<PAGE> 1
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, 1997 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 1-10328
BRADLEY REAL ESTATE, INC.
(Exact name of registrant as specified in its charter)
Maryland 04-6034603
(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
--- ---
Indicate the number of Shares outstanding of each class of Common Stock as of
June 30, 1997:
Shares of Common Stock, $.01 par value: 21,676,375 Shares outstanding.
1
<PAGE> 2
BRADLEY REAL ESTATE, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
--------- ------------
<S> <C> <C>
Real estate investments-at cost $ 510,558 $ 490,133
Accumulated depreciation and amortization (36,708) (30,670)
--------- ---------
Net real estate investments 473,850 459,463
Real estate investments held for sale 10,000 10,285
Other Assets:
Cash and cash equivalents 3,579 7,462
Rents and other receivables, net of allowance for
doubtful accounts of $2,309 for 1997 and
$1,636 for 1996 10,587 9,543
Deferred charges, net and other assets 14,964 15,531
--------- ---------
Total assets $ 512,980 $ 502,284
========= =========
LIABILITIES AND SHARE OWNERS' EQUITY
Mortgage loans 128,868 125,394
Line of credit 64,400 63,500
Accounts payable, accrued expenses and
other liabilities 20,708 19,505
--------- ---------
Total liabilities 213,976 208,399
--------- ---------
Minority interest 7,952 4,160
--------- ---------
Share Owners' equity:
Shares of preferred stock, par value $.01 per share:
Authorized 20,000,000 shares; 0 shares issued
and outstanding - -
Shares of common stock, par value $.01 per share:
Authorized 80,000,000 shares; issued and
outstanding, 21,676,375 at June 30, 1997
and 21,658,790 at December 31, 1996 217 217
Shares of excess stock, par value $.01 per share:
Authorized 50,000,000 shares; 0 shares issued
and outstanding - -
Additional paid-in capital 300,551 298,875
Distributions in excess of accumulated earnings (9,716) (9,367)
--------- ---------
Total share owners' equity 291,052 289,725
--------- ---------
Total liabilities and share owners' equity $ 512,980 $ 502,284
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 3
BRADLEY REAL ESTATE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income:
Rental income $ 23,034 $ 21,982 $ 45,889 $ 33,201
Other income 316 453 642 555
----------- ----------- ----------- -----------
23,350 22,435 46,531 33,756
----------- ----------- ----------- -----------
Expenses:
Operations, maintenance and management 3,666 3,707 6,999 5,792
Real estate taxes 4,559 5,013 9,627 7,688
Mortgage and other interest 3,581 4,169 7,231 5,554
Administrative and general 1,154 888 2,259 1,443
Write-off of deferred financing and acquisition costs - - - 344
Depreciation and amortization 3,925 3,724 7,855 5,976
----------- ----------- ----------- -----------
16,885 17,501 33,971 26,797
----------- ----------- ----------- -----------
Income before gain on sale and provision for loss
on real estate investments 6,465 4,934 12,560 6,959
Gain on sale of property - - 3,073 9,379
Provision for loss on real estate investment (1,300) - (1,300) -
----------- ----------- ----------- -----------
Income before allocation to minority interest 5,165 4,934 14,333 16,338
Income allocated to minority interest (137) (82) (381) (111)
----------- ----------- ----------- -----------
Net income $ 5,028 $ 4,852 $ 13,952 $ 16,227
=========== =========== =========== ===========
Net income per weighted average share outstanding $ 0.23 $ 0.26 $ 0.64 $ 1.04
=========== =========== =========== ===========
Weighted average shares outstanding 21,671,292 18,662,532 21,668,458 15,599,623
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
BRADLEY REAL ESTATE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHARE OWNERS' EQUITY
(Dollars in thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
Retained
Earnings
(Distributions
Additional in Excess of
Shares Paid-In Accumulated
at par value Capital Earnings)
---------------- ----------- --------------
<S> <C> <C> <C>
Balance at December 31, 1996 $ 217 $298,875 ($9,367)
Net income - - 8,924
Cash distributions ($.33 per share) - - (7,149)
Exercise of stock options - 119 -
Dividend reinvestment participation - 73 -
Reallocation of minority interest - 1,367 -
------ -------- -------
