517)
Transfer of assets when placed into service ---- ---- ---- ---- ---- ----
------- ------- -------- ---- ----------- --------
Balance, December 31, 1997 $23,425 $13,704 $114,935 $559 $ ---- $152,623
======= ======= ======== ==== =========== ========
ACCUMULATED DEPRECIATION
Balance, January 1, 1995 $ ---- $ 4,647 $ 14,809 $344 $ ---- $ 19,800
Additions at cost ---- 884 3,506 60 ---- 4,450
Retirements ---- ---- ---- ---- ---- ----
------- ------- -------- ---- ----------- --------
Balance, December 31, 1995 ---- 5,531 18,315 404 ---- 24,250
Additions charged to costs and expenses ---- 883 3,605 53 ---- 4,541
Retirements ---- (67) (216) ---- ---- (283)
------- ------- -------- ---- ----------- --------
Balance, December 31, 1996 ---- 6,347 21,704 457 ---- 28,508
Additions charged to costs and expenses ---- 887 3,599 39 ---- 4,525
Retirements ---- ---- ---- ---- ---- ----
------- ------- -------- ---- ----------- --------
Balance, December 31, 1997 $ ---- $ 7,234 $ 25,303 $495 $ ---- $ 33,033
------- ------- -------- ---- ----------- --------
</TABLE>
22
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(COLUMNAR DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
ASSETS MARCH 31, 1998 1997
-------------- ------------
<S> <C> <C>
Cash ---- $ ----
Accounts receivable, net of allowance
of $179,000 and $175,000 1,876 1,744
Notes receivable, net of allowance of $70,000 409 400
Property:
Land and land improvements 37,129 37,129
Buildings 115,030 114,935
Equipment and fixtures 557 559
-------- --------
152,716 152,623
Less: Accumulated depreciation (34,161) (33,033)
-------- --------
118,555 119,590
Investment in Mid-America Bethal
Limited Partnership 14,943 15,027
Intangible assets, less accumulated
amortization of $3,930,000 and $3,834,000 1,307 1,382
Other assets 2,605 2,387
-------- --------
$139,695 $140,530
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages and notes payable $ 61,450 $ 61,522
Accrued liabilities 1,849 2,095
-------- --------
Total Liabilities 63,299 63,617
Commitments and Contingencies
Shareholders' Equity
Common stock, $.01 par value; authorized
25,000,000 shares; issued and outstanding
8,285,715 and 8,284,743 shares 83 83
Capital in excess of par value 119,730 119,720
Distributions in excess of net income (43,417) (42,890)
-------- --------
Total Shareholders' Equity 76,396 76,913
-------- --------
$139,695 $140,530
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
23
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(COLUMNAR DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
REVENUES:
Rental income $ 4,333 $ 4,318
Reimbursement income 1,313 1,239
Property management and
leasing income 41 40
Other income
Total Revenues 125 192
---------- ----------
5,812 5,789
EXPENSES:
Real estate taxes 760 776
Other property costs 788 878
Interest expense 1,341 1,411
Administrative expenses 403 350
Property management and
leasing expenses 252 271
Depreciation and amortization 1,238 1,245
---------- ----------
Total Expenses 4,782 4,931
---------- ----------
Income Before Equity in
Earnings of Mid-America Bethal
Limited Partnership and Gain
on Sale of Real Estate 1,030 858
Equity in Earnings of
Mid-America Bethal
Limited Partnership 265 255
---------- ----------
NET INCOME FROM OPERATIONS 1,295 1,113
Gain on Sale of Real Estate $ ---- $ 130
---------- ----------
NET INCOME $ 1,295 $ 1,243
---------- ----------
Weighted Average Shares
Outstanding During Period 8,285,066 8,283,255
---------- ----------
NET INCOME PER COMMON SHARE $ 16 $ 15
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
24
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(COLUMNAR DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,295 $ 1,243
Adjustments:
Depreciation and amortization 1,238 1,245
Gain on Sale of Real Estate --- (130)
Investment in Mid-America Bethal
Limited Partnership:
Equity in earnings (265) (255)
Distributions received 350 350
Decrease in related liabilities (236) (287)
Increase in related assets (372) (166)
------- -------
Net Cash Flows From Operating Activities 2,010 2,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Real Estate --- 344
Additions to property:
Expansion project and other
capital expenditures --- (2)
Tenant improvements (93) (43)
Payments from Yield Maintenance Agreement --- 96
Cash paid for leasing fees (22) (25)
------- -------
Net Cash Flows From Investing Activities (115) 370
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on short-term debt, net 80 (412)
Scheduled principal payments on mortgages (152) (136)
Dividends paid (1,823) (1,822)
------- -------
Net Cash Flows From Financing Activities (1,895) (2,370)
------- -------
NET CHANGE IN CASH --- ---
CASH, BEGINNING OF PERIOD --- ---
------- -------
CASH, END OF PERIOD $ --- $ ---
------- -------
</TABLE>
See Notes to Consolidated Financial Statements
25
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(COLUMNAR DOLLARS IN FOOTNOTES ARE IN THOUSANDS EXCEPT PER SHARE DATA)
A. BASIS OF CONSOLIDATION AND PRESENTATION:
The unaudited consolidated financial statements are prepared on an accrual
basis and include the accounts of Mid-America Realty Investments, Inc. (the
"Company") and its wholly-owned subsidiary, Mid-America Centers Corp. The
unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements included in the
Company's 1997 Annual Report on Form 10-K for the year ended December 31,
1997.
The information furnished herein reflects all adjustments, which consist of
normal recurring accruals, which are, in the opinion of management,
necessary to fairly present the financial results for the interim periods
presented. The results for the three months ended March 31, 1998 and 1997
are not necessarily indicative of the operating results for the full year.
All material intercompany transactions and profits have been eliminated in
consolidated.
Net income per share was determined by dividing net income for the periods
presented by the weighted average number of shares of common stock
outstanding for the period. Dilutive net income per share, which includes
common stock equivalents, as required by Statement of Financial Accounting
(SFAS) No. 128, "Earnings per Share", was determined to have no impact on
earnings per share.
