<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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, 1998
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 23,685,841 shares of Common Stock believed to be held
by non-affiliates of the registrant based upon the $19 3/16 closing price for
such Shares on March 1, 1999, on the New York Stock Exchange: $454,472,074
Number of Common Shares outstanding as of March 1, 1999: 24,055,930
DOCUMENTS INCORPORATED BY REFERENCE
Registrant expects to file no later than April 1, 1999, its definitive Proxy
Statement for the 1999 Annual Meeting of Stockholders and hereby incorporates by
reference into Part III hereof the portions thereof described in Items 10, 11,
12 and 13 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, AS AMENDED.
FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, STATEMENTS CONTAINING
THE WORDS "ANTICIPATES," "BELIEVES," "EXPECTS," "INTENDS," "FUTURE," AND WORDS
OF SIMILAR IMPORT WHICH EXPRESS OUR BELIEF, EXPECTATIONS OR INTENTIONS REGARDING
OUR ABILITY TO OBTAIN DEBT OR EQUITY FINANCING, OUR QUALIFICATION AS A REIT,
POTENTIAL ACQUISITIONS OR DISPOSITIONS OF PROPERTIES, PORTFOLIOS OR OTHER
ENTITIES, OUR CAPITAL RESOURCES AND LIQUIDITY, DEVELOPMENT ACTIVITIES AND OTHER
TRENDS OR EVENTS AFFECTING OUR FINANCIAL CONDITION OR RESULTS OF OPERATIONS. WE
CAUTION YOU THAT, WHILE FORWARD-LOOKING STATEMENTS REFLECT OUR GOOD FAITH
BELIEFS, THEY ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE KNOWN AND
UNKNOWN RISKS AND UNCERTAINTIES WHICH MAY CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM ANTICIPATED FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF FACTORS
OUTSIDE OF OUR CONTROL. IN ADDITION, WE DISCLAIM ANY 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 15 OF
THIS REPORT.
PART I
ITEM 1. BUSINESS
Bradley Real Estate, Inc., Bradley Operating Limited Partnership and their
subsidiaries and affiliated partnerships are separate legal entities. For ease
of reference, the terms "we," "us," and "ours" refer to the business and
properties of all these entities, unless the context indicates otherwise.
Similarly, references to Bradley or Bradley Operating Limited Partnership
(commonly referred to as "the Operating Partnership") in discussions of
Bradley's business also refer to Bradley's predecessors, subsidiaries and
affiliated entities, unless the context indicates otherwise.
General
Bradley is a real estate investment trust with internal property management,
leasing and development capabilities that owns and operates, develops and
redevelops community and neighborhood shopping centers in the Midwest region of
the United States. Such centers are typically anchored by grocery stores which
are complemented with other tenants providing a wide range of other goods and
services to shoppers. As a result, the centers are used by members of the
surrounding community for their day-to-day living needs. Our mission is to
provide superior total returns to our shareowners by creating sustainable growth
in per share cash flow through the ownership, operation, development and
redevelopment of grocery-anchored retail properties in the Midwest region of the
United States. Based on our past experience, we believe this type of shopping
center offers strong and predictable daily consumer traffic and is less
susceptible to downturns in the general economy than shopping centers whose
principal tenants are department stores or stores primarily selling apparel or
leisure items. As of December 31, 1998, we owned 98 properties in 16 states,
aggregating approximately 15.8 million square feet of gross leasable area. Title
to such properties is held by or for the benefit of Bradley Operating Limited
Partnership. Bradley conducts substantially all of its business through the
Operating Partnership. Bradley is currently the sole general partner and owner
of approximately 87% of the economic interests in the Operating Partnership.
Our portfolio of shopping centers consists of a diverse tenant base, comprising
over 2,000 leases with no one tenant accounting for as much as 4% of annualized
base rent. Over the past several years we have further diversified our income
stream across many Midwest markets in order to insulate the Company from
economic trends affecting any particular market.
As part of our ongoing business, we regularly evaluate, and engage in
discussions with public and private entities regarding possible portfolio or
asset acquisitions or business combinations. In evaluating potential
acquisitions, we focus principally on community and neighborhood shopping
centers in our Midwest target market that are anchored by strong national,
regional and independent grocery store chains.
During 1997, we acquired 25 shopping centers aggregating over 3.1 million square
feet of gross leasable area for an aggregate acquisition price of approximately
$189.3 million. On August 6, 1998, we completed the merger acquisition of
Mid-America Realty Investments, Inc., a REIT owning interests in 25 properties
aggregating approximately 3.3 million square feet primarily located in the
Midwest region of the United States. In addition to the properties acquired in
connection with the merger acquisition of Mid-
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America, during 1998 we acquired 22 properties, aggregating 3.0 million square
feet of gross leasable area for an aggregate acquisition price of approximately
$202.8 million.
Our finance, accounting, research and administrative functions are handled by a
central office staff located in our Northbrook, Illinois headquarters. We
maintain regional property management and leasing offices at properties located
in Chicago, Peoria, Minneapolis, St. Louis, Indianapolis, Kansas City,
Louisville, Milwaukee, Nashville, and Omaha in order that as many properties as
practicable have professionals located within a one to two hour drive. At
December 31, 1998, we had 206 employees.
1998 Highlights
During 1998, we continued to focus on three main strategic objectives:
maximizing the cash flows from our existing properties, continuing to grow
through opportunistic acquisitions, and positioning our capital structure for
future growth.
Management and Leasing Activity
Our management and leasing activities focus on maximizing current cash flows
from our properties while enhancing long-term value. Primary attention during
1998 was focused on the retenanting of several major vacancies at certain of our
properties while continuing to improve overall occupancy rates, seeking new
tenants and renewing current tenants at favorable rates.
- - The properties at December 31, 1998 had an aggregate occupancy rate of 93%.
- - During 1998, we signed 142 new leases totaling 663,000 square feet at an
average rent for comparable space of $10.91 per square foot, representing
an increase of 11.9% over the prior average rental rate.
- - During 1998, we renewed 170 leases totaling 658,000 square feet at an
average rate of $10.07 per square foot, representing an increase per square
foot of 6.2% over the prior average rental rate.
- - Significant leases completed during 1998 included the following:
- 30,000 square-foot lease with Toys 'R Us at Commons of Crystal Lake for
half the space formerly occupied by Jewel/Osco, which signed a lease
for a newly expanded 71,000 square-foot space at this center
- 71,000 square-foot space for Regal Cinema at Rollins Crossing
- 62,000 square-foot lease with Carson Pirie Scott at Heritage Square to
replace approximately one half the space previously occupied by
Montgomery Ward & Co., Incorporated, which declared bankruptcy in July
1997 and vacated in early 1998
- 36,000 square-foot lease with Babies 'R Us at High Point Centre
- 28,000 square-foot lease with Marshalls at Commons of Crystal Lake
- 26,000 square-foot lease with Bally's Total Fitness at Sun Ray Shopping
Center
- 24,000 square-foot lease with Dunham's Athleisure at Burning Tree Plaza
- 22,000 square-foot lease with Pep Boys at Brookdale Square
- - Leasing challenges for 1999 include the remaining space previously occupied
by Montgomery Ward & Co., Incorporated, at Heritage Square and a 54,000
square-foot vacancy at Har Mar Mall previously occupied by HomePlace, which
declared bankruptcy in January 1998 and vacated in August. Leases for both
spaces are currently under negotiation, although there can be no assurance
that any such lease will be completed. Additional challenges for 1999
include leasing small shop space on favorable terms. However, with an
increased presence in our Midwest market, we believe we are well positioned
to take advantage of our relationships with both national and regional
tenants who have stores located throughout the Midwest.
Acquisitions
The goal for 1998 acquisition activity was to complete $200 million of new
investments which met our investment criteria, thus furthering our franchise in
grocery-anchored retail centers located within our Midwest markets. Our
investment criteria is focused upon demographic trends, anchor strength and
lease term, stability among non-anchor tenants, and minimum acceptable initial
yields, which we believe can be increased through our operating and leasing
experience and in certain instances through strategic capital improvements in
order to generate returns in excess of our weighted cost of capital.
- - In connection with the merger acquisition of Mid-America, we acquired 25
properties aggregating approximately 3.3 million square feet primarily
located in the Midwest region of the United States. The transaction was
completed through the issuance of approximately 3.5 million shares of
Series A Convertible Preferred Stock, the payment of certain transaction
costs and the assumption of all of Mid-America's liabilities, making the
aggregate purchase price approximately $159 million.
- - In addition to the properties acquired in connection with the merger
acquisition of Mid-America, we acquired 22 shopping centers and two outlots
adjacent to one of our existing shopping centers, aggregating 3.0 million
square feet of gross leasable area for an aggregate acquisition price of
approximately $202.8 million.
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- - 1998 acquisitions included ten shopping centers in Nebraska, seven in
Wisconsin, six in Indiana, four in Kentucky, four in Missouri, three in
Michigan, three in Illinois, two in Minnesota, two in Ohio, and one each in
Arkansas, Georgia, Iowa, Kansas, South Dakota, and Tennessee.
- - We funded the acquisitions through a combination of cash provided by the
line of credit, the assumption of secured mortgage indebtedness, the
issuance of convertible preferred stock, and the issuance of limited
partnership units in the Operating Partnership which are redeemable in
exchange for common stock.
- - Due to a current difficult capital markets environment for REITs, we expect
our acquisition pace to slow meaningfully in 1999. However, as discussed
above, in the event capital markets improve significantly, we are poised to
take advantage of favorable opportunities, and will align the level of
investment activity to match capital flows accordingly. Acquisition
challenges for 1999 are to replace certain non-core assets which are
currently held for sale with the acquisition of additional shopping centers
in our target market that are more in keeping with our grocery-anchored
community shopping center focus.
Dispositions
One of our primary goals for 1998 was the disposition of One North State Street,
a 640,000 square-foot mixed-use building located in the "loop" area of downtown
Chicago, as well as to continue to identify for disposition certain shopping
center properties not in keeping with our current strategic property focus or
market strategy. The challenge was to dispose such properties on economically
favorable terms such that the proceeds could be redeployed into shopping centers
with higher growth potential, requiring lower property management intensity or
with a tenant base more consistent with our current strategy.
- - On July 31, 1998, we completed the sale of One North State for a net sales
price of $82.1 million, generating a gain on sale of $30.6 million for
financial reporting purposes. Six days later, a substantial portion of the
net proceeds were used for the merger acquisition of Mid-America, with the
remaining proceeds redeployed within a month for the acquisition of
additional shopping centers within our target market and that are more in
keeping with our grocery-anchored community shopping center focus.
- - Because One North State Street had historically generated more than 10% of
our revenues, its sale immediately diversified our income stream across
several properties so that no one property currently generates as much as
5% of total revenues, and no tenant accounts for as much as 4% of total
base rent.
- - In May 1998, we completed the sale of Holiday Plaza, a 46,000 square-foot
property located in Iowa for a net sales price of $1.9 million, resulting
in a loss of $0.9 million for financial reporting purposes. We acquired the
property in connection with a portfolio acquisition in 1997 and considered
it to be a non-core property.
- - As of December 31, 1998, we were holding for sale six non-core properties,
consisting of four enclosed malls and two community shopping centers, all
acquired in connection with the merger acquisition of Mid-America. Since
the merger acquisition, the net book value of these properties, $46.5
million, has been classified on the consolidated balance sheet as "Real
estate investments held for sale." The four enclosed malls are not aligned
with our strategic property focus. The remaining two shopping center
properties are located in the Southeast region of the United States, and
are not aligned with our strategic market focus. Our challenge for 1999
will be to complete a sale or sales that minimize the spread between the
yield generated by such properties and the immediate and ultimate
redeployment of the sales proceeds, which may be dilutive to earnings in
the near term. Even with near term dilution, however, we believe the
proceeds can be better invested in properties with higher growth potential
and risk adjusted returns. We expect to use the net proceeds from such sale
or sales to reduce outstanding indebtedness under the line of credit with
the expectation that the increased borrowing capacity under the line of
credit would be used to acquire or develop additional shopping centers
within our target market and that are more in keeping with our
grocery-anchored community shopping center focus.
Development
Although we have developed or redeveloped several of our existing shopping
centers, we have not historically been an active developer of properties.
However, we view an active development program as a natural extension of our
core business, and during 1999 we plan to invest the resources necessary to
begin to establish Bradley as a leading developer in grocery-anchored retail
shopping centers within our Midwest markets. With over 200 professionals
operating out of 10 regional offices, a portfolio consisting of 16 million
square feet of retail space, access to investment grade debt and equity markets
and strong relations with the region's dominant grocery store operators, we
believe we are uniquely positioned to pursue an aggressive focused development
strategy. We began this activity during 1998 as we entered into a co-development
program with an affiliate of Oppidan, Inc., a developer of Midwest
grocery-anchored shopping centers, based in Minneapolis. Under terms of the
agreement, Bradley and Oppidan work together on all aspects of the development
process and share in the value created from the new developments, with Bradley
purchasing the properties upon completion. We believe this arrangement allows us
to acquire quality grocery-anchored properties at favorable yields. We currently
have three properties under the agreement in varying stages of development,
which are
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expected to be completed in 1999 and early 2000. Upon completion, these
properties are expected to have a value of approximately $40 million.
Our challenge for 1999 is to expand our development focus, complementing our
co-developments with increased internal development capabilities to develop
community and neighborhood shopping centers in selected Midwest markets, where
we believe that value can be created more effectively than from acquisitions of
existing shopping center properties.
Capital Structure Activity
We established specific goals for 1998 in enhancing the flexibility of our
capital structure. We focused our efforts on strengthening our financial
position, increasing capital raising alternatives while lowering our overall
blended cost of capital, all toward positioning ourselves to take advantage of
favorable opportunities for growth. We believe we were largely successful in
pursuit of these goals through the following capital market activities:
Equity Activity
- - In February 1998, we raised $7.6 million of net proceeds from a public
offering of 392,638 shares of common stock to a unit investment trust.
- - In August 1998, we issued 3.5 million shares of a newly created 8.4% Series
A Convertible Preferred Stock valued at $87 million in connection with the
merger acquisition of Mid-America.
- - In November 1998, we adopted a new Dividend Reinvestment and Stock Purchase
Plan to provide both new and existing owners of our common stock, Series A
Convertible Preferred Stock and other classes of equity securities
outstanding from time to time, as well as existing owners of limited
partnership units of the Operating Partnership, with an economical and
convenient method of increasing their investment in the Company. Under the
plan, participants may purchase additional shares of common stock at a
discount (ranging from 0% to 3% as we determine in our sole discretion from
time to time) and without brokerage fees or other transaction costs by:
- reinvesting all or a portion of their cash dividends,
- purchasing shares of common stock directly from us as frequently as
once per month by making optional cash payments of a minimum of $100 to
a maximum of $10,000 per quarter, or
- with our prior approval, purchasing shares of common stock directly
from us by making optional cash payments in excess of $10,000.
- - During 1998, we raised $6.0 million of net proceeds under the Dividend
Reinvestment and Stock Purchase Plan, an increase from $0.8 million in the
prior year.
Debt Activity
- - In January 1998, we completed an offering of $100 million of 7.2% ten-year
unsecured Notes maturing in January 2008 from a $300 million "shelf"
registration statement which was filed and declared effective in November
1997. The effective interest rate on the Notes is 7.611%. The issue was
rated "BBB-" by Standard & Poor's Investment Services and "Baa3" by Moody's
Investors Service.
- - In May 1998, we filed a "shelf" registration under which the Operating
Partnership may issue up to $400 million in unsecured non-convertible
investment grade debt securities, giving us the flexibility to issue such
debt securities from time to time when we determine that market conditions
and the opportunity to utilize the proceeds from the issuance of such
securities are favorable.
- - In September 1998, we implemented a Medium-Term Note Program providing the
Operating Partnership with the added flexibility of issuing Medium-Term
Notes due nine months or more from the date of issue in small amounts in an
aggregate principal amount of up to $150 million from time to time using
the debt "shelf" registration in an efficient and expeditious manner.
- - In November 1998, we amended our $200 million unsecured revolving line of
credit, increasing the maximum capacity to $250 million.
Positioned for Future Growth
- - At December 31, 1998, we had $201.4 million available under an equity
"shelf" registration, and $400 million available under the debt "shelf"
registration.
- - Our total market capitalization stood at $1.1 billion at December 31, 1998.
- - Our debt service coverage ratio was 2.9x for 1998.
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- - Subsequent to year-end, we issued $50 million of 8.875% Series B Cumulative
Redeemable Preferred Units of the Operating Partnership in a private
placement to two institutional investors, utilizing the net proceeds of
approximately $49 million to pay-down the outstanding balance on the line
of credit, increasing the available borrowing capacity on the line of
credit to approximately $130 million.
- - Although the current capital market environment for REITs is difficult and
expected to remain challenging during 1999, with no debt maturing until
February 2000 and ample capacity under our line of credit, we believe we
are positioned to take advantage of favorable acquisition, development and
redevelopment opportunities from both prospective acquisitions in our
target market and from shopping centers in our core portfolio.
