<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 March 31, 2000 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)
Delaware 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 unit data)
(UNAUDITED)
<TABLE>
March 31, December 31,
2000 1999
--------------- -------------
<S> <C> <C>
ASSETS:
Real estate investments - at cost $1,038,006 $1,014,158
Accumulated depreciation and amortization (85,852) (81,302)
--------------- -------------
Net real estate investments 952,154 932,856
Real estate investments held for sale - 29,890
Other assets:
Cash and cash equivalents 260 4,434
Rents and other receivables, net of allowance for doubtful accounts
of $4,036 for 2000 and $4,545 for 1999 15,678 12,273
Deferred charges, net and other assets 17,718 16,714
--------------- -------------
Total assets $ 985,810 $ 996,167
=============== =============
LIABILITIES AND PARTNERS' CAPITAL:
Mortgage loans $ 94,085 $ 100,718
Unsecured notes payable 274,600 199,604
Line of credit 83,000 144,500
Accounts payable, accrued expenses and other liabilities 32,807 33,476
--------------- -------------
Total liabilities 484,492 478,298
--------------- -------------
Minority interest 370 381
--------------- -------------
Partner's capital:
General partner, common; issued and outstanding 22,171,886 and 23,079,357
units at March 31, 2000 and December 31, 1999, respectively 322,510 337,994
General partner, Series A preferred (liquidation preference $25.00 per unit);
issued and outstanding 3,478,219 units at March 31, 2000 and December 31, 1999 86,802 86,802
Limited partners, common; issued and outstanding 1,250,682 and 1,314,347
units at March 31, 2000 and December 31, 1999, respectively 18,192 19,248
Limited partners, Series B preferred (liquidation preference $25.00 per unit);
issued and outstanding 2,000,000 units at March 31, 2000 and December 31, 1999 49,100 49,100
Limited partners, Series C preferred (liquidation preference $25.00 per unit);
issued and outstanding 1,000,000 units at March 31, 2000 and December 31, 1999 24,344 24,344
--------------- -------------
Total partners' capital 500,948 517,488
--------------- -------------
Total liabilities and partners' capital $ 985,810 $ 996,167
=============== =============
</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>
Quarter ended
March 31,
-----------------------
<S> <C> <C>
2000 1999
----------- ---------
REVENUE:
Rental income and recoveries from tenants $ 40,778 $ 38,710
Other income 1,053 643
----------- ---------
41,831 39,353
----------- ---------
EXPENSES:
Operations, maintenance and management 6,093 6,678
Real estate taxes 6,071 6,115
Mortgage and other interest 8,235 7,687
General and administrative 1,890 1,978
Depreciation and amortization 6,864 6,457
----------- ---------
29,153 28,915
----------- ---------
Income before equity in earnings of partnership and net gain on sale of
properties 12,678 10,438
Equity in earnings of partnership - 347
Net gain on sale of properties 205 -
----------- ---------
Income before allocation to minority interest 12,883 10,785
Income allocated to minority interest (22) (21)
----------- ---------
Net income 12,861 10,764
Preferred unit distributions (3,490) (2,282)
----------- ---------
Net income attributable to common unit holders $ 9,371 $ 8,482
=========== =========
Earnings per common unit:
Basic $ 0.39 $ 0.33
=========== =========
Diluted $ 0.39 $ 0.33
=========== =========
</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 Limited
General Partner, Limited Partners, Partners,
Partner, Series A Partners, Series B Series C
common preferred common preferred preferred Total
------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $337,994 $86,802 $19,248 $49,100 $24,344 $517,488
Net income 8,872 1,826 499 1,109 555 12,861
Distributions on common units (8,653) - (475) - - (9,128)
Distributions on preferred units - (1,826) - (1,109) (555) (3,490)
Capital contributions (8) - - - - (8)
Redemption of LP Units - - (1,077) - - (1,077)
Repurchase of GP common units (15,698) - - - - (15,698)
GP common units issued upon
redemption of LP Units 17 - (17) - - -
Reallocation of partners' capital (14) - 14 - - -
------------ ------------ ------------ ------------ ------------ -----------
Balance at March 31, 2000 $322,510 $86,802 $18,192 $49,100 $24,344 $500,948
============ ============ ============ ============ ============ ===========
</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>
Quarter ended
March 31,
-----------------------
2000 1999