B. INVESTMENT IN MID-AMERICA BETHAL LIMITED PARTNERSHIP :
Mid-America Bethal Limited Partnership ("Mid-America Bethal") was formed on
June 1, 1989 by the Company and a European investor. The Company has a 50%
interest in Mid-America Bethal and is the managing general partner. The
European investor has a 50% interest and is the limited partner.
Summarized financial information on Mid-America Bethal is as follows:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
BALANCE SHEETS:
Assets:
Cash $ 943 $ 823
Property, net of depreciation of
$8,749,380 and $8,471,000 28,391 28,652
Other Assets 566 592
------- -------
$29,900 $30,067
======= =======
Liabilities and Partners' Capital:
Accounts payable and other
liabilities $ 15 $ 15
Partners' capital 29,885 30,054
------- -------
$29,900 $30,067
------- -------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
<S> <C> <C>
STATEMENTS OF OPERATIONS:
Total Revenues $ 1,128 $ 1,127
------- -------
Net Income $ 531 $ 510
------- -------
EQUITY IN EARNINGS OF MID-AMERICA
BETHAL RECORDED BY THE COMPANY $ 265 $ 255
------- -------
C. MORTGAGES AND NOTES PAYABLE:
Mortgages and notes payable are comprised of the following:
March 31, 1998 December 31, 1997
-------------- -----------------
Mortgages Payable $49,499 $49,651
Working Capital Line of Credit
($5,000,000 available at London International
Bank Offering Rate (LIBOR) plus 2% due July 1999) 286 ----
Acquisitions Line of Credit
($10,000,000 available at LIBOR plus 2% due July 1999) 10,000 10,000
Acquisitions Line of Credit
($15,000,000 available at LIBOR plus 2 1/4%
due July 1998) 1,665 1,871
------- -------
$61,450 $61,522
======= =======
</TABLE>
D. COMMITMENTS AND CONTINGENCIES:
In June 1992, the Company entered into a Yield Maintenance Agreement (as
amended, the "YMA") with parties formerly related to the Company. Under the
YMA, the formerly related parties guaranteed a 10% return from June 1, 1992
to December 31, 1996, calculated on a quarterly basis, to the Company based
upon the amount of the Company's Investment Base for five specific properties
purchased from the formerly related parties.
Under the YMA, the market value of these properties was determined as of
December 31, 1996. The determined market value was based on a 10.25%
capitalization rate applied to net operating income for the year ended
December 31, 1996. The determined market value of the properties was less
than the Company's adjusted acquisition cost, accordingly, the difference was
owed to the Company, subject to certain limits. The obligations of the
formerly related parties under the YMA was limited to $2,800,000.
During the second quarter of 1997, the Company received the final settlement
of approximately $1,421,000 due under the YMA. The proceeds, which prior to
receipt were not reflected in the consolidated financial statements of the
Company, were used to reduce bank line debt. In addition, these amounts were
not considered net income and were applied against the carrying value of the
properties purchased from the formerly related parties.
E. SUBSEQUENT EVENT:
On April 22, 1998, the Company declared a cash dividend of $.22 per common
share payable on May 20, 1998 to shareholders of record on May 6, 1998.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BRADLEY OPERATING LIMITED PARTNERSHIP
By: BRADLEY REAL ESTATE, INC.
By: /s/ Thomas P. D'Arcy
--------------------
Date: August 11, 1998 Thomas P. D'Arcy
Chairman, President and
Chief Executive Officer
28
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this current report on Form 8-K of Bradley Operating
Limited Partnership of our reports, dated January 28, 1998, on the consolidated
financial statements of Mid-America Realty Investments, Inc. for the year ended
December 31, 1997, and to the incorporation by reference of such current report
on Form 8-K and our report appearing therein in the registration statements
(Nos. 333-42357, 333-28167, 33-87084, 33-62200 and 33-64811) on Form S-3 of
Bradley Real Estate, Inc., the registration statements (Nos. 333-30587, 33-34884
and 33-65180) on form S-8 of Bradley Real Estate, Inc., the registration
statement (No. 333-57123) on Form S-4 of Bradley Real Estate, Inc. and the
registration statements (Nos. 333-36577 and 333-51675) on Form S-3 of Bradley
Operating Limited Partnership.
/s/ Deloitte & Touche LLP
Omaha, Nebraska
August 11, 1998
<PAGE>
EXHIBIT 99.2
BRADLEY REAL ESTATE, INC.
INDEX TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pro Forma Condensed Combined Balance Sheet as of March 31, 1998......................... 76
Notes to Pro Forma Condensed Combined Balance Sheet................................ 77
Pro Forma Condensed Balance Sheet to reflect Prior Bradley Transactions as of
March 31, 1998.................................................................. 79
Pro Forma Condensed Combined Statement of Income for the three months ended
March 31, 1998....................................................................... 80
Notes to Pro Forma Condensed Combined Statement of Income.......................... 81
Pro Forma Condensed Statement of Income to reflect Prior Bradley Transactions for
the three months ended March 31, 1998........................................... 83
Pro Forma Condensed Combined Statement of Income for the year ended December 31, 1997... 86
Notes to Pro Forma Condensed Combined Statement of Income.......................... 87
Pro Forma Condensed Statement of Income to reflect Prior Bradley Transactions for
the year ended December 31, 1997................................................ 89
</TABLE>
<PAGE>
BRADLEY REAL ESTATE, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
This unaudited Pro Forma Condensed Combined Balance Sheet is presented as
if the Merger had been consummated on March 31, 1998. The Merger has been
accounted for under the purchase method of accounting in accordance with
Accounting Principles Board Opinion No. 16. In the opinion of Bradley's
management, all adjustments necessary to reflect the effects of this transaction
have been made. The accompanying pro forma condensed combined financial
statements have been prepared based on pro forma adjustments to pro forma and
historical financial statements of Bradley and historical financial statements
of Mid-America.
