<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- ---
Act of 1934 for the quarterly period ended June 30, 1999 or
___ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____to_____
Commission file number 0-23065
BRADLEY OPERATING LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Maryland 04-3306041
(State of Organization) (I.R.S. Identification No.)
40 Skokie Blvd., Northbrook, Illinois 60062
(Address of Registrant's Principal Executive Offices)
Registrant's telephone number, including area code: (847) 272-9800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
<PAGE>
BRADLEY OPERATING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
ASSETS:
<S> <C> <C>
Real estate investments - at cost $970,710 $936,465
Accumulated depreciation and amortization (69,713) (59,196)
-------- --------
Net real estate investments 900,997 877,269
Real estate investments held for sale 30,116 46,492
Other assets:
Cash and cash equivalents 108 -
Rents and other receivables, net of allowance for doubtful accounts
of $4,884 for 1999 and $4,078 for 1998 17,423 14,994
Investment in partnership - 13,249
Deferred charges, net and other assets 16,095 16,676
-------- --------
Total assets $964,739 $968,680
======== ========
LIABILITIES AND PARTNERS' CAPITAL:
Mortgage loans $102,000 $103,333
Unsecured notes payable 199,573 199,542
Line of credit 120,900 169,500
Accounts payable, accrued expenses and other liabilities 28,676 29,946
-------- --------
Total liabilities 451,149 502,321
-------- --------
Minority interest 925 954
-------- --------
Partners' Capital:
General partner, common; issued and outstanding 24,057,300 and
23,958,662 units at June 30, 1999 and December 31, 1998, respectively 356,298 357,108
General partner, Series A preferred (liquidation preference $25.00 per unit);
issued and outstanding 3,478,471 and 3,478,493 units at June 30, 1999
and December 31, 1998, respectively 86,809 86,809
Limited partners, common; issued and outstanding 1,381,353 and 1,441,678
units at June 30, 1999 and December 31, 1998, respectively 20,458 21,488
Limited partners, Series B preferred (liquidation preference $25.00 per unit);
issued and outstanding 2,000,000 units at June 30, 1999 49,100 -
-------- --------
Total partners' capital 512,665 465,405
-------- --------
Total liabilities and partners' capital $964,739 $968,680
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
BRADLEY OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per unit data)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------- -----------------------
1999 1998 1999 1998
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
REVENUE:
Rental income $36,872 $30,601 $75,582 $59,337
Other income 686 440 1,329 1,059
----------- ---------- ---------- ---------
37,558 31,041 76,911 60,396
----------- ---------- ---------- ---------
EXPENSES:
Operations, maintenance and management 5,405 4,443 12,083 8,776
Real estate taxes 5,556 5,295 11,671 10,776
Mortgage and other interest 7,182 6,585 14,869 12,143
General and administrative 1,686 1,545 3,664 2,781
Depreciation and amortization 6,484 5,631 12,941 10,594
----------- ---------- ---------- ---------
26,313 23,499 55,228 45,070
----------- ---------- ---------- ---------
Income before equity in earnings of partnership and
provision for loss on real estate investment 11,245 7,542 21,683 15,326
Equity in earnings of partnership 153 - 500 -
Provision for loss on real estate investment - - - (875)
----------- ---------- ---------- ---------
Income before allocation to minority interest 11,398 7,542 22,183 14,451
Income allocated to minority interest (27) (43) (48) (86)
----------- ---------- ---------- ---------
Net income 11,371 7,499 22,135 14,365
Preferred unit distributions (2,935) - (5,217) -
----------- ---------- ---------- ---------
Net income attributable to common unit holders $ 8,436 $ 7,499 $16,918 $14,365
=========== ========== ========== =========
Earnings per common unit:
Basic $0.33 $0.30 $0.66 $0.58
=========== ========== ========== =========
Diluted $0.33 $0.30 $0.66 $0.58
=========== ========== ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
BRADLEY OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(Dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
General Limited
General Partner, Limited Partners,
Partner, Series A Partners, Series B
common preferred common preferred Total
------------ -------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $357,108 $86,809 $21,488 $ - $465,405
Net income 8,002 1,826 480 456 10,764
Distributions on preferred units - (1,826) - (456) (2,282)
Distributions on common units (9,123) - (533) - (9,656)
Capital contributions 1,645 - - 49,100 50,745
Redemption of LP Units - - (833) - (833)
Reallocation of partners' capital (145) - 145 - -
GP Units issued upon redemption
of LP units 6 - (6) - -
------------ -------------- -------------- -------------- -----------
Balance at March 31, 1999 357,493 86,809 20,741 49,100 514,143
Net income 7,976 1,826 460 1,109 11,371
Distributions on preferred units - (1,826) - (1,109) (2,935)
Distributions on common units (9,082) - (511) - (9,593)
Redemption of LP Units - - (281) - (281)
Other capital costs (40) - - - (40)
Reallocation of partners' capital (49) - 49 - -
------------ -------------- -------------- -------------- -----------
Balance at June 30, 1999 $356,298 $86,809 $20,458 $49,100 $512,665
============ ============== ============== ============== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
BRADLEY OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------------------------------
1999 1998
------------------ ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 22,135 $ 14,365
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 12,941 10,594
Equity in earnings of partnership (500) -
Amortization of debt premiums, net of discounts (479) -
Provision for loss on real estate investment - 875
Income allocated to minority interest 48 86
Change in operating assets and liabilities:
(Increase) decrease in rents and other receivables 860 (1,325)
Increase (decrease) in accounts payable, accrued expenses and other liabilities (1,671) 7,137
Increase in deferred charges (1,064) (2,037)
------------------ ----------------
Net cash provided by operating activities 32,270 29,695
------------------ ----------------
Cash flows from investing activities:
Expenditures for real estate investments (21,636) (108,512)
Expenditures for capital improvements (6,934) (5,309)
Net proceeds from sale of properties 16,899 1,869
Cash distributions from partnership 3,943 -
------------------ ----------------
Net cash used in investing activities (7,728) (111,952)
------------------ ----------------
Cash flows from financing activities:
Borrowings from line of credit 46,900 118,050
Payments under line of credit (95,500) (123,550)
Proceeds from issuance of unsecured notes payable - 99,051
Expenditures for financing costs (59) (5,979)
Principal payments on mortgage loans (823) (534)
Distributions paid to common unit holders (19,249) (17,877)
Distributions paid to minority interest holders (77) (159)
Distributions paid to Series A preferred unit holders (3,652) -
Distributions paid to Series B preferred unit holders (1,565) -
Capital contributions from the Company's issuance of GP Units 1,605 10,203
Net proceeds from issuance of Series B preferred units 49,100 -
Payments to redeem limited partnership units (1,114) -
------------------ ----------------
Net cash provided by (used in) financing activities (24,434) 79,205
------------------ ----------------
Net increase (decrease) in cash and cash equivalents 108 (3,052)
Cash and cash equivalents:
Beginning of period - 4,747
------------------ ----------------
End of period $ 108 $ 1,695
================== ================
Supplemental cash flow information:
Interest paid, net of amount capitalized $ 15,499 $ 8,358
================== ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
BRADLEY OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
Bradley Operating Limited Partnership (the "Operating Partnership") is the
entity through which Bradley Real Estate, Inc. (the "Company" or "Bradley"), the
General Partner and owner of an approximate 88% economic interest in the
Operating Partnership, conducts substantially all of its business and owns
(either directly or through subsidiaries) substantially all of its assets.
The accompanying interim financial statements have been prepared by the
Operating Partnership, without audit, and in the opinion of management reflect
all normal recurring adjustments necessary for a fair presentation of results
for the unaudited interim periods presented. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted. It
is suggested that these condensed financial statements be read in conjunction
with the financial statements and the notes thereto for the fiscal year ended
December 31, 1998.
