<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION Exhibit Index
Washington, D.C. 20549 on Pages __ and __
FORM 10-K405
Annual Report Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
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. Employer Identification No.)
40 Skokie Blvd., Northbrook, IL 60062
--------------------------------- -------
(Address of Principal Executive Offices) (ZIP Code)
Registrant's telephone number, including area code (847) 272-9800
-----------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
--------------------- -------------------------------------------
Common Stock New York Stock Exchange
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] , No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
Aggregate market value of 21,612,088 shares of Common Stock believed to be held
by non-affiliates of the registrant based upon the $19.50 closing price for
such Shares on March 10, 1997, on the New York Stock Exchange: $421,435,716
Number of Shares outstanding as of March 10, 1997: 21,665,790
DOCUMENTS INCORPORATED BY REFERENCE
Registrant expects to file no later than April 1, 1997, its definitive Proxy
Statement for the 1997 Annual Meeting of Share Owners and hereby incorporates
by reference said Proxy Statement into Part III hereof.
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STATEMENTS MADE OR INCORPORATED IN THIS REPORT INCLUDE A NUMBER OF
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. IN ADDITION, THE COMPANY UNDERTAKES NO
OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENT, WHETHER
AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. CERTAIN FACTORS
THAT MIGHT CAUSE SUCH DIFFERENCES ARE DISCUSSED IN THE SECTION ENTITLED "RISK
FACTORS" ON PAGE 12 OF THIS REPORT.
Part I
ITEM 1. BUSINESS
General
The objective of Bradley Real Estate, Inc. ("Bradley" or the "Company") is to
be a dominant owner of grocery-anchored, open air shopping centers in the
Midwestern region of the United States. At December 31, 1996, the Company
owned 32 properties in 12 states, aggregating over 7.7 million square feet of
rentable space. Approximately 95% of the Company's portfolio square footage is
located in Midwest markets, making the Company one of the leading owners and
operators of community and neighborhood shopping centers in this region. As of
December 31, 1996, the Company's portfolio was 90% occupied.
The Company has elected to qualify as a real estate investment trust ("REIT")
for federal income tax purposes since its organization in 1961. The Company
believes that it is the nation's oldest continually qualified REIT.
During 1996, the Company grew substantially, primarily as a result of the
merger acquisition on March 15, 1996, of Tucker Properties Corporation
("Tucker") (the "Tucker Acquisition"), which more than doubled the size of the
Company's portfolio on a square footage basis and sharpened the Company's
Midwest focus. The Company also made two other smaller property acquisitions
in 1996. In January 1997, it acquired three additional shopping centers in its
Midwest target area, and in March 1997, it sold one of its three remaining
properties in New England. As a result of these transactions, at the date of
this report, the Company owns 34 properties aggregating approximately 7.8
million square feet in 11 states.
As part of its ongoing business, the Company regularly evaluates, and engages
in discussions with public and private real estate entities regarding possible
portfolio or asset acquisitions or business combinations. The Company expects
to complete several additional retail acquisitions during 1997. In evaluating
potential acquisitions, the Company focuses principally on community and
neighborhood shopping centers in a 10 state area -- Illinois, Indiana, Iowa,
Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wisconsin
- -- that are anchored by strong regional and independent grocery store chains.
The Company favors grocery-anchored shopping centers because,
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based on the Company's experience, such properties offer better prospects for
sustainable cash flow growth over time due to their strong and predictable
daily consumer traffic and are less susceptible to external economic factors
than other types of properties.
1996 Highlights
The Company considers that its mission is to provide superior returns to its
share owners by creating sustainable growth in per share cash flow through the
ownership of grocery focused retail properties in the Midwest region of the
United States. During 1996, the Company continued to focus on its three main
strategic objectives: managing its existing properties to compete in a
challenging retail environment, positioning its capital structure for future
growth, and continuing to grow through opportunistic acquisitions.
In connection with the stated objective of a strategic focus on the Midwest,
the Company relocated its corporate headquarters from Boston, Massachusetts to
Northbrook, Illinois during September 1996. The Company's principal executive
office is now located at 40 Skokie Boulevard, Suite 600, Northbrook, Illinois
60062. Its telephone number is (847) 272-9800.
Management and Leasing Activity:
Despite a competitive retail climate, the properties owned by the Company at
December 31, 1996, were at a 90% occupancy rate. During 1996, the Company
negotiated 328,000 square feet of new leases and 124,000 square feet of renewal
leases. Combined, these leases represented approximately 6% of the aggregate
portfolio. Significant new and renewal leases completed during the year
included an expansion of Best Buy at Burning Tree Plaza from 28,000 square feet
to 46,000 square feet; two leases with Petter's Warehouse Direct, one at Har
Mar Mall for 17,500 square feet, and one at Sun Ray Shopping Center for 20,000
square feet; a 40,000 square foot lease with Stein Mart at Washington Lawndale
Commons; and a 15,000 square foot Kohl's expansion at Speedway SuperCenter.
Capital Structure Activity:
In March 1996, the Company entered into a $150 million unsecured revolving
credit facility with a syndicate of major U.S. banks, lead by The First
National Bank of Boston. The $150 million unsecured line of credit replaced a
$65 million secured facility. The Company's line of credit bears interest at
the lower of the lead bank's base rate or 1.75% over the London Inter-Bank
Offering Rate ("LIBOR"). The rates available under the line of credit become
more favorable in the event the Company meets certain loan-to-value tests or
receives an investment grade credit rating.
In November 1996, the Company completed an underwritten public offering of
2,875,000 shares of common stock. The net proceeds, approximately $44.9
million, were used to pay-down short-term indebtedness incurred under the
Company's line of credit with the expectation that the Company may reborrow
under the line for the acquisition, development, expansion or renovation of
properties. Immediately following the offering, the Company's ratio of debt to
total market capitalization (defined as the current market value of all
outstanding shares of common stock and limited partnership units that are
convertible into common stock plus the principal amount of outstanding debt)
was reduced to approximately 33%. At December 31, 1996, the Company's ratio of
debt to total market capitalization stood at approximately 32%.
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Acquisitions:
On March 15, 1996, the Company completed the acquisition of Tucker Properties
Corporation ("Tucker"), which more than doubled the previous size of the
Company's portfolio on a square footage basis. The acquisition was consummated
through the issuance by the Company of 7.4 million shares of its common stock
valued at $13.96 per share, in exchange for 100% of the outstanding shares of
Tucker, the assumption of Tucker's liabilities and payment of the related
transaction costs.
Tucker held title to its properties through two partnerships; eight of the
properties were held through Tucker Operating Limited Partnership ("TOP"), in
which Tucker had a 95.9% general partnership interest, and six properties
through Tucker Financing Partnership ("TFP"), a general partnership of which
TOP owned 99% and a wholly-owned Tucker subsidiary owned the remaining 1%. Upon
the acquisition of Tucker, the Company succeeded to Tucker's interest in TOP,
TFP and the wholly-owned Tucker corporate subsidiary, and the name "Bradley"
was substituted for "Tucker" in each partnership and subsidiary. The
properties held by Bradley Financing Partnership ("BFP"), formerly TFP, secure
a $100 million mortgage note due in September 2000, (the "REMIC Note") issued
to a trust qualifying as a real estate mortgage investment conduit for Federal
income tax purposes.
On March 26, 1996, the Company acquired Brookdale Square ("Brookdale"), a
185,000 square foot shopping center located in Brooklyn, Minnesota, a suburb of
Minneapolis, for approximately $8.9 million. In connection with the
acquisition of Brookdale, the Company completed a "like-kind" exchange for tax
purposes and sold its interest in a ground lease at 501-529 Nicollet Avenue in
downtown Minneapolis for approximately $12.9 million.
On December 27, 1996, the Company acquired Santa Fe Square ("Santa Fe"), a
134,000 square foot property in Olathe, Kansas, a suburb of Kansas City,
Kansas, for approximately $9.1 million.
Subsequent to year-end, in January 1997, the Company acquired three additional
grocery-anchored shopping centers in three separate transactions: Martin's
Bittersweet Plaza, a 78,000 square foot center in Mishawaka, Indiana, a suburb
of South Bend; Roseville Center, a 77,000 square foot center in Roseville,
Minnesota, a suburb of St. Paul; and Warren Plaza, a 90,000 square foot center
in Dubuque, Iowa. The aggregate purchase price for the properties was
approximately $16.2 million.
Dispositions:
The Company's strategy entails a focus on grocery-anchored centers in primary
and secondary Midwest markets. From time to time, the Company will evaluate
assets within its portfolio with an eye toward disposing of assets that no
longer fit the Company's strategy either geographically or from a product type
standpoint. In addition, if the Company believes that proceeds from the sale
of a given property can be reinvested in new assets that provide greater return
potential, such property may be considered for sale.
In March 1996, the Company completed the sale of its ground lease at 501-529
Nicollet Avenue in downtown Minneapolis for approximately $12.9 million. The
sale resulted in a gain of $9.4 million for financial reporting purposes,
however, because the transaction was structured in part as a like-kind
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exchange transaction in connection with the acquisition of Brookdale, the gain
for income tax purposes amounted to $4.1 million.
As part of the Company's stated objective to focus on the Midwest, at December
31, 1996, the Company was holding for sale its three New England properties.
The aggregate book value of these properties, $10.3 million, has been
separately classified in the Company's December 31, 1996, consolidated balance
sheet. The Company intends to redeploy the proceeds from such sales to acquire
additional shopping center properties in the Midwest.
In March 1997, the Company completed the sale of Hood Commons in Derry, New
Hampshire for $11.7 million resulting in a gain of approximately $3.1 million
for financial reporting purposes. The Company expects to sell its remaining
New England properties during 1997.
Operations:
Subsequent to the acquisition of Tucker, the Company completed the integration
of its former operating systems and personnel with those of Tucker, resulting
in what the Company believes is a stronger, more talented and more efficiently
structured organization. During the year the Company completely internalized
its Midwest property management and leasing activities under an expanded senior
management team, all located in the Midwest, and enhanced its technological
capabilities, which both provide the potential for improved property management
and facilitate the evaluation of potential acquisitions. At December 31, 1996,
the Company had 81 employees, increased from 16 employees at December 31, 1995.
The Company's Properties
The following table and notes describe the Company's properties and rental
information for leases in effect as of December 31, 1996:
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<TABLE>
<CAPTION>
PERCENT
LEASED AT
RENTABLE DECEMBER 31 ANNUALIZED
YEAR SQUARE ------------------- ANNUALIZED BASE RENT PER
SHOPPING CENTERS ACQUIRED FEET 1996 1995 BASE RENT LEASED SF
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ILLINOIS
- --------
Commons of Chicago Ridge
and Annex 1996 309,000 77% 73% $2,398,563 $ 6.00
Chicago Ridge, IL
- --------------------------------------------------------------------------------------------------------------
Commons of Crystal Lake(2) 1996 273,000 75% 98% 2,357,251 11.56
Crystal Lake, IL
- --------------------------------------------------------------------------------------------------------------
Crossroads Center 1992 242,000 93% 93% 1,256,261 5.56
Fairview Heights, IL
- --------------------------------------------------------------------------------------------------------------
Heritage Square 1996 212,000 100% 100% 2,600,274 12.25
Naperville, IL
- --------------------------------------------------------------------------------------------------------------
High Point Centre 1996 240,000 100% 100% 2,150,297 8.95
Lombard, IL
- --------------------------------------------------------------------------------------------------------------
Meadows Town Mall 1996 382,000 60% 81% 1,420,013 6.17
Rolling Meadows, IL
- --------------------------------------------------------------------------------------------------------------
Rivercrest Center 1994 454,000 100% 100% 3,507,723 7.75
Crestwood, IL
- --------------------------------------------------------------------------------------------------------------
Rollins Crossing(3) 1996 66,000 93% 100% 538,539 8.81
Round Lake Beach, IL
- --------------------------------------------------------------------------------------------------------------
Sheridan Village 1996 298,000 98% 97% 2,197,545 7.53
Peoria, IL
- --------------------------------------------------------------------------------------------------------------
Westview Center 1993 328,000 72% 78% 2,274,855 9.67
Hanover Park, IL
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
BASE
LEASE/OPTION
SQUARE EXPIRATON
SHOPPING CENTERS MAJOR TENANTS (1) FEET DATE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ILLINOIS
- --------
Commons of Chicago Ridge T.J.Maxx 25,082 1998/2008
and Annex Marshalls 27,000 1999/2014
Chicago Ridge, IL Office Depot 27,680 2002/2012
Cineplex Odeon 25,000 2008/2018
Michaels Stores 17,550 1999/2004
Pep Boys 22,354 2015/2035
- ---------------------------------------------------------------------------------------------------------
Commons of Crystal Lake(2) Jewel/Osco 59,804 2007/2042
Crystal Lake, IL Venture (not owned) 81,338 2006
- ---------------------------------------------------------------------------------------------------------
Crossroads Center Kmart (ground lease) 96,268 2001/2020
Fairview Heights, IL T.J.Maxx 33,200 2006/2013
- ---------------------------------------------------------------------------------------------------------
Heritage Square Montgomery Ward 111,016 2013/2033
Naperville, IL Circuit City 28,351 2009/2024
Stroud's 26,703 2003/2013
- ---------------------------------------------------------------------------------------------------------
High Point Centre Cub Foods 62,000 2008/2033
Lombard, IL T.J.Maxx 25,200 1998/2013
Office Depot 36,416 2003/2013
MacFrugal's 17,040 2006/2021
- ---------------------------------------------------------------------------------------------------------
Meadows Town Mall Waccamaw 108,000 1999/2009
Rolling Meadows, IL Elek-Tek 32,000 2001/2011
Women's Club 20,478 1998/2008
- ---------------------------------------------------------------------------------------------------------
Rivercrest Center Omni Foods 87,937 2011/2031
Crestwood, IL Venture 79,903 2011/2031
Sears Roebuck and Co. 55,000 2001/2011
T.J.Maxx 34,425 2004/2019
PETsMART 31,639 2010/2030
Best Buy 25,000 2008/2023
OfficeMax 24,000 2007/2017
Hollywood Park 15,000 2000/2005
- ---------------------------------------------------------------------------------------------------------
Rollins Crossing(3) Sears Hardware 21,083 2005/2020
Round Lake Beach, IL Super Kmart (not owned) 190,000 2033
- ---------------------------------------------------------------------------------------------------------
Sheridan Village Bergner's Dept. Store 162,852 2006/2021
Peoria, IL Cohen's Furniture 16,600 2006
- ---------------------------------------------------------------------------------------------------------
Westview Center Cub Foods 67,163 2009/2029
Hanover Park, IL Marshalls 34,302 2004/2019
- ---------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<Caption
PERCENT
LEASED AT BASE
RENTABLE DECEMBER 31 ANNUALIZED LEASE/OPTION
YEAR SQUARE ----------- ANNUALIZED BASE RENT PER SQUARE EXPIRATION
SHOPPING CENTERS ACQUIRED FEET 1996 1995 BASE RENT LEASED SF MAJOR TENANTS(1) FEET DATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INDIANA
- -------
Speedway SuperCenter 1996 535,000 98% 98% $3,891,512 $7.40 Kohl's 90,027 2004/2024
and Outlots Kroger 59,515 2013/2043
Speedway, IN Sears Roebuck and Co. 30,825 2004/2024
Old Navy 15,000 2005/2010
Kittles 25,320 2000/2010
PETsMART 21,781 2002/2012
Factory Card Outlet 16,675 2003/2013
Lindo Super Spa 16,589 2000
- ------------------------------------------------------------------------------------------------------------------------------------
The Village 1996 356,000 92% 97% 1,735,543 5.32 JC Penney 60,600 1999/2004
Gary, IN Goldblatt's 55,000 2000/2005
McCrory's 24,500 1998/2003
Post-Tribune Publishing 19,246 1999
Indiana Employment 18,050 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Washington Lawndale 1996 333,000 87% 99% 1,414,962 4.89 Target 83,110 2005/2025
Commons Sears Homelife 34,527 2003/2018
Evansville, IN Allied Sporting Goods 20,285 1997/2012
Jo-Ann Fabrics 15,262 2003/2013
Books-A-Million 20,515 2002/2008
- ------------------------------------------------------------------------------------------------------------------------------------
KANSAS
- ------
Santa Fe Square 1996 134,000 95% N/A 1,106,696 8.72 Schnucks 55,820 2007/2027
Olathe, KS
- ------------------------------------------------------------------------------------------------------------------------------------
KENTUCKY
- --------
Stony Brook 1996 136,000 94% 96% 1,324,847 10.35 Kroger 79,625 2021/2046
Louisville, KY
- ------------------------------------------------------------------------------------------------------------------------------------
MAINE
- -----
Augusta Plaza 1971 152,000 93% 89% 613,505 4.35 Kmart 85,808 1997/2012
Augusta, ME
- ------------------------------------------------------------------------------------------------------------------------------------
MINNESOTA
- ---------
Brookdale Square 1996 185,000 84% N/A 1,160,984 7.44 Circuit City 36,392 2014/2034
Brooklyn, MN Office Depot 30,395 2004/2014
Drug Emporium 25,782 2000/2010
United Artists 24,534 2002/2022
- ------------------------------------------------------------------------------------------------------------------------------------
Burning Tree Plaza 1993 120,000 100% 100% 1,037,499 8.62 T.J. Maxx 30,000 2004/2019
Duluth, MN Best Buy 28,000 1999/2014
Piece Goods Shops 17,682 1999/2004
- ------------------------------------------------------------------------------------------------------------------------------------
Har Mar Mall 1992 431,000 89% 86% 3,569,078 9.32 HomePlace 54,489 2010/2026
Roseville, MN Barnes & Noble 44,856 2010/2025
Marshalls 34,858 1998/2013
T.J.Maxx 25,025 1998/2008
General Cinema 22,252 2001/2021
General Cinema 19,950 2000/2010
Michaels Stores 17,907 2003/2018
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
PERCENT
LEASED AT
RENTABLE DECEMBER 31
YEAR SQUARE ----------------- ANNUALIZED
SHOPPING CENTERS ACQUIRED FEET 1996 1995 BASE RENT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Hub West Shopping Center 1991 78,000 100% 100% $ 826,567
Richfield, MN
- ------------------------------------------------------------------------------------------------------------
Richfield Hub Shopping 1988 138,000 96% 97% 1,215,868
Center
Richfield, MN
- ------------------------------------------------------------------------------------------------------------
Sun Ray Shopping Center 1961 261,000 81% 97% 1,650,360
St. Paul, MN
- ------------------------------------------------------------------------------------------------------------
Terrace Mall 1993 137,000 94% 92% 909,289
Robbinsdale, MN
- ------------------------------------------------------------------------------------------------------------
Westwind Plaza 1994 88,000 91% 96% 843,574
Minnetonka, MN
- ------------------------------------------------------------------------------------------------------------
White Bear Hills 1993 73,000 100% 100% 588,518
White Bear Lake, MN
- ------------------------------------------------------------------------------------------------------------
MISSOURI
- --------
Grandview Plaza 1971 314,000 78% 98% 2,163,990
Florissant, MO
- ------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE
- -------------
Hood Commons 1973 216,000 94% 97% 1,473,253
Derry, NH
- ------------------------------------------------------------------------------------------------------------
NEW MEXICO
- ----------
St. Francis Plaza 1995 30,000 100% 100% 357,000
Santa Fe, NM
- ------------------------------------------------------------------------------------------------------------
TENNESSEE
- ---------
Williamson Square 1996 335,000 93% 96% 2,107,290
Franklin, TN
- ------------------------------------------------------------------------------------------------------------
WISCONSIN
- ---------
Mequon Pavilions 1996 212,000 99% 98% 2,252,183
Mequon, WI
- ------------------------------------------------------------------------------------------------------------
RETAIL/OFFICE BUILDING
- ----------------------
One North State 1996 640,000 98% 95% 9,486,289
Chicago, IL
- ------------------------------------------------------------------------------------------------------------
585 Boylston Street 1961 22,000 90% 98% 680,934
Boston, MA
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
BASE
ANNUALIZED LEASE/OPTION
BASE RENT PER SQUARE EXPIRATION
SHOPPING CENTERS LEASED SF MAJOR TENANTS(1) FEET DATE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hub West Shopping Center $10.56 Rainbow Foods 50,817 2012/2022
Richfield, MN U.S. Swim & Fitness 26,185 2001/2003
- ------------------------------------------------------------------------------------------------------------
Richfield Hub Shopping 9.18 Marshalls 26,785 2003/2008
Center Michaels Stores 24,235 1999/2014
Richfield, MN
- ------------------------------------------------------------------------------------------------------------
Sun Ray Shopping Center 7.75 JC Penney 40,451 1999/2009
St. Paul, MN Marshalls 26,256 2005/2020
T.J.Maxx 23,955 2000/2005
Petter's 20,000 2007
Michaels Stores 18,127 2004/2019
- ------------------------------------------------------------------------------------------------------------
Terrace Mall 7.06 Rainbow Foods 59,232 2013/2033
Robbinsdale, MN North Memorial 32,000 1999/2004
- ------------------------------------------------------------------------------------------------------------
Westwind Plaza 10.58 Northern Hydraulics 18,165 2002/2012
Minnetonka, MN
- ------------------------------------------------------------------------------------------------------------
White Bear Hills 8.05 Festival Foods 45,679 2011/2021
White Bear Lake, MN
- ------------------------------------------------------------------------------------------------------------
MISSOURI
- --------
Grandview Plaza 8.82 Home Quarters 84,611 2013/2033
Florissant, MO Schnucks 68,025 2011/2026
Walgreens 15,984 2008/2043
- ------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE
- -------------
Hood Commons 7.25 Shaw's 58,258 2013/2033
Derry, NH Ames 50,000 2000/2005
Decelle 26,353 1999/2014
- ------------------------------------------------------------------------------------------------------------
NEW MEXICO
- ----------
St. Francis Plaza 11.98 Walgreens 14,950 2013/2043
Santa Fe, NM Wild Oats 14,850 2006/2066
- ------------------------------------------------------------------------------------------------------------
TENNESSEE
- ---------
Williamson Square 6.78 Wal-Mart 137,493 2008/2038
Franklin, TN Kroger 63,986 2008/2038
Carmike Cinemas 29,000 2008/2018
- ------------------------------------------------------------------------------------------------------------
WISCONSIN
- ---------
Mequon Pavilions 10.72 Kohl's Food Emporium 45,697 2010/2050
Mequon, WI Furniture Clearance 19,900 1997
- ------------------------------------------------------------------------------------------------------------
RETAIL/OFFICE BUILDING
- ----------------------
One North State 15.18 First Chicago 296,782 2003
Chicago, IL Arthur Andersen(4) 126,533 1998
T.J. Maxx 77,675 2001/2011
Filene's Basement 50,000 2002/2012
Int'l Academy of Design 44,000 2003/2008
- ------------------------------------------------------------------------------------------------------------
585 Boylston Street 34.95 CVS Pharmacy 7,582 2001/2016
Boston, MA
- ------------------------------------------------------------------------------------------------------------
</TABLE>
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(1) Major tenants are defined as tenants leasing 15,000 square feet or
more of the rentable square footage with the exception of 585 Boylston
Street and St. Francis Plaza. In some cases, the named tenant
occupies the premises as a sublessee. The Company views "anchor"
tenants as a subset of the major tenants at each property, generally
consisting of those tenants which also represent more than 15% of the
property's rentable square footage.