This unaudited Pro Forma Condensed Combined Balance Sheet is presented for
comparative purposes only and is not necessarily indicative of what the actual
financial position of Bradley would have been at March 31, 1998, nor does it
purport to represent the future financial position of Bradley. This unaudited
Pro Forma Condensed Combined Balance Sheet should be read in conjunction with,
and is qualified in its entirety by the pro forma condensed balance sheet of
Bradley and the respective historical financial statements and notes thereto of
Bradley and Mid-America incorporated by reference into this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
BRADLEY
BRADLEY PRO FORMA
PRO FORMA PRO FORMA AS ADJUSTED
PRIOR MID-AMERICA MERGER FOR THE
TRANSACTIONS(A) HISTORICAL ADJUSTMENTS (B) MERGER
--------------- ------------ ------------------ ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS
Real estate investments, at cost................. $815,062 $152,716 $(10,926) $956,852
Accumulated depreciation and amortization........ (44,582) (34,161) 34,161 (44,582)
-------- -------- -------- --------
Net real estate investments.................... 770,480 118,555 23,235 912,270
Cash and cash equivalents........................ 2,505 -- -- 2,505
Rents and other receivables...................... 12,120 2,285 (1,106)(C) 13,299
Investment in partnership........................ -- 14,943 (1,656) 13,287
Deferred charges and other assets................ 17,699 3,912 (2,927)(D) 18,684
-------- -------- -------- --------
Total assets................................... $802,804 $139,695 $ 17,546 $960,045
======== ======== ======== ========
LIABILITIES
Mortgage loans................................... 80,718 49,499 (11,417)(E) 118,800
Unsecured notes payable.......................... 199,496 -- -- 199,496
Lines of credit.................................. 119,479 11,951 18,310 (F) 149,740
Accounts payable, accrued expenses and
other liabilities............................... 24,471 1,849 49 26,369
-------- -------- -------- --------
Total liabilities.............................. 424,164 63,299 6,942 494,405
-------- -------- -------- --------
Minority interest................................ 19,803 -- -- 19,803
-------- -------- -------- --------
SHARE OWNERS' EQUITY
Series A Preferred Stock and paid-in capital..... -- -- 87,000 (G) 87,000
Common stock at par.............................. 237 83 (83)(G) 237
Additional paid-in capital....................... 343,733 119,730 (119,730)(G) 343,733
Accumulated earnings in excess of distributions.. 14,867 (43,417) 43,417 (G) 14,867
-------- -------- -------------- --------
Total share owners' equity..................... 358,837 76,396 10,604 445,837
-------- -------- -------- --------
Total liabilities and share owners'
equity.................................... $802,804 $139,695 $ 17,546 $960,045
======== ======== ======== ========
</TABLE>
<PAGE>
____________________
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
(A) See page 79 for the pro forma condensed balance sheet giving effect to prior
Bradley transactions.
(B) Represents adjustments to record the Merger in accordance with the purchase
method of accounting, based upon a purchase price of approximately $157.2
million, which assumes a value of $25 per share of Series A Preferred Stock,
computed as follows (in thousands):
Issuance of Series A Preferred Stock.......................... $ 87,000
Assumption of Mid-America liabilities......................... 63,299
Adjustment to increase mortgage debt to estimated fair value.. 2,043
Estimated Merger costs........................................ 4,850
--------
$157,192
========
(C) Represents the write-off of the portion of the Mid-America accounts
receivable representing deferred rents arising from Mid-America recognition
of rental income on a straight-line basis in accordance with generally
accepted accounting principles. Bradley, as the surviving corporation, will
recognize rental income on a straight-line basis over the remaining terms of
the Mid-America leases in accordance with generally accepted accounting
principles.
(D) Represents the adjustment of Mid-America's carrying value of deferred
charges to the estimated fair values in accordance with the purchase method
of accounting. Organization costs, leasing costs and management contracts
of Mid-America were deemed to have no future value to Bradley and were
written-off in accordance with the purchase method of accounting. Other
assets were adjusted to the estimated fair values as of March 31, 1998.
The amounts represented by these adjustments are summarized below (in
thousands):
Leasing costs........................................... $ 2,693
Decrease in value of TIF bonds.......................... 1,581
Loan costs.............................................. 1,319
Management contract..................................... 893
Other................................................... 406
Increase in cash surrender value of executive benefits.. (35)
Less accumulated amortization........................... (3,930)
-------
Pro forma adjustment.................................... $ 2,927
=======
(E) Represents the expected prepayment of Mid-America mortgage debt funded with
Bradley's line of credit, and the adjustment to the carrying value of the
remaining Mid-America mortgage debt to the estimated fair values at March
31, 1998, as follows (in thousands):
Expected amount of Mid-America mortgage debt
to be prepaid......................................... $(13,460)
Adjustment to estimated fair value for remaining
mortgage debt......................................... 2,043
--------
Pro forma adjustment................................... $(11,417)
========
<PAGE>
(F) Estimated payments for fees and expenses related to the Merger are as
follows (in thousands):
Investment advisory fees................................... $ 1,770
Termination and severance.................................. 1,160
Legal and accounting....................................... 1,015
Real estate due diligence and closing costs................ 614
Other...................................................... 145
Printing and filing fees................................... 96
D&O insurance.............................................. 50
-------
4,850
Expected amount of Mid-America mortgage debt prepaid with
Bradley's line of credit............................... 13,460
-------
Pro forma adjustment....................................... $18,310
=======
(G) To adjust Mid-America's capital accounts to reflect the issuance of
3,480,000 shares of Series A Preferred Stock in exchange for all of the
outstanding shares of Mid-America Common Stock at an Exchange Ratio of 0.42
shares of Series A Preferred Stock for each outstanding share of Mid-America
Common Stock, as follows (in thousands):
<TABLE>
<CAPTION>
SERIES A
PREFERRED
STOCK AND
COMMON PAID-IN DISTRIBUTION IN PAID-IN
SHARES CAPITAL EXCESS OF EARNINGS CAPITAL
------- ---------- ------------------- -------
<S> <C> <C> <C> <C>
Issuance of Series A Preferred Stock.................. $ -- $ -- $ -- $87,000
Mid-America's historical stockholders'
equity................................................ $ 83 119,730 (43,417) --
------- -------- ------------------ -------
Pro forma adjustment.................................. $ (83) $(119,730) $ 43,417 $87,000
======= ========= ================== =======
</TABLE>
<PAGE>
PRO FORMA CONDENSED BALANCE SHEET
TO REFLECT PRIOR BRADLEY TRANSACTIONS
MARCH 31, 1998
(UNAUDITED)
From March 31, 1998 through May 30, 1998, Bradley has acquired an additional
six shopping centers and has entered into contracts to acquire an additional
eight properties, which management believes will close. The aggregate purchase
price of these transactions is expected to be approximately $155 million. See
"The Companies-Bradley."