Interests in the Operating Partnership are evidenced by four classes of unit
holders, general partner "common" units owned by the Company as "GP Units," 8.4%
Series A Convertible Preferred units of limited partnership interest owned by
the general partner as "Series A Preferred Units," limited partner "common"
units evidenced by "LP Units" and 8.875% Series B Cumulative Redeemable
Perpetual Preferred Units of limited partnership interest evidenced by "Series B
Preferred Units." The Partnership Agreement governing the Operating Partnership
contemplates that the number of outstanding GP Units will always equal the
number of outstanding shares of common stock of the Company outstanding and that
the Company will contribute to the Operating Partnership the proceeds from all
issuances of common stock and preferred stock by the Company in exchange for
additional units. The Partnership Agreement also contemplates that the number of
Series A Preferred Units will always equal the number of outstanding shares of
Series A Preferred Stock of the Company. In addition, the holders of LP Units
have the right, under certain circumstances, to exchange their units for shares
of common stock of the Company on a one-for-one basis. Holders of GP Units and
LP Units are referred to as "common unit holders." Holders of Series A Preferred
Units and Series B Preferred Units are referred to as "preferred unit holders."
NOTE 2 - EARNINGS PER COMMON UNIT
Basic earnings per common unit ("EPU") is computed by dividing income available
to common unit holders by the weighted average number of common units
outstanding for the period. Diluted EPU is computed by reflecting the potential
dilution that could occur if securities or other contracts to issue units were
exercised or converted into common units or resulted in the issuance of common
units that then shared in the earnings of the Operating Partnership. A
reconciliation of basic and diluted weighted average common units outstanding
for each period is as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------ ------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Basic
Weighted average common units 25,444,494 25,083,874 25,441,252 24,911,365
============== ============== ============== ==============
Diluted
Weighted average common units 25,444,494 25,083,874 25,441,252 24,911,365
Effect of dilutive securities:
Stock options 40,101 50,014 34,823 49,450
-------------- -------------- -------------- --------------
Weighted average common units and assumed conversions 25,484,595 25,133,888 25,476,075 24,960,815
============== ============== ============== ==============
</TABLE>
For the six months ended June 30, 1999 and 1998, options to purchase 609,250
shares of the Company's common stock at prices ranging from $19.90 to $21.35 and
153,500 shares of common stock at prices ranging from $21.25 to $21.35 were
outstanding during each of the respective periods but were not included in the
computation of diluted EPU because the options' exercise prices were greater
than the average market prices of the Company's common shares during those
periods. For the six months ended June 30, 1999, Series A preferred unit
distributions of $3,652,000 and the effect on the denominator of the conversion
of the convertible preferred units outstanding during the period into 3,550,912
shares of common units were not included in the computation of diluted EPU
because the impact on basic EPU was anti-dilutive.
6
<PAGE>
For the three months ended June 30, 1999 and 1998, options to purchase 158,750
shares of the Company's common stock at prices ranging from $20.25 to $21.35 and
153,500 shares of common stock at prices ranging from $21.25 to $21.35 were
outstanding during each of the respective periods but were not included in the
computation of diluted EPU because the options' exercise prices were greater
than the average market prices of the Company's common shares during those
periods. For the three months ended June 30, 1999, Series A preferred unit
distributions of $1,826,000 and the effect on the denominator of the conversion
of the convertible preferred units outstanding during the quarter into 3,550,910
common units were not included in the computation of diluted EPU because the
impact on basic EPU was anti-dilutive.
NOTE 3 - SUPPLEMENTAL CASH FLOW DISCLOSURE
During the first quarter of 1999, 411 shares of the Company's common stock were
issued in exchange for an equivalent number of LP Units. During the second
quarter of 1999, the acquisition of the Operating Partnership's non-owned
portion of a joint venture resulted in a non-cash reclassification of investment
in partnership to real estate investments of $6,556,000 and a non-cash transfer
of a $3,100,000 note receivable.
NOTE 4 - ACQUISITION AND DISPOSITION ACTIVITY
At June 30, 1999, the Operating Partnership was holding for sale three enclosed
malls, all acquired in connection with the merger acquisition of Mid-America
Realty Investments, Inc. ("Mid-America"). During the second quarter, the
Operating Partnership completed the sales of an additional three properties, for
an aggregate gross sales price of $17,325,000. These three properties, all
acquired in connection with the merger acquisition of Mid-America, had been held
for sale since the merger acquisition. Two of these properties, Macon County
Plaza and Town West Shopping Center, are shopping centers located in the
Southeast region of the United States and are not aligned with the Operating
Partnership's strategic market focus. The third property, Monument Mall, is an
enclosed mall and, like the three properties currently held for sale, is not
aligned with the Operating Partnership's strategic property focus. The
dispositions of the three properties held for sale are expected to be completed
during 1999, although there can be no assurance that any such dispositions will
occur.
In connection with the merger acquisition of Mid-America, the Operating
Partnership acquired a 50% interest in a joint venture that owned two
neighborhood shopping centers and one enclosed mall. During the second quarter,
the joint venture sold Imperial Mall, the enclosed mall located in Hastings,
Nebraska, to the same buyer of Monument Mall for $12,100,000 including the
issuance of a $3,100,000 note at 9.0%, secured by a second deed of trust.
Subsequently, the Operating Partnership acquired the 50% non-owned portion of
the joint venture for a purchase price equal to $7,750,000 subject to customary
closing costs and pro-rations. As a result, the two neighborhood shopping
centers previously owned by the joint venture are now wholly-owned by the
Operating Partnership and are consolidated for financial reporting purposes.
During the second quarter of 1999, the Operating Partnership also completed the
acquisitions of two shopping centers located in Michigan and Ohio, aggregating
approximately 264,000 square feet for a total purchase price of $13,853,000.
Both of these shopping centers are expected to be substantially redeveloped,
bringing the number of active redevelopment projects being undertaken by the
Operating Partnership to four. The estimated total incremental capital
investment for these four projects is approximately $32 million.
NOTE 5 - SEGMENT REPORTING
As of June 30, 1999, the Operating Partnership owned 96 shopping centers located
primarily in the Midwest region of the United States. Such shopping centers are
typically anchored by grocery and drug stores complemented with stores providing
a wide range of other goods and services to shoppers. During the first half of
1998, the Operating Partnership also owned a mixed-use office property located
in downtown Chicago, Illinois, which was sold in July 1998. Because this
property required a different operating strategy and management expertise than
all other properties in the portfolio, it was considered a separate reportable
segment.
The Operating Partnership assesses and measures operating results on an
individual property basis for each of its 96 shopping centers without
differentiation, based on net operating income, and then converts such amounts
in the aggregate to a performance measure referred to as Funds from Operations
("FFO"). Since all of the Operating Partnership's shopping centers exhibit
similar economic characteristics, cater to the day-to-day living needs of their
respective surrounding communities, and offer similar degrees of risk and
opportunities for growth, the shopping centers have been aggregated and reported
as one operating segment.