Balance at March 31, 1997 217 300,434 (7,592)
Net income - - 5,028
Cash distributions ($.33 per share) - - (7,152)
Exercise of stock options - 36 -
Dividend reinvestment participation - 81 -
------ -------- -------
Balance at June 30, 1997 $ 217 $300,551 ($9,716)
====== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
BRADLEY REAL ESTATE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended
June 30,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,952 $ 16,227
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,855 5,976
Gain on sale of property (3,073) (9,379)
Provision for loss on real estate investment 1,300 -
Write-off of deferred financing and acquisition costs - 344
Income allocated to minority interest 381 111
Changes in operating assets and liabilities, net of
the effect of the Tucker acquisition:
(Increase) decrease in rents and other receivables (1,044) 1,797
Increase in accounts payable, accrued expenses
and other liabilities 985 1,483
Increase in deferred charges (1,169) (1,909)
-------- --------
Net cash provided by operating activities 19,187 14,650
-------- --------
Cash flows from investing activities:
Expenditures for real estate investments (20,187) (4,240)
Purchase of Tucker, net of cash acquired - (1,825)
Net proceeds from sale of property 11,310 -
Excess proceeds from like-kind exchange of properties - 4,145
-------- --------
Net cash used in investing activities (8,877) (1,920)
-------- --------
Cash flows from financing activities:
Borrowing from lines of credit 20,900 110,500
Cost associated with modified line of credit (391) -
Pay-off of secured mortgage loans with borrowings
from lines of credit - (32,234)
Payments under lines of credit (20,000) (76,208)
Expenditures to acquire new line of credit - (1,468)
Distributions paid (14,301) (9,864)
Distributions to minority interest holders (390) (104)
Proceeds from shares issued under dividend
reinvestment plan 154 80
Exercise of stock options 155 17
Principal payments on mortgage loans (320) (187)
-------- --------
Net cash used in financing activities (14,193) (9,468)
-------- --------
Net increase (decrease) in cash and cash equivalents (3,883) 3,262
Cash and cash equivalents:
Beginning of period 7,462 697
-------- --------
End of period $ 3,579 $ 3,959
======== ========
Supplemental cash flow information:
Interest paid, net of amount capitalized $ 7,241 $ 5,097
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
BRADLEY REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying interim financial statements have been prepared by Bradley
Real Estate, Inc., together with its subsidiaries (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, 1996.
NOTE 2 - DERIVATIVE FINANCIAL INSTRUMENTS
The Company may enter into derivative financial instrument transactions in
order to mitigate its interest rate risk on a related financial instrument.
The Company has designated these derivative financial instruments as hedges and
applies deferral accounting, as the instrument to be hedged exposes the Company
to interest rate risk and the derivative financial instrument reduces that
exposure. Gains and losses related to the derivative financial instrument are
deferred and amortized over the terms of the hedged instrument. If a
derivative terminates or is sold, the gain or loss is deferred and amortized
over the remaining life of the derivative. Derivatives that do not satisfy the
criteria above are carried at market value, and any changes in market value are
recognized in other income. The Company has only entered into derivative
transactions that satisfy the aforementioned criteria.
NOTE 3 - ACQUISITIONS AND DISPOSITIONS
In separate transactions during January 1997, the Company acquired three
shopping centers located in Indiana, Iowa and Minnesota, aggregating 245,000
square feet for a total purchase price of approximately $16.2 million. During
the second quarter, the Company completed the acquisitions of two additional
shopping centers located in Iowa for a total purchase price of approximately
$10.3 million.
On March 13, 1997, the Company completed the sale of Hood Commons located in
Derry, New Hampshire for a net sales price of $11.3 million, resulting in a
gain of approximately $3.1 million for financial reporting purposes.