Subsequent to March 31, 1998, Bradley entered into a contract to sell One
North State for approximately $84.5 million subject to normal and customary
closing costs and adjustments with the proceeds assumed to be used to pay down
Bradley's line of credit. See "The Companies-Bradley." In addition, in May
1998, Bradley sold Holiday Plaza, a shopping center in Cedar Falls, Iowa, for
approximately $1.9 million.
The unaudited Pro Forma Condensed Balance Sheet of Bradley is presented as
if the acquisitions (including the probable acquisitions), and the dispositions
(including the probable disposition), described above, had been consummated on
March 31, 1998.
<TABLE>
<CAPTION>
MARCH 31, 1998 ACQUISITION DISPOSITION
HISTORICAL ADJUSTMENTS (A) ADJUSTMENTS (B) PRO FORMA
--------------- --------------- --------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Real estate investments --at cost........... $660,096 $154,966 $ -- $815,062
Accumulated depreciation and amortization... (44,582) -- -- (44,582)
-------- -------- -------- --------
Net real estate investments................. 615,514 154,966 -- 770,480
Real estate investments held for sale....... 54,565 -- (54,565) --
Other assets:
Cash and cash equivalents................. 2,505 -- -- 2,505
Rents and other receivables............... 14,117 -- (1,997) 12,120
Deferred charges, net and other assets.... 18,223 -- (524) 17,699
-------- -------- -------- --------
Total assets................................ $704,924 $154,966 $(57,086) $802,804
======== ======== ======== ========
LIABILITIES AND SHARE OWNERS' EQUITY
Mortgage loans.............................. 50,966 29,752 -- 80,718
Unsecured notes payable..................... 199,496 -- -- 199,496
Line of credit.............................. 79,100 125,214 (84,835) 119,479
Accounts payable, accrued expenses and
other liabilities......................... 27,798 -- (3,327) 24,471
-------- -------- -------- --------
Total liabilities........................... 357,360 154,966 (88,162) 424,164
-------- -------- -------- --------
Minority interest........................... 19,146 -- 657 19,803
-------- -------- -------- --------
Share owners' equity
Common stock at par....................... 237 -- -- 237
Additional paid-in capital................ 343,733 -- -- 343,733
Accumulated earnings in excess
of distributions........................ (15,552) -- 30,419 14,867
-------- -------- -------- --------
Total share owners' equity.................. 328,418 -- 30,419 358,837
-------- -------- -------- --------
Total liabilities and share owners' equity.. $704,924 $154,966 $(57,086) $802,804
======== ======== ======== ========
</TABLE>
EXPLANATORY NOTES
(A) Adjustments represent acquisitions of properties subsequent to March 31,
1998 that have been completed, or that are probable of completion.
(B) Adjustments represent the sale of Holiday Plaza subsequent to March 31,
1998, and the probable disposition of One North State for net sales proceeds
of approximately $1.9 million and $84.5 million subject to normal and
customary closing costs and adjustments, respectively, and the application
of the net proceeds to pay down Bradley's line of credit.
<PAGE>
BRADLEY REAL ESTATE, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
This unaudited Pro Forma Condensed Combined Statement of Income is presented
as if the Merger had been consummated on January 1,1997 and with Bradley
qualifying as a REIT, distributing all of its taxable income and, therefore,
incurring no federal income tax expense during the period January 1, 1997
through March 31, 1998. The Merger has been accounted for under the purchase
method of accounting in accordance with Accounting Principles Board Opinion No.
16. In the opinion of Bradley's management, all adjustments necessary to
reflect the effects of these transactions have been made.
This unaudited Pro Forma Condensed Combined Statement of Income is presented
for comparative purposes only and is not necessarily indicative of what the
actual results of operations of Bradley would have been for the period
presented, nor does it purport to represent the results to be achieved in future
periods. This unaudited Pro Forma Condensed Combined Statement of Income should
be read in conjunction with, and is qualified in its entirety by the pro forma
condensed statement of income of Bradley and the respective historical financial
statements and the notes thereto of Bradley and Mid-America, incorporated by
reference into this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
---------------------------------
v BRADLEY
BRADLEY PRO FORMA
PRO FORMA PRO FORMA AS ADJUSTED
PRIOR MID-AMERICA MERGER FOR
TRANSACTIONS(A) HISTORICAL(B) ADJUSTMENTS MERGER
--------------- -------------- --------------- ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Income:
Rental income................................... $ 29,821 $5,646 $ -- $ 35,467
Other income.................................... 640 166 -- 806
----------- ------ ----------- -----------
Total revenue................................. 30,461 5,812 -- 36,273
----------- ------ ----------- -----------
Expenses:
Operations, maintenance and management.......... 4,408 899 -- 5,307
Real estate taxes............................... 5,031 760 -- 5,791
Mortgage and other interest..................... 7,224 1,341 (173)(C) 8,392
General and administrative...................... 1,403 544 (323)(D) 1,624
Depreciation and amortization................... 5,793 1,238 (470)(E) 6,561
----------- ------ ----------- -----------
Total expenses................................ 23,859 4,782 (966) 27,675
----------- ------ ----------- -----------
Income before equity in earnings of partnership
and allocation to minority interest............. 6,602 1,030 966 8,598
Equity in earnings of partnership................ -- 265 65(E) 330
Income allocated to minority interest............ (383) -- -- (383)
----------- ------ ----------- -----------
Net income....................................... 6,219 1,295 1,031 8,545
Preferred share distributions.................... -- -- (1,827)(F) (1,827)
----------- ------ ----------- -----------
Net income attributable to common stock.......... $ 6,219 $1,295 $ (796) $ 6,718
=========== ====== =========== ===========
Weighted average number of
common shares outstanding-basic(G).............. 23,532,849 23,532,849
Basic net income per
common share(G)................................. $0.26 $0.29
=========== ===========
</TABLE>
<PAGE>
____________________
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(A) See page 83 for the pro forma condensed statement of income giving effect to
prior Bradley transactions.