The revenue and net operating income for the reportable segments and for the
Operating Partnership, a computation of FFO for the Operating Partnership, and a
reconciliation to net income attributable to common unit holders, are as follows
for each of the three and six month periods ended June 30, 1999 and 1998
(dollars in thousands):
7
<PAGE>
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------------------- ------------------------------
1999 1998 1999 1998
---------- --------- ---------- -----------
<S> <C> <C> <C> <C>
TOTAL PROPERTY REVENUE:
Mixed-use office property $ - $ 3,570 $ - $ 7,273
Shopping center properties 37,345 27,379 76,410 52,929
------- ------- ------- -------
37,345 30,949 76,410 60,202
------- ------- ------- -------
TOTAL PROPERTY OPERATING EXPENSES:
Mixed-use office property - 1,279 - 2,831
Shopping center properties 10,961 8,459 23,754 16,721
------- ------- ------- -------
10,961 9,738 23,754 19,552
------- ------- ------- -------
Net operating income 26,384 21,211 52,656 40,650
------- ------- ------- -------
NON-PROPERTY (INCOME) EXPENSES:
Other non-property income (213) (92) (501) (194)
Equity in earnings of partnership, excluding
depreciation and amortization (210) - (600) -
Mortgage and other interest 7,182 6,585 14,869 12,143
General and administrative 1,686 1,545 3,664 2,781
Amortization of deferred finance and non-real estate
related costs 280 226 559 467
Preferred unit distributions 2,935 - 5,217 -
Income allocated to minority interest 27 43 48 86
------- ------- ------- -------
11,687 8,307 23,256 15,283
------- ------- -------- -------
Funds from Operations $14,697 $12,904 $ 29,400 $25,367
======= ======= ======== =======
RECONCILIATION TO NET INCOME ATTRIBUTABLE TO COMMON
UNIT HOLDERS:
Funds from Operations $14,697 $12,904 $ 29,400 $25,367
Depreciation of real estate assets and amortization
of tenant improvements (5,553) (4,315) (11,002) (8,246)
Amortization of deferred leasing commissions (353) (791) (784) (1,284)
Other amortization (298) (299) (596) (597)
Depreciation and amortization included in equity in
earnings of partnership (57) - (100) -
Provision for loss on real estate investment - - - (875)
------- ------- -------- -------
Net income attributable to common unit holders $ 8,436 $ 7,499 $ 16,918 $14,365
======= ======= ======== =======
</TABLE>
8
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Throughout 1998, we acquired 44 shopping centers and a 50% interest in a joint
venture that owned two neighborhood shopping centers and one enclosed mall for
an aggregate cost of approximately $362 million. Of these acquisitions, we
acquired 22 of the shopping centers and the joint venture interest in connection
with the merger acquisition of Mid-America in August 1998. During the second
and third quarters of 1998, we also completed the sales of two properties that
did not meet our strategic focus for an aggregate net sales price of $84
million, resulting in a net gain of $29.7 million. This gain is net of a
provision for loss on real estate investment of $875,000 reflected in the first
quarter of 1998.
During the second quarter of 1999, we completed the acquisitions of two shopping
centers for an aggregate purchase price of $13.9 million, and sold three
properties for an aggregate gross sales price of $17.3 million. During the
second quarter of 1999, we also acquired the 50% non-owned portion of the two
shopping centers held by the joint venture acquired in connection with the
merger acquisition of Mid-America. As a result, these two shopping centers are
consolidated for financial reporting purposes.
Differences in results of operations for the six and three-month periods ended
June 30, 1999 compared with the same periods in 1998 were driven in large part
from the acquisition activity. Including the provision for loss on real estate
investment in 1998, net income attributable to common unit holders increased
$2,553,000, or 18%, from $14,365,000 in the first half of 1998 to $16,918,000 in
the first half of 1999. Basic and diluted net income per common unit increased
$0.08 per common unit, or 14%, from $0.58 per common unit in the first half of
1998 to $0.66 per common unit in the first half of 1999. For the quarter ended
June 30, 1999, net income attributable to common unit holders increased
$937,000, or 12%, from $7,499,000 in the quarter ended June 30, 1998 to
$8,436,000 in the quarter ended June 30, 1999. Basic and diluted net income per
common unit increased $0.03 per common unit, or 10%, from $0.30 per common unit
in the quarter ended June 30, 1998 to $0.33 per common unit in the quarter ended
June 30, 1999. Our results of operations for the first half of 1998 and 1999
reflect 51 properties that were held both six-month periods and 50 properties
that we purchased or sold between the two periods. Our results of operations
for the second quarter of 1998 and 1999 reflect 56 properties that were held
both quarters and 45 properties that we purchased or sold between the two
periods.
Property Specific Revenues And Expenses (in thousands of dollars):
<TABLE>
<CAPTION>
Six months ended
June 30, Properties
------------------------- Acquisitions/ Held Both
1999 1998 Difference Dispositions Periods
---------- ---------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Rental income $75,582 $59,337 $16,245 $14,862 $1,383
Operations, maintenance and management 12,083 8,776 3,307 2,636 671
Real estate taxes 11,671 10,776 895 752 143
Depreciation and amortization 12,941 10,594 2,347 2,402 (55)
</TABLE>
<TABLE>
<CAPTION>
Three months ended
June 30, Properties
------------------------- Acquisitions/ Held Both
1999 1998 Difference Dispositions Periods
---------- ---------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Rental income $36,872 $30,601 $6,271 $6,065 $ 206
Operations, maintenance and management 5,405 4,443 962 966 (4)
Real estate taxes 5,556 5,295 261 410 (149)
Depreciation and amortization 6,484 5,631 853 1,132 (279)
</TABLE>
Results attributable to acquisition and disposition activities:
Rental income increased from $59,337,000 in the first half of 1998 to
$75,582,000 in the first half of 1999 and from $30,601,000 in the second quarter
of 1998 to $36,872,000 in the second quarter of 1999. Approximately $14,862,000
of the increase during the six-month period was attributable to acquisition
activities, including $10,205,000 for properties acquired in connection with the
merger acquisition of Mid-America, partially offset by $6,208,000 attributable
to disposition activities, primarily One North State. Approximately $6,065,000
of the increase during the three-month period was attributable to acquisition
activities, including $4,987,000 for properties acquired in connection with the
merger acquisition of Mid-America, partially offset by $3,180,000 attributable
to disposition activities, primarily One North State.
9
<PAGE>
Operations, maintenance and management expense increased from $8,776,000 in the
first half of 1998 to $12,083,000 in the first half of 1999 and from $4,443,000
in the second quarter of 1998 to $5,405,000 in the second quarter of 1999.
Approximately $2,636,000 of the increase during the six-month period was
attributable to acquisition and disposition activities, including an increase of
$1,830,000 for properties acquired in connection with the merger acquisition of
Mid-America. For the three-month period, approximately $966,000 of the increase
was attributable to acquisition and disposition activities, including an
increase of $849,000 for properties acquired in connection with the merger
acquisition of Mid-America.
Real estate taxes increased from $10,776,000 in the first half of 1998 to
$11,671,000 in the first half of 1999 and from $5,295,000 in the second quarter
of 1998 to $5,556,000 in the second quarter of 1999. Approximately $752,000 of
the increase during the six-month period was attributable to acquisition and
disposition activities, including an increase of $1,285,000 for properties
acquired in connection with the merger acquisition of Mid-America, partially
offset by a decrease of $1,655,000 for properties sold, primarily One North
State. For the three-month period, approximately $410,000 of the increase was
attributable to acquisition and disposition activities, including an increase of
$634,000 for properties acquired in connection with the merger acquisition of
Mid-America, partially offset by a decrease of $682,000 for properties sold,
primarily One North State.
Depreciation and amortization increased from $10,594,000 in the first half of
1998 to $12,941,000 in the first half of 1999 and from $5,631,000 in the second
quarter of 1998 to $6,484,000 in the second quarter of 1999. Approximately
$2,402,000 of the increase during the six-month period was attributable to
acquisition and disposition activities, including an increase of $949,000 for
properties acquired in connection with the merger acquisition of Mid-America.
For the three-month period, approximately $1,132,000 of the increase was
attributable to acquisition and disposition activities, including an increase of
$498,000 for properties acquired in connection with the merger acquisition of
Mid-America.
Results for properties fully operating throughout both periods:
Several factors affected the comparability of results for properties fully
operating throughout both six and three-month periods ended June 30, 1999 and
1998. Winter storms in the Midwest occurring during the first quarter of 1999
resulted in an increase in the level of snow removal expenses of approximately
$564,000 during the first half of 1999 compared with the first half of 1998.