Our Properties
The following table and notes describe our properties and rental information for
leases in effect as of December 31, 1998:
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<TABLE>
<CAPTION>
Rentable Occupancy at
Year Square December 31, Annualized
SHOPPING CENTERS Acquired Feet 1998 1997 Based Rent
---------------- -------- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
ARKANSAS
Town West Center (2) 1998 142,753 97% N/A $431,961
Paragould, AR
- ---------------------------------------------------------------------------------------------------
GEORGIA
Shenandoah Plaza 1998 141,072 98% N/A 685,100
Newman, GA
- ---------------------------------------------------------------------------------------------------
ILLINOIS
Bartonville Square 1998 55,348 100% N/A 277,059
Peoria, IL
- ---------------------------------------------------------------------------------------------------
Butterfield Square 1998 106,824 100% N/A 1,190,446
Libertyville, IL
- ---------------------------------------------------------------------------------------------------
Commons of Chicago Ridge/Annex 1996 308,560 84% 89% 2,365,388
Chicago Ridge, IL
- ---------------------------------------------------------------------------------------------------
Commons of Crystal Lake 1996 274,634 75% 69% 2,294,593
Crystal Lake, IL
- ---------------------------------------------------------------------------------------------------
Crossroads Centre 1992 242,320 98% 98% 1,441,313
Fairview Heights, IL
- ---------------------------------------------------------------------------------------------------
Fairhills Shopping Center 1997 107,529 82% 90% 541,808
Springfield, IL
- ---------------------------------------------------------------------------------------------------
Heritage Square 1996 212,253 45% 100% 1,418,289
Naperville, IL
- ---------------------------------------------------------------------------------------------------
High Point Centre 1996 240,254 82% 99% 1,927,979
Lombard, IL
- ---------------------------------------------------------------------------------------------------
Parkway Pointe 1997 38,587 100% 100% 467,511
Springfield, IL
- ---------------------------------------------------------------------------------------------------
Rivercrest 1994 482,552 100% 100% 3,905,107
Crestwood, IL
- ---------------------------------------------------------------------------------------------------
Rollins Crossing 1996 148,643 95% 82% 846,518
Round Lake Beach, IL
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Sangamon Center North 1997 139,757 100% 97% $1,040,612
Springfield, IL
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annualized Base
Based Rent Lease
Per Square Expiration
SHOPPING CENTERS Leased SF Major Tenants (1) Feet Date
---------------- --------- ----------------- ---- ----
<S> <C> <C> <C> <C>
ARKANSAS
Town West Center (2) $3.12 Country Mart 36,000 2007
Paragould, AR Wal-Mart 85,513 2006
- -----------------------------------------------------------------------------------------------------------------
GEORGIA
Shenandoah Plaza 4.96 Ingles Market 32,000 2008
Newman, GA Wal-Mart 81,922 2007
- -----------------------------------------------------------------------------------------------------------------
ILLINOIS
Bartonville Square 5.01 Kroger 41,824 2000
Peoria, IL
- -----------------------------------------------------------------------------------------------------------------
Butterfield Square 11.15 Sunset Foods 51,677 2012
Libertyville, IL
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Commons of Chicago Ridge/Annex 9.17 Office Depot 27,680 2002
Chicago Ridge, IL J.C. Penney Home Store 55,000 2007
Marshalls 27,000 2004
Cineplex Odeon 25,000 2008
Michaels 17,550 2004
Pep Boys 22,354 2015
- -----------------------------------------------------------------------------------------------------------------
Commons of Crystal Lake 11.16 Jewel/Osco 70,790 2018
Crystal Lake, IL
- -----------------------------------------------------------------------------------------------------------------
Crossroads Centre 6.06 Walgreen 18,402 2005
Fairview Heights, IL K-Mart (Ground Lease) 96,268 2001
T.J. Maxx 33,200 2006
- -----------------------------------------------------------------------------------------------------------------
Fairhills Shopping Center 6.11 Jewel Food Stores 49,330 2003
Springfield, IL
- -----------------------------------------------------------------------------------------------------------------
Heritage Square 14.74 Strouds 26,703 2003
Naperville, IL Circuit City 28,351 2009
- -----------------------------------------------------------------------------------------------------------------
High Point Centre 9.81 Cub Foods 62,000 2008
Lombard, IL Office Depot 25,612 2006
Mac Frugals 17,040 2006
- -----------------------------------------------------------------------------------------------------------------
Parkway Pointe 12.12 Shoe Carnival 10,186 2004
Springfield, IL
- -----------------------------------------------------------------------------------------------------------------
Rivercrest 8.11 Dominick's 87,937 2011
Crestwood, IL K-Mart 79,903 2011
Office Max 24,000 2007
Sears 55,000 2001
T.J. Maxx 34,425 2004
PetsMart 31,639 2010
Best Buy 25,000 2008
Hollywood Park 15,000 2000
- -----------------------------------------------------------------------------------------------------------------
Rollins Crossing 5.97 Regal Cinema 71,000 2018
Round Lake Beach, IL Sears Paint and Hardware 21,083 2005
- -----------------------------------------------------------------------------------------------------------------
Sangamon Center North $7.45 Schnuck's Market 63,257 2016
Springfield, IL U.S. Postal Service 16,000 2005
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
Rentable Occupancy at
Year Square December 31, Annualized
SHOPPING CENTERS Acquired Feet 1998 1997 Based Rent
---------------- -------- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Sheridan Village 1996 296,292 99% 100% 2,260,690
Peoria, IL
- ---------------------------------------------------------------------------------------------------
Sterling Bazaar 1997/1998 82,837 94% 94% 761,857
Peoria, IL
- ---------------------------------------------------------------------------------------------------
Twin Oaks Centre 1998 94,702 79% N/A 543,131
Silvis, IL
- ---------------------------------------------------------------------------------------------------
Wardcliffe Shopping Center 1997 67,497 92% 92% 319,813
Peoria, IL
- ---------------------------------------------------------------------------------------------------
Westview Center 1993 322,520 94% 93% 2,440,468
Hanover Park, IL
- ---------------------------------------------------------------------------------------------------
INDIANA
County Line Mall 1997 260,785 99% 95% 1,721,996
Indianapolis, IN
- ---------------------------------------------------------------------------------------------------
Double Tree Plaza 1998 98,179 99% N/A 787,890
Winfield, IN
- ---------------------------------------------------------------------------------------------------
Germantown 1998 230,580 92% N/A 967,998
Jasper, IN
- ---------------------------------------------------------------------------------------------------
King's Plaza 1998 105,752 75% N/A 358,806
Richmond, IN
- ---------------------------------------------------------------------------------------------------
Lincoln Plaza 1998 95,624 98% N/A 595,816
New Haven, IN
- ---------------------------------------------------------------------------------------------------
Martin's Bittersweet Plaza 1997 78,245 97% 98% 556,926
Mishawaka, IN
- ---------------------------------------------------------------------------------------------------
Rivergate Shopping Center 1998 133,086 100% N/A 565,212
Shelbyville, IN
- ---------------------------------------------------------------------------------------------------
Sagamore Park Centre 1998 102,553 95% N/A 912,204
West Lafayette, IN
- ---------------------------------------------------------------------------------------------------
Speedway SuperCenter & Outlots 1996 541,219 97% 97% 4,022,388
Speedway, IN
- ---------------------------------------------------------------------------------------------------
The Village 1996 346,214 89% 85% 1,632,901
Gary, IN
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annualized Base
Based Rent Lease
Per Square Expiration
SHOPPING CENTERS Leased SF Major Tenants (1) Feet Date
---------------- --------- ----------------- ---- ----
<S> <C> <C> <C> <C>
Sheridan Village 7.73 Bergners 160,809 2006
Peoria, IL Cohen Furniture 16,600 2009
- -----------------------------------------------------------------------------------------------------------------
Sterling Bazaar 9.76 Kroger 52,337 2011
Peoria, IL
- -----------------------------------------------------------------------------------------------------------------
Twin Oaks Centre 7.22 Hy-Vee 59,682 2012
Silvis, IL
- -----------------------------------------------------------------------------------------------------------------
Wardcliffe Shopping Center 5.15 Big Lots 26,741 2001
Peoria, IL CVS 16,160 2003
- -----------------------------------------------------------------------------------------------------------------
Westview Center 8.04 Cub Foods 67,163 2009
Hanover Park, IL Waccamaw 60,000 2017
Marshalls 34,302 2004
- -----------------------------------------------------------------------------------------------------------------
INDIANA
County Line Mall 6.70 Kroger 52,337 2011
Indianapolis, IN Target 99,321 2002
Office Max/Furniture Max 32,208 2004
- -----------------------------------------------------------------------------------------------------------------
Double Tree Plaza 8.14 Wilco Foods 45,000 2017
Winfield, IN
- -----------------------------------------------------------------------------------------------------------------
Germantown 4.55 Buehler's 27,225 2005
Jasper, IN Watson's 32,680 2005
Wal-Mart 109,725 2005
- -----------------------------------------------------------------------------------------------------------------
King's Plaza 4.51 County Market 48,249 2002
Richmond, IN
- -----------------------------------------------------------------------------------------------------------------
Lincoln Plaza 6.33 Kroger 39,104 2007
New Haven, IN
- -----------------------------------------------------------------------------------------------------------------
Martin's Bittersweet Plaza 7.34 Martin's Supermarket 45,079 2012
Mishawaka, IN Osco Drug 16,000 2012
- -----------------------------------------------------------------------------------------------------------------
Rivergate Shopping Center 4.25 Super Foods 17,420 2006
Shelbyville, IN Wal-Mart 90,666 2006
- -----------------------------------------------------------------------------------------------------------------
Sagamore Park Centre 9.39 Payless Supermarket 43,784 2007
West Lafayette, IN
- -----------------------------------------------------------------------------------------------------------------
Speedway SuperCenter & Outlots 7.63 Kroger 59,515 2013
Speedway, IN PetsMart 21,781 2002
Sears 30,825 2004
Factory Card Outlet (3) 16,675 2003
Old Navy 15,000 2005
Lindo Super Spa 16,859 2000
Kittles 25,320 2000
Kohl's 90,027 2004
- -----------------------------------------------------------------------------------------------------------------
The Village 5.30 Goldblatt Brothers 55,000 2000
Gary, IN U.S. Factory Outlets 52,000 2009
American Publishing 19,246 1999
IN Dept. of Workforce 18,050 2000
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
Rentable Occupancy at
Year Square December 31, Annualized
SHOPPING CENTERS Acquired Feet 1998 1997 Based Rent
---------------- -------- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Washington Lawndale Commons 1996 332,877 100% 99% $1,742,491
Evansville, IN
- ---------------------------------------------------------------------------------------------------
IOWA
Burlington Plaza West 1997 88,070 98% 100% 609,838
Burlington, IA
- ---------------------------------------------------------------------------------------------------
Davenport Retail Center 1997 62,588 100% 100% 604,355
Davenport, IA
- ---------------------------------------------------------------------------------------------------
Kimberly West 1998 113,559 87% N/A 578,380
Davenport, IA
- ---------------------------------------------------------------------------------------------------
Parkwood Plaza 1997 124,617 88% 92% 855,400
Urbandale, IA
- ---------------------------------------------------------------------------------------------------
Southgate Shopping Center 1997 162,672 90% 90% 454,513
Des Moines, IA
- ---------------------------------------------------------------------------------------------------
Spring Village 1997 91,213 100% 100% 565,789
Davenport, IA
- ---------------------------------------------------------------------------------------------------
Warren Plaza 1997 90,102 100% 100% 670,915
Dubuque, IA
- ---------------------------------------------------------------------------------------------------
KANSAS
Mid-State Plaza 1997 286,650 89% 85% 868,923
Salina, KS
- ---------------------------------------------------------------------------------------------------
Santa Fe Square 1996 133,738 98% 100% 1,069,229
Olathe, KS
- ---------------------------------------------------------------------------------------------------
Shawnee Parkway Plaza 1998 92,213 98% N/A 678,000
Shawnee, KS
- ---------------------------------------------------------------------------------------------------
Westchester Square 1997 164,865 92% 94% 1,345,282
Lenexa, KS
- ---------------------------------------------------------------------------------------------------
KENTUCKY
Camelot Shopping Center 1998 150,621 92% N/A 835,602
Louisville, KY
- ---------------------------------------------------------------------------------------------------
Dixie Plaza 1998 47,954 100% N/A 376,552
Louisville, KY
- ---------------------------------------------------------------------------------------------------
Midtown Mall 1998 153,566 100% N/A 795,777
Ashland, KY
- ---------------------------------------------------------------------------------------------------
Plainview Village 1998 145,546 100% N/A 1,214,386
Louisville, KY
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annualized Base
Based Rent Lease
Per Square Expiration
SHOPPING CENTERS Leased SF Major Tenants (1) Feet Date
---------------- --------- ----------------- ---- ----
<S> <C> <C> <C> <C>
Washington Lawndale Commons $5.26 Target 83,110 2005
Evansville, IN Sears Homelife 34,527 2003
Dunham's Athleisure 20,285 2002
Stein Mart 40,500 2007
Jo-Ann Fabrics 15,262 2003
Books-A-Million 20,515 2002
- -----------------------------------------------------------------------------------------------------------------
IOWA
Burlington Plaza West 7.09 Festival Foods 52,468 2009
Burlington, IA
- -----------------------------------------------------------------------------------------------------------------
Davenport Retail Center 9.66 PetsMart 26,280 2011
Davenport, IA Staples 24,153 2011
- -----------------------------------------------------------------------------------------------------------------
Kimberly West 5.83 Hy-Vee 76,896 2008
Davenport, IA
- -----------------------------------------------------------------------------------------------------------------
Parkwood Plaza 7.78 Albertson's 63,075 2008
Urbandale, IA
- -----------------------------------------------------------------------------------------------------------------
Southgate Shopping Center 3.10 Hy-Vee 78,388 2014
Des Moines, IA Walgreens 22,000 2002
Big Lots 23,677 2001
- -----------------------------------------------------------------------------------------------------------------
Spring Village 6.20 Eagle Foods 45,763 2005
Davenport, IA
- -----------------------------------------------------------------------------------------------------------------
Warren Plaza 7.45 Hy-Vee 51,492 2013
Dubuque, IA
- -----------------------------------------------------------------------------------------------------------------
KANSAS
Mid-State Plaza 3.41 Food 4 Less 32,579 2004
Salina, KS Hobby Lobby 39,958 2006
Carroll's Books 27,596 2008
Sutherlands 80,155 2002
- -----------------------------------------------------------------------------------------------------------------
Santa Fe Square 8.20 Hy-Vee 55,820 2007
Olathe, KS
- -----------------------------------------------------------------------------------------------------------------
Shawnee Parkway Plaza 7.49 Price Chopper 59,128 2013
Shawnee, KS
- -----------------------------------------------------------------------------------------------------------------
Westchester Square 8.82 Hy-Vee 63,000 2006
Lenexa, KS
- -----------------------------------------------------------------------------------------------------------------
KENTUCKY
Camelot Shopping Center 6.03 Winn Dixie 37,500 2004
Louisville, KY Mr. Gatti's 24,000 2007
- -----------------------------------------------------------------------------------------------------------------
Dixie Plaza 7.85 Winn Dixie 44,000 2007
Louisville, KY
- -----------------------------------------------------------------------------------------------------------------
Midtown Mall 5.18 Kroger 51,600 2013
Ashland, KY Odd Lots/Big Lots 27,071 1999
Old America 26,586 2003
- -----------------------------------------------------------------------------------------------------------------
Plainview Village 8.34 Kroger 30,975 2002
Louisville, KY
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
Rentable Occupancy at
Year Square December 31, Annualized
SHOPPING CENTERS Acquired Feet 1998 1997 Based Rent
---------------- -------- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Stony Brook 1996 136,395 100% 97% $1,433,070
Louisville, KY
- ---------------------------------------------------------------------------------------------------
MICHIGAN
The Courtyard 1998 126,063 88% N/A 847,670
Burton, MI
- ---------------------------------------------------------------------------------------------------
Delta Plaza (2) 1998 187,697 94% N/A 1,028,661
Escanaba, MI
- ---------------------------------------------------------------------------------------------------
Redford Plaza 1998 284,929 92% N/A 2,020,301
Redford, MI
- ---------------------------------------------------------------------------------------------------
MINNESOTA
Brookdale Square 1996 185,346 81% 86% 1,262,429
Brooklyn Center, MN
- ---------------------------------------------------------------------------------------------------
Burning Tree Plaza 1993 174,141 96% 93% 1,510,159
Duluth, MN
- ---------------------------------------------------------------------------------------------------
Central Valu Center 1997 123,350 95% 93% 857,579
Columbia Heights, MN
- ---------------------------------------------------------------------------------------------------
Elk Park Center 1997 155,205 98% 98% 1,326,748
Elk River, MN
- ---------------------------------------------------------------------------------------------------
Har Mar Mall 1992 429,610 83% 92% 3,467,106
Roseville, MN
- ---------------------------------------------------------------------------------------------------
Hub West 1991 78,302 100% 100% 853,720
Richfield, MN
- ---------------------------------------------------------------------------------------------------
Richfield Hub 1988 138,907 99% 99% 1,281,911
Richfield, MN
- ---------------------------------------------------------------------------------------------------
Roseville Center 1997 74,547 92% 93% 701,844
Roseville, MN
- ---------------------------------------------------------------------------------------------------
Southport Centre 1998 125,172 100% N/A 1,600,627
Apple Valley, MN
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annualized Base
Based Rent Lease
Per Square Expiration
SHOPPING CENTERS Leased SF Major Tenants (1) Feet Date
---------------- --------- ----------------- ---- ----
<S> <C> <C> <C> <C>
Stony Brook $10.47 Kroger 79,625 2021
Louisville, KY
- -----------------------------------------------------------------------------------------------------------------
MICHIGAN
The Courtyard 7.64 V.G Food Center 43,384 2010
Burton, MI Dunham's Athleisure 18,395 2002
Office Max 25,987 2005
- -----------------------------------------------------------------------------------------------------------------
Delta Plaza (2) 5.85 J.C. Penney 31,757 2001
Escanaba, MI Menards 59,872 2001
- -----------------------------------------------------------------------------------------------------------------
Redford Plaza 7.73 Kroger 60,276 2016
Redford, MI The Resource Network 15,000 2002
Bally's Total Fitness 28,000 2008
Burlington Coat Factory 47,008 2004
Aco Hardware 16,130 2000
- -----------------------------------------------------------------------------------------------------------------
MINNESOTA
Brookdale Square 8.36 Circuit City 36,391 2014
Brooklyn Center, MN Drug Emporium 25,782 2000
Office Depot 30,395 2004
United Artists 24,534 2002
Pep Boys 23,000 2018
- -----------------------------------------------------------------------------------------------------------------
Burning Tree Plaza 9.00 Dunham's Athleisure 23,679 2009
Duluth, MN Hancock Fabrics 17,682 1999
Best Buy 46,355 2013
T.J. Maxx 30,000 2004
- -----------------------------------------------------------------------------------------------------------------
Central Valu Center 7.28 Rainbow Foods 66,314 1999
Columbia Heights, MN Slumberland Clearance 24,632 1999
- -----------------------------------------------------------------------------------------------------------------
Elk Park Center 8.69 Cub Foods 60,066 2016
Elk River, MN
- -----------------------------------------------------------------------------------------------------------------
Har Mar Mall 9.74 Marshalls 34,858 2003
Roseville, MN Petters Warehouse 17,386 2006
T.J. Maxx 25,025 2002
General Cinema 22,252 2001
General Cinema 19,950 2000
Barnes and Noble 44,856 2010
Michaels 17,907 2003