Subsequent to quarter-end, the Company completed the acquisition of a portfolio
of five properties aggregating approximately 420,000 square feet for a total
purchase price of approximately $28.8 million with funds drawn from the
Company's line of credit facility. Three of the properties are located in
Illinois and two are located in Iowa.
Also subsequent to quarter-end, in separate transactions, the Company completed
the acquisitions of two additional shopping centers located in Indiana and
Iowa, aggregating approximately 386,000 square feet for a total purchase price
of approximately $25.0 million. The center located in Iowa was purchased with
funds drawn from the Company's line of credit. The center located in Indiana
was purchased through the issuance of limited partnership units ("OP Units") in
Bradley Operating Limited Partnership ("BOLP"), which the holders may
ultimately exchange for 478,619 shares of the Company's common stock, and the
assumption of a $6.9 million non-recourse mortgage note which was paid-off in
full at close with cash drawn from the Company's line of credit. BOLP is a
limited partnership of which the Company currently owns an 87.4% general
partner interest. As a result of the acquisition of the center located in
Indiana, there are currently 1,070,920 OP Units
6
<PAGE> 7
outstanding.
As of June 30, 1997, the Company recorded a provision for loss on its
investment in Meadows Town Mall, located in Rolling Meadows, Illinois. While
undertaking a redevelopment plan for the Center, the Company received an
unsolicited offer from a prospective purchaser of the property. The Company
has accepted the offer with the intention of redeploying proceeds from the sale
toward the acquisition of another property or properties. The provision of
$1,300,000 represents the difference between the sales price, net of closing
costs, and the carrying value of the property. The sale was completed August
8, 1997 for a net sales price of approximately $5.9 million.
As a result of these acquisition and disposition activities, the Company
currently owns 42 properties in 12 states, aggregating over 8.3 million square
feet of rentable space.
NOTE 4 - SUPPLEMENTAL CASH FLOW DISCLOSURE
In January 1997, a property was purchased for approximately $5.4 million which
included the issuance of OP Units in BOLP which the holders may ultimately
exchange for 281,300 shares of the Company's common stock.
Also in January 1997, a property was purchased for approximately $4.8 million
which included the Company's assumption of a $3.8 million non-recourse mortgage
note.
NOTE 5 - REAL ESTATE INVESTMENTS HELD FOR SALE
As of June 30, 1997, the Company is holding for sale its Augusta Plaza, 585
Boylston Street and Village Shopping Center properties. The net book value of
these properties, $10.0 million, has been reclassified on the balance sheet
from "Real estate investments" to "Real estate investments held for sale". The
balance as of December 31, 1996, $10.3 million, included Hood Commons, which
was sold in March 1997 (see Note 3), and excluded Village Shopping Center,
which was placed for sale during March 1997. The properties held for sale are
no longer depreciated for financial reporting purposes.
NOTE 6 - SUBSEQUENT EVENT
Subsequent to quarter-end, Standard & Poor's, a national credit rating agency,
announced that it assigned an investment grade corporate credit rating of
"BBB-" to BOLP. As a result, the interest rate available under the Company's
and BOLP's unsecured line of credit facility with BankBoston (formerly known as
The First National Bank of Boston) and other lenders was reduced from the lower
of the bank's base rate or 1.50% over LIBOR, to the lower of the bank's base
rate or 1.375% over LIBOR. The rate becomes more favorable in the event the
Company or BOLP receives a higher rating from Standard & Poor's or another
national credit rating agency. The rate returns to the lower of the bank's
base rate or 1.50% over LIBOR in the event the Company or BOLP receives a lower
rating from another national credit rating agency, or in the event Standard &
Poor's adjusts their rating downward.