(B) Represents historical operating results as reported by Mid-America for the
three months ended March 31, 1998.
(C) Represents the net reduction in interest expense for the prepayment of
certain Mid-America mortgage indebtedness with Bradley's line of credit at
Bradley's current interest rate of 6.5%, combined with the reduction in
interest expense to reflect the estimated market interest rate of
approximately 7.25%, in accordance with the purchase method of accounting,
partially offset by an increase in interest expense for the payment of fees
and expenses related to the merger of approximately $4,850,000, at an
interest rate of 6.5%, as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Elimination of historical interest on mortgages expected to be prepaid... $(528)
Interest on Bradley's line of credit expected to be used to prepay debt.. 413
Reduction of Mid-America interest to reflect a market rate............... (137)
Interest on Bradley's line of credit for merger fees
and expenses........................................................... 79
-----
Pro forma adjustment..................................................... $(173)
=====
</TABLE>
(D) Represents general and administrative cost savings which have been
estimated based upon historical costs for those items which will be
eliminated as a result of the Merger, as follows (in thousands):
<TABLE>
<S> <C>
Salaries and benefits............ $227
D&O insurance and director fees.. 46
Professional fees................ 37
Other............................ 13
----
Pro forma adjustment............. $323
====
</TABLE>
(E) Depreciation and amortization changes relate to recording Mid-America's
properties at Bradley's purchase price, the related depreciation utilizing
an estimated useful life of 39 years and a depreciable basis of
approximately $119,771,000, and the elimination of historical amortization
of Mid-America deferred assets in accordance with the purchase method of
accounting, as follows (in thousands):
Pro forma depreciation expense ($119,771 over 39 years)..... $768
Mid-America depreciation and amortization................... (1,238)
------
Pro forma adjustment........................................ $(470)
=====
The pro forma adjustment to the equity in earnings of partnership reflects
the adjustment to depreciation and amortization of the partnership
resulting from recording the investment in partnership at Bradley's
purchase price.
(F) Preferred share distributions are calculated using an annual dividend rate
of $2.10 per share for 3,480,000 shares of Series A Preferred Stock pro
rated for the period presented.
<PAGE>
(G) A reconciliation of the numerator and denominator used to compute basic
earnings per share ("EPS") to the numerator and denominator used to compute
diluted EPS is as follows:
<TABLE>
<CAPTION>
BRADLEY AS ADJUSTED FOR MERGER
NUMERATOR DENOMINATOR PER SHARE
---------- ----------- ---------
<S> <C> <C> <C>
Basic EPS:
Net income attributable to common stock..... $6,718,000 23,532,849 $0.29
Effect of dilutive securities:
Dilutive options exercised.................. -- 54,379
Conversion of LP Units...................... 383,000 1,435,311
---------- ----------
Diluted EPS:
Net income attributable to common stock..... $7,101,000 25,022,539 $0.28
========== ========== =========
</TABLE>
<PAGE>
BRADLEY REAL ESTATE, INC.
PRO FORMA CONDENSED STATEMENT OF INCOME
TO REFLECT PRIOR BRADLEY TRANSACTIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
During the period from January 1, 1998 through May 30, 1998, Bradley
acquired 11 shopping centers at an aggregate cost of approximately $93.7
million. Consideration paid for such acquisitions included cash (provided
primarily from the bank line of credit) and assumption of mortgage indebtedness.
In addition, as of June 1, 1998, Bradley has entered into contracts to acquire
an additional eight shopping centers for an estimated aggregate purchase price
of approximately $94.8 million, which it believes will close. See "The
Companies-Bradley."
On January 28, 1998, Bradley, through BOLP, issued $100 million of 7.2%
ten-year unsecured Notes maturing January 15, 2008 (the "January 1998 Debt
Issuance"). The effective interest rate on the unsecured Notes is approximately
7.61%. The issue was rated "BBB-" by Standard & Poor's Investment Services
("Standard & Poor's") and "Baa3" by Moody's Investor's Services ("Moody's").
Proceeds from the offering were used to reduce outstanding borrowings under the
line of credit.
On February 18, 1998, Bradley issued 392,638 shares of common stock to a
unit investment trust at a price based upon the then market value of $20.375 per
share (the "February 1998 Stock Offering"). Net proceeds from the offering of
approximately $7.6 million were contributed to BOLP and were used to reduce
outstanding borrowings under the line of credit.
Subsequent to March 31, 1998, Bradley entered into a contract to sell One
North State for approximately $84.5 million subject to normal and customary
closing costs and adjustments, with the proceeds assumed to be used to pay down
Bradley's line of credit. See "The Companies-Bradley." In addition, in May
1998, Bradley sold Holiday Plaza, a shopping center in Cedar Falls, Iowa, for
approximately $1.9 million.
The unaudited Pro Forma Condensed Statement of Income of Bradley is
presented as if the acquisitions (including the probable acquisitions), the
dispositions (including the probable disposition), the January 1998 Debt
Issuance, and the February 1998 Stock Offering, described above, had been
consummated on January 1, 1997, and with Bradley qualifying as a REIT and,
therefore, incurring no federal income tax expense during the period January 1,
1997 through March 31, 1998.