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,861 $ 10,764
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,864 6,457
Equity in earnings of partnership - (347)
Amortization of debt premiums, net of discounts (221) (250)
Net gain on sale of properties (205) -
Income allocated to minority interest 22 21
Change in operating assets and liabilities:
Increase in rents and other receivables (3,149) (3,070)
Increase (decrease) in accounts payable, accrued
expenses and other liabilities (1,548) 519
Increase in deferred charges (1,118) (959)
---------- ---------
Net cash provided by operating activities 13,506 13,135
---------- ---------
Cash flows from investing activities:
Expenditures for real estate acquisitions (18,797) (11)
Expenditures for developments and redevelopments (4,504) (910)
Expenditures for other capital improvements (1,831) (2,120)
Net proceeds from sale of properties 30,257 -
Cash distributions from partnership - 400
---------- ---------
Net cash provided by (used in) investing activities 5,125 (2,641)
---------- ---------
Cash flows from financing activities:
Borrowings from line of credit 49,000 17,500
Payments under line of credit (110,500) (67,500)
Proceeds from issuance of unsecured notes payable 74,981 -
Expenditures for financing costs (488) (41)
Repayment of mortgage loans (5,994) -
Principal payments on mortgage loans (403) (413)
Distributions paid to common unit holders (9,128) (9,656)
Distributions paid to preferred unit holders (3,490) (2,282)
Capital contributions (8) 1,645
Net proceeds from issuance of Series B preferred units - 49,100
Repurchase of GP common units (15,698) -
Payments to redeem limited partnership units (1,077) -
---------- ---------
Net cash used in financing activities (22,805) (11,647)
---------- ---------
Net decrease in cash and cash equivalents (4,174) (1,153)
Cash and cash equivalents:
Beginning of period 4,434 1,262
---------- ---------
End of period $ 260 $ 109
========== =========
Supplemental cash flow information:
Interest paid, net of amount capitalized $ 8,059 $ 8,207
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
BRADLEY OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
Bradley Operating Limited Partnership (the "Operating Parnership") is the entity
through which Bradley Real Estate, Inc. (the "Company" or "Bradley"), the
General Partner and owner of an approximate 82% 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 Company,
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, 1999.
Interests in the Operating Partnership are evidenced by five 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," 8.875% Series B Cumulative Redeemable Perpetual
Preferred Units of limited partnership interest evidenced by "Series B Preferred
Units," and 8.875% Series C Cumulative Redeemable Perpetual Preferred Units of
limited partnership interest evidenced by "Series C 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,
Series B Preferred Units, and Series C 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 net income
attributable 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
common 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 between basic and diluted weighted average common
units outstanding for each period, is as follows:
<TABLE>
<CAPTION>
Quarter ended
March 31,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Basic
Weighted average common units 23,888,901 25,437,974
========== ==========
Diluted
Weighted average common units 23,888,901 25,437,974
Effect of dilutive securities:
Stock options 16,463 31,294
---------- ----------
Weighted average common units and assumed
conversions 23,905,364 25,469,268
========== ==========
</TABLE>
For the quarters ended March 31, 2000 and 1999, options to purchase 1,203,550
shares of the Company's common stock at prices ranging from $17.50 to $21.35 and
650,800 shares of common stock at prices ranging from $19.35 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, thereby having an anti-dilutive impact on EPU. Series A Preferred unit
distributions of $1,826,000 during each of the quarters ended March 31, 2000 and
1999, and the effect on the denominator
6
<PAGE>
of the conversion of the convertible preferred units outstanding during the
period into 3,550,652 common units for the quarter ended March 31, 2000, and
3,550,913 common units for the quarter ended March 31, 1999, 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 2000, 1,229 shares of the Company's common stock
were issued in exchange for an equivalent number of LP Units.