7
<PAGE> 8
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
During the first six months of 1997, the Company acquired five shopping centers
in separate transactions for a total purchase price of approximately $26.5
million, and sold one shopping center that had been held for sale for a net
sales price of approximately $11.3 million. During the year ended December 31,
1996, the Company acquired sixteen properties, including fourteen properties in
connection with the acquisition of Tucker Properties Corporation ("Tucker"),
and sold its interest in a ground lease. For the six months ended June 30,
1997, net income was $14.0 million, or $0.64 per share, compared with $16.2
million, or $1.04 per share, for the six months ended June 30, 1996. Net
income for the six months ended June 30, 1997, includes a $3.1 million gain on
sale of property reflected in the first quarter and a $1.3 million provision
for loss on real estate investment reflected in the second quarter. Net income
for the six months ended June 30, 1996, includes a $9.4 million gain on sale of
property reflected in the first quarter. Weighted average shares outstanding
for the six-month period were 21,668,458 compared with 15,599,623 in the
prior-year period. Including the provision for loss on real estate investment,
net income for the three months ended June 30, 1997, totaled $5.0 million, or
$0.23 per share, compared with $4.9 million, or $0.26 per share, for the
comparable period in 1996. Weighted average shares outstanding for the quarter
increased to 21,671,292 from 18,662,532 for the same period in the prior year.
The increased number of shares outstanding was due primarily to a 2,875,000
share public offering completed in November 1996 and the issuance of 7,428,157
shares in connection with the Tucker acquisition on March 15, 1996.
Acquisition and Disposition Activities:
<TABLE>
<CAPTION>
Acquisitions Date
------------ ----
<S> <C>
Tucker (14 properties) March 15, 1996
Brookdale Square March 26, 1996
Santa Fe Square December 27, 1996
Roseville Center January 1, 1997
Martin's Bittersweet Plaza January 1, 1997
Warren Plaza January 21, 1997
Spring Village April 28, 1997
Davenport Retail June 19, 1997
Dispositions Date
------------ ----
Nicollet Avenue March 26, 1996
Hood Commons March 13, 1997
</TABLE>
Property Specific Revenues And Expenses (in thousands of dollars):
<TABLE>
<CAPTION>
Six months ended Properties
June 30, Acquisitions/ Held Both
1997 1996 Difference Dispositions Years
------- ------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Rental income $45,889 $33,201 $12,688 $11,947 $ 741
Operations,
maintenance and
management 6,999 5,792 1,207 1,859 (652)
Real estate taxes 9,627 7,688 1,939 1,842 97
Depreciation and
amortization 7,855 5,976 1,879 1,654 225
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Three months ended Properties
June 30, Acquisitions/ Held Both
1997 1996 Difference Dispositions Years
------- ------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Rental income $23,034 $21,982 $ 1,052 $ 682 $ 370
Operations,
maintenance and
management 3,666 3,707 (41) 113 (154)
Real estate taxes 4,559 5,013 (454) 111 (565)
Depreciation and
amortization 3,925 3,724 201 36 165
</TABLE>
Results attributable to acquisition and disposition activities:
Rental income increased from $33,201,000 in the first half of 1996 to
$45,889,000 in the first half of 1997. Approximately $12,782,000 of the
increase was attributable to the Company's acquisition activities, partially
offset by $835,000 attributable to disposition activities. Rental income
increased from $21,982,000 for the three month period ended June 30, 1996, to
$23,034,000 for the same period in 1997. Approximately $1,186,000 was
attributable to the Company's acquisition activities, partially offset by
$504,000 attributable to the sale of Hood Commons in the first quarter of 1997.
Operations, maintenance and management expense increased from $5,792,000 in the
first half of 1996 to $6,999,000 in the first half of 1997. Operations,
maintenance and management expenses incurred for properties acquired during the
six month period, net of such expenses eliminated for properties disposed, of
$1,859,000 were partially offset by a decrease of $652,000 in such expenses for
properties held both years. For the three month period ended June 30, 1997,
operations, maintenance and management expense decreased to $3,666,000 from
$3,707,000 for the same period in 1996, despite incurring a net increase of
approximately $113,000 due to acquisition and disposition activities.
Real estate taxes increased from $7,688,000 in the first half of 1996 to
$9,627,000 in the first half of 1997. Substantially all of the increase was
attributable to the Company's acquisition activities. Real estate taxes
decreased from $5,013,000 for the three month period ended June 30, 1996, to
$4,559,000 for the same period in 1997, despite an increase in real estate
taxes of $111,000 due to the Company's acquisition and disposition activities.