(2) The amount of rentable square feet at Commons of Crystal Lake does
not include approximately 81,000 square feet which is owned by
Metropolitan Life and leased to Venture.
(3) The amount of rentable square feet at Rollins Crossing does not
include approximately 190,000 square feet which is owned by Kmart
Corporation.
(4) This tenant exercised its option on April 1, 1996, to terminate its
lease, effective as of April 1, 1998, and has paid a $1.8 million
cancellation fee. The tenant has moved out of its space.
One North State
One North State was the only property in the portfolio at December 31,
1996, that represented 10% or more of the historic book value of the
Company's total assets at December 31, 1996, or accounted for 10% or more
of the Company's gross revenues in 1996. One North State is a mixed-use
property located in the "Loop" area of downtown Chicago, Illinois. The
property aggregates approximately 640,000 square feet of GLA including
approximately 159,000 square feet of retail space. Real estate taxes for
this property amounted to approximately $2,917,000 for the period March 15,
1996 through December 31, 1996. The retail portion of this property is
anchored by T.J. Maxx and Filene's Basement. The leases to T.J. Maxx and
Filene's Basement provide current minimum annual rent of approximately
$1,237,000 and $1,000,000, respectively. The office portion of this
property is leased primarily to First Chicago and Arthur Andersen. The
leases to First Chicago and Arthur Andersen provide current minimum annual
rent of approximately $3,942,000 and $1,518,000, respectively.
The following tables set forth certain supplemental information with
respect to One North State, and reflect Arthur Andersen's termination in
1996 of its lease effective April 1998, and the fact that its leased space
was not occupied at December 31, 1996. See "Risk Factors - Real Estate
Investment Considerations - Potential Negative Effect of One North State
Property."
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<PAGE> 10
a. Percentage occupied at December 31 for the last five years:
1996 78%
1995 95%
1994 95%
1993 95%
1992 89%
b. The average effective annual minimum rentals per square foot for 1996,
1995, and 1994 were as follows:
1996 $15.18
1995 $15.45
1994 $16.34
c. Leases in effect at December 31, 1996, expiring over each of the next ten
years, assuming no tenants exercise renewal options:
No. of Square Minimum
Leases Feet Future Rents
------ ------ ------------
1997 3 8,494 $ 36,000
1998 1 126,533 1,518,400
1999 1 1,177 76,505
2000 1 1,807 182,507
2001 5 83,767 1,645,670
2002 2 51,451 1,101,570
2003 4 343,432 4,712,361
2004 1 6,200 120,000
2005 2 2,035 121,547
2006 - - -
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Tenant Mix and Leases
As evidenced by the foregoing tables, the Company's tenant mix is diverse and
well represented by supermarkets, drugstores and other consumer necessity or
value-oriented retailers. Such tenants tend to be stable performers in both
good and bad economic times. As of December 31, 1996, sixteen of the Company's
shopping centers were anchored by supermarkets, most of which are leading
grocery chains in their respective markets. No tenant included in the Company's
portfolio of properties on December 31, 1996, accounted for 10% or more of the
Company's rental income in 1996.
The terms of the Company's outstanding retail leases vary from tenancies at will
to 50 years. Major tenant leases are typically for 10 to 25 years, with one or
more extension options available to the lessee upon expiration of the initial
lease. By contrast, smaller shop leases are typically negotiated for three to
five year terms. The longer term of the major tenant leases serves to protect
the Company against significant vacancies and to assure the presence of strong
tenants who draw consumers to the Company's centers. The shorter term of the
smaller shop leases allows the Company to adjust rental rates for non-major
store space on a regular basis and upgrade the overall tenant mix.
Leases to major tenants tend to provide lower minimum rents per square foot than
smaller shop leases. Major tenant leases for properties included in the
portfolio at December 31, 1996, provided an average annual minimum rent of $6.53
per square foot, compared with non-major tenant leases which provided an average
annual minimum rent of $10.51. In general, the Company believes that minimum
rental rates for anchor tenant leases entered into several years ago are below
current market rates, while recent anchor tenant leases and most non-anchor
leases provide for minimum rental rates that more closely reflect current market
rates. The payment by tenants of minimum rents that are below current market
rates is offset in part by payment of percentage rents.
Annual minimum future rentals to be received under non-cancelable operating
leases in effect at December 31, 1996, for the properties included in the
portfolio at December 31, 1996(excluding properties held for sale), and the
number of leases that will expire, the square feet covered by such leases and
the minimum annual rent in the year of expiration under such expiring leases for
the next ten years are as follows:
<TABLE>
<CAPTION>
Leases Expiring
------------------------------------
Year Ending Minimum Number Minimum
December 31 Future Rents of Leases Square Feet Future Rents
----------- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C>
1997 $56,997,000 107 312,851 $3,310,512
1998 52,024,000 114 565,892 5,640,188
1999 48,267,000 130 697,434 5,436,589
2000 43,829,000 104 518,155 4,762,942
2001 38,747,000 90 612,005 5,800,715
2002 32,273,000 40 352,282 3,857,982
2003 28,886,000 30 601,037 6,862,889
2004 22,699,000 22 357,283 2,345,931
2005 19,792,000 39 334,033 2,630,149
2006 16,910,000 29 441,153 2,712,121
</TABLE>
11
<PAGE> 12
Risk Factors
General
As in every business, there are risk factors that face the Company and its
operations. By setting forth below some of the factors that could cause the
actual results of the Company's operations or plans to differ materially from
the Company's expectations as set forth in statements in this Report or
elsewhere that may be considered to be "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, the Company seeks to avail itself of the "safe
harbor" provided in the Private Securities Litigation Reform Act of 1995.
Substantial Debt Obligations and Term of Debt
The Company's obligations for borrowed money aggregated approximately $188.9
million at December 31, 1996, as compared to $39.4 million at December 31,
1995. The ratio of debt to total market capitalization of the Company was
approximately 32% as compared to 20% at December 31, 1995. This increase in
the Company's leverage and its ratio of debt to total market capitalization
could increase the risk of default under its indebtedness. Failure to pay debt
obligations when due could result in the Company losing its interest in the
properties collateralizing such obligations.
The Company believes that the ratio of debt to total market capitalization is
an important factor to consider in evaluating a REIT's debt level because this
ratio is one indicator of a company's ability to borrow funds. The Company
believes that using the ratio of debt to book value of assets is not as
reliable an indicator of a REIT's debt level because the book value of a REIT's
assets indicates only the depreciated value of the REIT's property without
consideration of the market value of such assets at a particular point in time.
The use of the ratio of debt to total market capitalization of a company is
more variable than the book value because it is dependent on the current stock
price of a company. Accordingly, there can be no assurance that the use of the
ratio of debt to total market capitalization in evaluating the Company's debt
level will adequately protect it from being too highly leveraged.
The maturity in September 2000, of the $100 million REMIC Note may increase the
Company's risk of default on its indebtedness. The Company has historically
been able to refinance debt when it has become due on terms which it believes
to be commercially reasonable. There can be no assurance that the Company will
continue to be able to repay or to refinance its indebtedness relating to the
REMIC Note or any of its other indebtedness on commercially reasonable or any
other terms.
The Company's unsecured line of credit bears interest at a variable rate. The
balance outstanding under the line of credit at December 31, 1996, was $63.5
million; and the Company may increase outstanding borrowings to $150 million.
To the extent the Company's exposure to increases in interest rates is not
eliminated through interest rate protection or cap agreements, such increases
will adversely affect the Company's net income, funds from operations ("FFO")
and cash available for distribution and may affect the amount of distributions
it can make to its share owners.
12
<PAGE> 13
The Company's line of credit requires the Company to maintain interest rate
protection, at a rate satisfactory to the lead lender, with respect to $100
million of indebtedness. The Company has entered into an interest rate
protection agreement with The First National Bank of Boston (the "Bank"), with
respect to $57 million of indebtedness, whereby the Bank will reimburse the
Company the amount by which the then applicable three month LIBOR rate, exceeds
the then applicable cap rate per the agreement (currently 9.25%). The Company
has entered into an interest rate swap agreement with the Bank with respect to
the remaining $43 million required to be hedged, thereby fixing the interest
rate on the $43 million over the term of the line of credit agreement. There
can be no assurance that these interest rate protection provisions will be
effective.
The foregoing risks associated with the debt obligations of the Company may
adversely affect the market price of the Company's Common Stock and may inhibit
the Company's ability to raise capital and issue equity in both the public and
private markets.
Restrictions on Ability of the Company to Dispose of Properties
Pursuant to the terms of the Indenture governing the REMIC Note (the "REMIC
Indenture"), the Company cannot prepay principal payments on the REMIC Note and
the properties collateralizing the REMIC Note cannot be sold until October
1997. If the Company wishes either to prepay all or part of the $100 million
principal of the REMIC Note or to sell any of the properties collateralizing
the REMIC Note after such date, it will incur significant prepayment penalties.
The prepayment of principal of the REMIC Note requires an additional payment of
the greater of either (i) 1% of the amount of principal being prepaid or (ii)
the product of (A) the difference between the outstanding principal balance of
the REMIC Note before prepayment and the present value of all remaining
interest and principal payments thereon and (B) the amount of principal being
prepaid divided by the outstanding principal balance of the REMIC Note. After
October 1997, in order to release any of the properties collateralizing the
REMIC Note from the lien so that such properties may be sold, the REMIC
Indenture requires that certain additional conditions be met, including that
(i) the aggregate amount of principal repaid on the REMIC Note equal at least
125% of the amount of principal allocated to the property to be released and
(ii) certain debt service coverage ratios continue to be satisfied.
Pursuant to the terms of the Tucker Acquisition, the Company, as the general
partner of Bradley Operating Limited Partnership, may not elect to dissolve the
Operating Partnership or sell all or substantially all of the assets of the
Operating Partnership without the consent of a majority in interest of the
limited partners, except in connection with a merger or other business
combination of the Company, until March 15, 1998. Thus the Company is
restricted from disposing of all or substantially all of the properties held by
the Operating Partnership.
Potential Anti-Takeover Effect of Certain Provisions
Certain provisions contained in the Company's Articles of Amendment and
Restatement (the "Charter") and Bylaws (the "Bylaws") may have the effect of
discouraging a third party from making an acquisition proposal for the Company
and may thereby inhibit a change in control of the Company. These provisions
include the following: (i) the Company's Charter provides for three classes of
Directors, with the term of office of one class expiring each year, (ii) the
Company's Bylaws provide that the holders of not less than 25% of the
13
<PAGE> 14
outstanding shares of Common Stock may call a special meeting of the Company's
share owners, and (iii) the Charter generally limits any holder from acquiring
more than 9.8% of the value of all outstanding capital stock of the Company.
With respect to clause (ii) in the preceding sentence, a recent change in the
Maryland General Corporation Law, under which the Corporation is organized,
authorizes the Directors of the Company to amend the Bylaws to increase the
number of outstanding shares of Common Stock required to call a special meeting
from 25% to a majority.
These provisions described above could have a potential anti-takeover effect on
the Company. The staggered Board provision in the Charter prevents share
owners from voting on the election of more than one class of directors at each
annual meeting of share owners and thus may have the effect of keeping the
members of the Board of Directors of the Company in control for a longer period
of time. The staggered Board provision and the provision in the Bylaws
requiring holders of at least 25% of the outstanding shares of Common Stock to
call a special meeting of share owners may have the effect of making it more
difficult for a third party to acquire control of the Company without the
consent of its Board of Directors, including certain acquisitions which share
owners deem to be in their best interest. In addition, the ownership limits in
the Charter may also (i) deter certain tender offers for the shares of Common
Stock which might be attractive to certain share owners, or (ii) limit the
opportunity for share owners to receive a premium for their shares of Common
Stock that might otherwise exist if an investor were attempting to assemble a
block of shares in excess of 9.8% of the value of the outstanding shares of
Common Stock, or otherwise effect a change in control.
The provisions of the Maryland General Corporation Law relating to certain
"business combinations" and "control share" acquisitions involving corporations
organized under the laws of that state may also inhibit a change in control of
the Company.
Real Estate Investment Considerations
Dependence on Midwestern Region and Retail Industry
The substantial majority of the Company's properties are located in the
Midwestern region of the United States and such properties consist
predominantly of community and neighborhood shopping centers. The Company's
performance therefore is linked to economic conditions in the Midwest and in
the market for retail space generally. The market for retail space has been
adversely affected by the ongoing consolidation in the retail sector, the
adverse financial condition of certain large companies in this sector and the
excess amount of retail space in certain markets. To the extent that these
conditions impact the market rents for retail space, they could result in a
reduction of net income, FFO and cash available for distribution and thus
affect the amount of distributions the Company can make to its share owners.
In addition, the Company predominantly owns and operates shopping centers
catering to retail tenants. To the extent that the investing public has a
negative perception of the retail sector, the value of shares of common stock
of the Company may be negatively impacted, thereby resulting in such shares
trading at a discount below the inherent value of the assets of the Company as
a whole.