NOTE 4 - ACQUISITION AND DISPOSITION ACTIVITY
During the first quarter of 2000, the Operating Partnership completed the
acquisitions of two shopping centers, Hub Shopping Center located in
Independence, Missouri and West Loop Shopping Center, located in Manhattan,
Kansas, aggregating approximately 360,000 square feet for a total purchase price
of approximately $19,103,000. The Operating Partnership acquired these shopping
centers with cash provided by the line of credit.
On March 31, 2000, the Operating Partnership completed the sales of three
enclosed malls that were held for sale as of December 31, 1999, for a net sales
price of approximately $30,622,000. The three centers, Delta Plaza located in
Escanaba, Michigan, Lakewood Mall, located in Aberdeen, South Dakota and
Thunderbird Mall located in Virginia, Minnesota, were all enclosed malls located
in smaller markets which were non-core to the Operating Partnership's grocery-
anchor community shopping center focus. The sale resulted in a gain of $205,000
for financial reporting purposes. Net proceeds from the sale were used to reduce
the outstanding balance under the line of credit.
NOTE 5 - ISSUANCE OF UNSECURED NOTES
On March 10, 2000, the Operating Partnership issued $75 million of unsecured
Notes due March 15, 2006 at an interest rate of 8.875%. The securities are rated
"Baa3" by Moody's Investors Service and "BBB-" by Standard & Poor's Investment
Services. Net proceeds from the offering of approximately $74.5 million were
used to reduce the outstanding balance under the line of credit.
NOTE 6 - STOCK REPURCHASE PROGRAM
In November 1999, the Board of Directors of the Company authorized the
repurchase of up to two million shares of outstanding common stock from time to
time through periodic open market transactions or through privately negotiated
transactions. The share repurchase program is in effect until December 31, 2000,
or until the authorized limit has been reached. The Operating Patnership
effectively repurchases one common GP Unit from the Company for each common
share repurchased by the Company. Through March 31, 2000, the Operating
Partnership repurchased 1,898,900 common GP Units at an average price of $16.97
per unit, representing the equivalent number and price of common shares
repurchased by the Company.
NOTE 7 - SEGMENT REPORTING
As of March 31, 2000, 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. 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 segment and for the
Operating Partnership, the computation of FFO for the Operating Partnership, and
a reconciliation to net income attributable to common unit holders, are as
follows for the three month periods ended March 31, 2000 and 1999 (dollars in
thousands):
7
<PAGE>
<TABLE>
<CAPTION>
Quarter ended
March 31,
----------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Total property revenue $ 41,738 $ 39,065
Total property expenses (12,164) (12,793)
------------ ------------
Net operating income 29,574 26,272
------------ ------------
NON-PROPERTY (INCOME) EXPENSES:
Other non-property income (93) (288)
Equity in earnings of partnership, excluding depreciation and amortization - (390)
Mortgage and other interest 8,235 7,687
General and administrative 1,890 1,978
Amortization of deferred finance and non-real estate related costs 283 279
Preferred unit distributions 3,490 2,282
Income allocated to minority interest 22 21
------------ ------------
13,827 11,569
------------ ------------
Funds from Operations $ 15,747 $ 14,703
============ ============
RECONCILIATION TO NET INCOME ATTRIBUTABLE TO COMMON UNIT HOLDERS:
Funds from Operations $ 15,747 $ 14,703
Depreciation of real estate assets and amortization of tenant improvements (6,128) (5,449)
Amortization of deferred leasing commissions (453) (431)
Other amortization - (298)
Depreciation and amortization included in equity in earnings of partnership - (43)
Net gain on sale of properties 205 -
------------ ------------
Net income attributable to common unit holders $ 9,371 $ 8,482
============ ============
</TABLE>
8
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
During the first quarter of 2000, we completed the acquisitions of two shopping
centers for an aggregate purchase price of approximately $19.1 million. On March
31, 2000, we sold three enclosed malls for an aggregate gross sales price of
approximately $31 million, resulting in a gain on sale of $205,000 for financial
reporting purposes. 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. During the
fourth quarter of 1999, we also acquired two additional shopping centers for an
aggregate purchase price of $23.0 million.