Depreciation and amortization increased from $5,976,000 in the first half of
1996 to $7,855,000 in the first half of 1997. Approximately $1,865,000 of the
increase was attributable to the Company's acquisition activities, partially
offset by $211,000 attributable to disposition activities.
Results for properties fully operating throughout both periods:
The remaining increase in rental income for the six month period ended June 30,
1997, of $741,000 represented an increase of 4.5% over the first half of 1996.
The positive variance was primarily due to an increase at Har Mar Mall
resulting from successful leasing activity during the second half of 1996,
where leases were signed for approximately 26,000 square feet, or 6% of the
Center. Decreases in rental income at Westview Center due to a lower occupancy
and at Grandview Plaza due to the vacancy of JC Penney in 1996 were offset by
an increase at Rivercrest Center due to an increase in average occupancy during
the first half of 1997 compared with the first half of 1996. The increase in
rental income for properties held throughout the three months ended June 30,
1997 and 1996 of $370,000 represented an increase of 1.7% and was primarily
attributable to increases at Har Mar Mall, Rivercrest Shopping Center and Sun
Ray Shopping Center, partially offset by decreases at Grandview Plaza, Westview
Center and Meadows Town Mall. During the second quarter, the Company signed a
new lease with OfficeMax for 30,000 square feet at Grandview Plaza, which
9
<PAGE> 10
is expected to commence early in the first quarter of 1998. A new lease for
55,000 square feet with Waccamaw Pottery at Westview Center is expected to
contribute to increased rental income in the fourth quarter of 1997, and a new
lease with JC Penney Homestore for 55,000 square feet at Chicago Ridge Center
is expected to contribute to increased rental income in the third quarter of
1997.
The remaining decreases in operations, maintenance and management expense of
$652,000, or 20%, from the first half of 1996, and $154,000, or 4%, from the
three month period ended June 30, 1996, were primarily attributable to cost
savings resulting from the completion in the second quarter of 1996 of the
internalization of the property management function for the properties located
in the Midwest, including a decrease in bad debt expense for such properties.
Further, the decrease in the three month period was partially offset by an
increase at Heritage Square due to the bankruptcy of a large tenant. Excluding
the bad debt expense for such tenant, operations, maintenance and management
expense decreased $394,000, or 11%.
The remaining decrease in real estate taxes of $565,000, or 12%, for the three
months ended June 30, 1997, compared with the same period in 1996 was primarily
attributable to the successful negotiation of abatements at The Commons of
Chicago Ridge, Speedway SuperCenter and Meadows Town Mall, combined with
capitalized real estate taxes associated with the construction at certain of
the Company's properties.
The remaining increases in depreciation and amortization of $225,000 and
$165,000 for the six and three month periods, respectively, ended June 30,
1997, compared with the same periods in 1996, were primarily a result of new
construction and leasing at White Bear Hills, Har Mar Mall and Burning Tree
Plaza as well as new tenancies at various other locations.
Non-Property Specific Expenses:
Mortgage and other interest expense increased to $7,231,000 for the six months
ended June 30, 1997, from $5,554,000 during the same period in 1996, but
decreased to $3,581,000 from $4,169,000 during the three month period ended
June 30, 1997, compared with the same period in 1996. Debt assumed in the
Tucker acquisition on March 15, 1996, consisting primarily of the $100 million
REMIC mortgage note secured by six of the acquired Tucker properties, accounted
for $1,715,000 of the increase during the six month period, but did not
contribute to an increase during the three month period because such debt was
outstanding during the full quarter each year. Additionally, mortgage interest
expense on the mortgage note assumed upon the acquisition of Martin's
Bittersweet Plaza in January 1997 contributed to an increase of approximately
$171,000 during the first half of 1997 compared with the first half of 1996,
and $83,000 for the three month period ended June 30, 1997, compared with the
three month period in 1996. A lower weighted average outstanding balance on
the line of credit primarily resulting from the application of proceeds from a
public offering of the Company's common stock completed in November 1996
resulted in decreases in interest expense of $195,000 and $697,000 for the six
and three month periods, respectively, ended June 30, 1997, compared with the
same periods in 1996. The Company's weighted average interest rate for the
three months ended June 30, 1997 was 7.67%.