14
<PAGE> 15
Financial Condition and Bankruptcy of Tenants
Since substantially all of the Company's income has been, and will continue to
be, derived from rental income from retail shopping centers, the Company's net
income, FFO and cash available for distribution would be adversely affected if
a significant number of tenants were unable to meet their obligations to the
Company or if the Company were unable to lease, on economically favorable
terms, a significant amount of space in its shopping centers. In addition, in
the event of default by a tenant, the Company may experience delays and incur
substantial costs in enforcing its rights as landlord.
At any time, a tenant of the Company's properties may seek the protection of
the bankruptcy laws, which could result in the rejection and termination of the
tenant lease. Such an event could cause a reduction of net income, FFO and
cash available for distribution and thus affect the amount of distributions the
Company can make to its share owners. No assurance can be given that any
present tenant which has filed for bankruptcy protection will continue making
payments under its lease or that any tenants will not file for bankruptcy
protection in the future or, if any tenants file, that they will continue to
make rental payments in a timely manner. In addition, a tenant may, from time
to time, experience a downturn in its business, which may weaken its financial
condition and result in a reduction or failure to make rental payments when
due. If a lessee or sublessee defaults in its obligations to the Company, the
Company may experience delays in enforcing its right as lessor or sublessor and
may incur substantial costs and experience significant delays associated with
protecting its investment, including costs incurred in renovating and releasing
the property.
Potential Negative Effect of One North State Property
During the year ended December 31, 1996, more than 10% of the total revenue of
the Company was derived from rents and expense reimbursements from tenants of
the One North State property, which is a "mixed use" property located in
downtown Chicago. The total rents currently being paid by certain of this
property's tenants may be in excess of current market rates. The leases of
these tenants begin to expire in 2001. One office tenant, Arthur Andersen,
however, has exercised an option to terminate its lease, effective as of April
1, 1998, and paid the Company a $1.8 million cancellation fee. Pursuant to the
terms of the REMIC Indenture, this termination fee was paid into a reserve
account which is required to be used, among other things, to pay for tenant
alterations, leasing commissions and other lease inducements directly related
to this space. Any unused amount of this reserve account must be used to repay
the principal amounts owed under the REMIC Note. The inability of the Company
to lease such property, or a significant reduction in the amount of rent and
expense reimbursements paid by the tenants of such property, could have an
adverse impact on the operating results of the Company.
Vacancies and Lease Renewals
The Company is continually faced with expiring tenant leases at its properties.
Some lease expirations provide the Company with the opportunity to increase
rentals or to hold the space available for a stronger long-term tenancy. In
other cases, there may be no immediately foreseeable strong tenancy for space,
and the space may remain vacant for a longer period than anticipated or may be
able to be re-leased only at less favorable rents. In such situations, the
Company may be subject to competitive and economic conditions over which it has
no control. Accordingly, there is no assurance that the effects of possible
vacancies or lease renewals at such properties
15
<PAGE> 16
may not reduce the rental income, net income, FFO and funds available for
distribution below levels anticipated by the Company.
Possible Environmental Liabilities
Under various federal, state and local laws, ordinances and regulations, an
owner of real estate is liable for the costs of removal or remediation of
certain hazardous or toxic substances on or in such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances. The
presence of such substances, or the failure to properly remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to use such property as collateral in its borrowings. All of the
Company's properties, including those acquired in the Tucker Acquisition, have
been subjected to Phase I or similar environmental audits (which involve
inspection without soil sampling or ground water analysis) by independent
environmental consultants. Except as described below, these environmental
audit reports have not revealed any potential significant environmental
liability, nor is management aware of any environmental liability with respect
to the properties that it believes would have a material adverse effect on the
Company's business, assets or results of operations. No assurance can be given
that existing environmental studies with respect to the properties reveal all
environmental liabilities or that any prior owner of any such property did not
create any material environmental condition not known to the Company.
Phase II site assessments of the Commons of Chicago Ridge property acquired
from Tucker have disclosed the presence of contaminants in fill material and
soil at the property that could be associated with the property's former use as
a landfill and as the former site of an asphalt plant and storage tanks for
petroleum products (which storage tanks have been removed from the property),
but not at such levels as would require reporting to environmental agencies.
These Phase II site assessments also disclosed the presence in groundwater of
contaminants similar to those detected in the soil samples. Environmental
assessments of the property have also detected methane gas, probably associated
with the former use of the property as landfill. A regular maintenance program
was implemented by Tucker and is being continued by the Company to control the
migration and effect of the methane gas. There can be no assurance that an
environmental regulatory agency such as the Illinois Environmental Protection
Agency will not in the future require further investigation to determine the
source and vertical and horizontal extent of the contamination. If any such
investigation is required and confirms the existence of contaminants at the
levels disclosed in the Phase II site assessments, it is possible that the
relevant agency could require the Company to take action to address the
contamination, which action could range from ongoing monitoring to remediation
of the contamination. Based on the information currently available, management
does not believe that the cost of responding to such contamination would be
material to the Company.
In connection with the execution of the merger agreement relating to the Tucker
Acquisition, the Company and certain individuals who had previously provided a
limited indemnity to Tucker for environmental liabilities at Commons of Chicago
Ridge (the "Individuals") have agreed to share the cost of having an outside
consultant conduct a new Phase II investigation of the soil and groundwater of
the property and to prepare a report recommending what action the Company
should take with respect to such matters. In the event that the Company
decides to implement any of the recommendations of such consultant (the
"Recommended Work"), the Individuals have agreed to pay fifty
16
<PAGE> 17
percent of the costs of the Recommended Work, with the Individuals' aggregate
liability for the Recommended Work limited to a maximum of $200,000.
The Individuals have also agreed to indemnify the Company and its subsidiaries
and affiliates against all claims, losses, costs and expenses incurred by such
parties arising out of any administrative, regulatory or judicial action, suit,
investigation or proceeding in connection with any applicable environmental
health or safety law regarding hazardous substances, materials, wastes or
petroleum products, or any common law right of action regarding such
substances, materials, wastes or products, whether brought by a governmental or
regulatory authority or by a third party, that is initiated on or before
October 4, 2003, with respect to conditions or acts at the Commons of Chicago
Ridge which existed prior to October 4, 1993. In connection with this
indemnification obligation, the Company has agreed to keep the Individuals
reasonably informed of various activities relating to the property and to
consult with the Individuals with respect to any potential claims, settlements
and remediation which could trigger the indemnification obligations of the
Individuals. There can be no assurance that the Individuals will be in a
position to honor their indemnity obligations or that the liabilities may not
exceed the limit of their indemnity obligations. Regardless of such
indemnification, based on the information currently available, management of
the Company does not believe that the environmental liabilities and expenses
relating to the Commons of Chicago Ridge property would have a material effect
on the liquidity, financial condition or operating results of the Company.
Insurance
The Company carries comprehensive general liability coverage and umbrella
liability coverage on all of its properties with limits of liability which the
Company deems adequate to insure against liability claims and provide for cost
of defense. Similarly, the Company is insured against the risk of direct
physical damage in amounts the Company estimates to be adequate to reimburse
the Company on a replacement cost basis for costs incurred to repair or rebuild
each property, including loss of rental income during the reconstruction
period. Currently, the Company also insures the properties for loss caused by
earthquake or flood in the aggregate amount of $10 million per occurrence.
Because of the high cost of this type of insurance coverage and the wide
fluctuations in price and availability, the Company has made the determination
that the risk of loss due to earthquake and flood does not justify the cost to
increase coverage limits any further under current market conditions. Should
the availability and pricing of this coverage become more cost advantageous,
management would re-evaluate its position.
Uncertainty of Meeting Acquisition Objectives
The Company continually seeks prospective acquisitions of additional shopping
centers and portfolios of shopping centers which the Company believes can be
purchased at attractive initial yields and/or which demonstrate the potential
for revenue and cash flow growth through implementation of renovation,
expansion, re-tenanting and re-leasing programs similar to those that the
Company has undertaken with respect to properties in its existing portfolio.
There can be no assurance that the Company will effect any potential
acquisition that it may evaluate. The evaluation process involves costs which
are non-recoverable in the case of acquisitions which are not consummated. In
addition, notwithstanding the Company's adherence to its criteria for
evaluating and due diligence regarding potential acquisitions, there can be no
assurance that any acquisition that is consummated will meet the Company's
expectations.
17
<PAGE> 18
Competition
All of the properties owned by the Company are located in developed areas.
There are numerous other retail properties and real estate companies within the
market area of each such property which compete with the Company for tenants
and development and acquisition opportunities. The number of competitive
retail properties and real estate companies in such areas could have a material
effect on (i) the Company's ability to rent space at the properties and the
amount of rents charged and (ii) development and acquisition opportunities. The
Company competes for tenants and acquisitions with others who have greater
resources than the Company.
Adverse Consequence of Failure to Qualify as a REIT and Other Tax Risks
The Company believes that it has operated in a manner that permits it to
qualify as a REIT under the Internal Revenue Code (the "Code") for each taxable
year since its formation in 1961. Although management of the Company believes
that the Company is organized and is operating in such a manner, no assurance
can be given that the Company will be able to continue to operate in a manner
so as to qualify or remain so qualified. Qualification as a REIT involves the
application of highly technical and complex Code provisions for which there are
only limited judicial or administrative interpretations and the determination
of various factual matters and circumstances not entirely within the Company's
control. For example, in order to qualify as a REIT, at least 95% of the
Company's gross income in any year must be derived from qualifying sources and
the Company must make distributions to share owners aggregating annually at 95%
of its REIT taxable income (excluding net capital gains). In addition, no
assurance can be given that new legislation, new regulations, administrative
interpretations or court decisions will not change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of such
qualification. The Company, however, is not aware of any currently pending tax
legislation that would adversely affect its ability to continue to operate as a
REIT.
If the Company fails to qualify as a REIT, it will be subject to federal income
tax (including any applicable alternative minimum tax) on its taxable income at
corporate rates. In addition, unless entitled to relief under certain
statutory provisions, it will also be disqualified from treatment as a REIT for
the four taxable years following the year during which qualification is lost.
This treatment would reduce the net earnings of the Company available for
investment or distribution to share owners because of the additional tax
liability for the year or years involved. In addition, distribution would no
longer be required to be made. To the extent that distributions to share
owners would have been made in anticipation of the Company's qualifying as a
REIT, the Company might be required to borrow funds or to liquidate certain of
its investments to pay the applicable tax. The failure to qualify as a REIT
would also constitute a default under certain debt obligations of the Company.
In connection with the Tucker Acquisition, Tucker represented to the Company
that, since its formation, it also operated so as to qualify as a REIT under
the Code up to the time of the Tucker Acquisition. If Tucker failed to qualify
as a REIT in any year in which it elected so to qualify and consequently
becomes liable to pay taxes as a regular non-REIT corporation, the liabilities
of Tucker that the Company assumed upon effectiveness of the
18
<PAGE> 19
Tucker Acquisition include such tax liability. Moreover, Tucker's failure to
qualify as a REIT could disqualify the Company as a REIT for the periods
following the Tucker Acquisition. The Company's acquisition of Tucker's
general partner interest in the Operating Partnership and Tucker's indirect
interests in certain subsidiary partnerships of the Operating Partnership
involve special tax considerations, including the qualification of each such
partnership as a "partnership" for federal income tax purposes, which also
could impact the Company's ability to qualify as a REIT.
The failure to qualify as a REIT would have a material adverse effect on an
investment in the Company as the taxable income of the Company would be subject
to federal income taxation at corporate rates, and, therefore, the amount of
cash available for distribution to its share owners would be reduced or
eliminated.
ITEM 2. PROPERTIES
The properties owned by the Company at December 31, 1996, are described under
Item 1 and in Note 3 of the Notes to Financial Statements contained in this
Report.
The Company's principal office is located at 40 Skokie Boulevard in Northbrook,
Illinois, where the Company leases approximately 10,000 square feet of space
from an unrelated landlord. The Company maintains regional property management
and leasing offices at its Har Mar Mall in Roseville, Minnesota and its
Grandview Plaza in Florissant, Missouri.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
Not applicable.
ITEM 4.A. EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's by-laws provide that the officers of the Company shall be a
President, a Treasurer, a Secretary and such other officers as are elected or
appointed by the Directors. Each officer holds office at the pleasure of the
Directors. The Directors have determined that the following officers are
executive officers of the Company within the meaning of Rule 3b-7 under the
Securities Exchange Act:
President and Chief Executive Officer - Thomas P. D'Arcy, age 37, has held this
position since February 1996, having served as Executive Vice President since
September 1995, Senior Vice President since 1992 and Vice President since 1989.
Prior to joining the Company, Mr. D'Arcy was employed by R.M. Bradley & Co.,
Inc. as a member of its property management and real estate brokerage
departments for over eight years.
Executive Vice President - Richard L. Heuer, age 44, has held this position
since late 1994. Prior to joining the Company, Mr. Heuer was employed by the
Welsh Companies from September 1993, and Towle Real Estate Company from 1988,
which companies were the independent property management companies that managed
the Company's Minnesota properties.
19
<PAGE> 20
Executive Vice President - E. Paul Dunn, age 50, has held this position since
March 1996. Prior to joining the Company, Mr. Dunn was Executive Vice
President of the Welsh Companies in Minneapolis, Minnesota since 1983.
Senior Vice President - Marianne Dunn, age 37, was named Senior Vice President
of the Company in September 1995, having served as Vice President of the
Company since 1993 and as Investment Manager since 1990.
Chief Financial Officer and Treasurer - Irving E. Lingo, Jr., age 45, has held
the position with the Company since September 1995. Prior to joining the
Company, Mr. Lingo served as Chief Financial Officer of Lingerfelt Industrial
Properties, a division of The Liberty Property Trust, from June 1993 to
September 1995. Prior to June 1993, Mr. Lingo was Vice President-Finance of
CSX Realty, a subsidiary of CSX Corporation, from 1991-1992.
None of the Officers or Directors of the Company is related to any other Officer
or Director of the Company. No description is required with respect to any of
the foregoing persons of any type of event referred to in Item 401(f) of
Regulation S-K.
20
<PAGE> 21
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SHARES AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "BTR". The ranges of high and low prices reported on the NYSE
during 1995 and 1996 were:
Quarter Ended High Low Quarter Ended High Low
- ------------- ---- --- ------------- ---- ---
March 31, 1995 $16 3/4 $14 7/8 March 31, 1996 $15 $12 7/8
June 30, 1995 16 3/8 15 June 30, 1996 15 13 7/8
September 30, 1995 16 7/8 15 3/8 September 30, 1996 16 5/8 13 3/4
December 31, 1995 16 1/4 13 1/8 December 31, 1996 18 16 3/8
The closing sale price on the NYSE on March 10, 1997, was $19.50. At December
31, 1996, there were approximately 763 holders of record of the Company's
shares.
Dividends have been paid by the Company during the past two full years as
follows:
Payment Per Share Payment Per Share
- ------- --------- ------- ---------
March 31, 1995 $.33 March 29, 1996 $.33
June 30, 1995 .33 June 28, 1996 .33
September 29, 1995 .33 September 27, 1996 .33
December 29, 1995 .33 December 27, 1996 .33
The Company has determined that approximately 14% and 16% of the distributions
paid in 1996 and 1995, respectively, were non-taxable returns of capital to
share owners, approximately 69% and 84% of the distributions paid in 1996 and
1995, respectively, were ordinary dividends and 17% of the distributions paid
in 1996 were a capital gain.
Recent Issue of Unregistered Securities
On January 1, 1997, Bradley Operating Limited Partnership ("BOLP") issued
281,300 limited partnership units that may be exchanged after one year for an
equal number of shares of Common Stock of the Company. Such units were issued,
as a part of the consideration paid for Roseville Center, to the existing
privately held partnership that contributed Roseville Center to BOLP. No
registration statement was required in connection with the issuance because the
transaction did not involve a public offering and was exempt under Section 4(2)
of the Securities Act. The value of the Common Stock of the Company at the
date of the transaction for which each limited partnership unit may be
exchanged was $18.375 per share.
21
<PAGE> 22
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(Thousands of dollars, except per share data)
<S> <C> <C> <C> <C> <C>
Rental income $ 77,512 $ 36,405 $ 32,875 $ 22,875 $11,839
Other income 1,327 167 112 594 308
Expenses 60,711 28,141 25,343 17,934 11,360
-------------------------------------------------------------------------
Income before gain on sale of property 18,128 8,431 7,644 5,535 787
Gain on sale of property 9,379 - 983 - -
=========================================================================
Income before allocation to minority interest 27,507 8,431 8,627 5,535 787
Income allocated to minority interest (285) - - - -
-------------------------------------------------------------------------
Net income $ 27,222 $ 8,431 $ 8,627 $ 5,535 $ 787
=========================================================================
Total assets at end of year $502,284 $180,545 $166,579 $127,931 $93,326
-------------------------------------------------------------------------
Mortgage and bank loans payable at end of year $188,894 $ 39,394 $ 66,748 $ 29,317 $44,085
-------------------------------------------------------------------------
Per share:
Net income $1.54 $0.85 $1.05 $0.82 $0.40
Distributions $1.32 $1.32 $1.29 $1.22 $1.20
Weighted average shares outstanding 17,619,546 9,863,767 8,191,831 6,715,813 1,972,054
</TABLE>
Reference is made to "Management's Discussion and Analysis" (Item 7) for a
discussion of various factors or events which materially affect the
comparability of the information set forth above.
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<PAGE> 23
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
General
The Company believes that improving its financial flexibility will position the
Company for future growth, allowing it to take advantage of acquisition,
renovation and expansion opportunities. The Company further considers its
liquidity and ability to generate cash from operating and from financing
activities to be sufficient, and expects them to continue to be sufficient, to
meet its operating expense, debt service, REIT share owner distribution
requirements and acquisition opportunities through 1997. Due to the capital
intensive nature of real estate in general, the avenues available for raising
capital, as well as the mix of debt and equity, are a critical component in the
ability of the Company to continue to grow.
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, 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 better 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.
As of December 31, 1996, financial liquidity was provided by approximately
$7,462,000 in cash and cash equivalents and by the Company's unused balance on
the line of credit of $86,500,000. In addition, the Company has an effective
"universal shelf" registration statement under which the Company may issue up to
$34,460,000 in debt or equity securities. The Company expects to file further
"universal shelf" registration statements which will give it flexibility to
issue additional debt or 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.
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 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.
Operating Activities
Net cash flows provided by operating activities increased to $31,633,000 during
1996, from $12,733,000 during 1995 and $10,877,000 in 1994. These
increases were due primarily to the growth of the Company's portfolio.