Differences in results of operations for the three-month period ended March 31,
2000 compared with the same period in 1999 were driven largely by the
acquisition and disposition activity. Income before the net gain on sale of
properties, and before income allocated to minority interest, increased
$1,893,000, or 18%, from $10,785,000 for the three months ended March 31, 1999
to $12,678,000 for the three months ended March 31, 2000. Net income
attributable to common unit holders increased $889,000, or 10%, from $8,482,000
during the first quarter of 1999 to $9,371,000 during the first quarter of 2000.
Basic earnings per common unit increased $0.06 per common unit, or 18%, from
$0.33 per common unit in the first quarter of 1999 to $0.39 per common unit in
the first quarter of 2000. The computation of diluted earnings per common unit
had no effect on basic earnings per common unit for either three month period in
2000 or 1999. Our results of operations for properties consolidated for
financial reporting purposes for the first quarter of 1999 and 2000 reflect 91
properties that were held both quarters (including the three enclosed malls sold
on the last day of the quarter) and 11 properties that we purchased or sold
between the two periods. As of March 31, 2000, we owned 96 shopping centers.
Property Specific Revenue and Expenses (in thousands of dollars):
<TABLE>
<CAPTION>
Quarter ended
March 31, Properties
--------------------------- Acquisitions/ Held Both
2000 1999 Difference Dispositions Periods
------------ ----------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
Rental income and recoveries from tenants $ 40,778 $ 38,710 $ 2,068 $ 1,275 $ 793
Operations, maintenance and management 6,093 6,678 (585) 151 (736)
Real estate taxes 6,071 6,115 (44) 146 (190)
Depreciation and amortization 6,864 6,457 407 326 81
</TABLE>
Results attributable to acquisition and disposition activities:
Rental income increased from $38,710,000 in the first quarter of 1999 to
$40,778,000 in the first quarter of 2000. Approximately $2,093,000 of the
increase during the three-month period was attributable to acquisition
activities, partially offset by $818,000 attributable to disposition activities.
Operations, maintenance and management expense decreased from $6,678,000 in the
first quarter of 1999 to $6,093,000 in the first quarter of 2000. A decrease in
properties held both full quarterly periods of $736,000 was partially offset by
an increase of $151,000 attributable to acquisition and disposition activities.
Real estate taxes decreased from $6,115,000 in the first quarter of 1999 to
$6,071,000 in the first quarter of 2000. Real estate taxes decreased $190,000
for properties held during both three month periods ended March 31, 2000 and
1999. Real estate taxes increased $146,000 for properties acquired, net of real
estate taxes eliminated for properties sold during 1999 and 2000.
Depreciation and amortization increased from $6,457,000 in the first quarter of
1999 to $6,864,000 in the first quarter of 2000. Approximately $326,000 of the
increase during the three month period was attributable to acquisition and
disposition activities.
Results for properties fully operating throughout both periods:
A decrease in operations, maintenance, and management expense in the first
quarter of 2000 from the first quarter of 1999 resulted from winter storms in
the Midwest occurring during the first quarter of 1999. Snow removal expenses
were approximately $572,000 lower in
9
<PAGE>
the first quarter of 2000 compared with the first quarter of 1999. However, this
expense reduction also contributed to a decrease in operating expense
reimbursements of $478,000.
Despite the decrease in operating expense reimbursements, rental income
increased $793,000 for properties held throughout both periods. Rental income
increased $247,000 at Commons of Crystal Lake during the first quarter of 2000
compared with the first quarter of 1999 due to a 28,000 square-foot lease with
Marshalls commencing in the second quarter of 1999 and a 30,000 square-foot
lease with Toys `R Us commencing in the third quarter of 1999. Rental income
increased $403,000 at Spring Mall during the first quarter of 2000 compared with
the first quarter of 1999 due to a lease termination receipt from a vacant
theater and due to an increase in percentage rents resulting from strong sales
from Pick 'n Save, the grocery anchor tenant. Rental income increased $434,000
at Heritage Square due to the commencement of a 62,000 square-foot lease with
Carson Pirie Scott in the third quarter of 1999 and due to a lease termination
receipt from Strouds in the first quarter of 2000. A 27,000 square-foot lease
with DSW Designer Shoe Warehouse was signed in the first quarter of 2000 to
replace Strouds at a slightly higher rent. This lease is expected to commence
late in the second quarter. A 47,000 square-foot lease with HomeLife, replacing
the remaining vacant portion of the space previously occupied by Montgomery
Ward, is scheduled to commence in the second quarter, which is expected to
contribute to further increases in rental revenue at this shopping center. The
incremental revenue at Heritage Square was net of a decrease in real estate tax
reimbursements of $25,000 resulting from a reduction in real estate taxes of
$77,000. The reduction in real estate taxes was generated by the negotiation of
abatements.