Administrative and general expense increased from $1,443,000 during the six
months ended June 30, 1996, to $2,259,000 during the six months ended June 30,
1997, and from $888,000 for the three months ended June 30, 1996, to $1,154,000
for the three months ended June 30, 1997. Although the acquisition of Tucker
created substantial operating efficiencies, following the Tucker acquisition
the Company reorganized its internal operations to function by disciplines
rather than geography. The reorganization included the addition of executive
management for leasing, asset management and acquisition activities, mostly
during the second half of 1996. In addition, the acquisition of thirteen
properties since June 30, 1996 has required an increase in personnel to manage
the
10
<PAGE> 11
additional workload. As a result of the aforementioned reorganization and
acquisition activity, the Company has increased the number of employees,
resulting in an increase in payroll costs.
During the second quarter of 1997, the Company recorded a provision for loss on
its investment in Meadows Town Mall, located in Rolling Meadows, Illinois.
While undertaking a redevelopment plan for the Center, the Company received an
unsolicited offer from a prospective purchaser of the property. The Company
has accepted the offer with the intention of redeploying proceeds from the sale
toward the acquisition of another property or properties. The provision of
$1,300,000 represents the difference between the sales price, net of closing
costs, and the carrying value of the property. The sale was completed August
8, 1997 for a net sales price of $5.9 million.
During the first quarter of 1996, the Company incurred a one-time charge of
$344,000 consisting of deferred financing costs related to the Company's former
bank line of credit and certain deferred acquisition costs related to
acquisitions which the Company chose not to pursue due to the efforts required
to finalize the Tucker transaction.
LIQUIDITY AND CAPITAL RESOURCES
General
The Company funds operating expenses and distributions primarily from operating
cash flows, although its bank line of credit may also be used for these
purposes. The Company funds 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 securities. The Company may also acquire properties
through the direct issuance of securities of the Company, or via Bradley
Operating Limited Partnership ("BOLP"), through the issuance of limited
partnership units in the Operating Partnership. Additionally, the Company may
dispose of certain non-core properties, reinvesting the proceeds from such
dispositions in properties with higher growth potential and that are more
consistent with the Company's strategic focus. In addition, the Company may
acquire partial interests in real estate assets through participation in joint
venture transactions.
The Company focuses its investment activities on community and neighborhood
shopping centers primarily in the Midwestern United States anchored by regional
and national grocery store chains. The Company will continue to seek
acquisition opportunities of individual properties and property portfolios
including public and private real estate entities in both primary and secondary
Midwest markets where management can utilize its extensive experience in
shopping center renovation, expansion, re-leasing and re-merchandising to
achieve long-term cash flow growth and favorable investment returns.
As of June 30, 1997, financial liquidity was provided by approximately
$3,579,000 in cash and cash equivalents and by the Company's unused balance on
the line of credit of $85,600,000. In addition, during the second quarter, the
Company filed and has an effective "universal shelf" registration statement
under which the Company may issue up to $234,460,000 in equity securities. The
"universal shelf" registration statement gives the Company flexibility to issue
additional equity securities from time to time when the Company determines that
market conditions and the opportunity to utilize the proceeds from the issuance
of such securities are favorable.
Operating Activities
Net cash flows provided by operating activities increased to $19,187,000 during
the first half of 1997, from $14,650,000 during the same period in 1996. The
increase is primarily due to the growth of the Company's portfolio, from 17
properties at January 1, 1996, to 36 properties at June 30, 1997.