23
<PAGE> 24
Funds from operations ("FFO") increased $15,096,000 or 99% during 1996, from
$15,249,000 in 1995 to $30,345,000 in 1996. FFO increased by $2,867,000 or 23%
during 1995 from $12,382,000 in 1994. 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
$16,715,000 during 1996, from a net use of cash of $9,953,000 in 1995 and a net
use of cash of $33,653,000 in 1994.
During 1996 and 1995, the Company completed two corporate acquisitions through
the issuance of a total of 7,753,157 shares of the Company's common stock. The
first acquisition, completed in January 1995, was the acquisition of the real
estate investment trust advisory business of its former advisor, thus enabling
the Company to become self-administered. The acquisition was completed through
the issuance of 325,000 shares of common stock to the owners of the former
advisor.
On March 15, 1996, the Company closed the merger acquisition of Tucker after
approval by the share owners of the two companies. The acquisition was
completed through the issuance of 7.4 million common shares of the Company
valued at $13.96 per share, the payment of certain transaction costs and the
assumption of all of Tucker's liabilities, including the $100,000,000 REMIC Note
discussed below. The acquisition was structured as a tax-free transaction, and
was accounted for using the purchase method of accounting. The Company has
succeeded to Tucker's interest in two partnerships which hold title to all of
the former Tucker properties, and as a result now owns some of its properties
directly and the others through the two partnerships (now renamed Bradley
Operating Limited Partnership ("BOLP") and Bradley Financing Partnership). The
Company has in excess of a 95% general partner interest in each partnership.
In addition to the acquisition of Tucker, during 1996 the Company spent
approximately $25,989,000 on property acquisitions and capital improvements. Of
that amount, approximately $18,012,000 was spent on property acquisitions,
approximately $7,310,000 on tenant specific capital improvements and
approximately $667,000 for other property improvements.
Throughout 1996 and 1995, excluding the acquisition of fourteen properties in
connection with the acquisition of Tucker, the Company acquired three shopping
centers in separate transactions at an aggregate cost of approximately
$23,261,000. The first property was acquired for $9,100,000 with cash drawn
24
<PAGE> 25
From the Company's line of credit. The second property acquisition was
structured as a "like-kind" exchange for Federal income tax purposes, whereby
the Company applied proceeds of $12,900,000 from the sale of a ground lease in
exchange for the acquisition of a shopping center for $8,900,000. The excess
cash proceeds from the sale were used to pay-down the Company's line of credit.
The third property was acquired for approximately $5,261,000 with financing
provided by the assumption of $2,094,000 in debt and the cash proceeds from the
issuance of 182,500 shares of common stock in a privately negotiated
transaction.
In January 1997, the Company acquired three additional Midwest shopping centers
in separate transactions for a total price of approximately $16,200,000. The
consideration for these three acquisitions involved the payment of approximately
$7,200,000 of cash provided by the Company's line of credit, the assumption of
$3,800,000 mortgage indebtedness to which one of the properties was subject and
the issuance of BOLP limited partnership units which the holders may ultimately
exchange for 281,300 shares of the Company's common stock.
Financing Activities
Net cash flows provided by financing activities declined to a net use of cash of
$8,153,000 during 1996 from a net use of cash of $2,276,000 during 1995 and a
source of cash of $22,019,000 in 1994. Distributions (treated as a reduction in
cash flows from financing activities in the Company's financial statements) were
$23,168,00 in 1996, $13,098,000 in 1995, and $10,568,000 in 1994.
During 1996 and 1995, the Company completed two public offerings under the
Company's "shelf" registration statement, issuing a total of 5,375,000 shares of
common stock raising a total of approximately $82,300,000 after offering costs.
Net proceeds from the 1996 and 1995 public offerings of approximately
$44,900,000 and $37,400,000, respectively, were applied principally to pay-down
outstanding borrowings under the applicable bank lines of credit that had been
incurred, and mortgage notes that had been assumed, in connection with the
purchase of certain properties.
On March 15, 1996, concurrently with the Tucker acquisition, the Company entered
into a new $150,000,000 unsecured revolving credit facility with The First
National Bank of Boston and other banks, replacing the previous $65,000,000 line
of credit that had been secured by a blanket mortgage on six of the Company s
properties. The new line bears interest at a rate equal to the lower of the
bank's base rate or 1.75% over LIBOR. Additionally, there is a commitment fee
ranging from 0.125% to 0.250% per annum of the unfunded line of credit balance
depending on the outstanding balance during a calendar quarter. The rates
available under the line become more favorable in the event the Company meets
certain loan-to-value tests or receives an investment grade unsecured debt
rating. The Company has entered into interest rate protection agreements with
respect to $100,000,000 of the potential borrowings under the line of credit.
In addition to replacing outstanding borrowings under the Company's and Tucker's
previously outstanding secured lines of credit, the new facility is available
for the acquisition, development, renovation and expansion of new and existing
properties, and for other working capital purposes.
The line of credit contains certain financial and operational covenants that,
among other provisions, limit the amount of secured and unsecured indebtedness
the Company may have outstanding at any time, and provide for the maintenance of
certain financial tests including minimum net worth and debt service
25
<PAGE> 26
coverage requirements. The Company believes it was in compliance with such
covenants during 1996 and that such covenants will not adversely affect the
Company's business or the operation of its properties.
Capital Strategy
The Tucker liabilities assumed included 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, matures in September 2000 and
becomes prepayable, with a significant prepayment premium, in October 1997.
Management's objective is to obtain an investment grade rating from one or more
national rating agencies that will increase the Company's financial flexibility
by permitting it to issue fixed-rate unsecured debt on favorable terms.
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 intends to position 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. 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.
At December 31, 1996, the Company was holding for sale its Augusta Plaza, Hood
Commons 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. Proceeds received from
such sale or sales 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.
On March 13, 1997, the Company completed the sale of Hood Commons for $11.7
million, resulting in a gain of approximately $3.1 million for financial
reporting purposes. Excess proceeds, after the payment of closing costs, were
used to pay-down the Company's line of credit.
RESULTS OF OPERATIONS
1996 Compared to 1995
During 1996, the Company acquired sixteen properties, including fourteen
properties in connection with the acquisition of Tucker, and sold its interest
in a ground lease. Including operations for the newly acquired properties and
the gain on sale of $9,379,000, net income increased from $8,431,000 in 1995 to
$27,222,000 in 1996. Excluding the gain on sale, net income increased
approximately 112%, from $8,431,000 to $17,843,000. On a per share basis,
excluding the gain on sale of property, net income increased 18.8% from $0.85
per share to $1.01 per share. Per share amounts reflect weighted average shares
outstanding of 17,619,546 in 1996 and 9,863,767 in 1995. The increased shares
primarily reflect the 7,428,157 shares issued in connection with the
26
<PAGE> 27
acquisition of Tucker in March 1996 and the 2,875,000 share public offering
completed in 1996.
Property Specific Revenues and Expenses (in thousands of dollars)
<TABLE>
<CAPTION> Properties
Acquisitions/ Held Both
1996 1995 Difference Dispositions Years
------ ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Rental income $77,512 $36,405 $41,107 $41,443 $(336)
Operations, maintenance and management $12,949 $ 5,858 $ 7,091 $ 6,432 $ 659
Real estate taxes $16,787 $ 8,726 $ 8,061 $ 8,346 $(285)
Depreciation and amortization $13,286 $ 7,317 $ 5,969 $ 5,463 $ 506
</TABLE>
Results attributable to acquisition and disposition activities
Rental income increased from $36,405,000 in 1995 to $77,512,000 in 1996, an
increase of $41,107,000. Approximately $42,279,000 of the net increase was
attributable to the Company's acquisition activities, partially offset by
approximately $836,000 attributable to disposition activities.
Other income increased from $167,000 in 1995 to $1,327,000 in 1996. The
increase was partially a result of income received from a sales tax sharing
agreement at Rollins Crossing, one of the properties acquired from Tucker. In
addition, interest income earned on the Company's cash and escrow balances
increased due to an increase in the weighted average daily balances, including,
since the acquisition of Tucker, approximately $3,600,000 held in various
escrow accounts in accordance with the $100 million REMIC mortgage note assumed
in connection with the Tucker transaction.
Operations, maintenance and management expense increased from $5,858,000 in
1995 to $12,949,000 in 1996. Approximately $6,432,000 of the increase was
attributable to the Company's acquisition activities.
Real estate taxes increased from $8,726,000 in 1995 to $16,787,000 in 1996.
Approximately $8,346,000 of the increase was attributable to the Company s
acquisition activities.
Depreciation and amortization increased from $7,317,000 in 1995 to $13,286,000
in 1996, an increase of $5,969,000. Approximately $5,463,000 of the increase
was attributable to the Company's acquisition and disposition activities.
Results for properties fully operating throughout both periods
The remaining decrease in rental income of approximately $336,000 was
attributable to decreases at Westview Shopping Center and Grandview Plaza in
the aggregate of $1,115,000, partially offset by increases in rental income at
Har Mar Mall, Burning Tree Plaza and Rivercrest Shopping Center of
approximately $712,000 in the aggregate. Westview Shopping Center has
continued to suffer from the vacancy of Burlington Coat Factory in 1994.
However, as a result of management's efforts to reduce real estate taxes at the
property, the Company negotiated a decrease in the assessed value of the
property, and received a tax abatement during 1996 resulting in a decrease in
real estate tax expense of approximately $669,000, more than offsetting the
decrease in rental income. The increase in rental income at Har Mar Mall was
primarily attributable to a full year's rental income from Barnes & Noble
Superstore and HomePlace. During the second half of 1996, the Company also
signed leases at Har Mar Mall for approximately 26,000 square feet, or 6% of
the Center, contributing to the increase. The increase in rental income at
27
<PAGE> 28
Rivercrest Shopping Center was primarily the result of an increase in real
estate tax reimbursements.
The remaining increase in operations, maintenance and management expense of
$659,000 was attributable to increases at Sun Ray Shopping Center, Har Mar
Mall, and Rivercrest Shopping Center. The increase was also due to a harsh
winter in Minnesota and New England in 1996, resulting in an increase in snow
removal costs of approximately $172,000 for properties held in the portfolio
throughout 1996 and 1995. The increase in operations, maintenance and
management expense was partially offset by cost savings resulting from the
completion of the internalization of the property management function for the
properties in the Midwest.
The remaining increase in depreciation and amortization of $506,000 was
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 increased from $4,705,000 in 1995 to $13,404,000 in
1996. Interest expense on the line of credit, net of amounts capitalized,
increased from $2,011,000 to $5,666,000. The increase in interest expense on
the line of credit was due to a higher average outstanding balance primarily as
a result of paying off Tucker's secured line of credit with the Company's
unsecured line of credit in March 1996, and the repayment of three mortgages
secured by Sun Ray Shopping Center for approximately $12,300,000 with cash
drawn on the line of credit. The weighted average interest rate on the
mortgage notes secured by Sun Ray Shopping Center was 10.53%. The weighted
average interest rate on outstanding borrowings under the line of credit
decreased to 7.84% in 1996 from 8.00% in 1995. Mortgage interest expense
increased from $2,694,000 in 1995 to $7,738,000 in 1996, primarily the result
of the Company's assumption of a $100,000,000 REMIC mortgage note in connection
with the acquisition of Tucker. The effective rate on the REMIC is 7.23% and
mortgage interest on the REMIC was approximately $5,729,000 during 1996. The
increase in mortgage interest expense was partially offset by a decrease
attributable to the repayment of three mortgage notes secured by Sun Ray
Shopping Center.
General and administrative expenses increased from $1,535,000 in 1995 to
$3,532,000 in 1996. 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. The Company also
completed the internalization of its property management and leasing functions
for all of its Midwest retail properties. Primarily as a result of the Tucker
acquisition and the internal reorganization, the Company has increased the
number of employees from 16 at December 31, 1995, to 81 at December 31, 1996,
resulting in an increase in payroll costs.
General and administrative expenses as a percentage of total income was
approximately 4.5% during 1996, compared with 4.2% during 1995. As the Company
implements its growth plan, management expects such percentage to decrease
since the growth in income does not require an equally proportionate increase
in general and administrative expenses. However, there can be no assurance
that the Company will achieve the necessary growth to result in such a
reduction.
28
<PAGE> 29
In connection with the Company's stated objective to focus on the Midwest, the
Company relocated its headquarters from Boston, Massachusetts (where the
Company was founded in 1961) to Northbrook, Illinois. As a result of the
headquarters move, the Company incurred a one-time relocation charge of
$409,000, or $0.02 per share during 1996.
During 1996, the Company incurred a charge of $344,000, or $0.02 per share,
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.
1995 Compared to 1994
The aggregate result for 1995 was a $196,000 or 2% decrease in net income from
$8,627,000 ($1.05 per share) to $8,431,000 ($.85 per share). In 1994, income
before the gain on sale of property was $7,644,000 ($.93 per share), compared
with $8,431,000 in 1995, ($.85 per share). Per share amounts reflect weighted
average shares outstanding of 9,863,767 in 1995 and 8,191,831 in 1994, the
increased number of shares primarily reflecting the 2,500,000 share public
offering completed in July 1995.
Rental income increased $3,530,000 or 11% from $32,875,000 in 1994 to
$36,405,000 in 1995. Approximately $3,594,000 of this increase was due to the
acquisitions of Westwind Plaza and Rivercrest Center in 1994 and St. Francis
Plaza in 1995. These increases were partially offset by the sale of Spruce
Tree Centre in late 1994. Rental income from Har Mar Mall increased
approximately $598,000 while rental income from Burning Tree Plaza increased
approximately $260,000 from the prior year. Rental income at Har Mar Mall
increased primarily due to the signing of leases with Barnes & Noble and
HomePlace. The increase at Burning Tree Plaza was substantially attributable
to the expansion of T.J. Maxx.
Other income increased $55,000 or 49% from $112,000 in 1994 to $167,000 in
1995. This increase was primarily due to an increase in interest income,
resulting from the temporary investment of proceeds from a July 1995 stock
offering.
Total expenses increased $2,798,000 or 11% from $25,343,000 in 1994 to
$28,141,000 in 1995. Operations, maintenance and management expense increased
$543,000 during 1995 (from $5,315,000 in 1994 to $5,858,000), due primarily to
an increase in operating expenses of $295,000 at Rivercrest Center, $285,000 at
Har Mar Mall and $269,000 at Westview Center, partially offset by the sale of
Spruce Tree Centre.
Real estate tax expense increased $656,000 during 1995 (from $8,070,000 to
$8,726,000); $375,000 of the increase was due to the change in properties in
the Company's portfolio. The remaining increase of $281,000 was due to tax
increases at all of the properties, most notably the Illinois properties, with
the exception of Har Mar Mall, which had a $355,000 reduction in real estate
taxes following negotiation of abatements.
Mortgage and other interest expense increased $181,000 during 1995 (from
$4,524,000 in 1994 to $4,705,000). Approximately $270,000 of this increase was
due to mortgages secured by St. Francis Plaza and Westwind Plaza, partially
offset by a decrease in interest expense on the line of credit ($63,000) due to
a decrease in the average debt balance, and an increase in capitalized
29
<PAGE> 30
interest. The average interest rate on outstanding borrowings under the line
of credit increased from 7.1% in 1994 to 8.0% in 1995.
Depreciation and amortization expense increased from $5,146,000 in 1994 to
$7,317,000 in 1995. Of this $2,171,000 increase, $1,193,000 was related to
amortizing the cost of the purchase of the advisory business of the Company's
former external advisor, consummated in January 1995; $300,000 of the increase
was due to changes in the Company s real estate holdings; and the balance of
the increase was due to real estate improvements.
Administrative and general expense decreased $753,000 in 1995, from $2,288,000
in 1994 to $1,535,000 in 1995. This decrease primarily reflects cost savings
associated with the Company becoming self-administered following the purchase
of the advisory business of the former advisor in January 1995.
The acquisition of Westwind Plaza for approximately $7,500,000 was effected in
a tax-deferred exchange following the sale of Spruce Tree Centre for
$2,750,000, which resulted in a gain on sale of property of $983,000 recognized
in 1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to Financial Statements and Schedule later in this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
30
<PAGE> 31
PART III
Registrant plans to provide information required for ITEMS 10 through 13 in its
definitive Proxy Statement for its 1997 Annual Meeting of Share Owners, which
information is hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
(1) and (2) The Financial Statements and Schedules required by Item 8 are
listed in the Index to Financial Statements and Schedules following the
signatures to this Report.
(3) The following exhibits (listed according to the exhibit index set forth in
the instructions to Item 601 of Regulation S-K), are a part of this Report.
Exhibit No. Description Page
- ----------- ----------- ----
3.1 Articles of Amendment and Restatement of Bradley N/A
Real Estate, Inc., incorporated by reference
to Exhibit 3.1 of the Company's Current Report on Form
8-K dated October 17, 1994.
3.2 Articles of Merger between Bradley Real N/A
Estate Trust and Bradley Real Estate, Inc.,
incorporated by reference to Exhibit 3.2 of the
Company's Current Report on Form 8-K dated
October 17, 1994.
3.3 Articles of Merger between Tucker Properties N/A
Corporation and Bradley Real Estate, Inc.
incorporated by reference to Exhibit 3.3 of the
Company's Annual Report on Form 10-K dated
March 25, 1996.
3.4 By-laws of Bradley Real Estate, Inc., N/A
incorporated by reference to Exhibit 3.3 of
the Company's Current Report on Form 8-K dated
October 17, 1994.
4.1 Form of stock certificate for shares of N/A
Common Stock of Bradley Real Estate, Inc.,
incorporated by reference to Exhibit 4.1 of the
Company's Current Report on Form 8-K dated
October 17, 1994.
10.1 Amended and Restated Agreement of Limited N/A
Partnership of Bradley Operating Limited
Partnership in the form executed on March 15,
1996, incorporated by reference to Exhibit 10.1
of the Company's Current Report on Form 8-K dated
November 3, 1995.
31
<PAGE> 32
10.2 Revolving Credit Agreement dated as of March 15, 1996 N/A
by and among the Company, Bradley Operating
Limited Partnership and The First National Bank of
Boston, incorporated by reference to Exhibit 10.2 of
the Company's Annual Report on Form 10-K dated March
25, 1996.