This increase in operations, maintenance and management expense was mitigated by
the recoverability of such expenses through operating expense reimbursements,
which were $512,000 higher during the first half of 1999 compared with the first
half of 1998. Additionally, two large tenants, Montgomery Ward at Heritage
Square, and HomePlace at Har Mar Mall, vacated their respective stores during
1998 after declaring bankruptcy in July 1997 and January 1998, respectively.
Rental income decreased from the first half of 1998 at these two shopping
centers by $624,000 and $412,000, respectively, and by $302,000 and $303,000
respectively, during the second quarter of 1999 from the second quarter of 1998.
A 62,000 square-foot lease with Carson Pirie Scott commenced July 14, 1999,
which replaces approximately one half the space previously occupied by
Montgomery Ward. We are currently negotiating leases to replace the remaining
space previously occupied by Montgomery Ward and the space vacated by HomePlace.
Finally, the Operating Partnership, as well as most other real estate companies,
was affected by a consensus reached by the Emerging Issues Task Force ("EITF")
of the Financial Accounting Standards Board regarding the accounting for
percentage rents. On May 22, 1998, the EITF reached a consensus under Issue No.
98-9, Accounting for Contingent Rent in Interim Financial Periods, that despite
the fact that the achievement of a future specified sales target of a lessee may
be considered as probable and reasonably estimable at some earlier point in the
year, a lessor should defer recognition of contingent rental income until such
specified targets are met. The pronouncement was effective May 23, 1998.
Because the majority of our retail tenant leases have sales years ending in
December or January, a substantial portion of percentage rental income from such
leases is now recognized in the first quarter, once it is determined that
specified sales targets have been achieved. Previously, we recognized percentage
rental income each period based on reasonable estimates of tenant sales.
Largely due to the implementation of EITF 98-9, therefore, percentage rental
income for properties held throughout both quarters ended June 30, 1999 and 1998
decreased by $331,000. Percentage rental income for properties held throughout
both six-month periods ended June 30, 1999 and 1998 decreased by only $165,000
due to the increase in percentage rents during the first quarter of 1999 from
the first quarter of 1998.
In addition to the changes in rental income described above, during the first
half of 1999 compared with the first half of 1998, rental income increased
$271,000 at Rollins Crossing and $179,000 at Burning Tree Plaza, due to a 71,000
square-foot lease with Regal Cinema at Rollins Crossing and a 24,000 square-foot
lease with Dunham's Athleisure at Burning Tree Plaza, both commencing in the
fourth quarter of 1998. For the second quarter of 1999 rental income for these
shopping centers increased $120,000 and $95,000, respectively from the second
quarter of 1998. Additionally, rental income increased $171,000 at Sun Ray
Shopping Center for the six-month period of 1999 due to an increase in tax
reimbursements primarily resulting from a tax abatement received in the first
quarter of 1998, contributing to an increase in real estate taxes of $171,000
from the six-month period in the prior year. Rental income increased $96,000 at
Brookdale Square for the six-month period of 1999 primarily due to the receipt
of a termination fee from Brookdale Cinema in the first quarter of 1999 and the
commencement of a 22,000 square-foot lease with Pep Boys. Rental income
increased at Speedway Super Center by $670,000 and $476,000 for the six and
three-month periods respectively, ended June 30, 1999 from the same periods in
the prior year due to the receipt of a termination fee from PetsMart in the
second quarter of 1999 and due to the commencement of several new leases.
10
<PAGE>
Non-Property Specific Revenues and Expenses:
Other income increased from $1,059,000 during the first half of 1998 to
$1,329,000 during the first half of 1999, and from $440,000 for the second
quarter of 1998 to $686,000 for the second quarter of 1999. Other income
contains both property specific and non-property specific income; however, the
increase is primarily attributable to property specific sources. The increase
in other income resulted from an increase in other property income generated
from properties acquired during 1998, primarily from four enclosed malls
acquired in connection with the merger acquisition of Mid-America, partially
offset by a reduction in other income of $159,000 at Grandview Plaza for the
six-month period for insurance proceeds in excess of the net book value of
assets destroyed and costs incurred for a fire at Grandview Plaza in 1997
received and recognized in the first quarter of 1998.
Mortgage and other interest expense increased from $12,143,000 during the first
half of 1998 to $14,869,000 during the first half of 1999, and from $6,585,000
for the second quarter of 1998 to $7,182,000 for the second quarter of 1999.
Mortgage debt of $37,933,000 assumed in connection with the merger acquisition
of Mid-America, as well as $25,753,000 in mortgage indebtedness assumed upon the
acquisitions of three additional shopping centers during 1998, partially offset
by the repayment in the third quarter of 1998 of mortgage notes secured by
Richfield Hub and Hub West aggregating $10 million, contributed to an increase
in interest expense of $1,686,000 for the six-month period and $817,000 for the
second quarter. A higher weighted average balance outstanding on the line of
credit during the first half of 1999 compared with the first half of 1998,
partially offset by a lower weighted average interest rate in 1999, resulted in
an increase in interest expense of $502,000. A slightly lower weighted average
balance outstanding on the line of credit during the second quarter of 1999
compared with the second quarter of 1998 resulting from the pay-down of
approximately $49,100,000 with net proceeds from the issuance on February 23,
1999 of Series B Preferred Units, combined with a slightly lower weighted
average interest rate, resulted in a decrease in interest expense of $256,000
for the second quarter of 1999 compared with the second quarter of 1998. On
January 28, 1998, we issued $100 million, 7.2% ten-year unsecured Notes maturing
January 15, 2008. Proceeds from the offering were used to reduce outstanding
borrowings under the line of credit, which had been increased throughout 1997
primarily to fund acquisition activity. Interest incurred on these unsecured
Notes in the first half of 1998 amounted to $6,829,000 compared with $7,403,000
for the full six months in 1999, an increase of $574,000. Our total weighted
average interest rate decreased to 7.05% for the second quarter of 1999 from
7.20% for the second quarter of 1998.
General and administrative expense increased from $2,781,000 during the first
half of 1998 to $3,664,000 during the first half of 1999, and from $1,545,000
for the quarter ended June 30, 1998 to $1,686,000 for the quarter ended June 30,
1999. The increase primarily resulted from our growth, including increases in
salaries for additional personnel and franchise taxes and related fees for a
larger capital base and expanded geographic market.
While the capital markets for REITs have remained challenging, during February
1999, we took advantage of an opportunity to replace $50 million of short term
floating rate debt under the line of credit with the issuance of 8.875% Series B
Cumulative Redeemable Perpetual Preferred Units (the "Series B Preferred
Units"). Although the spread between the interest rate currently available
under the line of credit facility and the rate associated with the Series B
Preferred Units is dilutive in the short-term, the infusion of such permanent
capital reduced the amount of outstanding indebtedness and increased the
capacity under the line of credit, providing us with additional flexibility to
take advantage of the favorable acquisition, development, and redevelopment
opportunities we continue to identify from both prospective acquisitions in our
target markets and from shopping centers in our core portfolio. Distributions
on the Series B Preferred Units were $1,565,000 during the first half of 1999,
and $1,109,000 during the quarter ended June 30, 1999, the first full quarterly
period that the Series B Preferred Units have been outstanding.
Distributions on the Series A Preferred Units issued in connection with the
merger acquisition of Mid-America in August 1998 were $3,652,000 for the first
half of 1999, and $1,826,000 during the second quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
General
We fund operating expenses and distributions primarily from operating cash
flows, although we may also use our bank line of credit for these purposes. We
fund acquisitions and capital expenditures primarily from the line of credit
and, to a lesser extent, operating cash flows, as well as through the issuance
of LP Units to contributors of properties acquired. We may also acquire
properties through capital contributions from the Company of additional equity
securities. Additionally, we may dispose of certain non-core properties,
reinvesting the proceeds from such dispositions into properties with better
growth potential and that are more consistent with our strategic focus. In
addition, we may acquire partial interests in real estate assets through
participation in joint venture transactions.