During September 1999, we were notified that Hechinger Co., the operator of an
85,000 square-foot Home Quarters store at Grandview Plaza, would liquidate its
assets in order to pay off creditors. As a result of the liquidation, the store
closed and ceased paying rent in January 2000, resulting in a $265,000 decrease
in rental income at this property. Although we are in preliminary discussions
with several retailers to replace this lease, a reduction in rental revenue is
expected to continue at this property, since we do not expect a new lease to
commence prior to the end of 2000.
Fleming Companies, our largest tenant with locations at fourteen of our centers,
has recently announced that it may potentially sell its grocery stores to focus
on its wholesale distribution business and its chain of discount food
warehouses. Our leases with Fleming expire between December, 2001 and May, 2019.
While we have not been formally notified of a sale of any of its stores in our
portfolio, we currently expect to receive all rents due under its lease
obligations to us, even if such stores are sold. In the event Fleming does elect
to sell any or all of the grocery stores at our centers, likely purchasers
include other grocery store chains, which may or may not have stronger credit
quality.
Non-Property Specific Revenue and Expenses:
Other income increased from $643,000 during the quarter ended March 31, 1999 to
$1,053,000 during the quarter ended March 31, 2000. During the first quarter of
2000, we received $487,000 as a settlement over a dispute with a former tenant
and guarantor of a portion of a 54,000 square-foot space previously leased to
HomePlace at Har Mar Mall. HomePlace declared bankruptcy in January 1998 and
vacated the center in August 1998. A lease with a new grocery tenant at Har Mar
Mall to replace the vacant HomePlace space is currently under negotiation,
although there can be no assurance that this lease will be completed.
Mortgage and other interest expense increased from $7,687,000 for the quarter
ended March 31, 1999 to $8,235,000 for the quarter ended March 31, 2000. A
slightly higher weighted average balance outstanding on the line of credit
during the first quarter of 1999 compared with the first quarter of 2000, was
more than offset by a higher weighted average interest rate in 2000, resulting
in an increase in interest expense on the line of credit of $169,000. This
increase is net of an increase in the amount of interest capitalized during the
first quarter of 2000 compared with the first quarter of 1999, which results
from our increased focus on development and redevelopment initiatives which have
been funded with the line of credit. On March 10, 2000, we issued $75 million,
8.875% six-year unsecured Notes maturing March 15, 2006. Proceeds from the
offering were used to reduce outstanding borrowings under the line of credit.
Interest incurred on these unsecured Notes amounted to $407,000 during the first
quarter of 2000. Our total weighted average interest rate increased to 7.63% for
the first quarter of 2000 from 7.02% for the first quarter of 1999.
General and administrative expense decreased from $1,978,000 during the quarter
ended March 31, 1999 to $1,890,000 during the quarter ended March 31, 2000, a
decrease of $88,000, or 4%. This reduction primarily resulted from expense
control savings in numerous categories, including office supplies and services,
travel and entertainment, and franchise taxes and related fees.
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"). We took advantage of a similar opportunity during September
1999, replacing $25 million of short-term floating rate debt under the line of
credit with the issuance of 8.875% Series C Cumulative Redeemable Perpetual
Preferred Units (the "Series C Preferred Units"). Although the spreads between
the interest rate currently available under the line of credit facility and the
rates associated with the Series B and C Preferred Units are dilutive in the
short-term, the infusion of such permanent capital reduced the amount of
outstanding indebtedness and
10
<PAGE>
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 $456,000 during
the first quarter of 1999, and distributions on the Series B and C Preferred
Units were $1,664,000 during the first quarter of 2000. Distributions on the
Series A Preferred Units amounted to $1,826,000 for both quarterly periods ended
March 31, 2000 and 1999.