- -----------------------------------------------------------------------------------------------------------------
Hub West 10.90 Rainbow Foods 50,817 2012
Richfield, MN Bally Total Fitness 26,185 2001
- -----------------------------------------------------------------------------------------------------------------
Richfield Hub 9.34 Michaels 24,235 2004
Richfield, MN Marshalls 26,785 2003
- -----------------------------------------------------------------------------------------------------------------
Roseville Center 10.29 Minnesota Fabrics 12,000 2004
Roseville, MN
- -----------------------------------------------------------------------------------------------------------------
Southport Centre 12.82 Frank's Nursery 18,804 2012
Apple Valley, MN Best Buy 36,714 2009
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Rentable Occupancy at
Year Square December 31, Annualized
SHOPPING CENTERS Acquired Feet 1998 1997 Based Rent
---------------- -------- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Sun Ray Shopping Center 1961 258,267 84% 83% $1,722,761
St. Paul, MN
- ---------------------------------------------------------------------------------------------------
Terrace Mall 1993 136,785 94% 94% 936,893
Robbinsdale, MN
- ---------------------------------------------------------------------------------------------------
Thunderbird Mall (2) 1998 256,344 95% N/A 1,380,197
Virginia, MN
- ---------------------------------------------------------------------------------------------------
Westview Valu Center 1997 163,162 98% 93% 1,029,157
West St. Paul, MN
- ---------------------------------------------------------------------------------------------------
Westwind Plaza 1994 87,936 99% 90% 944,587
Minnetonka, MN
- ---------------------------------------------------------------------------------------------------
White Bear Hills 1993 73,095 100% 100% 594,137
White Bear Lake, MN
- ---------------------------------------------------------------------------------------------------
MISSOURI
Ellisville Square 1998 146,052 100% N/A 1,288,368
Ellisville, MO
- ---------------------------------------------------------------------------------------------------
Grandview Plaza 1971 294,560 94% 88% 2,482,423
Florissant, MO
- ---------------------------------------------------------------------------------------------------
Liberty Corners 1997 121,382 100% 100% 873,270
Liberty, MO
- ---------------------------------------------------------------------------------------------------
Maplewood Square 1998 71,630 87% N/A 401,071
Maplewood, MO
- ---------------------------------------------------------------------------------------------------
Prospect Plaza 1998 176,094 58% N/A 323,510
Gladstone, MO
- ---------------------------------------------------------------------------------------------------
Watts Mill Plaza 1998 161,717 96% N/A 1,422,593
Kansas City, MO
- ---------------------------------------------------------------------------------------------------
NEBRASKA
Bishop Heights 1998 30,163 86% N/A 171,288
Lincoln, NE
- ---------------------------------------------------------------------------------------------------
Cornhusker Plaza 1998 63,016 96% N/A 465,493
South Sioux City, NE
- ---------------------------------------------------------------------------------------------------
Eastville Plaza 1998 68,546 91% N/A 477,443
Fremont, NE
- ---------------------------------------------------------------------------------------------------
Edgewood Plaza 1998 172,429 97% N/A 1,331,547
Lincoln, NE
- ---------------------------------------------------------------------------------------------------
Ile de Grand 1998 82,248 100% N/A 593,554
Grand Island, NE
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annualized Base
Based Rent Lease
Per Square Expiration
SHOPPING CENTERS Leased SF Major Tenants (1) Feet Date
---------------- --------- ----------------- ---- ----
<S> <C> <C> <C> <C>
Sun Ray Shopping Center $7.96 Michaels 18,127 2004
St. Paul, MN Petters Warehouse 20,000 2007
J.C. Penney 36,752 1999
T.J. Maxx 31,955 2007
- ----------------------------------------------------------------------------------------------------------------
Terrace Mall 7.27 Rainbow Foods 59,232 2013
Robbinsdale, MN North Memorial Medical 32,000 2004
- ----------------------------------------------------------------------------------------------------------------
Thunderbird Mall (2) 5.66 Herberger's 66,582 2010
Virginia, MN J.C. Penney 23,671 2006
K-Mart 90,990 2002
- ----------------------------------------------------------------------------------------------------------------
Westview Valu Center 6.41 Cub Foods 92,646 1999
West St. Paul, MN Burlington Coat Factory 41,248 2004
- ----------------------------------------------------------------------------------------------------------------
Westwind Plaza 10.90 Northern Hydraulics 18,165 2002
Minnetonka, MN
- ----------------------------------------------------------------------------------------------------------------
White Bear Hills 8.13 Festival Foods 45,679 2011
White Bear Lake, MN
- ----------------------------------------------------------------------------------------------------------------
MISSOURI
Ellisville Square 8.82 K-Mart 86,479 2015
Ellisville, MO Hockey Direct 19,693 2002
- ----------------------------------------------------------------------------------------------------------------
Grandview Plaza 8.95 Schnuck's Market 68,025 2011
Florissant, MO Home Quarters 84,611 2013
Office Max 30,183 2012
Walgreens 15,984 2008
- ----------------------------------------------------------------------------------------------------------------
Liberty Corners 7.19 Price Chopper 56,000 2007
Liberty, MO
- ----------------------------------------------------------------------------------------------------------------
Maplewood Square 6.42 Shop'n Save 57,575 2017
Maplewood, MO
- ----------------------------------------------------------------------------------------------------------------
Prospect Plaza 3.17 Hobby Lobby 54,630 1999
Gladstone, MO Westlake Hardware 22,950 2001
- ----------------------------------------------------------------------------------------------------------------
Watts Mill Plaza 9.14 Price Chopper 66,947 2006
Kansas City, MO Drug Emporium 25,042 2008
- ----------------------------------------------------------------------------------------------------------------
NEBRASKA
Bishop Heights 6.58 Russ's IGA 16,992 2001
Lincoln, NE
- ----------------------------------------------------------------------------------------------------------------
Cornhusker Plaza 7.72 Hy-Vee 34,726 2010
South Sioux City, NE
- ----------------------------------------------------------------------------------------------------------------
Eastville Plaza 7.67 Hy-Vee 34,156 2006
Fremont, NE
- ----------------------------------------------------------------------------------------------------------------
Edgewood Plaza 7.99 Super Saver 73,696 2011
Lincoln, NE Osco Drug 16,324 2000
- ----------------------------------------------------------------------------------------------------------------
Ile de Grand 7.22 Factory Card Outlet (3) 12,000 2005
Grand Island, NE
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
Rentable Occupancy at
Year Square December 31, Annualized
SHOPPING CENTERS Acquired Feet 1998 1997 Based Rent
---------------- -------- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Imperial Mall (2) (4) 1998 324,284 93% N/A $1,739,761
Hastings, NE
- ---------------------------------------------------------------------------------------------------
The Meadows 1998 67,840 91% N/A 448,902
Lincoln, NE
- ---------------------------------------------------------------------------------------------------
Miracle Hills Park 1998 69,488 88% N/A 837,241
Omaha, NE
- ---------------------------------------------------------------------------------------------------
Monument Mall (2) 1998 204,527 97% N/A 1,396,339
Scottsbluff, NE
- ---------------------------------------------------------------------------------------------------
Stockyards Plaza (4) 1998 129,309 96% N/A 936,184
Omaha, NE
- ---------------------------------------------------------------------------------------------------
NEW MEXICO
St. Francis Plaza 1995 35,800 100% 100% 357,004
Santa Fe, NM
- ---------------------------------------------------------------------------------------------------
OHIO
Clock Tower Plaza 1998 237,975 96% N/A 1,372,542
Lima, OH
- ---------------------------------------------------------------------------------------------------
Salem Consumer Square 1998 276,536 99% N/A 2,460,877
Trotwood, OH
- ---------------------------------------------------------------------------------------------------
SOUTH DAKOTA
Baken Park 1997 184,191 94% 94% 1,022,311
Rapid City, SD
- ---------------------------------------------------------------------------------------------------
Lakewood Mall (2) 1998 238,804 89% N/A 1,627,044
Aberdeen, SD
- ---------------------------------------------------------------------------------------------------
TENNESSEE
Macon County Plaza (2) 1998 86,929 96% N/A 319,128
Lafayette, TN
- ---------------------------------------------------------------------------------------------------
Williamson Square (5) 1996 334,839 98% 90% 2,283,457
Franklin, TN
- ---------------------------------------------------------------------------------------------------
WISCONSIN
Fairacres Shopping Center 1998 74,291 100% N/A 673,744
Oshkosh, WI
- ---------------------------------------------------------------------------------------------------
Fitchburg Ridge 1998 49,846 100% N/A 317,938
Fitchburg, WI
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annualized Base
Based Rent Lease
Per Square Expiration
SHOPPING CENTERS Leased SF Major Tenants (1) Feet Date
---------------- --------- ----------------- ---- ----
<S> <C> <C> <C> <C>
Imperial Mall (2) (4) $5.76 Sunmart 30,000 2003
Hastings, NE K-Mart 91,266 2018
Herberger's 52,950 2002
Imperial Theater 15,600 2000
- -----------------------------------------------------------------------------------------------------------------
The Meadows 7.25 Russ's IGA 50,000 2008
Lincoln, NE
- -----------------------------------------------------------------------------------------------------------------
Miracle Hills Park 12.45 Jo-Ann Fabrics 12,000 2003
Omaha, NE
- -----------------------------------------------------------------------------------------------------------------
Monument Mall (2) 7.06 Herberger's 72,699 2013
Scottsbluff, NE J.C. Penney 22,556 2002
- -----------------------------------------------------------------------------------------------------------------
Stockyards Plaza (4) 7.51 Hy-Vee 59,839 2008
Omaha, NE Movies 8 25,810 2015
- -----------------------------------------------------------------------------------------------------------------
NEW MEXICO
St. Francis Plaza 9.97 Wild Oats 20,850 2006
Santa Fe, NM
- -----------------------------------------------------------------------------------------------------------------
OHIO
Clock Tower Plaza 6.02 Clyde Evans Market 61,720 2014
Lima, OH Wal-Mart 110,580 2009
- -----------------------------------------------------------------------------------------------------------------
Salem Consumer Square 8.96 Cub Foods 62,400 2013
Trotwood, OH Drug Emporium 25,025 2003
Office Depot 26,725 2000
Michigan Sporting Goods 17,500 2004
- -----------------------------------------------------------------------------------------------------------------
SOUTH DAKOTA
Baken Park 5.89 Nash Finch 48,684 2017
Rapid City, SD Ben Franklin 27,155 2003
Boyd's Drug Mart 19,200 2004
- -----------------------------------------------------------------------------------------------------------------
Lakewood Mall (2) 7.64 Midco 5 23,600 2002
Aberdeen, SD Herberger's 79,646 2016
J.C. Penney 33,796 2010
- -----------------------------------------------------------------------------------------------------------------
TENNESSEE
Macon County Plaza (2) 3.84 Wal-Mart 34,875 2005
Lafayette, TN Houchen's 23,124 2006
- -----------------------------------------------------------------------------------------------------------------
Williamson Square (5) 6.97 Kroger 63,986 2008
Franklin, TN Fitness Nation 16,829 2002
Wal-Mart 117,493 2008
Carmike Cinemas 29,000 2008
- -----------------------------------------------------------------------------------------------------------------
WISCONSIN
Fairacres Shopping Center 9.07 Pick'n Save 48,000 2012
Oshkosh, WI
- -----------------------------------------------------------------------------------------------------------------
Fitchburg Ridge 6.38 Roundy's 16,589 2000
Fitchburg, WI
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
Rentable Occupancy at
Year Square December 31, Annualized
SHOPPING CENTERS Acquired Feet 1998 1997 Based Rent
---------------- -------- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Fox River Plaza 1998 166,416 99% N/A $728,465
Burlington, WI
- ---------------------------------------------------------------------------------------------------
Garden Plaza 1998 80,069 96% N/A 508,452
Franklin, WI
- ---------------------------------------------------------------------------------------------------
Madison Plaza 1997 128,739 100% 100% 999,606
Madison, WI
- ---------------------------------------------------------------------------------------------------
Mequon Pavilions 1996 212,065 99% 99% 2,368,203
Mequon, WI
- ---------------------------------------------------------------------------------------------------
Moorland Square 1998 98,288 100% N/A 766,914
New Berlin, WI
- ---------------------------------------------------------------------------------------------------
Oak Creek Centre 1998 91,405 95% N/A 609,129
Oak Creek, WI
- ---------------------------------------------------------------------------------------------------
Park Plaza 1997 108,123 99% 100% 605,339
Manitowoc, WI
- ---------------------------------------------------------------------------------------------------
Spring Mall (6) 1997 180,188 92% 100% 1,018,137
Greenfield, WI
- ---------------------------------------------------------------------------------------------------
Taylor Heights (4) 1998 85,072 100% N/A 820,056
Sheboygan, WI
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annualized Base
Based Rent Lease
Per Square Expiration
SHOPPING CENTERS Leased SF Major Tenants (1) Feet Date
---------------- --------- ----------------- ---- ----
<S> <C> <C> <C> <C>
Fox River Plaza $4.43 Pick'n Save 50,094 2006
Burlington, WI K-Mart 83,552 2011
- -----------------------------------------------------------------------------------------------------------------
Garden Plaza 6.64 Pick'n Save 49,564 2010
Franklin, WI
- -----------------------------------------------------------------------------------------------------------------
Madison Plaza 7.76 Supersaver Foods 73,309 2008
Madison, WI
- -----------------------------------------------------------------------------------------------------------------
Mequon Pavilions 11.30 Kohl's Food Store 45,697 2010
Mequon, WI Furniture Clearance Center 19,900 1999
- -----------------------------------------------------------------------------------------------------------------
Moorland Square 7.80 Pick'n Save 59,674 2010
New Berlin, WI
- -----------------------------------------------------------------------------------------------------------------
Oak Creek Centre 7.02 Sentry Food Store 50,000 2003
Oak Creek, WI
- -----------------------------------------------------------------------------------------------------------------
Park Plaza 5.68 Sentry Foods 45,000 2006
Manitowoc, WI Big Lots 29,063 2004
- -----------------------------------------------------------------------------------------------------------------
Spring Mall (6) 6.14 Pick'n Save 77,150 2013
Greenfield, WI T.J. Maxx 32,658 2003
United Artists 16,000 2004
Walgreens 17,600 2007
- -----------------------------------------------------------------------------------------------------------------
Taylor Heights (4) 9.64 Piggly Wiggly 35,540 2009
Sheboygan, WI
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
1) Major tenants are defined as tenants leasing 15,000 square feet or more of
the rentable square footage with the exception of Ile de Grand, Miracle
Hills Park, Parkway Pointe, and Roseville Center. In some cases, the named
tenant occupies the premises as a sublessee. We view "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) This property is held for sale at December 31, 1998.
3) Factory Card Outlet has sought protection under Chapter 11 of the U.S.
Bankruptcy Code.
4) This property is owned by Bradley Bethal Limited Partnership, a joint
venture of which we own a 50% interest.
5) This property is owned by Williamson Square Associates L.P., a joint
venture of which we own a 60% interest.
6) This property is owned by a bankruptcy remote special purpose entity that
is an indirect subsidiary of Bradley. The assets of the special purpose
entity, including the property, are owned by the special purpose entity
alone and are not available to satisfy claims that any creditor may have
against us, our affiliates, or any other person or entity. The special
purpose entity has not agreed to pay, or make its assets available to pay,
any claim any creditor may have against us, our affiliates, or any other
person or entity. No affiliate of the special purpose entity has agreed to
pay or make its assets available to pay creditors of the special purpose
entity.
Tenant Mix and Leases
As evidenced by the foregoing table, our tenant mix is diverse and well
represented by supermarkets, drugstores and other consumer necessity or
value-oriented retailers. Based on our past experience, we believe that such
tenants tend to be stable performers in both good and bad economic times. As of
December 31, 1998, 77 of our 98 shopping centers were anchored by supermarkets,
most of which are leading grocery chains in their respective markets. Grocery
stores comprise approximately 21% of our annualized base rent and 26% of our
gross leasable area. No tenant included in the portfolio of properties on
December 31, 1998, accounted for as much as 4% of total rental income in 1998.
In addition to the tenants listed in the preceding table, our properties include
a variety of smaller shop leases of various tenant types, including restaurants,
home life styles, women's ready-to-wear, cards, books, and electronics.
The terms of the outstanding retail leases vary from tenancies at will to 50
years. Anchor 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 us against
significant vacancies and to assure the presence of strong tenants who draw
consumers to our centers. The shorter term of the smaller shop leases allows us
to adjust rental rates for non-major store space on a regular basis and upgrade
the overall tenant mix.
Leases to anchor tenants tend to provide lower minimum rents per square foot
than smaller shop leases. Anchor tenant leases for properties included in the
portfolio at December 31, 1998, provided an average annual minimum rent of $5.57
per square foot, compared with non-anchor tenant leases which provided an
average annual minimum rent of $9.88. In general, we believe that minimum rental
rates for anchor tenant leases entered into several years ago are at or 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, 1998, for the properties included in the
portfolio at December 31, 1998, 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> <C>
1999 $102,379,000 323 1,062,780 $9,603,000
2000 92,582,000 350 1,312,718 11,871,000
2001 82,268,000 302 1,162,893 9,634,000
2002 72,055,000 257 1,485,991 11,109,000
2003 61,397,000 230 1,170,037 10,438,000
2004 52,220,000 88 673,447 6,497,000
2005 47,813,000 70 754,304 5,000,000
2006 41,762,000 67 1,026,334 6,188,000
2007 36,285,000 45 726,313 5,121,000
2008 30,053,000 39 926,017 6,636,000
</TABLE>
14
<PAGE> 15
Risk Factors
General
As in every business, we face risk factors that affect our business and
operations. By setting forth below some of the factors that could cause the
actual results of our operations or plans to differ materially from our
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, we seek to avail ourself of the "safe harbor" provided in the Private
Securities Litigation Reform Act of 1995.
Our use of third party indebtedness exposes us to the risks that may adversely
affect the amount of cash we have available for distributions.
We could become too highly leveraged because our organizational documents
contain no limitation on debt and thereby may adversely affect our ability to
make expected distributions to share owners.
Our obligations for borrowed money aggregated $472.4 million at December 31,
1998, as compared to $302.7 million at December 31, 1997. This increase in debt
could increase the risk of default. Failure to pay debt obligations when due
could result in Bradley losing its interest in the properties collateralizing
such obligations. Subsequent to year-end, we issued $50 million of 8.875% Series
B Cumulative Redeemable Preferred Units of the Operating Partnership in a
private placement, utilizing the net proceeds of approximately $49 million to
pay-down the outstanding balance on the line of credit.
Seventeen properties as of December 31, 1998 secure an aggregate of
approximately $103.3 million of mortgage debt, with balloon maturities of
approximately $6.0 million due in 2000, $2.7 million in 2001, $29.0 million in
2002, $6.4 million in 2003, and $35.6 million in subsequent years. The line of
credit, with a balance of $169.5 million as of December 31, 1998, matures in
2000. Additionally, $100 million of 7% unsecured Notes payable at December 31,
1998 matures in 2004, and $100 million of 7.2% unsecured Notes payable at
December 31, 1998 matures in 2008. We have historically been able to refinance
debt when it has become due on terms which we believe to be commercially
reasonable. There can be no assurance that we will continue to be able to repay
or refinance indebtedness on commercially reasonable or any other terms.