We focus our investment activities on community and neighborhood shopping
centers, primarily located in the midwestern United States, anchored by regional
and national grocery store chains. We will continue to seek acquisition
opportunities of individual properties and property portfolios and of private
and public real estate entities in both primary and secondary Midwest markets,
where we can utilize our extensive experience in shopping center renovation,
expansion, re-leasing and re-merchandising to achieve long-term cash flow growth
11
<PAGE>
and favorable investment returns. Additionally, we expect to continue to engage
in development activities, either directly or through contractual relationships
with independent development companies, to develop community and neighborhood
shopping centers in selected Midwest markets where we anticipate that value can
be created from new developments more effectively than from acquisitions of
existing shopping center properties. We would also consider investment
opportunities in markets beyond the Midwest in the event such opportunities were
on a scale that enabled us to actively manage, lease, develop and redevelop
shopping centers consistent with our focus that create favorable investment
returns and increase value to our share owners.
We consider our liquidity and ability to generate cash from operating and from
financing activities to be sufficient to meet our operating expense, development
costs, debt service and distribution requirements for at least a year. Despite
a current difficult capital markets environment for REITs, we also believe we
have sufficient liquidity and flexibility to be able to continue to take
advantage of favorable acquisition and development opportunities. However, the
utilization of available liquidity for such opportunities will be carefully
calibrated to changing market conditions.
As of June 30, 1999, our financial liquidity was provided by $108,000 in cash
and cash equivalents and by the unused balance on our bank line of credit of
$129.1 million. As of June 30, 1999, we were holding for sale three properties
with an aggregate book value of $30.1 million. We expect to complete the sales
of these properties during the second half of 1999, although we can give no
assurance that any such sales will occur. Proceeds received from a sale of any
of such properties would provide us with additional liquidity. In addition, the
Company has an effective "shelf" registration statement under which it may issue
up to $201.4 million in equity securities, and the Operating Partnership has an
additional "shelf" registration statement under which we may issue up to $400
million in unsecured, non-convertible investment grade debt securities. The
"shelf" registration statements provide the Company and the Operating
Partnership with the flexibility to issue additional equity or debt securities
from time to time when we determine that market conditions and the opportunity
to utilize the proceeds from the issuance of such securities are favorable. We
have also implemented a Medium-Term Note program providing it with the added
flexibility of issuing Medium-Term Notes due nine months or more from date of
issue in varying amounts in an aggregate principal amount of up to $150 million
from time to time using the debt "shelf" registration in an efficient and
expeditious manner.
Mortgage debt outstanding at June 30, 1999 consisted of fixed-rate notes
totaling $102.0 million with a weighted average interest rate of 7.51% maturing
at various dates through 2016. Short-term liquidity requirements include debt
service payments due within one year. Scheduled principal payments of mortgage
debt totaled $823,000 during the six-month period ended June 30, 1999, with
another $1.2 million of scheduled principal amortization due for the remainder
of the year. We have no maturing debt until February 2000, when $6.0 million in
mortgage debt becomes due, and December 2000, when the line of credit expires.
While we currently expect to fund short-term and long-term liquidity
requirements primarily through a combination of issuing additional investment
grade unsecured debt securities of the Operating Partnership and equity
securities of the Company and with borrowings under the bank line of credit,
there can be no assurance that we will be able to repay or refinance
indebtedness on commercially reasonable or any other terms.
Operating Activities
Net cash flows provided by operating activities increased to $32,270,000 during
the first half of 1999, from $29,695,000 during the same period in 1998. This
increase occurred despite an increase of $7,141,000 in interest paid, net of
amount capitalized, from $8,358,000 during the first half of 1998 to $15,499,000
during the first half of 1999, while interest expense increased during these
same periods by only $2,726,000. The increase in interest payments primarily
resulted from a $3,600,000 semi-annual interest payment due January 1999 on $100
million of 7.2% ten-year bonds, accrued in the prior year. Excluding the semi-
annual interest payment, cash provided by operating activities increased
$6,175,000. This increase is primarily due to the growth of our portfolio, from
53 properties at January 1, 1998 (66 properties at June 30, 1998), to 96
properties at June 30, 1999.
For the six months ended June 30, 1999, funds from operations ("FFO") increased
$4,033,000, or 16%, from $25,367,000 to $29,400,000. For the three months ended
June 30, 1999, FFO increased $1,793,000, or 14%, from $12,904,000 to
$14,697,000. The Operating Partnership generally considers FFO to be a relevant
and meaningful supplemental measure of the performance of an equity REIT because
it is predicated on a cash flow analysis, contrasted with net income, a measure
predicated on generally accepted accounting principles which gives effect to
non-cash items such as depreciation. We compute FFO in accordance with the
March 1995 "White Paper" on FFO published by the National Association of Real
Estate Investment Trusts ("NAREIT"), as net income (computed in accordance with
generally accepted accounting principles), excluding gains or losses from debt
restructuring and sales of property, plus depreciation and amortization, and
after preferred unit distributions and adjustments for unconsolidated
partnerships. Adjustments for unconsolidated partnerships are computed to
reflect FFO on the same basis. In computing FFO, we do not add back to net
income the amortization of costs incurred in connection with our financing
activities or depreciation of non-real estate assets. FFO does not represent
cash generated from operating activities in accordance with generally accepted
accounting principles and should not be considered as an alternative to cash
flow as a measure of liquidity. Since the NAREIT White Paper provides
guidelines only for computing FFO, the computation of FFO may vary from one REIT
or its operating partnership to another. FFO is not necessarily indicative of
cash available to fund cash needs.
12
<PAGE>
Investing Activities
Net cash flows from investing activities increased to a use of cash of
$7,728,000 during the first half of 1999, from a use of cash of $111,952,000
during the same period in 1998. During the first half of 1999, we completed the
acquisitions of two shopping centers located in Michigan and Ohio aggregating
264,000 square feet for an aggregate purchase price of approximately
$13,853,000, and sold three properties aggregating 434,000 square feet for an
aggregate net sales price of $16,899,000. During this period, we also acquired
the 50% non-owned portion of two shopping centers held by our joint venture
acquired in connection with the merger acquisition of Mid-America, for a
purchase price of approximately $7,750,000. The acquisition of the 50% non-owned
portion of the joint venture was completed after the joint venture sold an
enclosed mall to a third party for $12,100,000, including the assumption of a
$3,100,000 note receivable. Cash distributions received from the joint venture
during the first half of 1999 amounted to $3,943,000.
During the first half of 1998, we completed the acquisitions of fourteen
shopping centers located in Illinois, Indiana, Kentucky, Michigan and Wisconsin
aggregating 1.7 million square feet for an aggregate purchase price of
approximately $111,783,000, and completed the sale of one shopping center for a
net sales price of $1,869,000.
Financing Activities
Net cash flows from financing activities decreased to a use of cash of
$24,434,000 during the first half of 1999 from a source of cash of $79,205,000
during the same period in 1998. Distributions to common and preferred unit
holders, as well as to the minority interest, were $24,543,000 in the first half
of 1999, and $18,036,000 in the first half of 1998.
The two shopping centers acquired during the first half of 1999 were acquired
with cash provided by our line of credit. Of the fourteen shopping centers
acquired during the first half of 1998, thirteen were acquired with cash
provided by our line of credit, and one was acquired with a combination of cash
provided by the line of credit and the assumption of $5,173,000 in non-recourse
mortgage indebtedness.
On February 23, 1999, we issued two million 8.875% Series B Cumulative
Redeemable Perpetual Preferred Units to two institutional investors at a price
of $25.00 per unit. Net proceeds from the issuance of approximately $49.1
million were used to reduce outstanding borrowings under the line of credit,
strengthening our capital structure, replacing floating rate debt with permanent
capital, and thereby adding liquidity, flexibility and additional capital to
fund our acquisition and development activities.