<PAGE>
<TABLE>
<CAPTION>
ACQUISITION DISPOSITION OTHER
HISTORICAL PROPERTIES (A) PROPERTIES (B) ADJUSTMENTS PRO FORMA
---------- -------------- ------------- ----------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income................................... $ 28,736 $4,882 $(3,797) $ -- $29,821
Other income.................................... 619 21 -- -- 640
----------- ------ ------- ----------- -----------
Total revenue................................. 29,355 4,903 (3,797) -- 30,461
----------- ------ ------- ----------- -----------
Expenses:
Operations, maintenance and
management.................................... 4,333 597 (522) -- 4,408
Real estate taxes............................... 5,481 609 (1,059) -- 5,031
Mortgage and other interest..................... 5,558 -- -- 1,666(C) 7,224
General and administrative...................... 1,403 -- -- -- 1,403
Depreciation and amortization................... 4,963 -- -- 830(D) 5,793
----------- ------ ------- ----------- -----------
Total expenses................................ 21,738 1,206 (1,581) 2,496 23,859
----------- ------ ------- ----------- -----------
Income before provision for loss on real estate
investment and minority interest................ 7,617 3,697 (2,216) (2,496) 6,602
Provision for loss on real estate
investment...................................... (875) -- 875 -- --
----------- ------ ------- ----------- -----------
Income before allocation to minority interest.... 6,742 3,697 (1,341) (2,496) 6,602
Income allocated to minority interest............ (391) -- -- 8 (383)
----------- ------ ------- ----------- -----------
Net income attributable to common stock.......... $ 6,351 $3,697 (1,341) $ (2,488) $ 6,219
=========== ====== ======= =========== ===========
Weighted average common shares outstanding
--basic(E)...................................... 23,301,629 23,532,849
Basic and diluted income per
common share: (E)............................... $0.27 $0.26
=========== ===========
</TABLE>
EXPLANATORY NOTES
(A) Increase represents historical operating revenues and expenses on properties
acquired in 1998, or probable of acquisition subsequent to March 31, 1998
for the period Bradley did not own such properties.
(B) Decrease represents the elimination of historical operating revenues and
expenses of properties sold or probable of being sold subsequent to March
31, 1998.
(C) Mortgage and other interest has been increased to reflect the pro forma
borrowings for property acquisitions for the period during which Bradley did
not own such properties, net of the reduction for the application of net
proceeds from the property dispositions and the February 1998 Stock Offering
to pay down the line of credit for the period during which Bradley owned
such properties, and for the period preceding the stock offering, an
interest rate of 6.50%, which was Bradley's approximate borrowing rate at
May 30, 1998. Mortgage and other interest has been increased for the
January 1998 Debt Issuance for the period preceding the issuance. A 0.125%
change in the variable rate would result in a change in the pro forma
interest adjustment of approximately $11,000.
Increase in interest expense attributable to
acquisition activities........................ $ 3,007
Decrease in interest expense attributable to
disposition activities........................ (1,360)
Decrease in interest expense attributable to
the February 1998 Stock Offering.............. (65)
Net increase in interest expense attributable to
the January 1998 Debt Issuance................ 84
-------
Pro forma adjustment.............................. $ 1,666
=======
<PAGE>
(D) Depreciation and amortization has been increased to give effect to recording
the property acquisitions (including the probable acquisitions) over a
depreciable life of 39 years, for the period which Bradley did not own such
properties, net of the reduction for properties sold or probable of being
sold subsequent to March 31, 1998 for the period which Bradley owned such
properties, as follows:
Increase in depreciation and amortization
attributable to acquisition activities................. $887
Decrease in depreciation and amortization
attributable to disposition activities................. (57)
----
Pro forma adjustment....................................... $830
====
(E) A reconciliation of the numerator and denominator used to compute basic EPS
to the numerator and denominator used to compute diluted EPS is as follows:
<TABLE>
<CAPTION>
BRADLEY HISTORICAL BRADLEY PRO FORMA
NUMERATOR DENOMINATOR PER SHARE NUMERATOR DENOMINATOR PER SHARE
---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income attributable to
common stock................... $6,351,000 23,301,629 $0.27 $6,219,000 23,532,849 $0.26
Effect of dilutive securities:
Dilutive options exercised...... -- 54,379 -- 54,379
Conversion of LP Units.......... 391,000 1,435,311 383,000 1,435,311
---------- ---------- ---------- -----------
Diluted EPS:
Net income attributable to
common stock................... $6,742,000 24,791,319 $0.27 $6,602,000 25,022,539 $0.26
========== ========== ========= ========== =========== =========
</TABLE>
<PAGE>
BRADLEY REAL ESTATE, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
The unaudited Pro Forma Condensed Combined Statement of Income is presented
as if the Merger had been consummated on January 1, 1997, and with Bradley
qualifying as a REIT and, therefore, incurring no federal income tax expense
during the period January 1, 1997 through December 31, 1997. The Merger has
been accounted for under the purchase method of accounting in accordance with
Accounting Principles Board Opinion No. 16. In the opinion of Bradley's
management, all adjustments necessary to reflect the effects of these
transactions have been made.
This unaudited Pro Forma Condensed Combined Statement of Income is presented
for comparative purposes only and is not necessarily indicative of what the
actual results of operations of Bradley would have been for the periods
presented, nor does it purport to represent the results to be achieved in future
periods. This unaudited Pro Forma Condensed Combined Statement of Income should
be read in conjunction with, and is qualified in its entirety by the pro forma
condensed statement of income of Bradley and the respective historical financial
statements and notes thereto of Bradley and Mid-America, incorporated by
reference into this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------
BRADLEY BRADLEY
PRO FORMA PRO FORMA PRO FORMA
PRIOR MID-AMERICA MERGER AS ADJUSTED FOR
TRANSACTIONS(A) HISTORICAL(B) ADJUSTMENTS MERGER
--------------- ------------- ----------- ---------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Rental income................................. $116,453 $22,478 $ -- $ 138,931
Other income.................................. 1,632 787 -- 2,419
---------- ---------- ---------- ----------
Total revenue................................ 118,085 23,265 -- 141,350
---------- ---------- ---------- ----------
Expenses:
Operations, maintenance and
management................................... 16,478 4,316 -- 20,794
Real estate taxes............................. 19,069 2,952 -- 22,021
Mortgage and other interest................... 27,739 5,539 (845)(C) 32,433
General and administrative.................... 5,123 1,985 (1,300)(D) 5,808
Non-recurring stock based
compensation................................. 3,415 -- -- 3,415
Depreciation and amortization................. 21,111 4,981 (1,910)(E) 24,182
---------- ---------- ---------- ----------
Total expenses............................... 92,935 19,773 (4,055) 108,653
---------- ---------- ---------- ----------
Income before net gain on sale of properties,
equity in earnings of partnership and
minority interest............................. 25,150 3,492 4,055 32,697
Net gain on sale of properties................. -- 130 (130) --
Equity in earnings of partnership.............. -- 1,026 260(E) 1,286
Income allocated to minority
interest...................................... (1,568) -- -- (1,568)
---------- ---------- ---------- ----------
Income from operations......................... 23,582 4,648 4,185 32,415
Preferred Share Distributions.................. -- -- (7,308)(F) (7,308)
---------- ---------- ---------- ----------
Income from operations attributable to
common stock.................................. $ 23,582 $ 4,648 $(3,123) $ 25,107
========== ========== ========== ==========
Weighted average common shares
outstanding-basic(G).......................... 22,963,982 22,963,982
Basic and diluted income from operations
per common share(G)........................... $1.03 $1.09
========== ==========
</TABLE>
<PAGE>
____________________
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(A) See page 89 for the pro forma condensed statement of income giving effect to
prior Bradley transactions.