11
<PAGE> 12
Funds from operations ("FFO") increased $7,012,000, or 56%, from $12,485,000 to
$19,497,000 for the six months ended June 30, 1997, compared with the same
period in 1996, and $1,552,000, or 19%, from $8,388,000 to $9,940,000 for the
three months ended June 30, 1997, compared with the same period in 1996. The
Company 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. FFO, as defined by the National Association of Real Estate
Investment Trusts ("NAREIT") and as followed by the Company, represents net
income (computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from sales of property, plus depreciation and
amortization. In computing FFO, the Company does not add back to net income
the amortization of costs incurred in connection with the Company's 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 definition of FFO is a guideline,
computation of FFO may vary from one REIT to another. FFO is not necessarily
indicative of cash available to fund cash needs.
Investing Activities
Net cash flows from investing activities decreased to a net use of cash of
$8,877,000 during the first half of 1997, from a net use of cash of $1,920,000
during the same period of 1996.
During the first half of 1997, the Company acquired five shopping centers in
separate transactions for a total purchase price of approximately $26.5
million, and sold one property that had been held for sale for a net sales
price of approximately $11.3 million. Subsequent to quarter-end, the Company
completed the acquisition of a portfolio of five shopping centers located in
Illinois and Iowa for approximately $28.8 million, and two additional shopping
centers located in Indiana and Iowa in separate transactions for
approximately $25.0 million.
Financing Activities
Net cash flows provided by financing activities declined to a net use of cash
of $14,193,000 during the first half of 1997 from a net use of cash of
$9,468,000 during the same period in 1996. Distributions (treated as a
reduction in cash flows from financing activities in the Company's financial
statements) were $14,301,000 in the first half of 1997, and $9,864,000 in the
first half of 1996.
Of the five acquisitions completed during the first half of 1997, three of the
five shopping centers were acquired for cash with financing provided by the
Company's unsecured bank line of credit. One shopping center was acquired with
cash provided by the Company's unsecured bank line of credit and the assumption
of a $3,800,000 non-recourse mortgage note, and one shopping center was
acquired via the issuance of limited partnership units in BOLP to the former
owners of the Center which the holders may ultimately exchange for 281,300
shares of the Company's common stock. Financing for the properties acquired
subsequent to the quarter-end included $44.8 million drawn from the Company's
unsecured bank line of credit and $9.0 million through the issuance of limited
partnership units in BOLP to the former owners of the Center which holders may
ultimately exchange for 478,619 shares of the Company's common stock.
In March 1997, the Company completed the sale of Hood Commons located in Derry,
New Hampshire, for a net sales price of $11.3 million. The net proceeds were
used to pay-down the Company's unsecured bank line of credit.
12
<PAGE> 13
Also in March 1997, the Company amended its $150 million unsecured revolving
credit facility, extending the maturity date to March 15, 1999, and reducing
the interest rate to the lower of the bank's base rate or 1.50% over LIBOR from
the lower of the bank's base rate or 1.75% over LIBOR. The amended line of
credit agreement also provides more flexible covenants compared with the
previous agreement. Subsequent to quarter-end, Standard & Poor's, a national
credit rating agency, announced that it assigned an investment grade corporate
credit rating of "BBB-" to BOLP. As a result, the interest rate on the line of
credit was further reduced to the lower of the bank's base rate or 1.375% over
LIBOR, in accordance with the line of credit agreement, representing a decrease
in the interest margin on the line of credit by 0.375% from December 31, 1996.
Capital Strategy
At June 30, 1997, the Company was holding for sale its Augusta Plaza and 585
Boylston Street properties because such properties are not aligned with the
Company's strategic market focus. The dispositions of these properties are
expected to be completed during 1997. Additionally, during March 1997, the
Company placed for sale Village Shopping Center, one of the properties acquired
from Tucker, since such property is considered by management to be a non-core
property where the proceeds from a sale could be better invested in a property
or properties with higher growth potential. Proceeds received from a sale of
any or all of these properties would provide additional liquidity to the
Company and may be applied in whole or in part to tax-deferred "like-kind"
exchange acquisitions of additional properties.
The sale of Meadows Town Mall was completed August 8, 1997 for a net sales
price of approximately $5.9 million, providing additional liquidity to the
Company for the acquisition of an additional property or properties, or to
pay-down the outstanding balance on the line of credit.