Our organizational documents do not limit the amount of indebtedness that we or
the Operating Partnership may incur. Although we attempt to maintain a balance
between total outstanding indebtedness and the value of the portfolio, we could
alter this balance at any time. We try to maintain a ratio of 50% or less of
debt and preferred stock to annualized net operating income divided by 9.75%. If
we become more highly leveraged, then the resulting increase in debt service
could adversely affect our ability to make payments on our outstanding
indebtedness and expected distributions to our shareowners.
Because parts of our borrowings have floating rates, a general increase in
interest rates will adversely affect our net income and cash available for
distribution to share owners.
The unsecured line of credit bears interest at a variable rate. The balance
outstanding under the line of credit at December 31, 1998, was $169.5 million;
and we may increase outstanding borrowings to $250 million. To the extent our
exposure to increases in interest rates is not eliminated through interest rate
protection or cap agreements, we will need to use more of our revenue to pay the
interest on our indebtedness. Any such increase in debt service requirements
would leave us with less net income, funds from operations ("FFO") and cash
available for distribution and may affect the amount of distributions we can
make to our share owners.
An adverse market reaction to increased indebtedness could restrict our ability
to raise capital for future growth.
The foregoing risks associated with our debt obligations may also adversely
affect the market price of our common stock. A decrease in the market price of
our common stock may inhibit our ability to raise capital and issue equity in
both the public and private markets and thereby adversely affect plans for
future growth.
15
<PAGE> 16
Failures in achieving our objectives for growth could adversely affect our
operating results and financial condition.
We have grown aggressively over the past few years and continue to experience
growth. The failure to achieve our objectives in this growth could have a
material adverse effect on our operating results and financial condition.
Our objectives in pursuing growth through property acquisitions include:
- - Achieving economies of scale for property operations through the management
of several properties from a strategically located management office;
- - Bulk purchasing insurance and contracted services in order to reduce the
level of property expenses overall;
- - Maximizing the benefits from our relationships with tenants who have stores
located throughout the Midwest;
- - Reducing general and administrative expenses by eliminating duplicate
corporate level expenses in the case of growing the portfolio through
corporate merger acquisitions; and
- - Lowering our overall cost of equity and debt capital, enabling us to
acquire additional properties on more favorable terms.
As an important part of our business strategy, we continually seek prospective
acquisitions of additional shopping centers and portfolios of shopping centers
which we believe 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 undertaken with respect to properties in the existing
portfolio. Notwithstanding our adherence to our criteria for evaluation and due
diligence regarding potential acquisitions, we cannot guarantee that any
acquisition that is consummated will meet our expectations. In executing our
growth strategy, we may fail to achieve our objectives with respect to any one
property or with respect to our portfolio as a whole. For example, the actual
cost savings from an acquisition may not match the level estimated at the time
of acquisition, the overall cost of equity and debt capital may not be reduced
to expected levels, or the benefits of reducing the cost of capital may be
offset by an increase in prices of real estate due to changing market
conditions. Even after careful evaluation, we risk that our investment will fail
to generate expected returns or that our desired improvement programs will cost
more than expected. In addition, we cannot guarantee that we will ultimately
make any potential acquisition that we may evaluate. The evaluation process
involves non-recoverable costs in the case of acquisitions which are not
consummated.
Although to date, we have largely been able to achieve our overall objectives in
growing through acquisitions, we cannot guarantee that we will be able to
continue to do so. The consistent failure to achieve our objectives could have a
material adverse effect on our operating results and financial condition, and
could adversely affect any plans for future growth. Although these
non-recoverable costs have historically been at or below 0.1% of the total costs
of acquisitions that were consummated, we cannot guarantee that we will be able
to maintain that level in the future.
Our charter and bylaws contain provisions that may discourage acquisition
proposals.
Some provisions contained in our charter and bylaws may discourage third parties
from making acquisition proposals for the Company, even if some of our
stockholders might consider the proposal to be in their best interest. These
provisions include the following:
- - Our charter provides for three classes of Directors, with the term of
office of one class expiring each year, commonly referred to as a
"staggered board." By preventing stockholders from voting on the election
of more than one class of directors at any annual meeting of stockholders,
this provision may have the effect of keeping the current members of our
Board of Directors in control for a longer period of time than stockholders
may desire.
- - Our bylaws provide that the holders of not less than 25% of the outstanding
shares of common stock may call a special meeting of our stockholders. This
provision could make it more difficult for a stockholder to call a meeting
for the purposes of approving a change of control without the support of
the Board of Directors.
- - Our charter authorizes the Board of Directors to issue up to 20 million
shares of preferred stock without stockholder approval and to reclassify
any unissued shares of stock as a different class or series in the Board of
Directors' discretion. Our Board of Directors' ability to issue preferred
stock without stockholder approval, and to establish the preferences and
rights of any class or series issued, could allow the Board of Directors to
issue one or more classes or series of preferred stock that would
discourage or delay a tender offer or change in control.
- - Our charter generally limits any holder from acquiring more than 9.8% of
the value or number of our outstanding common stock. While this provision
is intended to assure our ability to remain a qualified REIT for income tax
purposes, the ownership limits may also limit the opportunity for
stockholders 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 outstanding shares of common stock or
otherwise effect a change in control.
16
<PAGE> 17
The factors affecting real estate investments and our ability to manage these
investments may adversely affect an investment in our common stock.
As a real estate company, our ability to generate revenues is significantly
affected by the risks of owning real property investments.
We derive substantially all of our revenue from investments in real property.
Real property investments are subject to varying types and degrees of risk that
may adversely affect the value of our assets and our ability to generate
revenues. The factors that may adversely affect our revenues, net income and
cash available for distributions to share owners include the following:
- - Local conditions, such as oversupply of space or a reduction in demand
for real estate in an area;
- - Competition from other available space;
- - The ability of the owner to provide adequate maintenance;
- - Insurance and variable operating costs;
- - Government regulations;
- - Changes in interest rate levels;
- - The availability of financing;
- - Potential liability due to changes in environmental and other laws; and
- - Changes in the general economic climate.
The illiquidity of real estate as an investment limits our ability to sell
properties quickly in response to market conditions.
Real estate investments are relatively illiquid and therefore cannot be
purchased or sold rapidly in response to changes in economic or other
conditions. In addition, the Internal Revenue Code limits our ability as a REIT
to make sales of properties held for fewer than four years, which may affect our
ability to sell properties in response to market conditions without adversely
affecting returns to share owners.
Our strategic focus on Midwest retail properties means that economic trends in
the Midwest and/or the retail industry may specifically affect our net income
and cash available for distribution to share owners.
Substantially all of our properties are located in the Midwestern region of the
United States. Adverse economic developments in this area could adversely impact
the operations of our properties and therefore our profitability. The
concentration of properties in one region may expose us to risks of adverse
economic developments which are greater than if our portfolio were more
geographically diverse.
Our properties consist predominantly of community and neighborhood shopping
centers catering to retail tenants. Our performance therefore is linked to
economic conditions in the market for retail space generally. The market for
retail space has been or could be adversely affected by:
- - ongoing consolidation among retailing companies;
- - weak financial condition of certain major retailers;
- - excess amount of retail space in some markets; and
- - increasing consumer purchases through catalogues or the internet.
To the extent that these conditions impact the market rents for retail space, we
could experience a reduction of net income, FFO and cash available for
distributions.
In addition, to the extent that the investing public has a negative perception
of the retail sector, the value of shares of our common stock may be negatively
impacted, thereby resulting in such shares trading at a discount below the
underlying value of our assets as a whole.
Tenants in or facing bankruptcy may not make timely rental payments.
Since substantially all of our income has been, and will continue to be, derived
from rental income from retail shopping centers, our 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 us or if we were unable to
lease, on economically favorable terms, a significant amount of space in our
shopping centers. In addition, in the event of default by a tenant, we may
experience delays and incur substantial costs in enforcing our rights as
landlord.
17
<PAGE> 18
At any time, a tenant of our 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 we can
make to our share owners. In March 1999, Factory Card Outlet, a tenant at nine
of our shopping centers which currently generates approximately 1% of our total
revenues, filed for protection under Chapter 11 of the U.S. Bankruptcy Code.
Although we expect the tenant to affirm its leases at eight of the nine shopping
centers, there can be no assurance that such tenant will affirm any of its
leases with us. No assurance can be given that any present tenant which has
filed for bankruptcy protection will continue making payments under its lease or
that other 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, we may experience delays in enforcing our
right as lessor or sublessor and may incur substantial costs and experience
significant delays associated with protecting our investment, including costs
incurred in renovating and releasing the property.
Vacancies and lease renewals may also reduce rental income, net income, FFO, and
cash available for distribution.
We are continually faced with expiring tenant leases at our properties. Some
lease expirations provide us with the opportunity to increase rentals or to hold
the space available for a stronger long-term tenancy. In other cases, the space
may not generate strong demand for tenancy. As a result, the space may remain
vacant for a longer period than anticipated or may be re-leased only at less
favorable rents. In such situations, we may be subject to competitive and
economic conditions over which we have no control. Accordingly, there is no
assurance that the effects of possible vacancies or lease renewals at such
properties may not reduce the rental income, net income, FFO and cash available
for distributions below anticipated levels. In addition, vacancies relating to
anchor tenant space are frequently more difficult to re-lease and can have an
adverse effect on the other stores in a shopping center.
If we develop new properties or acquire newly developed properties, our ability
to generate revenues will be affected by further risks.
To the extent that we enter into agreements to acquire newly developed shopping
centers when they are completed, or acquire newly developed shopping centers, we
will be subject to risks inherent in acquiring newly constructed centers, which
could carry a higher level of risk than the acquisition of existing properties
with a proven performance record. The most significant risks include:
- - the risk that funds will be expended and management time will be
devoted to projects which may not come to fruition;
- - the risk that occupancy rates and rents at a completed project will be
less than anticipated; and
- - the risk that expenses at a completed development will be higher than
anticipated.
These risks may adversely affect our net income, FFO and cash available for
distribution to share owners.
Possible environmental liabilities at our properties and related costs of
remediation may reduce cash available for distributions or reduce value of that
property.
Under federal, state and local laws, ordinances and regulations, current or
former owners of real estate are liable for the costs of removal or remediation
of hazardous or toxic substances on or in such property. Such laws often impose
liability without regard to whether the owner knew of, or was responsible for,
the presence of such hazardous or toxic substances. The costs of investigation
and cleanup of hazardous or toxic substances on, in or from property can be
substantial. The presence of such substances or the failure to properly
remediate such substances, or even if remediated, the history of such substances
having existed may adversely affect our ability to sell or rent such property or
to use such property as collateral in our borrowings. The presence of hazardous
or toxic substances on a property could result in a claim by a private party for
personal injury or a claim by a neighboring property owner for property damage.
Such costs or liabilities could exceed the value of the affected real estate.
Other federal, state and local laws govern the removal or encapsulation of
asbestos-containing material when such material is in poor condition or in the
event of building or remodeling, renovation or demolition. Still other federal,
state and local laws may require the removal or upgrading of underground storage
tanks that are out of service or out of compliance. Non-compliance with
environmental or health and safety requirements may also result in the need to
cease or alter operations at a property, which could affect the financial health
of a tenant and its ability to make lease payments. Furthermore, if there is a
violation of such requirement in connection with a tenant's operations, it is
possible that we, as the owner of the property, could be held accountable by
governmental authorities for such violation and could be required to correct the
violation.
All of our properties have been subjected to Phase I and/or Phase II
environmental assessments by independent environmental consultant and
engineering firms. Phase I assessments do not involve subsurface testing,
whereas Phase II assessments involve some degree of soil and/or groundwater
testing. These environmental assessments have not revealed any environmental
conditions that we believe will have a material adverse effect on our business,
assets or results of operations. We have no assurance, however, that
18
<PAGE> 19
existing environmental studies with respect to our properties revealed all
environmental liabilities or that a prior owner, operator or current occupant of
any such property did not create any material environmental condition not known
to us. Moreover, no assurances can be given that future laws, ordinances or
regulations will not impose any material environmental liability or the current
environmental condition of the properties will not be affected by tenants and
occupants of the properties, by the condition of land or operations in the
vicinity of the properties, or by third parties unrelated to us.
Limitations on our insurance could possibly have adverse consequences on the
amount of our cash available for distribution to our share owners.
It is possible that we may experience losses which exceed the limits of our
insurance coverage or for which we may be uninsured. We carry comprehensive
general liability coverage and umbrella liability coverage on all of our
properties. Our insurance has limits of liability which we believe are customary
for similar properties and adequate to insure against liability claims and
provide for cost of defense. Similarly, we are insured against the risk of
direct physical damage in amounts we estimate 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, we also insure the properties for loss caused by earthquake or flood
in the aggregate amount of $25 million per annum. Because of the high cost of
this type of insurance coverage and the wide fluctuations in price and
availability, we have determined 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.
Competition
All of our properties are located in developed areas. There are numerous other
retail properties and real estate companies within the market area of each such
property which we compete with 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 our ability to rent
space at the properties and the amount of rents charged and development and
acquisition opportunities. We compete for tenants and acquisitions with others
who have greater resources than we have.
Year 2000 Issues
Many existing computer software programs and operating systems were designed
such that the year 1999 is the maximum date that they will be able to process
accurately. The failure of our computer software programs and operating systems
to process the change in calendar year from 1999 to 2000 may result in system
malfunctions or failures. In the conduct of our operations, we rely on equipment
manufacturers and commercial computer software primarily provided by independent
software vendors, and we have undertaken an assessment of our vulnerability to
the so-called "Year 2000 issue" with respect to our equipment and computer
systems.
We have undertaken a five-step program in order to achieve Year 2000 readiness
including:
- - Awareness - Education involving all levels of Bradley personnel
regarding Year 2000 implications.
- - Inventory - Creating a checklist and conducting surveys to identify
Year 2000 compliance issues in all systems, including both mechanical
and information systems. The surveys were also designed to identify
critical outside parties such as banks, tenants, suppliers and other
parties with whom we do a significant amount of business, for purposes
of determining potential exposure in the event such parties are not
Year 2000 compliant.
- - Assessment - Based upon the results of the inventory and surveys,
assessing the nature of identified Year 2000 issues and developing
strategies to bring our systems into substantial compliance with
respect to Year 2000.
- - Correction and Testing - Implementing the strategy developed during the
assessment phase.
- - Implementation - Incorporating repaired or replaced systems into our
systems environment.
The program, which is ongoing, has yielded the following conclusions:
With respect to our potential exposure to information technology systems,
including our accounting and lease management systems, we believe that such
commercial software is Year 2000 compliant. This assessment is based upon
installation and testing of upgraded software provided by software vendors, as
well as formal and informal communications with software vendors and literature
supplied with certain software. We have incurred minimal costs associated with
bringing our information technology systems to be Year 2000 compliant.
19
<PAGE> 20
In the operation of our properties, we have acquired equipment with embedded
technology such as microcontrollers which operate heating, ventilation and air
conditioning systems ("HVAC"), fire alarms, security systems, telephones and
other equipment utilizing time-sensitive technology. We have substantially
completed our evaluation of the potential exposure to such non-information
technology systems and do not expect to incur more than $50,000 to become Year
2000 compliant. This assessment is based upon formal and informal communications
with software vendors, literature supplied with the software, literature
supplied in connection with maintenance contracts, and test evaluations of the
software.
The failure of our tenants' or suppliers' computer software programs and
operating systems to process the change in calendar year from 1999 to 2000 may
also result in system malfunctions or failures. Such an occurrence would
potentially affect the ability of the affected tenant or supplier to operate its
business and thereby raise adequate revenue to meet its contractual obligations
to the Company. As a result, we may not receive revenue or services we had
otherwise expected to receive pursuant to existing leases and contracts. We have
completed an inventory of the tenants, suppliers and other parties with whom we
do a significant amount of business and are in the process of surveying such
parties to identify the potential exposure in the event they are not Year 2000
compliant in a timely manner. We expect to have responses from such parties by
May 1999. However, at this time, we are not aware of any party that is
anticipating a material Year 2000 compliance issue. Although the investigations
and assessments of possible Year 2000 issues are still in a preliminary stage,
we do not anticipate a material impact on our business, operations or financial
condition even if one or more parties is not Year 2000 compliant in a timely
manner, because the number and nature of our tenant base are diverse, and
because we do not rely on a concentration of suppliers and other parties to
conduct our business.
Although we are aware that we may not, in fact, be Year 2000 compliant upon the
year 2000, at this time we have not adopted a contingency plan for the conduct
of our own operations because we expect to be Year 2000 compliant in advance of
2000. However, we will continue to monitor our progress and state of readiness,
and will be prepared to adopt a contingency plan with respect to areas in which
evidence arises that we may not become Year 2000 compliant in sufficient time.
It is possible that an aggregation of tenants, suppliers, and other parties who
experience Year 2000 related system malfunctions or failures may have a material
impact on our business, operations, and financial condition. Although we believe
that we will be able to adopt appropriate contingency plans to deal with any
Year 2000 compliance issue that any other party, excluding public utilities,
with whom we have significant relationships may experience as we continue our
Year 2000 assessment and testing, we cannot be certain at this time that such
contingency plans will be effective in limiting the harm caused by such third
parties' system malfunctions and failures.
The reasonably likely worst case scenario that could affect our operations would
be a widespread prolonged power failure affecting a substantial portion of the
Midwestern states in which our shopping centers are located. In the event of
such a widespread prolonged power failure, a significant number of tenants may
not be able to operate their stores and, as a result, their ability to pay rent
could be substantially impaired. We are not aware of an economically feasible
contingency plan which could be implemented to prevent such a power failure from
having a material adverse effect on our operations.
We would experience adverse consequences if we failed to qualify as a REIT.
Our failure to qualify as a REIT would have serious adverse financial
consequences.
We believe that we have operated in a manner that permits us to qualify as a
REIT under the Internal Revenue Code for each taxable year since our formation
in 1961. Qualification as a REIT, however, involves the application of highly
technical and complex Internal Revenue Code provisions for which there are only
limited judicial or administrative interpretations. In addition, REIT
qualification involves the determination of factual matters and circumstances
not entirely within our control. For example, in order to qualify as a REIT, at
least 95% of our gross income in any year must be derived from qualifying
sources and we must make distributions to share owners aggregating annually at
95% of our REIT taxable income, excluding net capital gains. As a result,
although we believe that we are organized and operating in a manner that permits
us to remain qualified as a REIT, we cannot guarantee that we will be able to
continue to operate in such a manner. In addition, if we are ever audited by the
Internal Revenue Service with respect to any past year, the IRS may challenge
our qualification as a REIT for such year. Similarly, 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. We are not aware,
however, of any currently pending tax legislation that would adversely affect
our ability to continue to operate as a REIT.