10.3 Indenture dated as of June 1, 1994 between Tucker N/A
Financing Partnership (name changed March 15,
1996 to Bradley Financing Partnership) and Bankers
Trust Company of California, N.A. relating to 7.30%
Mortgage Notes due September 30, 2000, incorporated by
reference to Exhibit 10.3 of the Company's Annual
Report on Form 10-K dated March 25, 1996.
10.4 1993 Stock Option and Incentive Plan, as amended and 51
restated on September 9, 1996.
10.5 Superior Performance Incentive Plan, incorporated by N/A
reference to Appendix A to the Company's Proxy
Statement for its 1997 Annual Meeting of Stockholders.
21.1 Subsidiaries of the Company. 64
23.1 Consent of KPMG Peat Marwick LLP (regarding Form S-3 65
and Form S-8 Registration Statements).
27.1 Financial Data Schedule 66
(b) Report on Form 8-K
The following Forms 8-K were filed during the period October 1, 1996 through
December 31, 1996:
1) October 1, 1996, reporting in Item 5., change of the Company's address.
2) October 31, 1996, reporting in Item 5., an underwriting agreement dated
October 29, 1996, relating to a public offering of 2,500,000 shares of
Common Stock plus up to 375,000 additional such shares to be issued
pursuant to the over-allotment option provided for in such underwriting
agreement.
32
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized this 19th day of March 1997.
BRADLEY REAL ESTATE, INC.
by: /s/ Thomas P. D'Arcy
-----------------------------
Thomas P. D'Arcy, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ Thomas P. D'Arcy March 19, 1997
- ---------------------------------------------
Thomas P. D'Arcy, President, CEO and Director
/s/ Irving E. Lingo, Jr. March 19, 1997
- ---------------------------------------------
Irving E. Lingo, Jr., Chief Financial Officer and Treasurer
/s/ Stephen G. Kasnet March 19, 1997
- ---------------------------------------------
Stephen G. Kasnet, Director
/s/ W. Nicholas Thorndike March 19, 1997
- ---------------------------------------------
W. Nicholas Thorndike, Director
/s/ William L. Brown March 19, 1997
- ---------------------------------------------
William L. Brown, Director
/s/ Paul G. Kirk, Jr. March 19, 1997
- ---------------------------------------------
Paul G. Kirk, Jr., Director
/s/ Joseph E. Hakim March 19, 1997
- ---------------------------------------------
Joseph E. Hakim, Director
/s/ A. Robert Towbin March 19, 1997
- ---------------------------------------------
A. Robert Towbin, Director
33
<PAGE> 34
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
PAGE
Report of Independent Auditors for the years ended
December 31, 1996, 1995 and 1994 F2
Financial Statements
Consolidated Balance Sheets - December 31, 1996 and 1995 F3
For the years ended December 31, 1996, 1995 and 1994:
Consolidated Statements of Income F4
Consolidated Statements of Changes in Share Owners' Equity F5
Consolidated Statements of Cash Flows F6
Notes to Financial Statements F7
Schedule:
Schedule III - Real Estate and Accumulated Depreciation F17
All other schedules have been omitted since they are not required, not
applicable, or the information is included in the financial statements or notes
thereto.
F1
<PAGE> 35
Independent Auditors' Report
The Board of Directors and Share Owners
Bradley Real Estate, Inc. and subsidiaries:
We have audited the consolidated financial statements of Bradley Real Estate,
Inc. and subsidiaries as listed in the accompanying index. In connection with
our audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bradley Real
Estate, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
January 24, 1997, except as to Note 10,
which is as of March 13, 1997
F2
<PAGE> 36
BRADLEY REAL ESTATE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
-----------------------------------------
<S> <C> <C>
ASSETS
Real estate investments - at cost $ 490,133,000 $ 189,405,000
Accumulated depreciation and amortization (30,670,000) (27,591,000)
--------------- ---------------
Net real estate investments 459,463,000 161,814,000
Real estate investments held for sale 10,285,000 -
Other assets:
Cash and cash equivalents 7,462,000 697,000
Rents and other receivables net of allowance
for doubtful accounts of $1,636,000 in 1996
and $711,000 for 1995 9,543,000 8,671,000
Deferred charges, net and other assets 15,531,000 9,363,000
--------------- ---------------
$ 502,284,000 $ 180,545,000
=============== ===============
LIABILITIES AND SHARE OWNERS' EQUITY
Mortgage loans $ 125,394,000 $ 24,794,000
Line of credit 63,500,000 14,600,000
Accounts payable and accrued expenses 19,505,000 6,053,000
--------------- ---------------
208,399,000 45,447,000
--------------- ---------------
Minority interest 4,160,000 -
--------------- ---------------
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
shares, 21,658,790 and 11,230,313 at December 31, 1996
and 1995, respectively 217,000 112,000
Shares of excess stock, par value $.01 per share:
Authorized 50,000,000 shares; 0 shares issued
and outstanding - -
Additional paid-in capital 298,875,000 148,407,000
Distributions in excess of accumulated earnings (9,367,000) (13,421,000)
--------------- ---------------
289,725,000 135,098,000
--------------- ---------------
$ 502,284,000 $ 180,545,000
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F3
<PAGE> 37
BRADLEY REAL ESTATE, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
-----------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Rental income $ 77,512,000 $ 36,405,000 $ 32,875,000
Other income 1,327,000 167,000 112,000
--------------- -------------- --------------
78,839,000 36,572,000 32,987,000
--------------- -------------- --------------
EXPENSES:
Operations, maintenance and management 12,949,000 5,858,000 5,315,000
Real estate taxes 16,787,000 8,726,000 8,070,000
Mortgage and other interest 13,404,000 4,705,000 4,524,000
Administrative and general 3,532,000 1,535,000 2,288,000
Corporate office relocation 409,000 - -
Write-off of deferred financing and
acquisition costs 344,000 - -
Depreciation and amortization 13,286,000 7,317,000 5,146,000
--------------- -------------- --------------
60,711,000 28,141,000 25,343,000
--------------- -------------- --------------
Income before gain on sale of property 18,128,000 8,431,000 7,644,000
Gain on sale of property 9,379,000 - 983,000
--------------- -------------- --------------
Income before allocation to minority interest 27,507,000 8,431,000 8,627,000
Income allocated to minority interest (285,000) - -
--------------- -------------- --------------
Net income $ 27,222,000 $ 8,431,000 $ 8,627,000
=============== ============== ==============
Net income per share $ 1.54 $ 0.85 $ 1.05
=============== ============== ==============
Weighted average shares outstanding 17,619,546 9,863,767 8,191,831
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F4
<PAGE> 38
BRADLEY REAL ESTATE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHARE OWNERS' EQUITY
<TABLE>
<CAPTION> Retained
Earnings
(Distributions
Additional in Excess of
Shares at Par Paid-In Accumulated
Value Capital Earnings)
------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1993 $ 16,377,000 $ 86,820,000 $ (6,813,000)
Net income - - 8,627,000
Cash distributions
($1.29 per share) - - (10,568,000)
Dividend reinvestment participation 15,000 121,000 -
Reverse one-for-two stock split (8,195,000) 8,195,000 -
Change in par value from $1 to $.01 (8,115,000) 8,115,000 -
-------------- ------------- -------------
Balance at December 31, 1994 82,000 103,251,000 (8,754,000)
Net income - - 8,431,000
Cash distributions
($1.32 per share) - - (13,098,000)
Issuance of stock, net of offering
costs of $2,595,000 30,000 45,394,000 -
Dividend reinvestment participation - 251,000 -
Exercise of stock options - 128,000 -
Reorganization costs - (617,000) -
-------------- ------------- -------------
Balance at December 31, 1995 112,000 148,407,000 (13,421,000)
Net income - - 27,222,000
Cash distributions
($1.32 per share) - - (23,168,000)
Shares issued to acquire Tucker Properties
Corporation 75,000 103,623,000 -
Issuance of stock, net of offering
costs of $2,618,000 29,000 44,822,000 -
Dividend reinvestment participation - 196,000 -
Exercise of stock options 1,000 1,617,000 -
Reallocation of minority interest - 158,000 -
Shares issued in exchange for Operating
Partnership units - 52,000 -
-------------- ------------- -------------
Balance at December 31, 1996 $ 217,000 $ 298,875,000 $ (9,367,000)
============== ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F5
<PAGE> 39
BRADLEY REAL ESTATE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
-----------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 27,222,000 $ 8,431,000 $ 8,627,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 13,286,000 7,317,000 5,146,000
Gain on sale of property (9,379,000) - (983,000)
Write-off of deferred financing and
acquisition costs 344,000 - -
Income allocated to minority interest 285,000 - -
Change in operating assets and liabilities, net
of the effect of the Tucker acquisition:
(Increase) decrease in rents and other receivables 1,659,000 (2,895,000) (1,428,000)
Increase in accounts payable, accrued expenses
and other liabilities 512,000 362,000 2,822,000
Increase in deferred charges (2,296,000) (482,000) (3,307,000)
------------- ------------ -------------
Net cash provided by operating activities 31,633,000 12,733,000 10,877,000
------------- ------------ -------------
Cash flows from investing activities:
Expenditures for real estate investments (18,730,000) (9,410,000) (36,253,000)
Purchase of Tucker, net of cash acquired (2,130,000) - -
Excess proceeds from like-kind exchange
of properties 4,145,000 - 2,600,000
Decrease in investing - related deferred charges - 106,000 -
Expenditures for purchase of advisory business - (649,000) -
------------- ------------ -------------
Net cash used by investing activities (16,715,000) (9,953,000) (33,653,000)
------------- ------------ -------------
Cash flows from financing activities:
Borrowings from lines of credit 132,500,000 15,300,000 38,700,000
Payments under lines of credit (129,708,000) (39,700,000) (5,800,000)
Expenditures to acquire new line of credit (1,468,000) - -
Pay-off of Westwind mortgage loans with proceeds
from offering - (4,712,000) -
Pay-off of secured mortgage loans with borrowings
from lines of credit (32,234,000) - -
Distributions paid (23,168,000) (13,098,000) (10,568,000)
Distributions to minority interest holders (309,000) - -
Proceeds from public offerings, net 44,851,000 40,508,000 -
Proceeds from exercise of stock options 1,618,000 128,000 -
Principal payments on mortgage loans (431,000) (336,000) (449,000)
Reorganization costs - (617,000) -
Proceeds from shares issued under dividend
reinvestment plan 196,000 251,000 136,000
------------- ------------ -------------
Net cash provided by (used in) financing
activities (8,153,000) (2,276,000) 22,019,000
------------- ------------ -------------
Net increase (decrease) in cash and cash equivalents 6,765,000 504,000 (757,000)
Cash and cash equivalents:
Beginning of year 697,000 193,000 950,000
------------- ------------ -------------
End of year $ 7,462,000 697,000 193,000
============= ============ =============
Supplemental cash flow information:
Interest paid, net of amount capitalized $ 13,366,000 $ 4,854,000 $ 4,218,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F6
<PAGE> 40
BRADLEY REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ORGANIZATION
Bradley Real Estate, Inc. (the "Company") is the nation's oldest continuously
qualified real estate investment trust. Organized in 1961, the Company focuses
on the ownership and operation of community and neighborhood shopping centers
primarily in the Midwestern United States. As of December 31, 1996, the Company
owned 32 properties (30 shopping centers and two office/retail buildings) in 12
states, aggregating over 7.7 million square feet of rentable space.
Approximately 95% of the Company's portfolio square footage is located in
Midwest markets, making the Company one of the leading owners of community and
neighborhood shopping centers in this region. The Company's shopping centers
have a diverse tenant mix dominated by supermarkets, drug stores and other
consumer necessity or value-oriented retailers.
On March 15, 1996, the Company completed the acquisition of Tucker Properties
Corporation ("Tucker"). The acquisition was consummated through the issuance by
the Company of approximately 7.4 million shares of its common stock valued at
$13.96 per share, and was accounted for using the purchase method of accounting.
The results of operations of Tucker have been included in the Company's
financial statements from March 15, 1996. Tucker held title to all of its
properties through two partnerships; eight properties through Tucker Operating
Limited Partnership ("TOP"), in which Tucker had a 95.9% general partnership
interest, and six properties through Tucker Financing Partnership ("TFP"), a
general partnership of which TOP owned 99% and a wholly-owned Tucker corporate
subsidiary owned the remaining 1%. Upon the acquisition of Tucker, the Company
succeeded to Tucker's interest in TOP, TFP and the wholly-owned Tucker corporate
subsidiary, and the name "Bradley" was substituted for "Tucker" in each
subsidiary and partnership.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements are prepared on the accrual basis in accordance with
generally accepted accounting principles. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from these
estimates.
The consolidated financial statements of the Company include the accounts and
operations of the Company, Bradley Operating Limited Partnership ("BOLP"),
Bradley Financing Partnership, and the general partnership interest in the joint
venture that owns Williamson Square Shopping Center which is held through BOLP.
Due to the Company's ability as general partner to directly or indirectly
control each of these subsidiaries, each is consolidated for financial reporting
purposes.
Upon the acquisition of Tucker, the limited partners in TOP received 314,739
operating partnership units ("OP Units") in BOLP in exchange for their limited
partnership units in TOP. The OP Units are convertible into common shares of
the Company on a one-for-one basis, subject to certain limitations. During
1996, a total of 3,738 OP Units were converted to common shares, leaving 311,001
OP Units outstanding at December 31, 1996. At December 31, 1996, the minority
interest ownership percentage in the Company was approximately 1.42%.
Rents and Other Receivables
Management has determined that all of the Company's leases with its various
tenants are operating leases. Revenues for such leases are recognized using the
straight-line method over the remaining term of the leases.
Real Estate Investments
Real estate investments are carried at cost less accumulated depreciation. The
provision for depreciation and amortization has been calculated using the
straight-line method based upon the following estimated useful lives of assets:
Buildings 31.5 - 39 years
Improvements and alterations 2 - 39 years
Expenditures for maintenance, repairs and betterments that do not materially
prolong the normal useful life of an asset are charged to operations as incurred
and amounted to $2,056,000, $874,000, and $626,000 for 1996, 1995 and 1994,
respectively.
F7
<PAGE> 41
Additions and betterments that substantially extend the useful lives of the
properties are capitalized. Upon sale or other disposition of assets, the cost
and related accumulated depreciation and amortization are removed from the
accounts and the resulting gain or loss, if any, is reflected in net income.
Real estate investments include capitalized interest and other costs on
significant construction in progress. Capitalized costs are included in the
cost of the related asset and charged to operations through depreciation over
the asset's estimated useful life. Interest capitalized amounted to $150,000,
$137,000, and $89,000 in 1996, 1995 and 1994, respectively.
Management reviews each property for impairment whenever events or changes in
circumstances indicate that the carrying value of a property may not be
recoverable. The review of recoverability is based on an estimate of
undiscounted future cash flows expected to result from its use and eventual
disposition. If impairment exists due to the inability to recover the carrying
value of a property, an impairment loss is recorded to the extent that the
carrying value of the property exceeds its estimated fair value.
On March 31, 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("Statement No.
121"). This Statement provides guidance for recognition and measurement of
impairment of long-lived assets, certain identifiable intangibles and goodwill
related both to assets to be held and used and assets to be disposed of.
Statement No. 121 is effective for financial statements issued for fiscal years
beginning after December 15, 1995. Thus, the Company adopted Statement No. 121
as of January 1, 1996. Adoption of Statement No. 121 had no effect on the
financial position or results of operations of the Company.
Real Estate Investments Held for Sale
Real estate investments held for sale are carried at the lower of cost or the
fair value less cost to sell. Depreciation and amortization are suspended
during the sale period.
Cash Equivalents
Cash and cash equivalents consist of cash in banks and short-term investments
with original maturities of less than ninety days.
Deferred Charges
A majority of deferred charges consist of agency commissions incurred in
leasing the Company's properties. Such charges are amortized using the
straight-line method over the term of the related lease. In addition, deferred
charges include costs incurred in connection with securing long-term debt,
including the costs of entering into interest rate protection agreements. Such
costs are amortized over the term of the related agreement.
Earnings Per Share
Earnings per share are based on the weighted average number of shares
outstanding during each year exclusive of outstanding stock options, which do
not materially affect earnings per share. Per share data and weighted average
shares outstanding as reported on the accompanying financial statements for
1994 reflect a one-for-two reverse share split effected on October 17, 1994.
Stock Option Plans
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("Statement No. 123"). Statement No. 123 establishes financial
accounting and reporting standards for stock-based employee compensation plans.
This includes all arrangements by which employees receive shares of stock or
other equity instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of the employer's stock. Statement No.
123 defines a fair value based method of accounting for an employee stock
option or similar equity instrument and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost
using the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("Opinion No. 25"). The Company elected to continue using Opinion No. 25 and
make pro forma disclosures of net income and earnings per share as if the fair
value method of accounting defined in Statement No. 123 had been applied. See
Note 8 for the required disclosures.
F8
<PAGE> 42
NOTE 2 - SUPPLEMENTAL CASH FLOW DISCLOSURE
The merger acquisition of Tucker on March 15, 1996 resulted in the following
non-cash effect on the Company's balance sheet:
<TABLE>
<S> <C>
Assets acquired $ (310,443,000)
Liabilities assumed 204,615,000
Capital stock issued, at $.01 par value 75,000
Additional paid-in capital 103,623,000
---------------
Purchase of Tucker, net of cash acquired $ (2,130,000)
===============
</TABLE>
The like-kind exchange of Nicollet Avenue and Brookdale Square in March 1996,
resulted in a decrease in other net operating assets of $1,649,000 and the
Company assuming net operating liabilities of $173,000.
During 1996, 3,738 shares of Common Stock were issued in exchange for an
equivalent number of OP Units held by the minority interest.
In 1995, the Company issued 325,000 shares of Common Stock having a value of
$4,916,000 in connection with the acquisition of the REIT advisory business of
its former advisor.
In 1995, a property was purchased for $5,261,000 which included the Company's
assumption of $2,094,000 in non-recourse mortgages.
In 1994, a property was purchased for $7,496,000 which included the Company's
assumption of $4,980,000 in non-recourse mortgages.