(B) Represents historical operating results as reported by Mid-America for the
year ended December 31, 1997.
(C) Represents the net reduction in interest expense for the prepayment of
certain Mid-America mortgage indebtedness with Bradley's line of credit at
Bradley's current interest rate of 6.5%, combined with the reduction in
interest expense to reflect the estimated market interest rate of
approximately 7.25%, in accordance with the purchase method of accounting,
partially offset by an increase in interest expense for the payment of fees
and expenses related to the Merger of approximately $4,850,000, at an
interest rate of 6.5%, as follows (in thousands):
Elimination of historical interest on
mortgages expected to be prepaid................................ $(2,263)
Interest on Bradley's line of credit
expected to be used to prepay debt.............................. 1,652
Reduction of Mid-America interest to
reflect a market rate........................................... (549)
Interest on Bradley's line of credit for
merger fees and expenses........................................ 315
-------
Pro forma adjustment............................................. $ (845)
=======
(D) Represents general and administrative cost savings which have been estimated
based upon historical costs for those items which will be eliminated as a
result of the Merger, as follows (in thousands):
Salaries and benefits............................................ $ 906
D&O Insurance and director fees.................................. 230
Professional fees................................................ 136
Other............................................................ 28
------
Pro forma adjustment.............................................. $1,300
======
(E) Depreciation and amortization changes relate to recording Mid-America's
properties at Bradley's purchase price and related depreciation utilizing an
estimated useful life of 39 years and a depreciable basis of approximately
$119,771,000, and the elimination of historical amortization of Mid-
America's deferred assets in accordance with the purchase method of
accounting, as follows (in thousands):
Pro forma depreciation expense ($119,771 over 39 years)...... $ 3,071
Mid-America depreciation and amortization.................... (4,981)
------
Pro forma adjustment......................................... $ (1,910)
========
The pro forma adjustment to the equity in earnings of partnership reflects
the adjustment to depreciation and amortization of the partnership resulting
from recording the investment in partnership at Bradley's purchase price.
(F) Preferred share distributions are calculated using an annual dividend rate
of $2.10 per share for 3,480,000 shares of Series A Preferred Stock.
<PAGE>
(G) A reconciliation of the numerator and denominator used to compute basic EPS
to the numerator and denominator used to compute diluted EPS is as follows:
<TABLE>
<CAPTION>
BRADLEY AS ADJUSTED FOR MERGER
-----------------------------------
NUMERATOR DENOMINATOR PER SHARE
----------- ----------- ---------
<S> <C> <C> <C>
Basic EPS:
Income from operations attributable to
common stock.......................... $25,107,000 22,963,982 $ 1.09
Effect of dilutive securities:
Stock options........................... -- 42,451
Stock-based compensation................ -- 315
Conversion of LP Units.................. 1,568,000 1,523,587
----------- ----------
Diluted EPS:
Income from operations attributable to
common stock.......................... $26,675,000 24,530,335 $ 1.09
=========== ========== =========
</TABLE>
<PAGE>
BRADLEY REAL ESTATE, INC.
PRO FORMA CONDENSED STATEMENT OF INCOME
TO REFLECT PRIOR BRADLEY TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
During 1997, Bradley acquired 25 shopping centers aggregating over 3.1
million square feet of GLA for an aggregate cost of approximately $189.3 million
and from January 1, 1998 through May 31, 1998, has acquired 11 properties
aggregating 1.4 million square feet of GLA for an aggregate acquisition price of
approximately $94 million. Consideration paid for such acquisitions included
cash (provided primarily from the bank line of credit), assumption of mortgage
indebtedness and the issuance of Units of BOLP to contributors of properties
acquired. In addition, as of June 1, 1998, Bradley has entered into contracts
to acquire an additional eight shopping centers for an estimated purchase price
of approximately $94.8 million which it believes will close. See "The
Companies-Bradley." During the period from January 1, 1997 through June 1,
1998, Bradley sold five shopping centers for net proceeds of approximately $21.3
million utilizing the net proceeds to pay-down its line of credit.
In December 1997, Bradley entered into a new $200 million unsecured line of
credit facility with a syndicate of banks, 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
current credit rating assigned by Standard & Poor's and Moody's, the spread over
LIBOR is 1.00%, which represents a reduction in the spread over LIBOR from the
previous $150 million line of credit by 0.50%.
On November 26, 1997, Bradley prepaid a REMIC mortgage note (the "REMIC
Prepayment") primarily with the proceeds of an offering of $100 million of 7%
unsecured Notes due November 15, 2004 (the "November 1997 Debt Issuance"). The
effective interest rate on the unsecured Notes is approximately 7.19%. The issue
was rated "BBB-" by Standard & Poor's and "Baa3" by Moody's.
In December 1997, Bradley issued 1,290,000 shares of common stock pursuant
to two separate public offerings (the "December 1997 Stock Offerings"). Net
proceeds from the offerings, approximately $24.9 million, were contributed to
BOLP and were used to reduce outstanding borrowings under the line of credit.
On January 28, 1998, Bradley through BOLP issued $100 million, 7.2% ten-year
unsecured Notes maturing January 15, 2008 (the "January 1998 Debt Issuance").
The effective interest rate on the unsecured Notes is approximately 7.61%. The
issue was rated "BBB-" by Standard & Poor's and "Baa3" by Moody's. Proceeds from
the issue were used to reduce the outstanding borrowings under the line of
credit.
On February 18, 1998, Bradley issued 392,638 shares of common stock to a
unit investment trust at a price based upon the then market value of $20.375 per
share (the "February 1998 Stock Offering"). Net proceeds from the offering of
approximately $7.6 million were contributed to BOLP and were used to reduce
outstanding borrowings under the line of credit.