If we fail to qualify as a REIT, we will be subject to federal income tax,
including any applicable alternative minimum tax, on our taxable income at
regular corporate rates. In addition, unless entitled to relief under certain
statutory provisions, we 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 our net earnings available for investment or
distribution to share owners because of the additional tax liability for the
year or years involved. If we do not qualify as a REIT, we would no longer be
required to make distributions to share owners. To the extent that distributions
to share owners would have been made in anticipation of qualifying as a REIT, we
might be required to borrow funds or to liquidate certain of our investments to
pay the applicable tax. The failure to qualify as a REIT would also constitute a
default under our primary debt obligations and could significantly reduce the
market value of our common stock.
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<PAGE> 21
We may need to borrow money to qualify as a REIT.
Our ability to make distributions to share owners could be adversely affected by
increased debt service obligations if we need to borrow money in order to
maintain our REIT qualification. For example, differences in timing between when
we receive income and when we have to pay expenses could require us to borrow
money to meet the requirement that we distribute to our share owners at least
95% of our net taxable income each year excluding net capital gains. The
incurrence of large expenses also could cause us to need to borrow money to meet
this requirement. We might need to borrow money for these purposes even it we
believe that market conditions are not favorable for such borrowings and
therefore we may borrow money on unfavorable terms.
We are subject to some taxes even if we qualify as a REIT.
Even if we qualify as a REIT, we are subject to some federal, state, and local
taxes on our income and property. For example, we pay tax on certain income we
do not distribute. Also, our income derived from properties located in some
states are subject to local taxes and, if we were to enter into transactions
which the Internal Revenue Code labels as prohibited transactions, our net
income from such transactions would be subject to a 100% tax.
ITEM 2. PROPERTIES
The properties we owned at December 31, 1998 are described under Item 1 and in
Note 4 of the Notes to Financial Statements contained in this Report.
Our principal office is located at 40 Skokie Boulevard in Northbrook, Illinois,
where we lease approximately 10,000 square feet of space from an unrelated
landlord. We maintain regional property management and leasing offices at
certain of our properties located in Chicago, Peoria, Minneapolis, St. Louis,
Indianapolis, Kansas City, Louisville, Milwaukee, Nashville, and Omaha.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Our bylaws provide for a President, a Treasurer, a Secretary and such other
officers as are elected or appointed by the Directors. Each officer holds office
at the discretion of the Directors. The Directors have determined that the
following officers are executive officers of Bradley within the meaning of Rule
3b-7 under the Securities Exchange Act:
President, Chairman, and Chief Executive Officer - Thomas P. D'Arcy, age 39, 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 46, 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
our Minnesota properties.
Executive Vice President of Asset Management - E. Paul Dunn, age 52, 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.
Executive Vice President, Chief Financial Officer and Treasurer - Irving E.
Lingo, Jr., age 47, has held this 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.
Executive Vice President of Leasing - Steven St. Peter, age 47, has held this
position since August 1996. Prior to joining the Company, Mr. St. Peter served
as National Director of Real Estate for Bally's Total Fitness from 1995 to 1996,
Midwest Manager of Real Estate for TJX Corporation from 1993 to 1995 and
Director of Leasing for H.S.S. Development from 1990 to 1993.
Senior Vice President - Marianne Dunn, age 39, was named Senior Vice President
of Bradley in September 1995, having served as Vice President of Bradley since
1993 and as Investment Manager since 1990.
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<PAGE> 22
Vice President of Construction - Frank J. Comber, age 58, has held this position
since August 1996. Prior to joining the Company, Mr. Comber served as Vice
President of Construction Services for Merchandise Mart Properties from 1989 to
1996 and First Vice President for Homart Development Company from 1973 to 1988.
None of our officers or Directors is related to any other officer or Director.
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.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SHARES AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the New York Stock Exchange ("NYSE") under the
symbol "BTR." Our 8.4% Series A Convertible Preferred Stock, issued August 6,
1998, is also traded on the NYSE under the symbol "BTRPrA." The ranges of high
and low prices reported on the NYSE during 1998 and 1997 for the period
outstanding were:
Common Stock:
<TABLE>
<CAPTION>
1998 1997
------------------------------------- --------------------------------
Quarter Ended High Low Quarter Ended High Low
------------- ---- --- ------------- ---- ---
<S> <C> <C> <C> <C> <C>
March 31 $21-3/4 $19-13/16 March 31 $20-3/4 $17-3/8
June 30 21-7/8 20-1/8 June 30 20-3/8 17-1/2
September 30 22-3/4 18-3/8 September 30 21-1/4 18
December 31 21-13/16 18-3/4 December 31 21-7/16 18
</TABLE>
Series A Convertible Preferred Stock:
<TABLE>
<CAPTION>
1998
------------------------------
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
September 30 $24-1/2 $21-3/8
December 31 24-1/2 22
</TABLE>
The closing sale prices of the common stock and preferred stock on the NYSE on
March 1, 1999, were $19-3/16 and $22-3/8, respectively. At December 31, 1998,
there were approximately 690 holders of record of our common stock, and 1,249
holders of record of our Series A preferred stock.
We have paid dividends during the past two full years as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------------------------- ----------------------------
Per Common Per Preferred Per Common
Payment Share Share Payment Share
------------ ---------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
March 31 $ .35 - March 31 $ .33
June 30 .35 - June 30 .33
September 30 .35 .525 September 30 .33
December 31 .37 .525 December 31 .35
</TABLE>
We have determined that approximately 28% of the distributions paid in 1997 were
non-taxable returns of capital to share owners, approximately 81% and 57% of the
distributions paid in 1998 and 1997, respectively, were ordinary dividends and
19% and 15% of the distributions paid in 1998 and 1997, respectively, were
capital gains.
Recent Issue of Unregistered Securities
On November 19, 1998, Bradley Operating Limited Partnership issued 62,436
limited partner units that may be exchanged after December 31, 1999, for an
equal number of shares of our common stock, as a part of the consideration paid
for the acquisition of Maplewood Square. At the date of the transaction, the
value of a share of common stock for which each limited partnership unit may be
exchanged was $20.79. 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.
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<PAGE> 23
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
(Thousands of dollars, except per share data)
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total income $ 131,037 $ 97,552 $ 78,839 $ 36,572 $ 32,987
Total expenses 98,466 74,116 60,711 28,141 25,343
--------- --------- --------- --------- ---------
Income before equity in earnings of partnership, net gain on sale of
properties and extraordinary item 32,571 23,436 18,128 8,431 7,644
Equity in earnings of partnership 586 -- -- -- --
Net gain on sale of properties 29,680 7,438 9,379 -- 983
--------- --------- --------- --------- ---------
Income before extraordinary item and allocation to minority interest 62,837 30,874 27,507 8,431 8,627
Income allocated to minority interest (3,317) (1,116) (285) -- --
--------- --------- --------- --------- ---------
Income before extraordinary item 59,520 29,758 27,222 8,431 8,627
Extraordinary loss, net of minority interest -- (4,631) -- -- --
--------- --------- --------- --------- ---------
Net income 59,520 25,127 27,222 8,431 8,627
Preferred share distributions (2,922) -- -- -- --
--------- --------- --------- --------- ---------
Net income attributable to common share owners $ 56,598 $ 25,127 $ 27,222 $ 8,431 $ 8,627
========= ========= ========= ========= =========
Basic earnings per common share:
Income before extraordinary item $ 2.39 $ 1.36 $ 1.54 $ 0.85 $ 1.05
Extraordinary loss, net of minority interest -- (0.21) -- -- --
--------- --------- --------- --------- ---------
Net income $ 2.39 $ 1.15 $ 1.54 $ 0.85 $ 1.05
========= ========= ========= ========= =========
Diluted earnings per common share:
Income before extraordinary item $ 2.37 $ 1.36 $ 1.54 $ 0.85 $ 1.05
Extraordinary loss, net of minority interest -- (0.21) -- -- --
--------- --------- --------- --------- ---------
Net income $ 2.37 $ 1.15 $ 1.54 $ 0.85 $ 1.05
========= ========= ========= ========= =========
Distributions per common share $ 1.42 $ 1.34 $ 1.32 $ 1.32 $ 1.29
Net cash provided by (used in):
Operating activities $ 51,586 $ 44,827 $ 31,633 $ 12,733 $ 10,877
Investing activities $(131,820) $(122,649) $ (16,715) $ (9,953) $ (33,653)
Financing activities $ 75,487 $ 75,107 $ (8,153) $ (2,276) $ 22,019
Funds from operations* $ 52,316 $ 42,710 $ 30,630 $ 15,249 $ 12,382
Total assets at end of year $ 968,680 $ 668,791 $ 502,284 $ 180,545 $ 166,579
Total debt at end of year $ 472,375 $ 302,710 $ 188,894 $ 39,394 $ 66,748
</TABLE>
*We compute funds from operations ("FFO") in accordance with the March 1995
"White Paper" on FFO published by the National Association of Real Estate
Investment Trusts ("NAREIT"), as income before allocation to minority interest
(computed in accordance with generally accepted accounting principles),
excluding gains or losses from debt restructuring and sales of property, plus
depreciation and amortization, and after preferred stock distributions and
adjustments for unconsolidated partnerships. Adjustments for unconsolidated
partnerships are computed to reflect FFO on the same basis. In computing FFO, we
do not add back to net income the amortization of costs incurred in connection
with our financing activities or depreciation of non-real estate assets, but do
add back to net income significant non-recurring events that materially distort
the comparative measurement of company performance over time.
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> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
General
Unless otherwise required by the context, references to the "Company" below
include references to Bradley Operating Limited Partnership (the "Operating
Partnership") through which the Company owns its properties and conducts its
business.
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, developments and other capital
expenditures primarily from the line of credit and, to a lesser extent,
operating cash flows, as well as through the issuance of debt and equity
securities. The Company may also acquire properties through the direct issuance
of debt and equity securities of the Company, or through the issuance of Limited
Partner Units ("LP Units") of the Operating Partnership to the seller or
contributor of the acquired properties. Additionally, the Company may dispose of
certain non-core properties, reinvesting the proceeds from such dispositions
into properties with better growth potential and that are more consistent with
the Company's strategic focus. In addition, the Company may acquire partial
interests in real estate assets through participation in joint venture
transactions.
The Company focuses its investment activities on community and neighborhood
shopping centers, primarily located in the midwestern United States, anchored by
regional and national grocery store chains. The Company will continue to seek
acquisition opportunities of individual properties and property portfolios and
of private and public real estate entities in both primary and secondary Midwest
markets where management can utilize its extensive experience in shopping center
renovation, expansion, re-leasing and re-merchandising to achieve long-term cash
flow growth and favorable investment returns. Additionally, the Company may
engage in development activities, either directly or through contractual
relationships with independent development companies, to develop community and
neighborhood shopping centers in selected Midwest markets where management
anticipates that value can be created from new developments more effectively
than from acquisitions of existing shopping center properties.
The Company 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 and distribution
requirements for at least a year. Despite a current difficult capital markets
environment for REITs, the Company also believes it has sufficient liquidity and
flexibility to be able to continue to take advantage of favorable acquisition
and development opportunities. However, the utilization of available liquidity
for such opportunities will be carefully calibrated to changing market
conditions.
As of December 31, 1998, financial liquidity was provided by the Company's
unused balance on the line of credit of $80.5 million. In addition, the Company
has an effective "shelf" registration statement under which the Company may
issue up to $201.4 million in equity securities and an additional "shelf"
registration statement under which the Operating Partnership may issue up to
$400 million in unsecured, non-convertible investment grade debt securities. The
"shelf" registration statements provide the Company and its Operating
Partnership the flexibility to issue additional equity or debt securities from
time to time when management determines that market conditions and the
opportunity to utilize the proceeds from the issuance of such securities are
favorable. During the third quarter of 1998, the Operating Partnership
implemented a Medium-Term Note program providing it with the added flexibility
of issuing Medium-Term Notes due nine months or more from date of issue in small
amounts in an aggregate principal amount of up to $150 million from time to time
using the debt "shelf" registration in an efficient and expeditious manner.
As of December 31, 1998, the Company was also holding for sale six properties
with an aggregate book value of $46.5 million. Proceeds received from a sale of
any of such properties would provide additional liquidity to the Company. On
February 23, 1999, the Operating Partnership issued $50 million of 8.875% Series
B Cumulative Redeemable Preferred Units in a private placement. The net proceeds
of approximately $49 million were used to pay-down the line of credit with the
expectation that the increased borrowing capacity under the line of credit will
be used to develop or acquire additional shopping centers.
Mortgage debt outstanding at December 31, 1998 consisted of fixed-rate notes
totaling $103.3 million with a weighted average interest rate of 7.51% maturing
at various dates through 2016. In September 1998, approximately $10.0 million of
mortgage indebtedness, with an interest rate of 9.875%, was paid-off upon
maturity with cash provided by the line of credit. Short-term liquidity
requirements include debt service payments due within one year. Scheduled
principal amortization of mortgage debt totaled $1.1 million during 1998, with
another $2.5 million due in 1999. The Company has no maturing debt until
February 2000, when $6.0 million in mortgage debt becomes due, and December
2000, when the line of credit expires. The Company has historically been able to
refinance debt when it has become due on terms which it believes to be
commercially reasonable. While the Company currently expects to fund long-term
liquidity requirements primarily through a combination of issuing additional
investment grade unsecured debt securities and equity securities and with
borrowings under the bank line of credit, there can be no assurance that the
Company will be able to repay or refinance its indebtedness on commercially
reasonable or any other terms.
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<PAGE> 25
Operating Activities
Net cash flows provided by operating activities increased to $51,586,000 during
1998, from $44,827,000 during 1997 and $31,633,000 in 1996. These increases were
due primarily to the growth of the Company's portfolio.
Funds from operations ("FFO") increased $9,606,000 or 22% during 1998, from
$42,710,000 in 1997 to $52,316,000 in 1998. FFO increased by $12,080,000 or 39%
during 1997 from $30,630,000 in 1996. The Company generally considers FFO to be
a relevant and meaningful supplemental measure of the performance of an equity
REIT because it is predicated on a cash flow analysis, contrasted with net
income, a measure predicated on generally accepted accounting principles which
gives effect to non-cash items such as depreciation. In response to the recently
issued Statement of Financial Accounting Standards No. 128, Earnings Per Share
("Statement No. 128"), the Company has modified its presentation of the
calculation of FFO to reflect the potential dilution of the weighted average
shares outstanding that could occur if LP Units were converted into common stock
on a one-for-one basis as provided in the Operating Partnership Agreement. The
effect on the calculation of FFO assuming the conversion of LP Units into common
stock results in the addition to net income of the income allocated to minority
interest since, for the Company, such allocation represents the income allocated
to the LP Unit holders. Therefore, FFO, computed in accordance with the March
1995 "White Paper" on FFO published by the National Association of Real Estate
Investment Trusts ("NAREIT"), as modified by the effects of Statement No. 128,
and as followed by the Company, represents income before allocation to minority
interest (computed in accordance with generally accepted accounting principles),
excluding gains or losses from debt restructuring and sales of property, plus
depreciation and amortization, and after preferred stock distributions and
adjustments for unconsolidated partnerships. Adjustments for unconsolidated
partnerships are computed to reflect FFO on the same basis. 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, but does add back to net income significant
non-recurring events that materially distort the comparative measurement of
company performance over time. In 1997, in computing FFO the Company added back
to net income $3,415,000 of non-recurring stock-based compensation. The effect
of applying Statement No. 128 to weighted average shares results in the addition
of the weighted average LP Units outstanding during the reporting period to the
weighted average shares outstanding used in the basic EPS computation, resulting
in no effect on FFO per share compared with the previous method of presentation.
The Company intends to restate all comparative prior periods in future financial
reports to reflect the modification to the presentation of the FFO calculation.
FFO does not represent cash generated from operating activities in accordance
with generally accepted accounting principles and should not be considered as an
alternative to cash flow as a measure of liquidity. Since the NAREIT White Paper
provides guidelines only for computing FFO, the computation of FFO may vary from
one REIT 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
$131,820,000 during 1998, from a net use of cash of $122,649,000 in 1997 and a
net use of cash of $16,715,000 in 1996.
On August 6, 1998, the Company completed the merger acquisition of Mid-America
Realty Investments, Inc. ("Mid-America") after approval by the stockholders of
Mid-America (the "Merger"). The Merger was completed through the issuance of 3.5
million shares of a newly created 8.4% Series A Convertible Preferred Stock, the
payment of certain transaction costs and the assumption of all of Mid-America's
liabilities, making the purchase price approximately $159 million. The Merger
was structured as a tax-free transaction, and was accounted for using the
purchase method of accounting. Upon completion of the Merger, the Company
acquired Mid-America's 22 retail properties aggregating approximately 2.7
million square feet located primarily in the Midwest, and succeeded to
Mid-America's 50% general partner interest in a joint venture which owns two
neighborhood shopping centers and one enclosed mall.
During 1998, in addition to the properties acquired in connection with the
Merger, the Company completed the acquisitions of 22 shopping centers located in
Illinois, Indiana, Kansas, Kentucky, Michigan, Missouri, Ohio and Wisconsin
aggregating 3.0 million square feet for a total purchase price of approximately
$202.8 million. Also, during 1998, the Company completed the sales of a 640,000
square-foot mixed-use property located in the "loop" area of downtown Chicago
for a net sales price of approximately $82.1 million, and a 46,000 square-foot
shopping center located in Iowa for a net sales price of approximately $1.9
million.
During 1997, the Company acquired 25 shopping centers aggregating 3.1 million
square feet at an aggregate cost of approximately $189.3 million. Shopping
center acquisitions during 1998 and 1997 were funded through a combination of
cash provided by the line of credit, the assumption of secured mortgage
indebtedness, and the issuance of LP Units which are redeemable in exchange for
common stock.
During 1997, the Company completed the sales of three properties located in New
England for an aggregate net sales price of $19.4 million. These properties were
held for sale at December 31, 1996 because such properties were not aligned with
the Company's strategic market focus. Additionally, the Company completed the
sale of Meadows Town Mall during 1997 for a net sales price of
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<PAGE> 26
$5.9 million redeploying the proceeds from the sale toward the acquisitions of
additional shopping centers. This property was acquired in the merger
acquisition of Tucker Properties Corporation ("Tucker") in March 1996 (the
"Tucker Acquisition") and was considered by management to be a non-core
property.