NOTE 3 - REAL ESTATE INVESTMENTS
The following is a summary of the Company's real estate investments that are
held for lease at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 97,904,000 $ 35,781,000
Buildings 332,671,000 88,674,000
Improvements and alterations 55,041,000 63,098,000
Construction in progress 4,517,000 1,852,000
-------------- -------------
490,133,000 189,405,000
Accumulated depreciation and amortization (30,670,000) (27,591,000)
-------------- -------------
$ 459,463,000 $ 161,814,000
============== =============
</TABLE>
During the second quarter of 1996, the Company placed for sale its Augusta
Plaza, Hood Commons 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.
The following table sets forth the detail with respect to the properties with
ownership interests held by the Company at December 31, 1996. The aggregate
cost of those properties for Federal income tax purposes was approximately
$498,738,000.
F9
<PAGE> 43
NOTE 3 - REAL ESTATE INVESTMENTS (continued)
<TABLE>
<CAPTION>
Initial cost to
the Company
----------------------------------------
Buildings and Capitalized Subsequent
SHOPPING CENTERS Encumbrances Land Improvements to Acquisiton
------------ ---- ------------- --------------------
<S> <C> <C> <C> <C>
ILLINOIS
Rivercrest Center $ - $ 7,349,000 $ 17,147,000 $ 1,951,000
Crestwood, IL
Westview Center - 6,417,000 14,973,000 1,139,000
Hanover Park, IL
Crossroads Center - 2,846,000 8,538,000 651,000
Fairview Heights, IL
Commons of Chicago Ridge - 5,087,000 15,113,000 986,000
and Annex
Chicago Ridge, IL
Commons of Crystal ** 3,546,000 20,093,000 65,000
Lake
Crystal Lake, IL
Heritage Square ** 8,047,000 17,099,000 -
Naperville, IL
Meadows Town Mall - 1,036,000 5,965,000 749,000
Rolling Meadows, IL
Sheridan Village ** 2,841,000 19,010,000 156,000
Peoria, IL
High Point Centre - 2,969,000 16,822,000 65,000
Lombard, IL
Rollins Crossing - 1,996,000 8,509,000 261,000
Round Lake Beach, IL
MINNESOTA
Har Mar Mall - 6,551,000 15,263,000 8,461,000
Roseville, MN
Sun Ray Shopping - 82,000 2,945,000 11,933,000
Center
St. Paul, MN
Richfield Hub 5,355,000 3,000,000 5,390,000 5,148,000
Shopping Center
Richfield, MN
Brookdale Square - 2,230,000 6,694,000 14,000
Shopping Center
Brooklyn, MN
Hub West Shopping 4,942,000 757,000 345,000 4,165,000
Center
Richfield, MN
White Bear Hills - 750,000 3,762,000 484,000
White Bear Lake, MN
Terrace Mall - 630,000 1,706,000 2,369,000
Robbinsdale, MN
Burning Tree Plaza - 609,000 3,744,000 3,961,000
Duluth, MN
Westwind Plaza - 1,949,000 5,547,000 35,000
Minnetonka, MN
INDIANA
Speedway SuperCenter ** 6,098,000 34,555,000 1,151,000
and Outlots
Speedway, IN
The Village Shopping - 1,152,000 6,530,000 190,000
Center
Gary, IN
Washington Lawndale ** 2,488,000 13,062,000 89,000
Commons
Evansville, IN
KANSAS
Santa Fe Square - 1,999,000 7,089,000 -
Olathe, KS
TENNESSEE
Williamson Square 12,902,000 2,570,000 14,561,000 281,000
Franklin, TN
WISCONSIN
Mequon Pavilions - 2,761,000 15,647,000 4,000
Mequon, WI
KENTUCKY
Stony Brook - 3,106,000 9,319,000 89,000
Louisville, KY
MISSOURI
Grandview Plaza - 414,000 2,205,000 14,870,000
Florissant, MO
NEW MEXICO
St. Francis Plaza 1,945,000 1,578,000 3,683,000 -
Santa Fe, NM
RETAIL/OFFICE BUILDING
One North State ** 16,765,000 37,317,000 610,000
Chicago, IL ----------- ------------ ------------ -----------
Real estate
investments held for lease 25,144,000 97,623,000 332,633,000 59,877,000
Real estate
investments held for sale - 735,000 3,079,000 13,684,000
----------- ------------ ------------ -----------
Total real estate
investments $25,144,000 $ 98,358,000 $335,712,000 $73,561,000
=========== ============ ============ ===========
</TABLE>
** The property is encumbered by a $100 million REMIC note. See Note 4 for
further information.
F-10
<PAGE> 44
Gross amount carried at December 31, 1996
<TABLE>
<CAPTION>
Building Date Lives on which
and Accumulated Acquired Depreciation
Land Improvements Total Depreciation by Company is Computed
- ---- ------------ ----- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C>
$ 7,349,000 $ 19,098,000 $ 26,447,000 $ 1,528,000 1994 7 - 39
6,404,000 16,125,000 22,529,000 1,706,000 1993 4 - 39
2,878,000 9,157,000 12,035,000 1,184,000 1992 2 - 31.5
5,087,000 16,099,000 21,186,000 289,000 1996 3 - 39
3,546,000 20,158,000 23,704,000 402,000 1996 4 - 39
8,047,000 17,099,000 25,146,000 340,000 1996 3 - 39
1,036,000 6,714,000 7,750,000 138,000 1996 3 - 39
2,841,000 19,166,000 22,007,000 395,000 1996 4 - 39
2,969,000 16,887,000 19,856,000 319,000 1996 10 - 39
1,996,000 8,770,000 10,766,000 173,000 1996 3 - 39
6,786,000 23,489,000 30,275,000 2,892,000 1992 5 - 39
91,000 14,869,000 14,960,000 7,531,000 1961 3 - 33
3,000,000 10,538,000 13,538,000 2,854,000 1988 2 - 39
2,230,000 6,708,000 8,938,000 132,000 1996 3 - 39
757,000 4,510,000 5,267,000 684,000 1991 31.5
755,000 4,241,000 4,996,000 314,000 1993 39
630,000 4,075,000 4,705,000 504,000 1993 6 - 39
609,000 7,705,000 8,314,000 703,000 1993 5 - 39
1,949,000 5,582,000 7,531,000 312,000 1994 39
6,098,000 35,706,000 41,804,000 673,000 1996 2 - 39
1,152,000 6,720,000 7,872,000 136,000 1996 8 - 39
2,488,000 13,151,000 15,639,000 275,000 1996 3 - 39
1,999,000 7,089,000 9,088,000 - 1996 3 - 39
2,570,000 14,842,000 17,412,000 309,000 1996 3 - 39
2,761,000 15,651,000 18,412,000 312,000 1996 5 - 39
3,106,000 9,408,000 12,514,000 193,000 1996 5 - 39
427,000 17,062,000 17,489,000 5,389,000 1971 2 - 33
1,578,000 3,683,000 5,261,000 157,000 1995 3 - 39
16,765,000 37,927,000 54,692,000 826,000 1996 3 - 39
- ---------- ----------- ----------- ----------
97,904,000 392,229,000 490,133,000 30,670,000
740,000 16,758,000 17,498,000 7,213,000 1961-1973-
- ---------- ----------- ----------- ----------
$98,644,000 $408,987,000 $507,631,000 $37,883,000
========== =========== =========== ==========
</TABLE>
F-11
<PAGE> 45
NOTE 4 - MORTGAGE LOANS AND LINE OF CREDIT
Mortgage loans outstanding at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Mortgage loan secured $ 5,355,000 $ 5,431,000
by Richfield Hub
Shopping Center, at
9.875%, maturing
September 1998.
Mortgage loan secured 4,942,000 5,014,000
by Hub West Shopping
Center, at 9.875%,
maturing September
1998.
Mortgage loan secured 1,945,000 2,029,000
by St. Francis
Plaza, at 8.125%,
maturing December
2008.
Mortgage loans - 12,320,000
secured by Sun Ray
Shopping Center, at
rates ranging from
9.625% to 11.75%.
These loans
were paid-off on
January 2, 1996.
Mortgage loan secured 12,902,000 -
by Williamson
Square, at 8.000%,
maturing August 2005.
Mortgage note secured -
by six properties, at
7.230%,maturing
September 2000,
including unamortized
premium of $250,000. 100,250,000 -
------------ -----------
$125,394,000 $ 24,794,000
============ ============
</TABLE>
The net book value of real estate pledged as collateral for loans was
approximately $214,192,000 (see Note 3). The mortgage loans collateralized by
Richfield Hub Shopping Center and Hub West Shopping Center are
cross-collateralized.
In connection with the acquisition of Tucker, the Company assumed the
obligations under a $100 million mortgage note with a fair value of
$100,300,000 at the date of acquisition. The mortgage note is secured by
Commons of Crystal Lake, Heritage Square, Sheridan Village, Speedway
SuperCenter (excluding Outlots), Washington Lawndale Commons and One North
State. The mortgage note was issued to a trust qualifying as a real estate
mortgage investment conduit for Federal income tax purposes (the "REMIC Note").
Pursuant to terms of the indenture governing the REMIC Note, prior to October
1997, principal payments on the REMIC Note cannot be made and the properties
collateralizing the REMIC Note cannot be sold. If the Company wishes either to
repay all or part of the $100 million principal of the REMIC Note or to sell
any of the properties collateralizing the REMIC Note after such date, the
Company will incur significant prepayment penalties. The prepayment of
principal of the REMIC Note requires an additional payment of the greater of
either (i) 1% of the amount of principal being prepaid or (ii) the product of
(A) the difference between the outstanding principal balance of the REMIC Note
before prepayment and the present value of all remaining interest and principal
payments thereon and (B) the amount of principal being prepaid divided by the
outstanding principal balance of the REMIC Note. After October 1997, in order
to release any of the properties collateralizing the REMIC Note from the lien,
the REMIC indenture requires that certain additional conditions be met,
including that (i) the aggregate amount of principal repaid on the REMIC Note
equals at least 125% of the amount of principal allocated to the property to be
released and (ii) certain debt service coverage ratios continue to be
satisfied.
On March 15, 1996, the Company entered into a new $150 million unsecured
revolving credit facility with The First National Bank of Boston and other bank
lenders, replacing the previous $65 million line of credit, which was secured
by a blanket mortgage on six of the Company's properties. The new line bears
interest at a rate equal to the lower of the bank's base rate or 1.75% over
LIBOR. Additionally, there is a commitment fee ranging from 0.125% to 0.250%
per annum of the unfunded line of credit balance depending on the outstanding
balance during a calendar quarter. The rates available under the line become
more favorable in the event the Company meets certain loan-to-value tests or
receives an investment grade unsecured debt rating. At December 31, 1996, the
weighted average interest rate on the line of credit was 7.51%. In addition to
replacing outstanding borrowings under the Company's and Tucker's previously
outstanding secured lines of credit, the facility is available for the
acquisition, development, renovation and expansion of new and existing
properties (including, but not limited to, capital improvements, tenant
improvements and leasing commissions), and other working capital purposes. The
line of credit matures March 1998.
The line of credit contains certain financial and operational covenants that,
among other provisions, limit the amount of secured and unsecured indebtedness
the Company may have outstanding at any time, and provide for the maintenance
of certain financial tests including
F12
<PAGE> 46
minimum net worth and debt service coverage requirements. The Company believes
that such covenants will not adversely affect the Company's business or the
operation of its properties.
In order to reduce the Company's (and thus the lenders') exposure to the risks
associated with floating rate debt, the line of credit requires that the
Company maintain interest rate protection, at a rate satisfactory to the lead
lender, with respect to at least $100 million of indebtedness. The Company
uses interest rate caps and swaps to limit its exposure to increases in
interest rates on its floating rate debt. The Company does not use them for
trading or speculative purposes.
At December 31, 1996, the Company was party to interest rate cap agreements
which entitle the Company to receive on a quarterly basis, the amount, if any,
by which the applicable three-month LIBOR Rate (as defined in the interest rate
protection agreement) for the protected amount exceeds the applicable cap rate
for the protected amount. The Company was also party to a swap agreement
whereby the Company receives or makes quarterly payments based on the
differential between the three-month LIBOR Rate (as defined in the interest
rate protection agreement) for the protected amount and the applicable fixed
swap rate for the protected amount.
The following summarizes the interest rate protection agreements outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Effect on
Notional Maximum Type of Interest Fair Value
Amount Rate Contract Maturity Expense December 31, 1996
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$43,000,000 6.00% Swap April 14, 1998 $149,000 $(116,000)
40,000,000 7.50% Cap March 18, 1998 0 16,000
17,000,000 7.50% Cap April 11, 1998 0 8,000
----------- ------- ---------
$100,000,000 $149,000 $ (92,000)
============ ======== =========
</TABLE>
The fair values of the interest rate protection agreements are estimated using
option-pricing models that value the potential for the interest rate protection
agreements to become in-the-money through changes in interest rates during the
remaining terms of the agreements. The negative fair value represents the
estimated amount the Company would have to pay to cancel the contract or
transfer it to other parties. The aggregate unamortized cost of the interest
rate protection agreements was $195,000 at December 31, 1996.
Scheduled principal payments on mortgage loans and the line of credit
outstanding at December 31, 1996 are as follows:
1997 $ 442,000
1998 73,972,000
1999 344,000
2000 100,621,000
2001 403,000
Thereafter 13,112,000
------------
$188,894,000
============
NOTE 5 - RENTALS UNDER OPERATING LEASES
Annual minimum future rentals to be received under non-cancelable operating
leases in effect at December 31, 1996 are as follows:
1997 $ 56,997,000
1998 52,024,000
1999 48,267,000
2000 43,829,000
2001 38,747,000
Later Years 204,304,000
--------------
$ 444,168,000
==============
Total minimum future rentals do not include contingent rentals under certain
leases based upon lessees' sales volume. Contingent rentals earned amounted to
approximately $1,397,000, $1,083,000, and $1,121,000 in 1996, 1995 and 1994,
respectively. Certain leases also require lessees to pay all or a portion of
real estate taxes and operating costs, amounting to $21,748,000, $10,774,000,
and $9,259,000 in 1996, 1995 and 1994, respectively.
No tenant accounted for as much as 10% of rental income in 1996, 1995 or 1994.
One North State accounted for greater than 10% of the Company's rental income
during 1996.
F13
<PAGE> 47
NOTE 6 - INCOME TAXES
The Company has elected to be taxed as a real estate investment trust ("REIT")
under the Internal Revenue Code (the "Code"). Under the Code, a qualifying
REIT that distributes at least 95% of its ordinary taxable income to its share
owners is entitled to a tax deduction in the amount of the distribution. In
addition, qualifying REITs are permitted to deduct capital gain distributions
in the determination of the tax on capital gains. The Company paid
distributions to share owners aggregating $23,168,000, $13,098,000, and
$10,568,000 in 1996, 1995 and 1994, respectively. The Company has determined
that for Federal income tax purposes approximately 69% of the distributions
paid in 1996 were ordinary dividends, approximately 17% were a capital gain and
approximately 14% were a return of capital; approximately 84% of the
distributions paid in 1995 were ordinary dividends and approximately 16% were a
return of capital; and approximately 74% of the distributions paid in 1994 were
ordinary dividends and approximately 26% were a return of capital.
NOTE 7 - SHARE OWNERS' EQUITY
In December 1994, the Company filed a "shelf" registration with the Securities
and Exchange Commission to register $125 million of common stock, preferred
stock, debt securities, warrants, rights or units of the foregoing securities
that the Company may issue through underwriters or in privately negotiated
transactions for cash from time to time.
In January 1995, the Company issued 325,000 shares of common stock in
conjunction with the purchase of the REIT advisory business of its former
advisor. In April 1995, the Company issued 182,500 shares of common stock at a
price of $17 per share, which proceeds were applied to the acquisition of St.
Francis Plaza. In July 1995, the Company completed a public share offering of
2,500,000 shares of common stock at a price of $16 per share. Net proceeds
from the offering were approximately $37,405,000 (net of offering costs of
approximately $2,595,000), of which $32,600,000 was used to pay-down the
Company's bank line of credit and $4,712,000 was used to pay-off the
non-recourse mortgages assumed in November 1994, in connection with the
Westwind Plaza purchase.
In November 1996, the Company completed a public offering of 2,875,000 shares
of common stock (including shares issued pursuant to the exercise of the
underwriter over-allotment option) at a price of $16.50 per share. Net
proceeds from the offering, approximately $44,851,000 (net of offering costs of
$2,618,000), were used to reduce outstanding indebtedness incurred under the
line of credit.
Under the Company's Dividend Reinvestment and Share Purchase Plan in effect
since 1993, share owners of record owning at least 100 shares may elect to
reinvest cash dividends and make limited additional cash payments (minimum
$100, maximum $2,500 per quarter) to purchase newly issued shares of the
Company without brokerage fees or other transaction costs, at a 3% discount
from market prices (as determined in the Plan). During 1996, 1995 and 1994,
the Company issued 13,082, 16,714, and 8,530 shares, respectively, under this
Plan.
NOTE 8 - STOCK OPTION PLANS
The Company's 1993 Stock Option and Incentive Plan authorizes options and other
stock-based awards to be granted for up to 5% of the Company's shares
outstanding. During 1996 and 1995, options for 17,500 and 217,500 shares,
respectively, were granted under this Plan. All of the options granted in 1996
were pursuant to an amendment to the Plan approved by the share owners that
year, which provides for an annual option grant for 2,500 shares to each
non-employee director at an exercise price equal to the fair market value of
the subject shares at the date of grant. At December 31, 1996 and 1995,
options for 180,000 and 295,251 shares, respectively, remained outstanding
under this and a prior stock option plan.
A committee of the Board of Directors administers the Plan and is responsible
for selecting persons eligible for awards and for determining the terms and
duration of any award.
The Company has estimated the fair value of each option granted on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1996 and 1995, respectively: dividend
yield of 8.96% and 8.87%; expected volatility of 23% and 18%; risk-free
interest rates of 6.1% for both years; and expected lives of five years for
both years. The Company applies Opinion No. 25 and related Interpretations in
accounting for awards under the Plan. Accordingly, no compensation cost
relating to the stock option plans has been recognized in the accompanying
financial statements. Had compensation cost for the Company's Plan been
determined consistent with Statement No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
F14
<PAGE> 48
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Net income As Reported $27,222,000 $8,431,000
Pro Forma $27,202,000 $8,231,000
Net income per share As Reported $1.54 $0.85
Pro Forma $1.54 $0.83
</TABLE>
The effect of applying Statement No. 123 for disclosing compensation costs
under such pronouncement may not be representative of the effects on reported
net income for future years.