Subsequent to March 31, 1998, Bradley entered into a contract to sell One
North State for approximately $84.5 million subject to normal and customary
closing costs and adjustments, with the proceeds assumed to be used to pay down
Bradley's line of credit. See "The Companies-Bradley."
The unaudited Pro Forma Condensed Statement of Income is presented as if all
of the acquisitions (including the probable acquisitions), the dispositions
(including the probable disposition), the replacement of the previous line of
credit with the new line of credit, the REMIC Prepayment, the November 1997 Debt
Issuance, the December
<PAGE>
1997 Stock Offerings, the January 1998 Debt Issuance, and the February 1998
Stock Offering, described above, had been consummated on January 1, 1997, and
with Bradley qualifying as a REIT and, therefore, incurring no federal income
tax expense during the period January 1, 1997 through December 31, 1997.
<TABLE>
<CAPTION>
ACQUISITION DISPOSITION OTHER
HISTORICAL PROPERTIES (A) PROPERTIES (B) ADJUSTMENTS PRO FORMA
------------ -------------- -------------- -------------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income........................... $ 96,115 $37,903 $(17,565) $ -- $116,453
Other income............................ 1,437 189 6 -- 1,632
----------- ------- -------- ----------- ----------
Total revenue.......................... 97,552 38,092 (17,559) -- 118,085
----------- ------- -------- ----------- ----------
Expenses:
Operations, maintenance
and management......................... 14,012 5,322 (2,856) -- 16,478
Real Estate taxes....................... 18,398 5,291 (4,620) -- 19,069
Mortgage and other
interest............................... 16,562 -- -- 11,177(C) 27,739
General and administrative.............. 5,123 -- -- -- 5,123
Non-recurring stock-based
compensation........................... 3,415 -- -- -- 3,415
Depreciation and
amortization........................... 16,606 -- -- 4,505(D) 21,111
----------- ------- -------- ----------- ----------
Total expenses.......................... 74,116 10,613 (7,476) 15,682 92,935
----------- ------- -------- ----------- ----------
Income before net gain on sale of
properties and extraordinary
item................................... 23,436 27,479 (10,083) (15,682) 25,150
Net gain on sale of properties........... 7,438 -- (7,438) -- --
----------- ------- -------- ----------- ----------
Income before extraordinary item and
allocation to minority interest........ 30,874 27,479 (17,521) (15,682) 25,150
Income allocated to minority interest.... (1,116) -- -- (452) (1,568)
----------- ------- -------- ----------- ----------
Income before extraordinary item......... $ 29,758 $27,479 $(17,521) $(16,134) $ 23,582
=========== ======= ======== =========== ==========
Weighted average shares
outstanding -- basic(E)................ 21,776,146 22,963,982
Basic and diluted income per
common share:
Income before extraordinary item(E)..... $1.36 $1.03
=========== ==========
</TABLE>
EXPLANATORY NOTES
(A) Increase represents historical operating revenues and expenses on
properties acquired in 1997 and 1998, or probable of acquisition subsequent
to December 31, 1997, for the period Bradley did not own such properties.
(B) Decrease represents the elimination of historical operating revenues and
expenses, and net gain on sale of properties disposed of during 1997 and
1998 or probable of being sold for the period during which Bradley owned
such properties.
(C) Mortgage and other interest has been increased to reflect the pro forma
borrowings for property acquisitions for the period during which Bradley
did not own such properties, net of the reduction for the application of
net proceeds from the property dispositions and the December 1997 and
February 1998 Stock Offerings to pay down the line of credit for the period
during which Bradley owned such properties, and for the period preceding
the Stock Offerings, at an interest rate of 6.50%, which was Bradley's
approximate borrowing rate at May 30, 1998. Mortgage and other interest has
been increased for the November 1997 and January 1998 Debt Issuances, net
of the reduction for the application of net proceeds of such Debt Issuances
to pay down the $100 million REMIC Note and the line of credit,
<PAGE>
respectively, at the applicable effective interest rates. Mortgage and
other interest has been decreased by the net reduction in interest expense
resulting from the December 1997 paydown of the existing line of credit
facility with proceeds from the new line of credit facility. A 0.125%
change in the variable rate would result in a change in the pro forma
interest adjustment of approximately $19,000.
Increase in interest expense attributable to
acquisition activities............................... $18,885
Decrease in interest expense attributable to
disposition activities............................... (6,369)
Decrease in interest expense attributable to
the Stock Offerings.................................. (1,987)
Net increase in interest expense attributable to
the Debt Issuances................................... 1,092
Net decrease in interest expense attributable to
the paydown of the existing line of credit
facility with proceeds from the new line of
credit facility...................................... (444)
----
Pro forma adjustment................................... $11,177
=======
(D) Depreciation and amortization has been increased to give effect to recording
the property acquisitions (including probable acquisitions) over a
depreciable life of 39 years, for the period which Bradley did not own such
properties, net of the reduction for properties disposed for the period
which Bradley owned such properties, as follows:
Increase in depreciation and amortization
attributable to acquisition activities............... $ 5,899
Decrease in depreciation and amortization
attributable to disposition activities............... (1,394)
-------
Pro forma adjustment................................... $ 4,505
=======
(E) A reconciliation of the numerator and denominator used to compute basic EPS
to the numerator and denominator used to compute diluted EPS is as follows:
<TABLE>
<CAPTION>
BRADLEY HISTORICAL BRADLEY PRO FORMA
NUMERATOR DENOMINATOR PER SHARE NUMERATOR DENOMINATOR PER SHARE
----------- ----------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income before extraordinary item.. $29,758,000 21,776,146 $ 1.36 $23,582,000 22,963,982 $1.03
Effect of dilutive securities:
Stock options..................... -- 42,451 -- 42,451
Stock-based compensation.......... -- 315 -- 315
Conversion of LP Units............ 1,116,000 799,938 1,568,000 1,523,587
----------- ---------- ---------- -----------
Diluted EPS:
Income before extraordinary item.. $30,874,000 22,618,850 $ 1.36 $25,150,000 24,530,335 $1.03
=========== ========== ========== =========== =========== =========
</TABLE>
DOCSC\657526.2