In the prior year period, we issued $100 million, 7.2% ten-year unsecured Notes
maturing January 15, 2008, and the Company issued 392,638 shares of common stock
to a unit investment trust, contributing the net proceeds of $7,489,000 to the
Operating Partnership. Proceeds from the offerings were used to reduce
outstanding borrowings under the line of credit.
Capital Strategy
We continue to identify favorable acquisition, development, and redevelopment
opportunities from both prospective acquisitions in our target markets and from
shopping centers in our core portfolio. We have expanded our internal
development capabilities to take advantage of such higher yielding investment
opportunities, which we expect to result in part from our existing relations
with the dominant grocery store operators in our Midwest markets. During the
second quarter of 1999, we continued the redevelopment of Prospect Plaza,
located in Gladstone, Missouri, and acquired two additional redevelopment
projects, Cherry Hill Marketplace located in Westland, Michigan, and 30th Street
Plaza located in Canton, Ohio. The redevelopment of Prospect Plaza is expected
to be complete in early 2000, with the redevelopments of Cherry Hill Marketplace
and 30th Street Plaza expected to be completed later in 2000. During the first
quarter of 1999, we finalized the necessary leasing transactions to commence our
planned redevelopment of the Commons of Chicago Ridge, a shopping center in our
core portfolio located in metropolitan Chicago. These projects are the types of
redevelopment investment opportunities upon which we will continue to focus.
The redevelopments will represent an incremental investment of approximately $32
million, and are expected to generate high returns on invested capital while
adding substantial long-term value to the centers. We also continue to
establish a pipeline of development opportunities and potential acquisitions of
shopping centers where our redevelopment experience can create similar enhanced
returns. We expect to finance these acquisition, development, and redevelopment
opportunities with a combination of proceeds from the sale of non-core assets,
retained cash, external capital and possible joint ventures.
Year 2000 Issues
- ----------------
Many existing computer software programs and operating systems were designed
such that the year 1999 is the maximum date that they will be able to process
accurately. The failure of our computer software programs and operating systems
to process the change in calendar year from 1999 to 2000 may result in system
malfunctions or failures. In the conduct of our operations, we rely on
equipment manufacturers and commercial computer software primarily provided by
independent software vendors, and we have undertaken an assessment of our
vulnerability to the so-called "Year 2000 issue" with respect to our equipment
and computer systems.
We have undertaken a five-step program in order to achieve Year 2000 readiness,
including:
13
<PAGE>
. Awareness - Education involving all levels of Bradley personnel regarding
Year 2000 implications.
. Inventory - Creating a checklist and conducting surveys to identify Year 2000
compliance issues in all systems, including both mechanical and information
systems. The surveys were also designed to identify critical outside parties
such as banks, tenants, suppliers and other parties with whom we do a
significant amount of business, for purposes of determining potential
exposure in the event such parties are not Year 2000 compliant.
. Assessment - Based upon the results of the inventory and surveys, assessing
the nature of identified Year 2000 issues and developing strategies to bring
our systems into substantial compliance with respect to Year 2000.
. Correction and Testing - Implementing the strategy developed during the
assessment phase.
. Implementation - Incorporating repaired or replaced systems into our systems
environment.
The program, which is ongoing, has yielded the following conclusions:
With respect to our potential exposure to information technology systems,
including our accounting and lease management systems, we believe that such
commercial software is Year 2000 ready. This assessment is based upon
installation and testing of upgraded software provided by software vendors, as
well as formal and informal communications with software vendors and literature
supplied with certain software.
In the operation of our properties, we have acquired equipment with embedded
technology such as microcontrollers which operate heating, ventilation and air
conditioning systems ("HVAC"), fire alarms, security systems, telephones and
other equipment utilizing time-sensitive technology. We have evaluated the
potential exposure to such non-information technology systems and believe that
such equipment is Year 2000 ready. This assessment is based upon formal and
informal communications with software vendors, literature supplied with the
software, literature supplied in connection with maintenance contracts, and test
evaluations of the software and equipment.
We have incurred less than $50,000 to bring our information technology systems
and equipment with embedded time-sensitive technology Year 2000 ready, and do
not expect to incur more the $10,000 to continue to monitor our Year 2000
readiness.
The failure of our tenants' or suppliers' computer software programs and
operating systems to process the change in calendar year from 1999 to 2000 may
also result in system malfunctions or failures. Such an occurrence would
potentially affect the ability of the affected tenant or supplier to operate its
business and thereby raise adequate revenue to meet its contractual obligations
to us. As a result, we may not receive revenue or services we had otherwise
expected to receive pursuant to existing leases and contracts. We have completed
an inventory of the tenants, suppliers and other parties with whom we do a
significant amount of business and have conducted surveys of such parties to
identify the potential exposure in the event they are not Year 2000 ready in a
timely manner. Based on the responses received, we are not aware of any party
that is anticipating a material Year 2000 readiness issue. Although the
investigations and assessments of possible Year 2000 issues are still ongoing,
we do not anticipate a material impact on our business, operations or financial
condition even if one or more parties is not Year 2000 ready in a timely manner,
because the number and nature of our tenant base are diverse, and because we do
not rely on a concentration of suppliers and other parties to conduct our
business.
Although we are aware that we may not, in fact, be Year 2000 ready upon the year
2000, at this time we have not adopted a contingency plan for the conduct of our
own operations because we expect to be Year 2000 ready in advance of 2000.
However, we will continue to monitor our progress and state of readiness, and
will be prepared to adopt a contingency plan with respect to areas in which
evidence arises that we may not become Year 2000 ready in sufficient time. It
is possible that an aggregation of tenants, suppliers, and other parties who
experience Year 2000 related system malfunctions or failures may have a material
impact on our business, operations, and financial condition. Although we
believe that we will be able to adopt appropriate contingency plans to deal with
any Year 2000 readiness issue that any other party, excluding public utilities,
with whom we have significant relationships may experience as we continue our
Year 2000 assessment and testing, we cannot be certain at this time that such
contingency plans will be effective in limiting the harm caused by such third
parties' system malfunctions and failures.
The reasonably likely worst case scenario that could affect our operations would
be a widespread prolonged power failure affecting a substantial portion of the
midwestern states in which our shopping centers are located. In the event of
such a widespread prolonged power failure, a significant number of tenants may
not be able to operate their stores and, as a result, their ability to pay rent
could be substantially impaired. We are not aware of an economically feasible
contingency plan which could be implemented to prevent such a power failure from
having a material adverse effect on our operations.
14
<PAGE>
FORWARD LOOKING STATEMENTS
Statements made or incorporated in this Form 10-Q include "forward-looking"
statements. Forward-looking statements include, without limitation, statements
containing the words "anticipates," "believes," "expects," "intends," "future,"
and words of similar import which express our belief, expectations or intentions
regarding our future performance or future events or trends. We caution you
that, while forward-looking statements reflect our good faith beliefs, they are
not guarantees of future performance and involve known and unknown risks,
uncertainties and other factors, which may cause actual results, performance or
achievements to differ materially from anticipated future results, performance
or achievements expressed or implied by such forward-looking statements as a
result of factors outside of our control. Certain factors that might cause such
a difference include, but are not limited to, the following: Real estate
investment considerations, such as the effect of economic and other conditions
in general and in the midwestern United States in particular; the financial
viability of our tenants; the continuing availability of retail center
acquisitions and development opportunities in the Midwest on favorable terms;
the availability of equity and debt capital in the public markets; the fact that
returns from development and acquisition activity may not be at expected levels;
the need to renew leases or relet space upon the expiration of current leases;
and the financial flexibility to refinance debt obligations when due. The
statements made under the caption "Risk Factors" included in the Operating
Partnership's Form 10-K for 1998 are incorporated herein by reference.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not applicable
Item 2. CHANGES IN SECURITIES
Not applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held May 13, 1999, shares were
voted on the following matter (number of shares rounded to nearest full share):
<TABLE>
<CAPTION>
Election of Directors:
<S> <C> <C>
Nominee For Withheld
------- --- --------
Thomas P. D'Arcy 23,274,748 105,386
Joseph E. Hakim 23,259,913 120,221
William L. Brown 23,256,339 123,795
</TABLE>
Item 5. OTHER INFORMATION
Not applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
----------- -----------
10.4 Form of Severance Benefit Agreement entered into
with each of Thomas P. D'Arcy, President and
Chief Executive Officer; Richard L. Heuer,
Executive Vice President; Irving E. Lingo, Jr.,
Executive Vice President and Chief Financial
Officer; E. Paul Dunn, Executive Vice President
of Asset Management; Steven St. Peter, Executive
Vice President of Leasing; Marianne Dunn, Senior
Vice President; Frank J. Comber, Vice President
of Construction; and David M. Garfinkle, Vice
President and Controller.