LIQUIDITY AND CAPITAL RESOURCES
General
We fund operating expenses and distributions primarily from operating cash flows
although, if needed, we may also use our bank line of credit for these purposes.
We fund acquisitions, developments and other 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 of proceeds from the
Company's issuance of additional equity securities. Additionally, we may dispose
of 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
and favorable investment returns. Additionally, we expect to continue to develop
and redevelop 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 unit holders.
We consider our liquidity and ability to generate cash from operating and from
financing activities to be sufficient to meet our operating expenses,
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 during the
next year. However the utilization of available liquidity for such opportunities
will be carefully calibrated to changing market conditions.
As of March 31, 2000, our financial liquidity was provided by $260,000 in cash
and cash equivalents and the unused balance on our bank line of credit of $167
million. In addition, the Company has and 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 $325 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.
Mortgage debt outstanding at March 31, 2000 consisted of fixed-rate notes
totaling $94.1 million with a weighted average interest rate of 7.52% maturing
at various dates through 2016. During the first quarter of 2000, we paid-off the
mortgage note secured by Watts Mill Plaza upon its maturity for $5,994,000 with
cash provided by the line of credit. Short-term liquidity requirements include
debt service payments due within one year. Scheduled principal payments of
mortgage debt totaled $403,000 during the three-month period ended March 31,
2000, with another $1.3 million of scheduled principal payments due for the
remainder of the year. We expect to fund short-term liquidity requirements with
operating cash flows and the line of credit. In addition, we have commenced
negotiations to extend and modify the line of credit, which expires in December
2000. We expect to be able to extend and modify the line of credit on
commercially reasonable terms, which we believe will be slightly more expensive
than the terms under the existing line of credit due to competitive market
pressures. At this time, we cannot definitely state what terms we will obtain,
including interest rates. During the first quarter of 2000, the weighted average
interest rate on the line of credit was 7.2%. We have historically been able to
refinance debt when it has become due on terms which we believe to be
commercially reasonable. While we currently expect to fund long-term liquidity
requirements primarily through a combination of issuing additional investment
grade unsecured debt securities and equity securities and with borrowings under
the bank line of credit, there can be no assurance that we will be able to repay
or refinance our indebtedness on commercially reasonable or any other terms.
11
<PAGE>
Operating Activities
Net cash flows provided by operating activities increased to $13,506,000 during
the first quarter of 2000, from $13,135,000 during the same period in 1999. This
increase is primarily due to consistent cash flow growth from our existing core
portfolio, as well as cash generated from the acquisitions of six shopping
centers during 1999 and two additional shopping centers in 2000. The increase in
cash flow from these acquisitions was partially offset by the elimination of
cash flow resulting from the sales of three non-core properties during 1999.
For the three months ended March 31, 2000, funds from operations ("FFO")
increased $1,044,000, or 7.1%, from $14,703,000 for the three months ended March
31, 1999, to $15,747,000 for the three months ended March 31, 2000. We generally
consider FFO to be a relevant and meaningful supplemental measure of performance
because it is predicated on a cash flow analysis, contrasted with net income, a
measure predicated on generally accepted accounting principles ("GAAP") which
gives effect to non-cash items such as depreciation. We compute FFO in
accordance with the March 1995 "White Paper" and November 1999 "National Policy
Bulletin" on FFO published by the National Association of Real Estate Investment
Trusts ("NAREIT"), as net income (computed in accordance with GAAP), 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 and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures 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 GAAP and should not be considered as an alternative to cash
flow as a measure of liquidity. Since the NAREIT White Paper and National Policy
Bulletin only provide guidelines 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.