Financing Activities
Net cash flows provided by financing activities increased to $75,487,000 in 1998
from $75,107,000 during 1997 and from a net use of cash of $8,153,000 during
1996. Distributions to common and preferred share owners as well as to the
minority interest (treated as a reduction in cash flows from financing
activities in the Company's financial statements) were $39,354,000 in 1998,
$30,504,000 in 1997, and $23,477,000 in 1996.
In November 1997, the Operating Partnership issued $100 million, 7% seven-year
unsecured Notes maturing November 15, 2004, which were rated "BBB-" by Standard
& Poor's Investment Services ("Standard & Poor's") and "Baa3" by Moody's
Investors Service ("Moody's"). The debt securities were issued from a "shelf"
registration filed in September 1997 under which the Operating Partnership could
issue up to $300 million in unsecured non-convertible investment grade debt
securities. The Company utilized the proceeds to prepay a $100 million, 7.23%
mortgage note that had been issued to a trust qualifying as a real estate
mortgage investment conduit for federal income tax purposes (the "REMIC Note").
The REMIC Note was secured by six properties and was originally scheduled to
expire in September 2000. Prepayment of the REMIC Note resulted in an
extraordinary loss on prepayment of debt of $4,054,000 (net of the minority
interest portion), consisting primarily of a prepayment yield maintenance fee.
However, issuance of such unsecured debt extended the Company's weighted average
debt maturity and resulted in a slightly lower effective interest rate on $100
million of debt, while the prepayment of the REMIC Note resulted in the
discharge from the mortgage securing the REMIC Note of properties having an
aggregate gross book value of $181.2 million. The outstanding balance of the
unsecured Notes at December 31, 1998, net of the unamortized discount, was
$99,814,000. The effective interest rate on the unsecured Notes is approximately
7.194%.
In January 1998, the Operating Partnership issued $100 million, 7.2% ten-year
unsecured Notes maturing January 15, 2008 from the aforementioned "shelf"
registration. The issue was rated "BBB-" by Standard & Poors and "Baa3" by
Moody's. Proceeds from the offering were used to pay amounts outstanding under
the bank line of credit which had been increased throughout 1997 primarily for
the acquisitions of additional shopping centers. The outstanding balance of the
unsecured Notes at December 31, 1998, net of the unamortized discount, was
$99,728,000. The effective interest rate on the unsecured Notes is approximately
7.611%.
In May 1998, the Company filed a "shelf" registration under which the Operating
Partnership may issue up to $400 million in unsecured, non-convertible
investment grade debt securities. The "shelf" registration gives the Operating
Partnership the flexibility to issue additional debt securities from time to
time when management determines that market conditions and the opportunity to
utilize the proceeds from the issuance of such securities are favorable. During
September 1998, the Operating Partnership implemented a Medium-Term Note Program
providing it with the added flexibility of issuing Medium-Term Notes due nine
months or more from the date of issue in small amounts in an aggregate principal
amount of up to $150 million from time to time using the debt "shelf"
registration in an efficient and expeditious manner.
In December 1997, the Operating Partnership entered into a new $200 million
unsecured line of credit facility with a syndicate of banks, lead by First
Chicago NBD and BankBoston, replacing the previous $150 million unsecured line
of credit facility. In November 1998, the Operating Partnership amended the line
of credit facility, increasing the maximum capacity to $250 million. The line of
credit bears interest at a rate equal to the lowest of (i) the lead bank's base
rate, (ii) a spread over LIBOR ranging from 0.70% to 1.25% depending on the
credit rating assigned by national credit rating agencies, or (iii) for amounts
outstanding up to $150 million, a competitive bid rate solicited from the
syndicate of banks. Based on the Operating Partnership's current credit rating
assigned by Standard & Poor's and Moody's, the spread over LIBOR is 1.00%.
Additionally, there is a facility fee currently equal to $375,000 per annum. In
the event the current credit ratings were downgraded by either Standard & Poor's
or Moody's, the facility fee would increase to $625,000 per annum, and the
spread over the base rate would increase by 0.25% and the spread over LIBOR
would increase to 1.25%. The line of credit is guaranteed by the Company and
matures in December 2000. The line of credit is available for the acquisition,
development, renovation and expansion of new and existing properties, working
capital and general business purposes. In 1997, the Company incurred an
extraordinary loss on the prepayment of debt of $577,000 (net of the minority
interest portion) in connection with replacing the previous line of credit. At
December 31, 1998, the weighted average interest rate on the line of credit was
6.65%.
In 1997, the Company filed a "shelf" registration statement, under which it
could issue up to $234.4 million of equity securities through underwriters or in
privately negotiated transactions from time to time. On December 1, 1997, the
Company completed an offering of 990,000 shares of its common stock from the
"shelf" registration at a price to the public of $20.375 per share. Net proceeds
from the offering of $19.2 million were used to reduce outstanding indebtedness
under the line of credit. The shares were sold under a program entered into with
PaineWebber Incorporated ("PaineWebber") on October 21, 1997, pursuant to which
the Company had the right, but not the obligation, until April 21, 1998, to sell
shares of its common stock at the market price on the day following
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<PAGE> 27
notification to PaineWebber of its intent to sell common stock to PaineWebber,
acting as underwriter, with an aggregate value up to $60 million, in amounts
ranging from $5 million to $20 million per transaction. The Agreement provided
the Company with the ability to match its capital expenditure needs for pending
and future acquisitions with contemporaneous capital raising transactions
whenever the Company was in a position to utilize the proceeds from an equity
offering, without being forced to dilute earnings because of an obligation to
issue equity prior to such time. No further shares were sold under the program,
which expired April 21, 1998. The Company completed an additional offering of
300,000 shares of its common stock on December 10, 1997 at a price to the public
of $20.50 per share. Net proceeds from the offering of $5.7 million were used to
reduce outstanding indebtedness under the line of credit. In February 1998, the
Company issued 392,638 shares of common stock from the "shelf" registration at a
price based upon the then market value of $20.375 per share. Net proceeds from
the offering of approximately $7.6 million were used to reduce outstanding
borrowings under the line of credit.
During 1996, the Company completed a public offering of 2,875,000 shares of
common stock at a price of $16.50 per share. Net proceeds from the offering of
approximately $44.9 million were used to reduce outstanding borrowings under the
line of credit.
The Company revised its Dividend Reinvestment and Stock Purchase Plan during the
fourth quarter of 1998, increasing the amount raised under such plan to $6
million during 1998 from $770,000 and $196,000 respectively during 1997 and
1996.
Capital Strategy
As of December 31, 1998, the Company was holding for sale six non-core
properties, consisting of four enclosed malls and two community shopping
centers, all acquired in connection with the Merger acquisition of Mid-America.
The net book value of these properties, $46.5 million, has been classified on
the consolidated balance sheet as "Real estate investments held for sale." The
four enclosed malls are not aligned with the Company's strategic property focus.
The remaining two shopping center properties are located in the Southeast region
of the United States, and are not aligned with the Company's strategic market
focus. Although the spread between the yield generated by the four enclosed
malls and the immediate and ultimate redeployment of the sales proceeds may be
dilutive to earnings in the near term, management believes the proceeds can be
better invested in properties with higher growth potential and risk adjusted
returns. The Company expects to use the net proceeds from such sale or sales to
reduce outstanding indebtedness under the line of credit with the expectation
that the increased borrowing capacity under the line of credit would be used to
acquire or develop additional shopping centers within its target markets that
are more in keeping with the Company's grocery-anchored community shopping
center focus. There can be no assurance that any sales will be completed or
that, if a sale is completed, the net proceeds will be redeployed into
investments with favorable economic conditions.
Management believes that the Company's continued growth and operating
performance have enhanced the Company's ability to further raise both equity and
debt capital in the public markets at such time as management determines that
market conditions and the opportunity to utilize the proceeds from the issuance
of securities are favorable. As indicated above, the Company has positioned
itself to take advantage of favorable opportunities by increasing the maximum
capacity under the line of credit facility, increasing the dollar amount of debt
securities that it may issue pursuant to a "shelf" registration statement and by
implementing a Medium-Term Note Program. However, a softening in the equity
capital markets and general reduction in liquidity in the debt capital markets
have limited the Company's ability to raise new capital from external sources.
Despite demanding higher returns on tighter investment capital, the Company
continues to identify favorable acquisition, development, and redevelopment
opportunities from both prospective acquisitions in its target markets and from
shopping centers in its core portfolio. The Company is exploring alternative
sources of investment capital including joint venture alternatives in order to
conserve liquidity while taking advantage of favorable investment opportunities.
To the extent that external capital remains constrained or prohibitively
expensive, the level of new investment will be aligned to match capital flows
accordingly. Attractive investment opportunities may be financed with the line
of credit, proceeds from the sale of non-core assets, internally generated
retained cash, and possible joint ventures. The Company will continue to
judiciously use its flexibility in evaluating investment opportunities in order
to maximize value to its share owners.
Year 2000 Issues
The statements under this caption include "Year 2000 readiness disclosure"
within the meaning of the Year 2000 Information and Readiness Disclosure Act.
Many existing computer software programs and operating systems were designed
such that the year 1999 is the maximum date that they will be able to process
accurately. The failure of the Company's computer software programs and
operating systems to process the change in calendar year from 1999 to 2000 may
result in system malfunctions or failures. In the conduct of its own operations,
the Company relies on equipment manufacturers and commercial computer software
primarily provided by independent software vendors, and has undertaken an
assessment of its vulnerability to the so-called "Year 2000 issue" with respect
to its equipment and computer systems.
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<PAGE> 28
The Company has undertaken a five-step program in order to achieve Year 2000
readiness including:
- - Awareness - Education involving all levels of Bradley personnel
regarding Year 2000 implications.
- - Inventory - Creating a checklist and conducting surveys to identify
Year 2000 compliance issues in all systems, including both mechanical
and information systems. The surveys were also designed to identify
critical outside parties such as banks, tenants, suppliers and other
parties with whom the Company does a significant amount of business,
for purposes of determining potential exposure in the event such
parties are not Year 2000 compliant.
- - Assessment - Based upon the results of the inventory and surveys,
assessing the nature of identified Year 2000 issues and developing
strategies to bring the Company's systems into substantial compliance
with respect to Year 2000.
- - Correction and Testing - Implementing the strategy developed during the
assessment phase.
- - Implementation - Incorporating repaired or replaced systems into the
Company's systems environment.
The program, which is ongoing, has yielded the following conclusions:
With respect to its potential exposure to information technology systems,
including the Company's accounting and lease management systems, the Company
believes that such commercial software is Year 2000 compliant. This assessment
is based upon installation and testing of upgraded software provided by software
vendors, as well as formal and informal communications with software vendors and
literature supplied with certain software. The Company has incurred minimal
costs associated with bringing its information technology systems to be Year
2000 compliant.
In the operation of its properties, the Company has acquired equipment with
embedded technology such as microcontrollers which operate heating, ventilation
and air conditioning systems ("HVAC"), fire alarms, security systems, telephones
and other equipment utilizing time-sensitive technology. The Company has
substantially completed its evaluation of the potential exposure to such
non-information technology systems and does not expect to incur more than
$50,000 to become Year 2000 compliant. This assessment is based upon formal and
informal communications with software vendors, literature supplied with the
software, literature supplied in connection with maintenance contracts, and test
evaluations of the software.
The failure of the Company's tenants' or suppliers' computer software programs
and operating systems to process the change in calendar year from 1999 to 2000
may also result in system malfunctions or failures. Such an occurrence would
potentially affect the ability of the affected tenant or supplier to operate its
business and thereby raise adequate revenue to meet its contractual obligations
to the Company. As a result, the Company may not receive revenue or services it
had otherwise expected to receive pursuant to existing leases and contracts. The
Company has completed an inventory of the tenants, suppliers and other parties
with whom the Company does a significant amount of business and is in the
process of surveying such parties to identify the potential exposure in the
event they are not Year 2000 compliant in a timely manner. The Company expects
to have responses from such parties by May 1999. However, at this time, the
Company is not aware of any party that is anticipating a material Year 2000
compliance issue. Although the investigations and assessments of possible Year
2000 issues are still in a preliminary stage, the Company does not anticipate a
material impact on its business, operations or financial condition even if one
or more parties is not Year 2000 compliant in a timely manner, because the
number and nature of the Company's tenant base are diverse, and because the
Company does not rely on a concentration of suppliers and other parties to
conduct its business.
Although the Company is aware that it may not, in fact, be Year 2000 compliant
upon the year 2000, at this time the Company has not adopted a contingency plan
for the conduct of its own operations because the Company expects to be Year
2000 compliant in advance of 2000. However, the Company will continue to monitor
its progress and state of readiness, and will be prepared to adopt a contingency
plan with respect to areas in which evidence arises that it may not become Year
2000 compliant in sufficient time. It is possible that an aggregation of
tenants, suppliers, and other parties who experience Year 2000 related system
malfunctions or failures may have a material impact on the Company's business,
operations, and financial condition. Although the Company believes that it will
be able to adopt appropriate contingency plans to deal with any Year 2000
compliance issue that any other party, excluding public utilities, with whom the
Company has significant relationships may experience as it continues its Year
2000 assessment and testing, it cannot be certain at this time that such
contingency plans will be effective in limiting the harm caused by such third
parties' system malfunctions and failures.
The reasonably likely worst case scenario that could affect the Company's
operations would be a widespread prolonged power failure affecting a substantial
portion of the Midwestern states in which the Company's shopping centers are
located. In the event of such a widespread prolonged power failure, a
significant number of tenants may not be able to operate their stores and, as a
result, their ability to pay rent could be substantially impaired. The Company
is not aware of an economically feasible contingency plan which could be
implemented to prevent such a power failure from having a material adverse
effect on the Company's operations.
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RESULTS OF OPERATIONS
1998 Compared to 1997
Net income attributable to common share owners for 1998 totaled $56,598,000
compared with $25,127,000 for the prior year. Net income for 1998 included a net
gain of $29,680,000 on the sale of two of the Company's non-core properties. Net
income for 1997 included a net gain of $7,438,000 on the sale of four non-core
properties over the course of the year, a non-recurring charge of $3,415,000 for
certain stock-based compensation, and an extraordinary charge of $4,631,000 for
costs incurred in connection with the prepayment of the REMIC Note and the
write-off of costs associated with the Company's former line of credit. Income
before the net gain on sale of properties, extraordinary item and before income
allocated to minority interest increased from $23,436,000 to $33,157,000, or
41%. Distributions on the newly created Series A Preferred Stock issued in
connection with the Merger acquisition of Mid-America, amounted to $2,922,000
for the period August 6, 1998 through December 31, 1998. Basic net income per
common share increased from $1.15 per share in 1997 to $2.39 per share in 1998.
The computation of diluted net income per share resulted in a $0.02 per share
reduction in the Company's basic net income per share from $2.39 to $2.37 for
1998, but had no effect on the Company's basic net income per share for 1997.
Upon completion of the Merger acquisition of Mid-America on August 6, 1998, the
Company acquired Mid-America's 22 retail properties located primarily in the
Midwest, and succeeded to Mid-America's 50% general partner interest in
Mid-America Bethal Limited Partnership (renamed Bradley Bethal Limited
Partnership), a joint venture which owns two neighborhood shopping centers and
one enclosed mall. Under the purchase method of accounting, the results of
operations of Mid-America have been included in the Company's consolidated
financial statements from the date of acquisition.
During 1998, in addition to the properties acquired in connection with the
Merger, the Company acquired 22 shopping centers for a total purchase price of
approximately $202.8 million, and sold two non-core properties. During 1997, the
Company acquired 25 shopping centers at an aggregate cost of approximately
$189.3 million and sold four non-core properties. Results of operations for
properties consolidated for financial reporting purposes and held throughout
both 1998 and 1997 included 29 properties. Results of operations for properties
consolidated for financial reporting purposes and purchased or sold subsequent
to January 1, 1997 through December 31, 1998 included 72 properties. As of
December 31, 1998, the Company owned 95 shopping centers consolidated for
financial reporting purposes.
Property Specific Revenues and Expenses (in thousands of dollars)
<TABLE>
<CAPTION>
Properties
Acquisitions/ held both
1998 1997 Difference dispositions years
-------- ------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Rental income $128,444 $ 96,115 $ 32,329 $ 33,088 $ (759)
Other property income $ 2,051 $ 701 $ 1,350 $ 985 $ 365
Operations, maintenance and management $ 18,915 $ 14,012 $ 4,903 $ 4,376 $ 527
Real estate taxes $ 21,713 $ 18,398 $ 3,315 $ 3,411 $ (96)
Depreciation and amortization $ 22,974 $ 16,606 $ 6,368 $ 4,249 $ 2,119
</TABLE>
Results attributable to acquisition and disposition activities
Rental income increased from $96,115,000 in 1997 to $128,444,000 in 1998, an
increase of $32,329,000. Approximately $42,294,000 of the increase was
attributable to the Company's acquisition activities, including $9,597,000 for
properties acquired in the Merger acquisition of Mid-America partially offset by
$9,206,000 attributable to disposition activities, primarily One North State.
Other property income increased from $701,000 in 1997 to $2,051,000 in 1998, an
increase of $1,350,000. Since almost no other property income was generated from
properties that were sold, substantially all of the $985,000 increase for
acquisitions and dispositions was attributable to the Company's acquisition
activities. Approximately $413,000 of other property income was generated from
properties acquired in the Merger, most of which is attributable to other
property income at four enclosed malls. Approximately $365,000 of the increase
in other property income was attributable to properties held both years.
Operations, maintenance and management expense increased from $14,012,000 in
1997 to $18,915,000 in 1998, an increase of $4,903,000. Approximately $4,376,000
of the net increase was attributable to the Company's acquisition and
disposition activities, including $1,699,000 for properties acquired in the
Merger.
Real estate taxes increased from $18,398,000 in 1997 to $21,713,000 in 1998, an
increase of $3,315,000. Real estate taxes incurred for properties acquired
during both years, net of real estate taxes eliminated for properties sold, of
approximately $3,411,000 accounted for substantially all of the increase.
29
<PAGE> 30
Depreciation and amortization increased from $16,606,000 in 1997 to $22,974,000
in 1998, an increase of $6,368,000. Approximately $4,249,000 of the net increase
was attributable to the Company's acquisition and disposition activities, while
approximately $2,119,000 was attributable to properties held both years.
Results for properties fully operating throughout both years
On May 22, 1998, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board reached a consensus under Issue No. 98-9, Accounting
for Contingent Rent in Interim Financial Periods, that despite the fact that the
achievement of a future specified sales target of a lessee may be considered as
probable and reasonably estimable at some earlier point in the year, a lessor
should defer recognition of contingent rental income until such specified
targets are met. The pronouncement was effective May 23, 1998. Previously, the
Company recognized percentage rental income each period based on reasonable
estimates of tenant sales. Largely due to the implementation of EITF No. 98-9,
percentage rental income for properties held throughout both years decreased by
$595,000.