A summary of option transactions during the periods covered by these financial
statements is as follows:
<TABLE>
<CAPTION>
Exercise Prices
Shares Per Share
-------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1993 and 1994 91,375 $11.50 - $22.00
Granted 217,500 $14.875 - $16.50
Expired (4,624) $16.66 - $21.25
Exercised (9,000) $11.50 - $14.875
--------
Outstanding at December 31, 1995 295,251 $11.50 - $22.00
Granted 17,500 $14.7375
Expired (24,251) $14.75 - $22.00
Exercised (108,500) $11.50 - $17.00
--------
Outstanding at December 31, 1996 180,000 $11.50 - $21.25
========
</TABLE>
All options outstanding at December 31, 1996 are fully vested and exercisable
and have a duration of ten years from the date of grant, subject to earlier
termination in certain circumstances. The weighted average exercise price per
share and the weighted average contractual life of options outstanding at
December 31, 1996 were $15.65 and 6.90 years, respectively. The weighted
average fair value of options granted during 1996 and 1995 approximates the
exercise prices for such options on the date of grant.
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires the Company to disclose fair value
information of all financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate fair value.
The Company's financial instruments, other than debt and interest rate
protection agreements for the Company's line of credit, are generally
short-term in nature and contain minimal credit risk. These instruments
consist of cash and cash equivalents, rents and other receivables, and accounts
payable. The carrying amount of these assets and liabilities in the
consolidated balance sheets are assumed to be at fair value.
The Company's mortgage loans are at fixed rates, and when compared with
borrowing rates currently available to the Company with similar terms and
average maturities, approximate fair value. The Company's line of credit is at
a variable rate, which results in a carrying value that approximates its fair
value. The fair values of the interest rate protection agreements and
methodologies for determining their fair values are described in Note 4.
NOTE 10 - SUBSEQUENT EVENTS
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.
Roseville Center was purchased for approximately $5.4 million through the
issuance of 281,300 limited partnership units in BOLP and cash drawn from the
Company's line of credit. Martin's Bittersweet Plaza was purchased for
approximately $4.8 million with financing provided by the assumption of $3.8
million in debt, with the balance funded with the Company's line of credit.
Warren Plaza was purchased for approximately $6.0 million with cash drawn from
the Company's line of credit.
On March 13, 1997, the Company completed the sale of Hood Commons for $11.7
million, resulting in a gain of approximately $3.1 million for financial
reporting purposes.
F15
<PAGE> 49
NOTE 11 - PRO FORMA INFORMATION
On March 15, 1996, the Company closed the merger acquisition of Tucker. The
acquisition was completed through the issuance of 7.4 million common shares of
the Company valued at $13.96 per share, in exchange for 100% of the outstanding
shares of Tucker, payment of certain transaction costs and the assumption of
all of Tucker's liabilities. The Tucker share owners received .686 of a share
of Bradley for each outstanding Tucker share. The acquisition was structured
as a tax-free transaction, and was accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to the assets
purchased and the liabilities assumed based upon the fair values at the date of
acquisition. The excess of the fair value of assets acquired and liabilities
assumed over the purchase price was not material. Such excess was allocated to
reduce proportionately, the values assigned to the properties acquired.
The following table sets forth certain summary unaudited pro forma operating
data for the years ended December 31, 1996 and 1995, as if the merger had been
consummated as of the beginning of 1996 and 1995, after giving effect to
certain adjustments including a reduction in depreciation expense due to longer
useful lives and estimated cost savings of the combined entity.
<TABLE>
<CAPTION>
---------------------------------------
Years ended December 31,
1996 1995
---------------------------------------
(Unaudited)
<S> <C> <C>
Total revenues $ 89,561,000 $ 87,428,000
Net income $ 29,213,000 $ 17,135,000
Net income per share $ 1.53 $ 0.99
</TABLE>
The unaudited pro forma operating data are presented for comparative purposes
only and are not necessarily indicative of what the actual results of
operations would have been for the years ended December 31, 1996 and 1995, nor
does such data purport to represent the results to be achieved in future
periods.
NOTE 12 - SUPPLEMENTARY QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
March 31, June 30, Sept. 30, Dec. 31,
1996 1996 1996 1996
-------------------------------------------------------
(Thousands of dollars except per share data)
<S> <C> <C> <C> <C>
Rental income $ 11,219 $ 21,982 $ 21,442 $ 22,869
Gain on sale of property $ 9,379 $ - $ - $ -
Net income $ 11,375 $ 4,852 $ 4,885 $ 6,110
Net income per share $ .91 $ .26 $ .26 $ .30
<CAPTION>
March 31, June 30, Sept. 30, Dec. 31,
1995 1995 1995 1995
-------------------------------------------------------
(Thousands of dollars except per share data)
<S> <C> <C> <C> <C>
Rental income $ 8,615 $ 8,686 $ 9,396 $ 9,708
Net income $ 1,835 $ 1,638 $ 2,357 $ 2,601
Net income per share $ .22 $ .19 $ .21 $ .23
</TABLE>
F16
<PAGE> 50
SCHEDULE III
BRADLEY REAL ESTATE, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Cost December 31,
---- ------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 189,405,000 $ 177,939,000 $ 138,189,000
Improvements and other
additions 320,053,000 11,466,000 41,433,000
Sale of property (1,827,000) - (1,683,000)
-------------- -------------- --------------
Balance, end of year $ 507,631,000 $ 189,405,000 $ 177,939,000
============= ============== ==============
Accumulated Depreciation
------------------------
Balance, beginning of year $ 27,591,000 $ 22,385,000 $ 18,156,000
Depreciation provided 10,292,000 5,206,000 4,330,000
Sale of property - - (101,000)
------------- -------------- --------------
Balance, end of year $ 37,883,000 $ 27,591,000 $ 22,385,000
============= ============== ==============
</TABLE>
F17
<PAGE> 1
EXHIBIT 10.4
BRADLEY REAL ESTATE, INC.
1993 Stock Option and Incentive Plan
As Amended and Restated on September 9, 1996
1. PURPOSE; DEFINED TERMS
(a) This 1993 Stock Option and Incentive Plan (the "Plan") is
intended as a performance incentive for officers, Directors, employees and
consultants of Bradley Real Estate, Inc. (the "Company") and its Subsidiaries
(as hereinafter defined) to enable the persons to whom Options or other Awards
are granted (the "Optionees" or "Grantees") to acquire or increase a
proprietary interest in the success of the Company. The Company intends that
this purpose will be effected by the granting of "incentive stock options"
("Incentive Options") as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and nonqualified stock options ("Nonqualified
Options"), and rights to receive restricted stock ("Restricted Stock Awards"),
unrestricted stock ("Unrestricted Stock Awards"), performance shares
("Performance Share Awards"), stock appreciation rights ("Stock Appreciation
Rights") and dividend equivalent rights ("Dividend Equivalent Rights").
(b) The undifferentiated terms "Option" and "Options" include both
Incentive Options and Nonqualified Options. The terms "Award" and "Awards"
include Options, Restricted Stock Awards, Unrestricted Stock Awards,
Performance Share Awards, Stock Appreciation Rights and Dividend Equivalent
Rights. The term "Subsidiaries" includes any corporation, partnership or other
organization in which the Company owns at the time of the grant of the Award
fifty percent or more of the economic interest in the equity of such
organization.
2. AWARDS TO BE GRANTED AND ADMINISTRATION
(a) Options granted under the Plan may be either Incentive Options
or Nonqualified Options, and shall be designated as such at the time of grant.
To the extent that any Option intended to be an Incentive Option shall fail to
qualify as an "incentive stock option" under the Code, such Option shall be
deemed to be a Nonqualified Option; and, subject to the preceding part of this
sentence, any Option not designated as either an Incentive Option or a
Nonqualified Option shall be presumed to be intended to be an Incentive Option
unless clear by its terms that it is not eligible to qualify as an Incentive
Option.
(b) The Plan shall be administered by a committee (the
"Committee") of not less than two Directors of the Company appointed by the
Board of Directors of the Company (the "Board of Directors"). It is the
intention of the Company that each member of the Committee shall be a
"non-employee director" as that term is defined and interpreted pursuant to
Rule 16b-3(b)(3) or any successor rule thereto promulgated under the Securities
Exchange Act of 1934, as amended (the "Act"), and an "outside director" within
the
<PAGE> 2
meaning of Section 162(m) of the Code and the regulations promulgated
thereunder. Unless otherwise determined by the Board of Directors, the members
of the Compensation Committee of the Board of Directors shall serve as the
Committee under the Plan to the extent such members of the Compensation
Committee are "non-employee directors" and "outside directors." Action by the
Committee shall require the affirmative vote of a majority of all its members.
(c) Subject to the terms and conditions of the Plan, the Committee
shall have the power:
(i) To determine from time to time the Awards to be
granted to eligible persons under the Plan and to prescribe the terms
and provisions (which need not be identical) of Awards granted under
the Plan to such persons;
(ii) To construe and interpret the Plan and grants
thereunder and to establish, amend, and revoke rules and regulations
for administration of the Plan. In this connection, the Committee may
correct any defect or supply any omission, or reconcile any
inconsistency in the Plan, in any Award agreement, or in any related
agreements, in the manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective. All decisions and
determinations by the Committee in the exercise of this power shall be
final and binding upon the Company and the Optionees and Grantees;
(iii) To amend any outstanding Award, subject to Section 17
hereof, and to accelerate or extend the vesting or exercisability of
any Award and to waive conditions or restrictions on any Awards, to
the extent it shall deem appropriate; and
(iv) Generally, to exercise such powers and to perform
such acts as are deemed necessary or expedient to promote the best
interests of the Company with respect to the Plan.
3. AUTHORIZED SHARES
(a) Awards may be granted under the Plan for up to such aggregate
number of Shares of Common Stock, par value $.01 per share, of the Company
("Shares") as does not exceed 5% of the total number of outstanding Shares
(which limit shall be applied in the case of each Award on the basis of the
total number of outstanding Shares at the time of such grant and without
considering as outstanding any Shares that are the subject of any Awards
granted on the same day as such grant or any unexercised options under the Plan
or any other option plan of the Company); provided, however, that the maximum
number of Shares for which Incentive Options may be granted under the Plan
shall not exceed 500,000 Shares (which number is subject to adjustment as
provided in Section 13). Subject to such overall limitations, Shares may be
issued pursuant to any type or types of Award; provided, however, that Options
or Stock Appreciation Rights with respect to not more than 250,000 Shares
(which number is subject to adjustment as provided in Section 13) may be
granted to any one individual during any one calendar year period.
2
<PAGE> 3
(b) Whenever any outstanding Option under the Plan expires, is
cancelled or is otherwise terminated (other than by exercise in the case of
Incentive Options), the Shares allocable to the unexercised portion of such
Option may again be the subject of Awards under the Plan. The Shares
underlying any other Awards which are forfeited, canceled, reacquired by the
Company, satisfied without the issuance of Shares or otherwise terminated
(other than by exercise) shall also be added back to the Shares available for
issuance under the Plan.
4. ELIGIBILITY
(a) Incentive Options may be granted only to officers or other
employees of the Company or its Subsidiaries, including members of the Board of
Directors who are also officers or employees of the Company or any of its
Subsidiaries. All other Awards may be granted to officers or other employees
of the Company or any of its Subsidiaries and to consultants (which term
includes persons who provide services to the Company or its Subsidiaries).
Nonqualified Options may be granted to non-employee members of the Board of
Directors pursuant to Section 7.
(b) No person shall be eligible to receive any Incentive Option
under the Plan if, at the date of grant, such person beneficially owns stock
representing in excess of 9.8 percent of the voting power of all outstanding
capital stock of the Company.
(c) Notwithstanding any other provision of the Plan, the aggregate
fair market value (determined as of the time the Incentive Option is granted)
of the Shares with respect to which Incentive Options are exercisable for the
first time by any individual during any calendar year (under all plans of the
Company and its parent and Subsidiaries, if any) shall not exceed $100,000.
5. TERMS OF THE OPTION AGREEMENTS
Subject to the terms and conditions of the Plan, each option agreement
shall contain such provisions as the Committee shall from time to time deem
appropriate. Option agreements need not be identical, but each option
agreement by appropriate language shall include the substance of all of the
following provisions, and any such provisions may be included in the option
agreement by reference to the Plan:
(a) Expiration; Termination of Employment. Each Option shall
expire on the date specified in the option agreement, which date shall not be
later than the tenth anniversary of the date on which the Option was granted
("grant date") in the case of an Incentive Option and not later than one week
following the tenth anniversary of the grant date in the case of a Nonqualified
Option. If an Optionee's employment with the Company or any of its
Subsidiaries terminates for any reason, the Committee may in its discretion
provide, at any time, that any outstanding Option granted to such Optionee
under the Plan shall be exercisable for such period following termination of
employment as may be specified by the Committee, subject to the expiration date
of such Option.
3
<PAGE> 4
(b) Minimum Shares Exercisable. The minimum number of shares with
respect to which an Option may be exercised at any one time shall be one
hundred (100) shares, or such lesser number as is subject to exercise under the
Option at the time.
(c) Exercise. Each Option shall be exercisable in such
installments (which need not be equal) and at such times as may be designated
by the Committee. To the extent not exercised, installments shall accumulate
and be exercisable, in whole or in part, at any time after becoming
exercisable, but not later than the date the Option expires.
(d) Purchase Price. The purchase price per Share subject to each
Option shall be determined by the Committee; provided, however, that the
purchase price per Share subject to each Incentive Option shall be not less
than the fair market value of the Shares on the date such Option is granted,
which unless otherwise determined by the Committee in any particular case shall
be deemed to be the average closing price of the Shares as reported on the
principal stock exchange on which the Shares are listed on each of the ten
business days immediately preceding the date of the grant of the Option.
(e) Rights of Optionees. No Optionee shall be deemed for any
purpose to be the owner of any Shares subject to any Option unless and until
(i) the Option shall have been exercised pursuant to the terms thereof, (ii)
all requirements under applicable law and regulations shall have been complied
with to the satisfaction of the Company, (iii) the Company shall have issued
and delivered the Shares to the Optionee, and (iv) the Optionee's name shall
have been entered as a stockholder of record on the books of the Company.
Thereupon, the Optionee shall have full voting, dividend and other ownership
rights with respect to such Shares.
(f) Transfer. No Option granted hereunder shall be transferable
by the Optionee other than by will or by the laws of descent and distribution,
and such Option may be exercised during the Optionee's lifetime only by the
Optionee, or his or her guardian or legal representative. Notwithstanding the
foregoing, the Committee may provide in an option agreement that the optionee
may transfer, without consideration for the transfer, his Nonqualified Option
to members of his immediate family, to trusts for the benefit of such family
members, to partnerships in which such family members are the only partners and
to charities.
6. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE
(a) Any Option granted under the Plan may be exercised by the
Optionee in whole or, subject to Section 5 (b) hereof, in part by delivering to
the Company on any business day a written notice specifying the number of
Shares the Optionee then desires to purchase (the "Notice").
(b) Payment for the Shares purchased pursuant to the exercise of
any Option shall be made either: (i) in cash or by check for good funds or
other payment acceptable to the Company equal to the Option exercise price for
the number of shares specified in the Notice (the "Total Option Price"); (ii)
if authorized by the applicable option agreement and if
4
<PAGE> 5
permitted by law, by delivery of Shares that the Optionee may freely transfer
having a fair market value, determined by reference to the provisions of
Section 5 (d) hereof, equal to or less than the Total Option Price, plus cash
in an amount equal to the excess, if any, of the Total Option Price over the
fair market value of such Shares; (iii) by the Optionee delivering the Notice
to the Company together with irrevocable instructions to a broker to promptly
deliver the Total Option Price to the Company in cash or by other method of
payment acceptable to the Company, provided, however, that the Optionee and the
broker shall comply with such procedures and enter into such agreements of
indemnity or other agreements as the Company shall prescribe as a condition of
payment under this clause (iii); (iv) if the Directors have authorized the loan
of funds to the Optionee for the purpose of enabling or assisting the Optionee
to effect the exercise of the Option, with the proceeds of such loan; or (v)
any combination of the foregoing which in the aggregate equals the Total Option
Price.
(c) The delivery of certificates representing Shares to be
purchased pursuant to the exercise of an Option will be contingent upon the
Company's receipt of the Total Option Price and of any written representations
from the Optionee required by the Committee, and the fulfillment of any other
requirements contained in the option agreement or applicable provisions of law.
7. OPTIONS GRANTED TO INDEPENDENT DIRECTORS
(a) Each Director who is not also an employee of the Company or
any of its Subsidiaries (an "Independent Director") who is serving as Director
of the Company on the next business day after the adjournment of each annual
meeting of stockholders, beginning with the 1996 annual meeting, shall
automatically be granted on such day a Nonqualified Option to acquire 2,500
Shares. The exercise price per share for the Shares covered by an Option
granted under this Section 7 shall be equal to the fair market value of the
Shares, determined by reference to the formula stated in Section 5(d), on the
date the Option is granted.
(b) An Option granted under this Section 7 shall be exercisable in
full as of the grant date and for a term of ten years thereafter provided that
if the Optionee ceases to be a Director for any reason, such Option shall
thereafter be exercisable by the Optionee, or by his or her legal
representative, for a period of two years from the date of termination, or
until the expiration of the stated term of the Option if earlier. Options
granted under this Section 7 may be exercised only by written notice to the
Company specifying the number of shares to be purchased. Payment of the full
purchase price of the shares to be purchased may be made by one or more of the
methods specified in Section 6(b) (i), (ii) or (iii). An Optionee shall have
the rights of a stockholder only as to Shares acquired upon the exercise of an
Option and not as to unexercised Options.
(c) The provisions of this Section 7 shall govern the rights and
obligations of the Company and Independent Directors respecting Options granted
or to be granted to Independent Directors pursuant to this Section 7,
notwithstanding any other provision of the Plan.