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
Not applicable
16
<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 thereto duly authorized.
Date: August 12, 1999
Bradley Operating Limited Partnership
Registrant
By: \s\ Thomas P. D'Arcy
-------------------------------
Thomas P. D'Arcy
President and CEO
By: \s\ Irving E. Lingo, Jr.
-------------------------------
Irving E. Lingo, Jr.
Chief Financial Officer
17
<PAGE>
Exhibit 10.4
SEVERANCE BENEFITS AGREEMENT
AGREEMENT, dated as of May 13, 1999, by and among BRADLEY OPERATING
LIMITED PARTNERSHIP, a Delaware limited partnership, ("BOLP"), BRADLEY REAL
ESTATE, INC., a Maryland corporation ("Bradley"), and ______________________,
("Executive").
WHEREAS, Bradley, BOLP and/or their subsidiaries and affiliates,
including entities in which Bradley or BOLP own a majority of any non-voting
stock (collectively, the "Company"), have employed, or may employ in the future,
the Executive as an employee of the Company to perform certain services to the
Company upon terms and conditions upon which the Company and the Executive have
previously agreed, or may in the future agree (the "Services");
WHEREAS, the Company recognizes that the Executive's contributions to
the past and future growth of the Company have been and will be substantial; and
WHEREAS, to induce the Executive to remain in the employ of the
Company, the parties hereto desire to set forth certain severance benefits which
BOLP will pay to the Executive in the event of a termination of the employment
of the Executive under certain circumstances following a Change in Control of
Bradley (as defined in Section 2 hereof).
IT IS AGREED:
1. TERM. This Agreement shall commence on the date hereof and shall
terminate upon the earliest of (a) the date on which BOLP and Bradley have
satisfied all of their obligations hereunder, or (b) subject to the Employee's
rights under Section 4(e) hereof, the date on which the Executive is no longer
an employee of the Company for any reason whatsoever including, without
limitation, termination without cause or (c) the date which is 12 months after
the date of a Change in Control of Bradley. Notwithstanding the termination of
this Agreement subsequent to a Change in Control of Bradley, in the event that
the Executive is an employee of the Company at the moment immediately prior to a
Change in Control of Bradley, the Executive shall be entitled to receive all
benefits described hereunder as a result of a Termination Event described in
Section 3 and the provisions hereof related thereto shall survive such
termination.
2. CHANGE IN CONTROL OF BRADLEY. For purposes of this Agreement, a
"Change in Control of Bradley" shall be deemed to occur if:
(a) There shall have occurred a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), as in effect on the date hereof, whether or not Bradley is
then subject to such reporting requirement, provided, however, that there shall
not be deemed to be a Change in Control of Bradley if immediately prior to the
occurrence of what would otherwise be a Change in Control of Bradley (i) the
Executive is the other party to the transaction (a "Control of Bradley Event")
that would otherwise result in a Change in Control of Bradley or (ii) the
Executive is an Executive officer, trustee, or director or more than 5% equity
holder of the other party to a Control of Bradley Event or of any entity,
directly or indirectly, controlling such other party;
(b) Bradley merges or consolidates with, or sells all or
substantially all of its assets to, another company, corporation or other entity
(each, a "Transaction"), provided, however, that a Transaction shall not be
deemed to result in a Change in Control of Bradley if (i) immediately prior
thereto the circumstances in (a) (i) or (a) (ii) above exist, or (ii) (A) the
stockholders of Bradley, immediately before such Transaction own, directly or
indirectly, immediately following such Transaction in excess of fifty percent
(50%) of the combined voting power of the outstanding voting securities of the
company or other entity resulting from such Transaction (the "Surviving
Corporation") in substantially the same proportion as their ownership of the
voting securities of Bradley immediately before such Transaction and (B) the
individuals who were members of Bradley's Board of Directors immediately prior
to the execution of the agreement providing for such Transaction constitute at
least a majority of the members of the board of directors or the board of
trustees, as the case may be, of the Surviving Corporation, or of a company or
other entity beneficially directly or indirectly owning a majority of the
outstanding voting securities of the Surviving Corporation; or
(c) Bradley acquires assets of another company or entity or a
subsidiary of Bradley merges or consolidates with another company or entity
(each, an "Other Transaction") and (i) the stockholders of Bradley, immediately
before such Other Transaction own, directly or indirectly, immediately following
such Other Transaction 50% or less of the combined voting power of the
outstanding voting securities of the company or other entity resulting from such
Other Transaction (the "Other Surviving Corporation") in substantially the same
proportion as their ownership of the voting securities of Bradley immediately
before such Other Transaction or (ii) the individuals who were members of
Bradley's Board of Directors immediately prior to the execution of the agreement
providing for such Other
<PAGE>
Transaction constitute less than a majority of the members of the board of
directors or the board of trustees, as the case may be, of the Other Surviving
Corporation, or of a company or other entity beneficially directly or indirectly
owning a majority of the outstanding voting securities of the Other Surviving
Corporation, provided, however, that an Other Transaction shall not be deemed to
result in a Change in Control of Bradley if immediately prior thereto the
circumstances in (a) (i) or (a) (ii) above exist.
3. TERMINATION EVENT. The Executive shall be entitled to receive
compensation from BOLP in the amount determined pursuant to the following
Section 4 if the employment of the Executive by the Company is terminated within
the 12 months following the date of the Change in Control of Bradley for any of
the following reasons (a "Termination Event"):
(a) Termination by the Company other than for cause ("cause" being
defined as (i) conduct by the Executive constituting a material act of willful
misconduct in connection with the performance of his duties, including without
limitation misappropriation of funds or property or opportunities of the Company
other than the occasional, customary and de minimus use of Company property for
personal purposes, (ii) conviction of the Executive for a felony or misdemeanor
involving moral turpitude, or (iii) continued, deliberate non-performance by the
Executive of the duties incident to his position (other than by reason of
Executive's physical or mental illness, incapacity or disability) and such non-
performance has continued for more than thirty (30) days following written
notice of such non-performance from the chief executive officer of the Company
or other officer to whom the Executive usually reports); or
(b) Termination by the Executive following either (i) the Company's
notification to the Executive of a reduction in the annual base compensation
below that in effect with respect to the calendar year immediately prior to the
year in which the Change in Control of Bradley occurs (the "Prior Year") and
failure to assure the Executive that his bonus, when added to his base
compensation for each of the calendar years in which the Change in Control of
Bradley occurs and for the following calendar year, will be at least the amount
of his Annual Compensation for the Prior Year, or (ii) the Company's
reassignment of the Executive to either (A) a location more than 50 miles from
the place of work of the Executive or (B) a position that does not have the same
or greater authority and responsibility as the position held by the Executive
immediately prior to the Change in Control of Bradley.