Including the reduction for percentage rental income of $595,000, total rental
income for properties held throughout both years decreased $759,000, or
approximately 1%. Decreases in rental income of $755,000 at Heritage Square,
$543,000 at Sun Ray Shopping Center, $386,000 at High Point Centre, and $226,000
at Har Mar Mall were partially offset by increases of $485,000 at Westview
Center and $359,000 at Grandview Plaza. The decrease at Heritage Square was
caused by an expected vacancy of Montgomery Ward in the first quarter of 1998,
following the tenant's declaration of bankruptcy in 1997. A 62,000 square-foot
lease with Carson Pirie Scott has been signed, expected to commence in the
second half of 1999, to replace approximately one half the space previously
occupied by Montgomery Ward. The decrease at Sun Ray Shopping Center was
primarily due to a $172,500 termination payment received in the second quarter
of 1997 combined with a reduction in real estate tax recoveries of $358,000
resulting from the negotiation of real estate tax reductions of $450,000 for the
prior year. The decrease in rental income at High Point Centre was due to the
termination of a lease with T.J. Maxx in the second quarter of 1998, resulting
from the consolidation of T.J. Maxx and Marshalls stores. The reduction in
rental income at Har Mar Mall primarily resulted from the vacancy of HomePlace
in the third quarter of 1998, after this tenant declared bankruptcy in January
1998. Although the Company is in negotiations to replace the tenant, a reduction
in rental income at this property is expected in future quarters. Except for the
significant vacancy of HomePlace, however, leasing activity was strong at this
property. Increases in real estate tax recoveries at Westview Center resulted
from an increase in real estate taxes of $318,000 due to the negotiation of tax
reductions at this center in the prior year. The increase in rental income at
Westview Center is also attributable to a 60,000 square-foot lease with Waccamaw
Pottery commencing in the fourth quarter of 1997. The increase in rental income
at Grandview Plaza was primarily due to the commencement of a 30,000 square-foot
lease with OfficeMax in the fourth quarter of 1997.
Despite the competitive retail climate that contributed to the vacancies
described above, in addition to the lease with Carson Pirie Scott at Heritage
Square, several significant new leases were signed during 1998 that are expected
to contribute to increases in rental income at such properties in future
quarters. A 30,000 square-foot lease at Commons of Crystal Lake was signed with
Toys 'R Us in the third quarter of 1998, commencing in the first quarter of 1999
for half of the space formerly occupied by Jewel, which opened its newly
expanded 71,000 square-foot space at this center in the third quarter of 1998. A
28,000 square-foot lease was also signed with Marshalls at Commons of Crystal
Lake, expected to commence in the second quarter of 1999. Rental income is
expected to increase at Rollins Crossing due to a 71,000 square-foot lease with
Regal Cinema commencing in October 1998, and at Sun Ray Shopping Center due to a
newly signed lease for 26,000 square feet with Bally's Total Fitness, expected
to commence in the first half of 1999. Rental income is also expected to
increase at High Point Centre due to a new 36,000 square-foot lease with Babies
'R Us. Additional leases commencing late in the fourth quarter of 1998 expected
to contribute to increases in rental income include a 24,000 square-foot lease
with Dunham's Athleisure at Burning Tree Plaza and a 22,000 square-foot lease
with Pep Boys at Brookdale Square.
The remaining $527,000 increase in operations, maintenance and management
expense during 1998 was primarily attributable to an increase in bad debt
expense, mostly to reserve a deferred rent receivable balance for HomePlace in
the first quarter.
The remaining $96,000 decrease in real estate taxes during 1998 was primarily
attributable to the aforementioned reduction at Sun Ray Shopping Center, as well
as a reduction of approximately $521,000 at Village Shopping Center due to
negotiated abatements, partially offset by the aforementioned increase at
Westview Center as well as an increase of approximately $540,000 at Commons of
Chicago Ridge.
The remaining $2,119,000 increase in depreciation and amortization during 1998
was attributable to new construction and leasing at Westview Center, Burning
Tree Plaza, Village Shopping Center, and Sun Ray Shopping Center as well as new
tenancies at various other locations, combined with the write-off of costs for
HomePlace at Har Mar Mall and Montgomery Ward at Heritage Square due to their
vacancies.
30
<PAGE> 31
Non-Property Specific Expenses
Mortgage and other interest increased $11,119,000 from $16,562,000 in 1997 to
$27,681,000 in 1998. Interest expense on the line of credit, net of amounts
capitalized, increased from $6,605,000 to $7,897,000. The increase in interest
expense on the line of credit was due to a higher average outstanding balance
primarily as a result of borrowings for acquisitions during 1998, partially
offset by lower borrowing rates. The weighted average interest rate on
outstanding borrowings under the line of credit decreased to 6.70% in 1998 from
7.48% during 1997. Mortgage interest expense decreased from $9,221,000 in 1997
to $5,481,000 in 1998, primarily due to the prepayment of the REMIC Note in
November 1997 with proceeds from the issuance of unsecured Notes, partially
offset by interest incurred on the assumption of $25,753,000 in mortgage
indebtedness in connection with the acquisition of three shopping centers in
1998, and $37,933,000 in connection with the Merger, as well as a full year's
interest incurred on mortgages assumed in connection with the acquisition of
four shopping centers in 1997. Interest on the REMIC Note in 1997 amounted to
$6,631,000. The weighted average interest rate on mortgage debt outstanding at
December 31, 1998 was 7.51%. Interest on the $100 million, 7% unsecured Notes
issued in November 1997 and used to prepay the REMIC Note amounted to $736,000
in 1997 compared with $7,175,000 in 1998. Interest on the $100 million, 7.2%
unsecured Notes issued in January 1998 amounted to $7,057,000.
General and administrative expense increased from $5,123,000 in 1997 to
$7,183,000 in 1998. The increase is primarily a result of the growth of the
Company, including increases in salaries for additional personnel, investor
relations for a larger shareholder base, and franchise taxes and related fees
for a larger equity base and expanded geographic market. Further, the increased
focus on acquisition activity involves costs incurred in the evaluation process
which are non-recoverable and charged to general and administrative expense in
the case of acquisitions that are not consummated. During 1998, several
potential property acquisitions were abandoned as a result of a softening in the
equity capital markets and general decrease in liquidity in the debt capital
markets, as the Company decided to reevaluate the utilization of capital
resources and protect its liquidity, resulting in a charge to general and
administrative expense of approximately $300,000. Additionally, the Company had
historically capitalized portions of salaries of certain internal personnel
dedicated to the acquisition of properties on a successful efforts basis
allocated to completed acquisitions. On March 19, 1998, the EITF reached a
consensus under Issue No. 97-11, Accounting for Internal Costs Relating to Real
Estate Property Acquisitions, that internal costs of identifying and acquiring
operating properties should be expensed as incurred. The pronouncement was
effective March 19, 1998.
During 1997, the Company incurred an extraordinary loss on the prepayment of
debt of $577,000 (net of the minority interest portion) in connection with
replacing the previous line of credit, and incurred an extraordinary loss on the
prepayment of debt of $4,054,000 (net of the minority interest portion),
consisting primarily of a prepayment yield maintenance fee, in connection with
the prepayment of the REMIC Note.
During 1997, after working with an independent compensation consultant, the
Board of Directors terminated the Company's Superior Performance Incentive Plan
and substituted an award of approximately 115,000 shares of the Company's common
stock to certain senior executives, plus a cash amount to reimburse the
executives for taxes resulting from such award. As a result, a non-recurring
charge of $3,415,000 was included in the Company's 1997 financial statements.
1997 Compared to 1996
Net income for 1997 totaled $25,127,000, or $1.15 per share, compared with
$27,222,000, or $1.54 per share, for the prior year. Net income for 1996
included a gain of $9,379,000 on the sale of the Company's ground lease in
Minneapolis. Net income for 1997 included a net gain of $7,438,000 on the sale
of four non-core properties over the course of the year, a non-recurring charge
of $3,415,000 for certain stock-based compensation, and an extraordinary charge
of $4,631,000 for costs incurred in connection with the prepayment of the REMIC
Note in late November and the write-off of costs associated with the Company's
former line of credit. Weighted average common shares outstanding were
21,776,146 for 1997 compared with 17,619,546 for the prior year. The increased
shares primarily reflect the full year effect of a 2,875,000 share public
offering completed in November 1996 and the public offerings of 1,290,000 shares
completed in December 1997.
During 1997, the Company acquired 25 shopping centers and sold four shopping
centers. During 1996, the Company acquired sixteen properties, including
fourteen properties in connection with the Tucker Acquisition in March 1996, and
sold its interest in a ground lease.
Property Specific Revenues and Expenses (in thousands of dollars)
<TABLE>
<CAPTION>
Properties
Acquisitions/ held both
1997 1996 Difference dispositions years
------ ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Rental income $96,115 $77,512 $18,603 $17,722 $ 881
Operations, maintenance and management $14,012 $12,949 $ 1,063 $ 2,171 $ (1,108)
Real estate taxes $18,398 $16,787 $ 1,611 $ 2,129 $ (518)
Depreciation and amortization $16,606 $13,286 $ 3,320 $ 2,769 $ 551
</TABLE>
31
<PAGE> 32
Results attributable to acquisition and disposition activities
Rental income increased from $77,512,000 in 1996 to $96,115,000 in 1997, an
increase of $18,603,000. Approximately $17,722,000 of the net increase was
attributable to the Company's acquisition and disposition activities, of which
$8,933,000 primarily related to the full year effect of the Tucker Acquisition
in 1996.
Operations, maintenance and management expense increased from $12,949,000 in
1996 to $14,012,000 in 1997, an increase of $1,063,000. Approximately $2,171,000
of the net increase was attributable to the Company's acquisition and
disposition activities, of which $1,108,000 primarily related to the full year
effect of the properties acquired in the Tucker Acquisition, partially offset by
a $1,108,000 decrease for properties held both years.
Real estate taxes increased from $16,787,000 in 1996 to $18,398,000 in 1997, an
increase of $1,611,000. Approximately $2,129,000 of the net increase was
attributable to the Company's acquisition and disposition activities, of which
$866,000 primarily related to the full year effect of the Tucker Acquisition,
partially offset by a $518,000 decrease for properties held both years.
Depreciation and amortization increased from $13,286,000 in 1996 to $16,606,000
in 1997, an increase of $3,320,000. Approximately $2,769,000 of the net increase
was attributable to the Company's acquisition and disposition activities, of
which $1,575,000 primarily related to the full year effect of the Tucker
Acquisition.
Results for properties fully operating throughout both years
The remaining increase in rental income of $881,000 was primarily attributable
to increases at Har Mar Mall, Burning Tree Plaza and Crossroads Center
aggregating $1,006,000, partially offset by a decrease at Westview Center of
approximately $382,000. During the second half of 1996, the Company signed
leases at Har Mar Mall for approximately 26,000 square feet, or 6% of the
Center, contributing to an increase in 1997, since such leases were in place for
the full year. Additionally, higher sales for certain tenants at Har Mar Mall
contributed to an increase in percentage rents. The Best Buy store at Burning
Tree Plaza was expanded by approximately 18,000 square feet in March 1997,
contributing to the increased rental income at this property. The rental income
increase at Crossroads Centre was primarily due to an increase in occupancy.
Westview Center continued to suffer from the vacancy of Burlington Coat Factory
in 1994. Management actions with respect to the property included negotiating
reductions in the assessed value of the property, resulting in a $438,000
reduction in the real estate tax expense in 1997, more than offsetting the
reduction in rental income. Further, during 1997, the Company signed a 60,000
square-foot lease with Waccamaw Pottery, which commenced in October 1997. A new
lease of 55,000 square feet was signed with JC Penney at Commons of Chicago
Ridge which commenced in June 1997. A 30,000 square-foot lease was signed with
OfficeMax at Grandview Plaza which commenced in December 1997.
The remaining decrease in operations, maintenance and management expense of
$1,108,000 was primarily attributable to decreases at Rivercrest Center, Har Mar
Mall, Westview Center and Crossroads Centre, aggregating approximately $947,000.
The overall decreases were attributable to reductions in bad debt expense, as
well as snow removal due to a harsh winter in 1996.
The remaining decrease in real estate taxes of $518,000 was primarily
attributable to the aforementioned reduction at Westview Center as well as a
decrease of approximately $150,000 at Rivercrest Center.
The remaining increase in depreciation and amortization of $551,000 was
attributable to new construction and leasing at Burning Tree Plaza and Sun Ray
Shopping Center as well as new tenancies at various other locations.
Non-Property Specific Expenses
Mortgage and other interest increased from $13,404,000 in 1996 to $16,562,000 in
1997. Interest expense on the line of credit, net of amounts capitalized,
increased from $5,666,000 to $6,605,000. The increase in interest expense on the
line of credit was due to a higher average outstanding balance primarily as a
result of drawing approximately $138 million for acquisitions during 1997,
partially offset by lower borrowing rates negotiated through the amendment and
subsequent replacement of the previous $150 million line of credit with a new
$200 million line of credit. The weighted average interest rate on outstanding
borrowings under the line of credit decreased to 7.48% in 1997 from 7.84% during
1996. Mortgage interest expense increased from $7,738,000 in 1996 to $9,221,000
in 1997, primarily due to a longer interest period in 1997 on the REMIC Note
assumed in the Tucker Acquisition in 1996, but also due to the assumption of
$26,677,000 in mortgage indebtedness in connection with the acquisition of four
shopping centers during 1997. The weighted average interest rate on mortgage
debt outstanding at December 31, 1997 was 8.18%. Mortgage and other interest in
1997 also included $736,000 on $100 million of 7% unsecured Notes issued in
November 1997. The proceeds from the issuance were used to prepay the 7.23%
REMIC Note.
32
<PAGE> 33
The Company incurred an extraordinary loss on the prepayment of debt of $577,000
(net of the minority interest portion) in connection with replacing the previous
line of credit, and incurred an extraordinary loss on the prepayment of debt of
$4,054,000 (net of the minority interest portion), consisting primarily of a
prepayment yield maintenance fee, in connection with the prepayment of the REMIC
Note.
General and administrative expense increased from $3,532,000 in 1996 to
$5,123,000 in 1997 primarily resulting from increased personnel following 1996
and 1997 acquisition activity. In connection with the Company's moving its
headquarters from Boston, Massachusetts (where the Company was founded in 1961)
to Northbrook, Illinois, the Company incurred a one-time relocation charge of
$409,000 during 1996.
During 1997, after working with an independent compensation consultant, the
Board of Directors terminated the Company's Superior Performance Incentive Plan
and substituted an award of approximately 115,000 shares of the Company's common
stock to certain senior executives, plus a cash amount to reimburse the
executives for taxes resulting from such award. As a result, a non-recurring
charge of $3,415,000 was included in the Company's 1997 financial statements.
During 1996, the Company incurred a charge of $344,000, consisting of deferred
financing costs related to the Company's former bank line of credit and certain
deferred acquisition costs related to acquisitions which the Company chose not
to pursue due to the efforts required to finalize the Tucker Acquisition.
New Accounting Pronouncement
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities becomes effective for all fiscal quarters for
fiscal years beginning after June 15, 1999 and is not expected to have a
material impact on the Company's financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate changes primarily as a result of its
line of credit used to maintain liquidity and fund capital expenditures and
expansion of the Company's real estate investment portfolio. The Company's
interest rate risk management objective is to limit the impact of interest rate
changes on earnings and cash flows and to lower its overall borrowing costs. To
achieve its objectives the Company borrows primarily at fixed rates and may
enter into derivative financial instruments such as interest rate swaps, caps
and treasury locks in order to mitigate its interest rate risk on a related
financial instrument. The Company does not enter into derivative or interest
rate transactions for speculative purposes.
The Company's interest rate risk is monitored using a variety of techniques. As
of December 31, 1998, the Company's long-term debt consisted of fixed-rate
secured mortgage indebtedness, fixed-rate unsecured Notes, and a variable rate
line of credit facility. The average interest rate on the $103.3 million of
secured mortgage indebtedness outstanding at December 31, 1998 was 7.51%, with
maturities at various dates through 2016. The unsecured Notes with an
outstanding balance of $199.5 million at December 31, 1998, consist of $100
million, 7% seven-year unsecured Notes maturing November 15, 2004 with an
effective rate of 7.19%, and $100 million, 7.2% ten-year unsecured Notes
maturing January 15, 2008 with an effective rate of 7.61%. The weighted average
interest rate on the line of credit at December 31, 1998 was 6.65%. The line of
credit, with an outstanding balance at December 31, 1998 of $169.5 million,
matures December 2000. The carrying value of the line of credit at December 31,
1998 approximates its fair value.
The aggregate scheduled principal amortization of all debt consists of the
following at December 31, 1998:
1999 $ 2,547,000
2000 178,053,000
2001 5,437,000
2002 31,147,000
2003 8,192,000
Thereafter 246,999,000
-------------
$ 472,375,000
=============
As the table incorporates only those exposures that exist as of December 31,
1998, it does not consider those exposures or positions that could arise after
that date. Moreover, because future commitments are not presented in the table
above, the information presented has limited predictive value. As a result, the
Company's ultimate economic impact with respect to interest rate fluctuations
will depend on the exposures that arise during the period, the Company's hedging
strategies at that time, and interest rates.
33
<PAGE> 34
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.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is hereby incorporated by reference to
the text appearing under Part I, Item 4A. under the caption "Executive Officers
of the Registrant" in this Report, and by reference to the information under the
headings "Information Regarding Nominees and Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in our definitive Proxy Statement for
the 1999 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is hereby incorporated by reference to
the information under the headings "Compensation of Directors and Executive
Officers," "Report of the Compensation Committee," "Compensation Committee
Interlocks and Insider Participation," "Employment Agreements" and "Share
Performance Graph" in our definitive Proxy Statement for the 1999 Annual Meeting
of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is hereby incorporated by reference to
the information under the heading "Beneficial Ownership of Shares" in our
definitive Proxy Statement for the 1999 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is hereby incorporated by reference to
the information under the heading "Certain Relationships and Related Party
Transactions" in our definitive Proxy Statement for the 1999 Annual Meeting of
Stockholders.
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 Real N/A
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 Estate Trust and N/A
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 Corporation N/A
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.
34
<PAGE> 35
Exhibit No. Description Page
--------------------------------------------------------
3.4 Articles of Merger between Mid-America Realty N/A
Investments, Inc. and Bradley Real Estate, Inc.,
incorporated by reference to Exhibit 4.1 of the Company's
Current Report on Form 8-K dated August 7, 1998.