As part of the Tucker acquisition, the Company assumed a $100,000,000 mortgage
note secured by six properties. The note had been issued to an entity
qualifying as a real estate mortgage investment conduit (REMIC) for federal
income tax purposes. The REMIC Note has a fixed, 7.3% rate of interest, with
an effective rate of 7.23%, matures in September 2000 and becomes prepayable,
upon payment of a significant prepayment premium, in October 1997. As
discussed above, the investment grade rating provides the Company with the
ability to issue fixed-rate unsecured debt. Management believes that the bank
line of credit, as well as the current value of the Company's assets, provide
the Company with the necessary flexibility to refinance the REMIC Note, as well
as its other debt obligations when due, although there can be no assurance that
refinancing terms at the time of maturity will be favorable.
Management believes that the Company's recent growth has enhanced the Company's
ability to raise further capital in the public markets and, as indicated above,
the Company has positioned itself to take advantage of favorable opportunities
by increasing the dollar amount of securities that it may issue pursuant to a
"universal shelf" registration statement, and by obtaining an investment grade
corporate credit rating. While the public capital markets have generally been
favorable for selected REITs during the past few years, there can be no
assurance either that the public markets will remain receptive to providing new
capital to REITs or that the terms upon which the Company may be able to raise
funds will be attractive or favorable to the Company or to its share owners.
13
<PAGE> 14
FORWARD-LOOKING STATEMENTS
Statements made or incorporated in this Form 10-Q include "forward-looking"
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements
include, without limitation, statements containing the words "anticipates",
"believes", "expects", "intends", "future", and words of similar import which
express management's belief, expectations or intentions regarding the Company's
future performance or future events or trends. Reliance should not be placed
on forward-looking statements because they involve known and unknown risks,
uncertainties and other factors, which may cause actual results, performance or
achievements of the Company to differ materially from anticipated future
results, performance or achievements expressly or implied by such
forward-looking statements. 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 continuing availability
of retail center acquisitions in the Midwest; the ability of the Company to
negotiate acceptable sales terms for its properties held for sale; the need to
renew leases or relet space upon the expiration of current leases; and the
financial flexibility to refinance debt obligations when due.
14
<PAGE> 15
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 on May 14, 1997, shares
were voted on the following matters as follows (number of shares rounded to
nearest full share):
<TABLE>
<CAPTION>
1. Election of Directors:
Nominee For Withheld
------- --- --------
<S> <C> <C>
Stephen G. Kasnet 15,112,201 143,639
A. Robert Towbin 15,113,258 142,582
</TABLE>
2. Approval of the Company's Superior Performance Incentive Plan as
set forth in Appendix A to the Notice and Proxy Statement dated
March 31, 1997 for such Meeting.
<TABLE>
<CAPTION>
For Against Abstained No Vote
--- ------- --------- -------
<S> <C> <C> <C>
14,340,933 801,317 113,590 0
</TABLE>
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 Registrant did not file any Form 8-K reports with respect to
events occurring the quarter.
15
<PAGE> 16
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 11, 1997
Bradley Real Estate, Inc.
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
(Principal Accounting Officer)
16
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000013777
<NAME>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,579
<SECURITIES> 0
<RECEIVABLES> 12,896
<ALLOWANCES> 2,309
<INVENTORY> 0
<CURRENT-ASSETS> 29,130
<PP&E> 520,558
<DEPRECIATION> 36,708
<TOTAL-ASSETS> 512,980
<CURRENT-LIABILITIES> 20,708
<BONDS> 193,268
0
0
<COMMON> 217
<OTHER-SE> 298,787
<TOTAL-LIABILITY-AND-EQUITY> 512,980
<SALES> 23,350
<TOTAL-REVENUES> 23,350
<CGS> 0
<TOTAL-COSTS> 8,225
<OTHER-EXPENSES> 5,079
<LOSS-PROVISION> 1,300
<INTEREST-EXPENSE> 3,581
<INCOME-PRETAX> 5,165
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,165
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,028
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