4. COMPENSATION UPON TERMINATION EVENT. Upon the occurrence of a
Termination Event, the Executive shall be entitled to receive the compensation
and benefits set forth below:
(a) BOLP shall pay to the Executive, not later than the date of any
Termination Event, unless otherwise agreed to in writing, a lump sum severance
payment (the "Severance Payment") equal to two times the Base Amount (as defined
below). For purposes of this Section 4(a), the Base Amount shall mean the
Executive's Annual Compensation during the Prior Year preceding the calendar
year in which the Change in Control of Bradley occurs. For purposes of
determining Annual Compensation in the preceding sentence, there shall be
included (i) all base salary and cash bonuses paid or payable to the Executive
by the Company with respect to the Prior Year and (ii) the fair market value of
any stock issued to the Executive under Bradley's Stock Option and Incentive
Plan with respect to such Prior Year provided, however, that there shall not be
included in Annual Compensation for any year any value attributable to stock
options granted to the Executive in that year or any value attributable to stock
issued pursuant to the exercise of any stock option granted in any prior year,
and provided, further, that there shall not be included in Annual Compensation
for the calendar year 1998 any amount paid in 1998 that was a part of the
"Management Adjustment Award" with respect to 1996 or 1997 described on page 6
of Bradley's Proxy Statement for its 1999 Annual meeting of Stockholders.
(b) Bradley and BOLP shall cause the Company to maintain in full
force and effect for the Executive's continued benefit, for a period of 12
months following the Termination Event, all life, accident, medical and dental
insurance benefit plans and programs or arrangements in which the Executive was
entitled to participate immediately prior to the date of the Change in Control
of Bradley; provided that the Executive's continued participation is possible
under the general terms and provisions of such plans and programs; and provided,
further, that in the event that the Executive becomes employed on a full-time
basis by any other employer during such period, then upon the date of such
employment the Executive shall no longer be entitled to any of the accident,
medical or dental insurance benefits described in the preceding clause. Subject
to the preceding sentence, in the event that the Executive's participation in
any such plan or program is barred, Bradley and BOLP shall arrange to cause the
Company to provide the Executive with benefits substantially similar to those
which the Executive was entitled to receive under such plans and programs.
Subject to the first sentence of this subsection, at the end of the period of
coverage, the Executive shall have the option to have assigned to him at no cost
to the Executive and with no apportionment of prepaid premiums, any assignable
insurance policy owned by the Company and relating specifically to the
Executive.
(c) All options to purchase Shares now or hereafter granted to the
Executive shall vest on the day immediately prior to the date of the Termination
Event and become fully exercisable in accordance with their terms.
<PAGE>
(d) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for in this Section 4 be
reduced by any compensation earned by him as the result of employment by another
employer or by retirement benefits after the date of termination, or otherwise,
except as specifically provided in this Section 4.
5. GROSS UP PAYMENT. Regardless of whether Section 4 hereof is
applicable, if, in the opinion of tax counsel selected by the Executive and
reasonably acceptable to the Company, the Executive has or will receive any
compensation or recognize any income (whether or not pursuant to this Agreement
or any plan or other arrangement of the Company which constitutes an "excess
parachute payment" within the meaning of Section 280G(b) (1) of the Internal
Revenue Code of 1986, as amended (the "Code") (or for which a tax is otherwise
payable under Section 4999 of the Code), BOLP shall pay the Executive an
additional amount (the "Gross Up Payment") equal to the sum of (a) all taxes
payable by the Executive under Section 4999 of the Code with respect to all such
excess parachute payments (or otherwise), including without limitation the Gross
Up Payment, plus (b) all federal, state and local income taxes payable by
Executive with respect to the Gross Up Payment. The amounts payable pursuant to
this Section 5 shall be paid by BOLP to the Executive not later than the date of
the Termination Event or as soon thereafter as the same is calculated, but at
such time or times as to eliminate the need for the Executive to pay any such
taxes or installment thereof from funds not paid or advanced by BOLP, unless
otherwise agreed to in writing.
6. EXPENSES. BOLP shall pay or reimburse the Executive, as the case
may be, for all properly documented, reasonable legal fees and related expenses
(including the costs of experts, evidence and counsel) paid by the Executive as
a result of (a) the Executive seeking to obtain or enforce any right or benefit
provided by this Agreement, or (b) any action taken by the Company against the
Executive in enforcing its rights hereunder; provided, however, that BOLP shall
reimburse the legal fees and related expenses described in this Section 6 only
if and when a final judgment has been rendered in favor of the Executive and all
appeals related to any such action have been exhausted.
7. NO EMPLOYMENT RIGHTS OR OBLIGATIONS. Nothing contained herein
shall confer upon the Executive the right to continue in the employment or
service of the Company or affect any right that the Company may have to
terminate the employment or service of the Executive at any time for any reason.
8. BRADLEY GUARANTY. Bradley guarantees the satisfaction of all
obligations of, and the full and prompt payment of all amounts payable by, BOLP
hereunder. In addition, Bradley guarantees the satisfaction of all obligations
of the Company hereunder.
9. ARBITRATION; OTHER DISPUTES. Any dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in Chicago, Illinois, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding the above,
should a dispute occur concerning the Executive's mental or physical capacity as
described in Subsection 3(a), a doctor selected by the Executive and a doctor
selected by the Company shall be entitled to examine the Executive. If the
opinion of the Company's doctor and the Executive's doctor conflict, the
Company's doctor and the Executive's doctor shall together agree upon a third
doctor, whose opinion shall be binding.
10. LITIGATION AND REGULATORY COOPERATION. During and after the
period of employment by the Company, the Executive shall reasonably cooperate
with the Company in the defense or prosecution of any claims or actions now in
existence or which may be brought in the future against or on behalf of the
Company which relate to events or occurrences that transpired while the
Executive was employed by the Company; provided, however, that such cooperation
shall not materially and adversely affect the Executive or expose the Executive
to an increased probability of civil or criminal litigation. The Executive's
cooperation in connection with such claims or actions shall include, but not be
limited to, being available to meet with counsel to prepare for discovery or
trial and to act as a witness on behalf of the Company at mutually convenient
times. During and after the Executive's employment, the Executive also shall
cooperate fully with the Company in connection with any investigation or review
of any federal, state or local regulatory authority as any such investigation or
review relates to events or occurrences that transpired while Executive was
employed by the Company. The Company shall also provide the Executive with
compensation on an hourly basis calculated at his final base compensation rate
for requested litigation and regulatory cooperation that occurs after his
termination of employment, and reimburse the Executive for all costs and
expenses incurred in connection with his performance under this Paragraph 10,
including, but not limited to, properly documented and reasonable attorneys'
fees and costs.
11. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
of the parties and is intended to supersede all prior negotiations,
understandings and agreements with respect to the subject matter hereof. No
provision of this Agreement may be waived or changed, except by a writing signed
by the party to be charged with such waiver or change.
<PAGE>
12. SUCCESSORS; BINDING AGREEMENT. This Agreement shall inure to the
benefit of, be binding upon and be enforceable by Bradley and BOLP, their
successors and assigns and the Executive, and the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
13. NOTICES. All notices provided for in this Agreement shall be in
writing, and shall be deemed to have been duly given when delivered personally
to the party to receive the same, when given by telex, telegram or mailgram, or
when mailed first class postage prepaid, by registered or certified mail, return
receipt requested, addressed to the party to receive the same at his or its
address above set forth, or such other address as the party to receive the same
shall have specified by written notice given in the manner provided for in this
Section 12. All notices shall be deemed to have been given as of the date of
personal delivery, transmittal or mailing thereof.
14. SEVERABILITY. If any provision of this Agreement is determined to
be invalid, it shall not affect the validity or enforceability of any of the
other remaining provisions hereof. IN WITNESS WHEREOF, the parties hereto have
executed this Agreement as of the date first above written.
BRADLEY REAL ESTATE, INC.
By:__________________________________
BRADLEY OPERATING LIMITED PARTNERSHIP
By: Bradley Real Estate, Inc.
Its: General Partner
By:__________________________________
_____________________________________
Executive
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