Investing Activities
Net cash flows provided by investing activities increased to $5,125,000 during
the first quarter of 2000, from a net use of cash of $2,641,000 during the same
period in 1999. During the first three months of 2000, we completed the
acquisitions of two shopping centers located in Missouri and Kansas aggregating
approximately 360,000 square feet for a total purchase price of approximately
$19,103,000. We also invested approximately $4,504,000 in four redevelopment
initiatives, and sold three properties aggregating 683,000 square feet for an
aggregate net sales price of $30,622,000, including the issuance of a $365,000
note receivable, which was paid in full subsequent to quarter-end. The net
proceeds from the sales were used to reduce outstanding borrowings under the
line of credit, decreasing our overall debt while reducing our exposure to
increases in interest rates on our variable rate debt. During the first three
months of 1999, approximately $910,000 was invested in a redevelopment project.
Cash distributions received from a joint venture during the first three months
of 1999 amounted to $400,000. During the second quarter of 1999, we acquired the
50% non-owned portion of two shopping centers held by the joint venture 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.
Financing Activities
Net cash flows used in financing activities increased to $22,805,000 during the
first quarter of 2000 from $11,647,000 during the same period in 1999.
Distributions to common and preferred unit holders were $12,618,000 in the first
quarter of 2000, and $11,938,000 in the first three months of 1999.
In November 1999, our Board of Directors authorized the repurchase of up to two
million shares of outstanding common stock from time to time through periodic
open market transactions or through privately negotiated transactions. The
Operating Partnership effectively repurchases one common GP Unit from the
Company for each common share repurchased by the Company. During the first
quarter of 2000, we paid approximately $15,698,000 to repurchase 918,200 common
GP Units, representing the equivalent amount and number of shares repurchased by
the Company.
The two shopping centers acquired during the first quarter of 2000 were acquired
with cash provided by our line of credit. On March 10, 2000, we issued $75
million of unsecured Notes due March 15, 2006 at an interest rate of 8.875%. The
securities are rated "Baa3" by Moody's Investors Service and "BBB-" by Standard
& Poor's Investment Services. Net proceeds from the offering of approximately
$74,981,000 were used to reduce the outstanding balance under the line of
credit. Although issuance of the unsecured Notes will be dilutive to earnings in
the short-term, the issuance of such fixed rate debt extended our weighted
average debt maturity, further spreading our scheduled debt maturities, while
reducing our exposure to increases in interest rates on our variable rate debt.
During the first quarter of 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.
12
<PAGE>
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 these 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
first quarter of 2000, we substantially completed the redevelopment of Prospect
Plaza, located in Gladstone, Missouri. We also continued the redevelopments of
Cherry Hill Marketplace located in Westland, Michigan, and 30th Street Plaza
located in Canton, Ohio, both of which were acquired during the second quarter
of 1999, and of the Commons of Chicago Ridge, a shopping center in our existing
core portfolio located in metropolitan Chicago. The redevelopments of Cherry
Hill Marketplace and 30th Street Plaza are expected to be substantially
completed during the middle part of 2000, with the completion of the Commons of
Chicago Ridge scheduled for the fourth quarter of 2000. These projects represent
the types of selective redevelopment investment opportunities on which we plan
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 modest pipeline of development opportunities and
potential shopping centers acquisitions where we can use our redevelopment
experience to 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, the line of credit,
external capital and possible joint ventures.
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, development and redevelopment opportunities in the Midwest on
favorable terms; the availability of equity and debt capital in the public
markets; the fact that returns from development, redevelopment and acquisition
activity may not be at expected levels; we may be unable to realize the level of
proceeds from property sales as initially expected; inherent risks in ongoing
redevelopment and development projects including, but not limited to, cost
overruns resulting from weather delays, changes in the nature and scope of
redevelopment and development efforts, and market factors involved in the
pricing of material and labor; 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 Company's Form 10-K for 1999 are incorporated herein by
reference.
13
<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
Not applicable
Item 5. OTHER INFORMATION
Not applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
The following Form 8-K was filed during the period January 1,
2000 through March 31, 2000:
1) Form 8-K filed March 10, 2000 (earliest event March 7,
2000), reporting in Item 5., the issuance by Bradley
Operating Limited Partnership of $75 million, 8.875%
unsecured Notes due March 15, 2006.
14
<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: May 12, 2000
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
15
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