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8. RESTRICTED STOCK AWARDS
(a) A Restricted Stock Award is an Award entitling the recipient
to acquire Shares, at par value or such other purchase price determined by the
Committee, subject to such restrictions and conditions as the Committee may
determine at the time of grant ("Restricted Stock"). Conditions may be based
on continuing employment (or other business relationship) and/or achievement of
pre-established performance goals and objectives.
(b) Upon execution of a written instrument setting forth the
Restricted Stock Award and paying any applicable purchase price, a Grantee
shall have the rights of a stockholder with respect to the voting of the
Restricted Stock, subject to such conditions contained in the written
instrument evidencing the Restricted Stock Award. Unless the Committee shall
otherwise determine, certificates, evidencing the Restricted Stock shall remain
in the possession of the Company until such Restricted Stock is vested as
provided in Section 8(d) below.
(c) Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered or disposed of except as specifically provided
herein or in the written instrument evidencing the Restricted Stock Award. If
a Grantee's employment (or other business relationship) with the Company and
its Subsidiaries terminates for any reason, the Company shall have the right to
repurchase all shares of Restricted Stock with respect to which conditions have
not lapsed at their purchase price, from the Grantee or the Grantee's legal
representative.
(d) The Committee at the time of grant shall specify the date or
dates and/or the attainment of preestablished performance goals, objectives and
other conditions on which the non-transferability of the Restricted Stock and
the Company's right of repurchase or forfeiture shall lapse. Subsequent to
such date or dates and/or the attainment of such pre-established performance
goals, objectives and other conditions, the shares on which all restrictions
have lapsed shall no longer be Restricted Stock and shall be deemed "vested."
Except as may otherwise be provided by the Committee at any time, a Grantee's
rights in any shares of Restricted Stock that have not vested shall
automatically terminate upon the Grantee's termination of employment (or other
business relationship) with the Company and its Subsidiaries and such shares
shall either be forfeited or subject to the Company's right of repurchase as
provided in this Section 8.
(e) The written instrument evidencing the Restricted Stock Award
may require or permit the immediate payment, waiver, deferral or investment of
dividends paid on the Restricted Stock.
9. UNRESTRICTED STOCK AWARDS
(a) The Committee may, in its sole discretion, grant (or sell at a
purchase price determined by the Committee) an Unrestricted Stock Award,
pursuant to which the Grantee may receive Shares free of any restrictions under
the Plan. Unrestricted Stock Awards may
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be granted or sold as described in the preceding sentence in respect of past
services or other valid consideration, or in lieu of any cash compensation due
to such Grantee.
(b) The Committee may permit the Grantee of any Unrestricted Stock
Award to elect in advance to defer receipt of such Award in accordance with
such rules and procedures as may be established by the Committee for that
purpose. The Grantee of any deferred Unrestricted Stock Award shall be
entitled to receive Dividend Equivalent Rights on the deferred Shares unless
otherwise specified by the Committee.
(c) The right to receive Shares on a deferred basis may not be
sold, assigned, transferred, pledged or otherwise encumbered, other than by
will or the laws of descent and distribution.
10. PERFORMANCE SHARE AWARDS
(a) Nature of Performance Share Awards. A Performance Share Award
is an Award entitling the recipient to acquire Shares upon the attainment of
specified performance goals. The Committee may make Performance Share Awards
independent of or in connection with the granting of any other Award under the
Plan. The Committee in its sole discretion shall determine whether and to whom
Performance Share Awards shall be made, the performance goals applicable under
each such Award, the periods during which performance is to be measured, and
all other limitations and conditions applicable to the Performance Share
Awards.
(b) Restrictions on Transfer. Performance Share Awards and all
rights with respect to such Awards may not be sold, assigned, transferred,
pledged or otherwise encumbered, other than by will or the laws of descent and
distribution.
(c) Rights as a Shareholder. A participant receiving a
Performance Share Award shall have the rights of a shareholder only as to
Shares actually received by the participant under the Plan and not with respect
to Shares subject to the Award but not actually received by the participant. A
participant shall be entitled to receive a stock certificate evidencing the
acquisition of Shares under a Performance Share Award only upon satisfaction of
all conditions specified in the written instrument evidencing the Performance
Share Award (or in a performance plan adopted by the Committee).
(d) Termination. Except as may otherwise be provided by the
Committee at any time prior to termination of employment (or other business
relationship), a participant's rights in all Performance Share Awards shall
automatically terminate upon the participant's termination of employment (or
business relationship) with the Company and its Subsidiaries for any reason.
(e) Acceleration, Waiver, Etc. At any time prior to the
participant's termination of employment (or other business relationship), the
Committee may in its sole discretion accelerate, waive or, subject to Section
17 hereof, amend any or all of the goals, restrictions or conditions imposed
under any Performance Share Award.
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11. STOCK APPRECIATION RIGHTS
(a) Nature of Stock Appreciation Rights. A Stock Appreciation
Right is an Award entitling the recipient to receive an amount in cash or
Shares or a combination thereof having a value equal to the excess of the fair
market value of a Share, determined by reference to Section 5(d) hereof, on the
date of exercise over the exercise price per Stock Appreciation Right set by
the Committee at the time of grant, which price shall not be less than 85% of
the fair market value of the Shares on the grant date (or over the option
exercise price per share, if the Stock Appreciation Right was granted in tandem
with an Option) multiplied by the number of Shares with respect to which the
Stock Appreciation Right shall have been exercised, with the Committee having
the right to determine the form of payment.
(b) Grant of Stock Appreciation Rights. A Stock Appreciation
Right may be granted by the Committee in tandem with, or independently of, any
Option granted pursuant to the Plan (other than Options granted pursuant to
Section 7). In the case of a Stock Appreciation Right granted in tandem with a
Nonqualified Option, such Stock Appreciation Right may be granted either at or
after the time of the grant of such Option. In the case of a Stock
Appreciation Right granted in tandem with an Incentive Stock Option, such Stock
Appreciation Right may be granted only at the time of the grant of the Option.
(c) Terms and Conditions of Stock Appreciation Rights. Stock
Appreciation Rights shall be subject to such terms and conditions as shall be
determined from time to time by the Committee, subject to the following:
(i) Stock Appreciation Rights granted in tandem with an
Option shall be exercisable at such time or times and to the extent
that the related Option shall be exercisable.
(ii) A Stock Appreciation Right or applicable portion
thereof granted in tandem with an Option shall terminate and no longer
be exercisable upon the termination or exercise of the related Option.
Upon exercise of a Stock Appreciation Right, the applicable portion of
any related Option shall be surrendered.
(iii) Stock Appreciation Rights granted in tandem with an
Option shall be transferable only when and to the extent that the
underlying Option would be transferable. Stock Appreciation Rights
not granted in tandem with a Option shall not be transferable
otherwise than by will or the laws of descent or distribution. All
Stock Appreciation Rights shall be exercisable during the
participant's lifetime only by the participant or the participant's
legal representative.
12. DIVIDEND EQUIVALENT RIGHTS
(a) Dividend Equivalent Rights. A Dividend Equivalent Right is an
Award entitling the recipient to receive credits based on cash dividends that
would be paid on the Shares specified in the Dividend Equivalent Right (or
other Award to which it relates) if such Shares were held by the recipient. A
Dividend Equivalent Right may be granted hereunder
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as a component of another Award or as a freestanding Award. The terms and
conditions of Dividend Equivalent Rights shall be specified in the grant.
Dividend equivalents credited to the holder of a Dividend Equivalent Right may
be paid currently or may be deemed to be reinvested in additional Shares, which
may thereafter accrue additional equivalents. Any such reinvestment shall be
at fair market value of the Shares, determined by reference to Section 5(d)
hereof, on the date of reinvestment or, at the discretion of the Company, at
such other price as may then apply under any dividend reinvestment plan
sponsored by the Company. Dividend Equivalent Rights may be settled in cash or
Shares or a combination thereof, in a single installment or installments, at
the discretion of the Company. A Dividend Equivalent Right granted as a
component of another Award may provide that such Dividend Equivalent Right
shall be settled upon exercise, settlement, or payment of, or lapse of
restrictions on, such other Award, and that such Dividend Equivalent Right
shall expire or be forfeited or annulled under the same conditions as such other
Award. A Dividend Equivalent Right granted as a component of another
Award may also contain terms and conditions different from such other Award.
(b) Interest Equivalents. Any Award under the Plan that is
settled in whole or in part in cash on a deferred basis may provide in the
grant for interest equivalents to be credited with respect to such cash
payment. Interest equivalents may be compounded and shall be paid upon such
terms and conditions as may be specified by the grant.
13. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
(a) If the Shares as a whole are increased, decreased, changed
into or exchanged for a different number or kind of shares or securities of the
Company, whether through merger, consolidation, reorganization,
recapitalization, reclassification, stock dividend, stock split, combination of
shares, exchange of shares, change in corporate structure or the like, an
appropriate and proportionate adjustment shall be made in the number and kind
of shares subject to the Plan, and in the number, kind, and per share exercise
price of shares subject to outstanding unexercised Options or other Awards or
portions thereof granted prior to any such change; but no such adjustments
shall be made with respect to outstanding unexercised Options or other Awards
solely as a result of the Company's issuance of additional Shares or purchase
of outstanding Shares in either case for fair consideration as determined by
the Board of Directors. In the event of any such adjustment in an outstanding
Award, the Optionee or Grantee thereafter shall have the right to purchase the
number of Shares under such Award at the per share price, as so adjusted, which
the Optionee or Grantee could purchase at the total purchase price applicable
to the Award immediately prior to such adjustment.
(b) Adjustments under this Section 13 shall be determined by the
Committee and such determinations shall be conclusive. The Committee shall
have the discretion and power in any such event to determine and to make
effective provision for acceleration of the time or times at which any Option
or portion thereof shall become exercisable. No fractional Shares shall be
issued under the Plan on account of any adjustment specified above.
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14. EFFECT OF CERTAIN TRANSACTIONS
In the case of (i) the dissolution or liquidation of the Company, (ii)
a reorganization, merger, consolidation or other business combination in which
the Company is acquired by another entity or in which the Company is not the
surviving entity, or (iii) the sale of all or substantially all of the assets
of the Company to another entity, the Plan and the Awards issued hereunder
shall terminate upon the effectiveness of any such transaction or event, unless
provision is made in connection with such transaction for the assumption of
Awards theretofore granted, or the substitution for such Awards of new awards,
by the successor entity or parent thereof, with appropriate adjustment as to
the number and kind of shares and the per share exercise prices, as provided in
Section 13. In the event of such termination, all outstanding Options and
Stock Appreciation Rights shall be exercisable in full for at least fifteen
days prior to the date of such termination whether or not otherwise exercisable
during such period.
15. TAX WITHHOLDING
(a) Each Grantee (which term shall be deemed to include an
Optionee) shall, no later than the date as of which the value of any Award
granted hereunder or of any Shares or other amounts received thereunder first
becomes includable in the gross income of the Grantee for federal income tax
purposes (the "Tax Date"), pay to the Company, or make arrangements
satisfactory to the Company regarding payment of, any federal, state, or local
taxes of any kind required by law to be withheld with respect to such income.
(b) With the consent of the Committee, a Grantee may elect to have
such tax withholding obligation satisfied, in whole or in part, by (i)
authorizing the Company to withhold from Shares to be issued pursuant to an
Award a number of Shares with an aggregate fair market value (determined in
accordance with Section 5(d) as of the date the withholding is effected) that
would satisfy the withholding amount due, or (ii) transferring to the Company
Shares owned by the Grantee with an aggregate fair market value (determined in
accordance with Section 5(d) as of the date the withholding is effected) that
would satisfy the withholding amount due.
16. CHANGE OF CONTROL PROVISIONS
Upon the occurrence of a Change of Control as defined in this Section
16:
(a) Each outstanding Option and Stock Appreciation Right shall
automatically become fully exercisable.
(b) All restrictions and conditions on each Restricted Stock
Award, Performance Share Award and Dividend Equivalent Right shall
automatically lapse and all Awards under the Plan shall be deemed fully vested.
(c) "Change of Control" shall mean the occurrence of any one of
the following events:
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(i) any "person," as such term is used in Sections 13(d)
and 14(d) of the Act (other than the Company, any of its Subsidiaries,
or any trustee, fiduciary or other person or entity holding securities
under any employee benefit plan or trust of the Company or any of its
Subsidiaries), together with all "affiliates" and "associates" (as
such terms are defined in Rule 12b-2 under the Act) of such person,
shall become the "beneficial owner" (as such term is defined in Rule
13d-3 under the Act), directly or indirectly, of securities of the
Company representing 25% or more of either (A) the combined voting
power of the Company's then outstanding securities having the right to
vote in an election of the Board of Directors ("voting securities") or
(B) the then outstanding Shares (in either such case other than as a
result of an acquisition of securities directly from the Company); or
(ii) persons who, as of the effective date of the
amendment and restatement of the Plan, constitute the Company's Board
of Directors (the "Incumbent Directors") cease for any reason,
including, without limitation, as a result of a tender offer, proxy
contest, merger or similar transaction, to constitute at least a
majority of the Board, provided that any person becoming a Director of
the Company subsequent to the Effective Date whose election or
nomination for election was approved by a vote of at least a majority
of the Incumbent Directors shall, for purposes of this Plan, be
considered an Incumbent Director; or
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company or any Subsidiary where the
stockholders of the Company, immediately prior to the consolidation or
merger, would not, immediately after the consolidation or merger,
beneficially own (as such term is defined in Rule 13d-3 under the
Act), directly or indirectly, shares representing in the aggregate 80%
or more of the voting securities of the corporation issuing cash or
securities in the consolidation or merger (or of its ultimate parent
corporation, if any), (B) any sale, lease, exchange or other transfer
(in one transaction or a series of transactions contemplated or
arranged by any party as a single plan) of all or substantially all of
the assets of the Company or (C) any plan or proposal for the
liquidation or dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be
deemed to have occurred for purposes of the foregoing clause (i) solely as the
result of an acquisition of securities by the Company which, by reducing the
number of Shares or other voting securities outstanding, increases (x) the
proportionate number of Shares beneficially owned by any person to 25% or more
of the Shares then outstanding or (y) the proportionate voting power
represented by the voting securities beneficially owned by any person to 25% or
more of the combined voting power of all then outstanding voting securities;
provided, however, that if any person referred to in clause (x) or (y) of this
sentence shall thereafter become the beneficial owner of any additional Shares
or other voting securities (other than pursuant to a stock split, stock
dividend, or similar transaction), then a "Change of Control" shall be deemed
to have occurred for purposes of the foregoing clause (i).
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17. AMENDMENT OF THE PLAN
The Board of Directors may discontinue the Plan or amend the Plan at
any time, and from time to time, subject to any required regulatory approval,
the limitation set forth in Section 7(c) and the limitation that, except as
provided in Sections 5, 13 and 14 hereof, no amendment shall be effective
unless approved by the stockholders of the Company in accordance with
applicable law and regulations at an annual or special meeting held within
twelve months before or after the date of adoption of such amendment, where
such amendment will:
(a) increase the number of Shares as to which Awards may be
granted under the Plan.
(b) change in substance Section 4 hereof relating to eligibility
to participate in the Plan;
(c) change in substance Section 5(d) relating to the requirement
that the purchase price per Share subject to each Incentive Option be not less
than the fair market value of the Shares on the date such Incentive Option is
granted;
(d) increase the maximum term of Options provided for herein; or
(e) otherwise materially increase the benefits accruing to
participants under the Plan.
Except as provided in Section 5, 13 and 14 hereof, rights and
obligations under any Award granted before any amendment of the Plan shall not
be altered or impaired by such amendment, except with the consent of the
Grantee.
18. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board of Directors nor the
submission of the Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board of Directors to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of Shares or stock options otherwise than
under the Plan, and such arrangements may be either applicable generally or
only in specific cases. Neither the Plan nor any Award granted hereunder shall
be deemed to confer upon any employee any right to continued employment with
the Company or its Subsidiaries.
19. GOVERNMENT AND OTHER REGULATIONS; GOVERNING LAW
(a) The obligation of the Company to sell and deliver Shares with
respect to Awards granted under the Plan shall be subject to all applicable
laws, rules and regulations, including all applicable federal and state
securities laws, and the obtaining of all such
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approvals by governmental agencies as may be deemed necessary or appropriate by
the Committee.
(b) The Plan shall be governed by Maryland law, except to the
extent that such law is preempted by federal law.
20. EFFECTIVE DATE OF PLAN; STOCKHOLDER APPROVAL
The Plan first became effective on March 4, 1993, the date that it was
approved by the Board of Trustees of the Company's predecessor, Bradley Real
Estate Trust; the Plan was approved by the shareholders of said Trust in
accordance with applicable laws and regulations at the annual meeting held on
May 20, 1993. The Plan was amended and restated by the Board of Directors on
March 13, 1996; such amendment and restatement was approved by the stockholders
of the Company in accordance with applicable laws and regulations at the annual
meeting held on May 9, 1996. Following amendment by the Securities and
Exchange Commission of Rule 16b-3 under the Act effective August 15, 1996, the
Plan was further amended and restated by the Board of Directors on September 9,
1996. No Awards may be granted under the Plan after March 4, 2003 the tenth
anniversary of the original effective date of the Plan.
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Exhibit 21.1
SUBSIDIARIES OF BRADLEY REAL ESTATE, INC.
Bradley Real Estate Management, Inc., a Massachusetts corporation
Bradley Midwest Management, Inc., a Minnesota corporation
Bradley Operating Limited Partnership, a Delaware limited partnership
Bradley Financing Corp., a Delaware corporation
Bradley Financing Partnership, a Delaware partnership
Bradley Management Corp., a Delaware corporation
Bradley Management Limited Partnership, a Delaware limited partnership
Williamson Square Associates Limited Partnership, an Illinois limited
partnership
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Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Bradley Real Estate, Inc.:
We consent to incorporation by reference in the registration statements (Nos.
33-87084 and 33-62200) on Form S-3 and the registration statements (Nos.
33-34884 and 33-65180) on Form S-8 of Bradley Real Estate, Inc. of our report
dated January 24, 1997, except as to Note 10, which is as of March 13, 1997,
relating to the consolidated balance sheets and related schedule of Bradley
Real Estate, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in share owners' equity and
cash flows for each of the years in the three-year period ended December 31,
1996, which report appears in the December 31, 1996, annual report on Form
10-K405 of Bradley Real Estate, Inc.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
March 24, 1997
65