3.5 Articles Supplementary Establishing and Fixing the Rights N/A
and Preferences of a Series of Shares of Preferred Stock
for the 8.4% Series A Convertible Preferred Stock of
Bradley Real Estate, Inc. attached as Annex B to the
Proxy Statement/Prospectus included in Part I to the
Registration Statement on Form S-4 (File No. 333-57123)
and incorporated herein by reference.
3.6 Articles Supplementary Establishing and Fixing the Rights N/A
and Preferences of a Series of Shares of Preferred Stock
for the 8.875% Series B Cumulative Redeemable Preferred
Stock of Bradley Real Estate, Inc. incorporated by
reference to Exhibit 4.2 of the Company's Current Report
on Form 8-K dated March 3, 1999.
3.7 By-laws of Bradley Real Estate, Inc., incorporated by N/A
reference to Exhibit 3.3 of the Company's Current Report
on Form 8-K dated October 17, 1994.
4.1.1 Text of Indenture dated as of November 24, 1997 by and N/A
between Bradley Operating Limited Partnership and LaSalle
National Bank relating to the Senior Debt Securities of
Bradley Operating Limited Partnership, incorporated by
reference to Exhibit 4.1 to Bradley Operating Limited
Partnership's Registration Statement on Form S-3 (File
No. 333-36577) dated September 26, 1997.
4.1.2 Definitive Supplemental Indenture No. 1 dated as of N/A
November 24, 1997 between Bradley Operating Limited
Partnership and LaSalle National Bank, incorporated by
reference to Exhibit 4.1 of Bradley Operating Limited
Partnership's Current Report on Form 8-K dated November
24, 1997.
4.1.3 Definitive Supplemental Indenture No. 2 dated as of N/A
January 28, 1998 between Bradley Operating Limited
Partnership and LaSalle National Bank, incorporated by
reference to Exhibit 4.1 of Bradley Operating Limited
Partnership's Current Report on Form 8-K dated January
28, 1998.
10.1 Second Amended and Restated Agreement of Limited N/A
Partnership of Bradley Operating Limited Partnership
dated as of September 2, 1997, incorporated by reference
to Exhibit 3.1 of Bradley Operating Limited Partnership's
Registration Statement on Form 10 dated September 8,
1997.
10.1.2* Amendment, dated July 31, 1998, to Second Restated 38
Agreement of Limited Partnership of Bradley Operating
Limited Partnership.
10.1.3 Amendment, dated August 6, 1998, to Second Restated N/A
Agreement of Limited Partnership of Bradley Operating
Limited Partnership, designating the 8.4% Series A
Convertible Preferred Units, incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K
dated August 7, 1998.
10.1.4 Amendment, dated February 23, 1999, to Second Restated N/A
Agreement of Limited Partnership of Bradley Operating
Limited Partnership, designating the 8.875% Series B
Cumulative Redeemable Perpetual Preferred Units,
incorporated by reference to Exhibit 4.1 of the Company's
Current Report on Form 8-K dated March 3, 1999.
10.2.1 Unsecured Revolving Credit Agreement dated as of December N/A
23, 1997 among Bradley Operating Limited Partnership, as
Borrower and The First National Bank of Chicago,
BankBoston, N.A. and certain other banks, as Lenders, and
The First National Bank of Chicago, as Administrative
Agent and BankBoston, N.A., as Documentation Agent and
Bank of America National Trust & Savings Association and
Fleet National Bank as Co-Agents, incorporated by
reference to Exhibit 99.1 of the Company's Current Report
on Form 8-K dated December 19, 1997.
35
<PAGE> 36
Exhibit No. Description Page
----------- ----------- ----
10.2.2 Form of Guaranty made as of December 23, 1997 by Bradley N/A
Financing Partnership and Bradley Real Estate, Inc. for
the benefit of The First National Bank of Chicago,
incorporated by reference to Exhibit 99.4 of the
Company's Current Report on Form 8-K dated December 19,
1997.
10.2.3* Third Amendment to Unsecured Revolving Credit Agreement 40
dated as of November 23, 1998 among Bradley Operating
Limited Partnership, as Borrower and The First National
Bank of Chicago and other certain banks, as Lenders, and
The First National Bank of Chicago, as Administrative
Agent and BankBoston, N.A., as Documentation Agent and
Bank of America National Trust & Savings Association and
Fleet National Bank as Co-Agents.
10.3 1993 Stock Option and Incentive Plan, as amended and N/A
restated on September 9, 1996, incorporated by reference
to Exhibit 10.4 of the Company's Annual Report on Form
10-K405 dated March 19, 1997.
21.1* Subsidiaries of the Company. 56
23.1* Consent of KPMG LLP (regarding Form S-3 and Form S-8 57
Registration Statements).
27.1* Financial Data Schedule __
*Filed herewith.
(b) Reports on Form 8-K
The following Form 8-K was filed during the period October 1, 1998 through
December 31, 1998:
Form 8-K filed December 16, 1998 (earliest event February 13, 1998),
reporting in Item 5. and Item 7. a combined financial statement,
consistent with Regulation S-X, Rule 3.14, for properties accounting for
over 50% of the aggregate acquisition cost of a series of properties
acquired (or whose acquisition the Company considers probable) during the
period January 1, 1998 through December 14, 1998, in the aggregate
exceeding 10% of the total assets of the Company and its subsidiaries
consolidated at December 31, 1997.
The following Form 8-K and Form 8-K/A were filed subsequent to December 31,
1998:
(1) Form 8-K/A filed February 4, 1999 amending Item 7. of Form 8-K filed
September 24, 1998 (earliest event February 13, 1998), a combined
financial statement, consistent with Regulation S-X, Rule 3.14, for
properties accounting for over 50% of the aggregate acquisition cost
of a series of properties acquired (or whose acquisition the Company
considers probable) during the period January 1, 1998 through
September 23, 1998, in the aggregate exceeding 10% of the total
assets of the Company and its subsidiaries consolidated at December
31, 1997.
(2) Form 8-K filed March 3, 1999 (earliest event February 23, 1999),
reporting in Item 5. the issuance by Bradley Operating Limited
Partnership of 2,000,000 units of 8.875% Series B Cumulative
Redeemable Perpetual Preferred Units to two institutional investors
at a price of $25.00 per unit.
36
<PAGE> 37
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 26th day of March 1999.
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.
<TABLE>
<S> <C>
/s/ Thomas P. D'Arcy March 26, 1999
- ------------------------------------------------------------- --------------------------------------
Thomas P. D'Arcy, President, Chairman and CEO
/s/ Irving E. Lingo, Jr. March 26, 1999
- ------------------------------------------------------------- --------------------------------------
Irving E. Lingo, Jr., Chief Financial Officer and Treasurer
/s/ David M. Garfinkle March 26, 1999
- ------------------------------------------------------------- --------------------------------------
David M. Garfinkle, Controller
/s/ Stephen G. Kasnet March 26, 1999
- ------------------------------------------------------------- --------------------------------------
Stephen G. Kasnet, Director
/s/ W. Nicholas Thorndike March 26, 1999
- ------------------------------------------------------------- --------------------------------------
W. Nicholas Thorndike, Director
/s/ William L. Brown March 26, 1999
- ------------------------------------------------------------- --------------------------------------
William L. Brown, Director
/s/ Paul G. Kirk, Jr. March 26, 1999
- ------------------------------------------------------------- --------------------------------------
Paul G. Kirk, Jr., Director
/s/ Joseph E. Hakim March 26, 1999
- ------------------------------------------------------------- --------------------------------------
Joseph E. Hakim, Director
/s/ A. Robert Towbin March 26, 1999
- ------------------------------------------------------------- --------------------------------------
A. Robert Towbin, Director
</TABLE>
37
<PAGE> 38
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
PAGE
Financial Statements
<S> <C>
Consolidated Balance Sheets - December 31, 1998 and 1997 F2
For the years ended December 31, 1998, 1997 and 1996:
Consolidated Statements of Income F3
Consolidated Statements of Changes in Share Owners' Equity F4
Consolidated Statements of Cash Flows F5
Notes to Consolidated Financial Statements F6
Schedule
Schedule III - Real Estate and Accumulated Depreciation F19
Report of Independent Auditors for the years ended December 31, 1998, 1997 and 1996 F24
</TABLE>
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> 39
BRADLEY REAL ESTATE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1997
------------- -------------
ASSETS:
<S> <C> <C>
Real estate investments - at cost $ 936,465,000 $ 626,247,000
Accumulated depreciation and amortization (59,196,000) (40,574,000)
------------- -------------
Net real estate investments 877,269,000 585,673,000
Real estate investments held for sale 46,492,000 52,692,000
Other assets:
Cash and cash equivalents -- 4,747,000
Rents and other receivables, net of allowance for doubtful accounts of $4,078,000 for
1998 and $2,438,000 for 1997 14,994,000 13,038,000
Investment in partnership 13,249,000 --
Deferred charges, net and other assets 16,676,000 12,641,000
------------- -------------
Total assets $ 968,680,000 $ 668,791,000
============= =============
LIABILITIES AND SHARE OWNERS' EQUITY:
Mortgage loans $ 103,333,000 $ 51,227,000
Unsecured notes payable 199,542,000 99,783,000
Line of credit 169,500,000 151,700,000
Accounts payable, accrued expenses and other liabilities 29,415,000 25,086,000
------------- -------------
Total liabilities 501,790,000 327,796,000
------------- -------------
Minority interest 21,573,000 21,170,000
------------- -------------
Share Owners' equity:
Shares of preferred stock and paid-in capital, par value $.01 per share;
liquidation preference $25.00 per share:
Authorized 20,000,000 shares; 3,478,493 shares of Series A Convertible Preferred
Stock issued and outstanding 86,809,000 --
Shares of common stock and paid-in capital, par value $.01 per share:
Authorized 80,000,000 shares; issued and outstanding 23,958,662 and 22,999,120
shares at December 31, 1998 and 1997, respectively 349,254,000 333,452,000
Shares of excess stock, par value $.01 per share:
Authorized 50,000,000 shares; 0 shares issued and outstanding -- --
Retained earnings (distributions in excess of accumulated earnings) 9,254,000 (13,627,000)
------------- -------------
Total share owners' equity 445,317,000 319,825,000
------------- -------------
Total liabilities and share owners' equity $ 968,680,000 $ 668,791,000
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F2
<PAGE> 40
BRADLEY REAL ESTATE, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
REVENUE: Years Ended December 31,
-------------------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Rental income $ 128,444,000 $ 96,115,000 $ 77,512,000
Other income 2,593,000 1,437,000 1,327,000
------------- ------------- -------------
131,037,000 97,552,000 78,839,000
------------- ------------- -------------
EXPENSES:
Operations, maintenance and management 18,915,000 14,012,000 12,949,000
Real estate taxes 21,713,000 18,398,000 16,787,000
Mortgage and other interest 27,681,000 16,562,000 13,404,000
General and administrative 7,183,000 5,123,000 3,532,000
Non-recurring stock-based compensation -- 3,415,000 --
Corporate office relocation -- -- 409,000
Write-off of deferred financing and acquisition costs -- -- 344,000
Depreciation and amortization 22,974,000 16,606,000 13,286,000
------------- ------------- -------------
98,466,000 74,116,000 60,711,000
------------- ------------- -------------
Income before equity in earnings of partnership, net gain on sale of
properties and extraordinary item 32,571,000 23,436,000 18,128,000
Equity in earnings of partnership 586,000 -- --
Net gain on sale of properties 29,680,000 7,438,000 9,379,000
------------- ------------- -------------
Income before extraordinary item and allocation to minority interest 62,837,000 30,874,000 27,507,000
Income allocated to minority interest (3,317,000) (1,116,000) (285,000)
------------- ------------- -------------
Income before extraordinary item 59,520,000 29,758,000 27,222,000
Extraordinary loss on prepayment of debt, net of minority interest -- (4,631,000) --
------------- ------------- -------------
Net income 59,520,000 25,127,000 27,222,000
Preferred share distributions (2,922,000) -- --
------------- ------------- -------------
Net income attributable to common share owners $ 56,598,000 $ 25,127,000 $ 27,222,000
============= ============= =============
Basic earnings per common share:
Income before extraordinary item $ 2.39 $ 1.36 $ 1.54
Extraordinary loss on prepayment of debt, net of minority interest -- (0.21) --
------------- ------------- -------------
Net income $ 2.39 $ 1.15 $ 1.54
============= ============= =============
Diluted earnings per common share:
Income before extraordinary item $ 2.37 $ 1.36 $ 1.54
Extraordinary loss on prepayment of debt, net of minority interest -- (0.21) --
------------- ------------- -------------
Net income $ 2.37 $ 1.15 $ 1.54
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F3
<PAGE> 41
BRADLEY REAL ESTATE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHARE OWNERS' EQUITY
<TABLE>
<CAPTION>
Retained
earnings
(distributions
Preferred Common in excess of
shares and shares and accumulated
paid-in capital paid-in capital earnings) Total
--------------- --------------- --------- -----
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ -- $ 148,519,000 $ (13,421,000) $ 135,098,000
Net income -- -- 27,222,000 27,222,000
Distributions on common stock ($1.32 per share) -- -- (23,168,000) (23,168,000)
Common shares issued to acquire Tucker Properties
Corporation, net -- 103,698,000 -- 103,698,000
Issuance of stock, net of offering costs of $2,618,000 -- 44,851,000 -- 44,851,000
Dividend reinvestment participation -- 196,000 -- 196,000
Exercise of stock options -- 1,618,000 -- 1,618,000
Reallocation of minority interest -- 158,000 -- 158,000
Shares issued in exchange for Limited Partnership
units -- 52,000 -- 52,000
------------- ------------- ------------- -------------
Balance at December 31, 1996 -- 299,092,000 (9,367,000) 289,725,000
Net income -- -- 25,127,000 25,127,000
Distributions on common stock ($1.34 per share) -- -- (29,387,000) (29,387,000)
Issuance of stock, net of offering costs of $449,000 -- 24,892,000 -- 24,892,000
Dividend reinvestment participation -- 770,000 -- 770,000
Exercise of stock options -- 173,000 -- 173,000
Reallocation of minority interest -- 6,093,000 -- 6,093,000
Shares issued in exchange for Limited Partnership
units -- 17,000 -- 17,000
Non-recurring stock-based compensation -- 2,415,000 -- 2,415,000
------------- ------------- ------------- -------------
Balance at December 31, 1997 -- 333,452,000 (13,627,000) 319,825,000
Net income -- -- 59,520,000 59,520,000
Distributions on common stock ($1.42 per share) -- -- (33,717,000) (33,717,000)
Distributions on preferred stock ($1.05 per share) -- -- (2,922,000) (2,922,000)
Issuance of common stock, net of offering costs of $112,000 -- 7,489,000 -- 7,489,000
Preferred shares issued to acquire Mid-America Realty
Investments, Inc., net 86,839,000 -- -- 86,839,000
Preferred shares converted to common stock (30,000) 30,000 -- --
Dividend reinvestment and stock purchase plan
participation -- 6,049,000 -- 6,049,000
Exercise of stock options -- 4,000 -- 4,000
Reallocation of minority interest -- (390,000) -- (390,000)
Shares issued in exchange for Limited Partnership
units -- 2,620,000 -- 2,620,000
------------- ------------- ------------- -------------
Balance at December 31, 1998 $ 86,809,000 $ 349,254,000 $ 9,254,000 $ 445,317,000
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F4
<PAGE> 42
BRADLEY REAL ESTATE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
Cash flows from operating activities: 1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net income $ 59,520,000 $ 25,127,000 $ 27,222,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 22,974,000 16,606,000 13,286,000
Equity in earnings of partnership (586,000) -- --
Amortization of debt premiums, net of discounts (368,000) -- --
Extraordinary loss on prepayment of debt, net of minority interest -- 4,631,000 --
Non-recurring stock-based compensation -- 3,415,000 --
Net gain on sale of properties (29,680,000) (7,438,000) (9,379,000)
Write-off of deferred financing and acquisition costs -- -- 344,000
Income allocated to minority interest 3,317,000 1,116,000 285,000
Change in operating assets and liabilities, net of the effect of the
Mid-America and Tucker acquisitions in 1998 and 1996, respectively:
(Increase) decrease in rents and other receivables (3,523,000) (3,629,000) 1,659,000
Increase in accounts payable, accrued expenses and other liabilities 1,283,000 3,639,000 512,000
(Increase) decrease in deferred charges (1,351,000) 1,360,000 (2,296,000)
------------- ------------- -------------
Net cash provided by operating activities 51,586,000 44,827,000 31,633,000
------------- ------------- -------------
Cash flows from investing activities:
Expenditures for real estate investments (175,927,000) (137,945,000) (9,088,000)
Cash used for merger acquisitions, net of cash acquired (28,578,000) -- (2,130,000)
Expenditures for capital improvements (11,974,000) (9,985,000) (9,642,000)
Net proceeds from sale of properties 83,959,000 25,281,000 --
Excess proceeds from like-kind exchange of properties -- -- 4,145,000
Cash distributions from partnership 700,000 -- --
------------- ------------- -------------
Net cash used in investing activities (131,820,000) (122,649,000) (16,715,000)
------------- ------------- -------------
Cash flows from financing activities:
Borrowings from line of credit 246,950,000 148,600,000 132,500,000
Payments under line of credit (229,150,000) (60,400,000) (129,708,000)
Proceeds from issuance of unsecured notes payable 99,051,000 99,780,000 --
Expenditures for financing costs (6,500,000) (3,104,000) (1,468,000)
Repayment of mortgage loans (10,031,000) (100,000,000) (32,234,000)
Payments associated with prepayment of debt -- (4,444,000) --
Principal payments on mortgage loans (1,123,000) (656,000) (431,000)
Distributions paid to common share owners (33,717,000) (29,387,000) (23,168,000)
Distributions paid to minority interest holders (1,984,000) (1,117,000) (309,000)
Distributions paid to preferred share owners (3,653,000) -- --
Net proceeds from stock offerings 7,489,000 24,892,000 44,851,000
Proceeds from exercise of stock options 4,000 173,000 1,618,000
Net proceeds from dividend reinvestment and stock purchase plan 6,049,000 770,000 196,000
Cash disbursed but not presented to bank 2,102,000 -- --
------------- ------------- -------------
Net cash provided by (used in) financing activities 75,487,000 75,107,000 (8,153,000)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (4,747,000) (2,715,000) 6,765,000
Cash and cash equivalents:
Beginning of year 4,747,000 7,462,000 697,000
------------- ------------- -------------
End of year $ -- $ 4,747,000 $ 7,462,000
============= ============= =============
Supplemental cash flow information:
Interest paid, net of amount capitalized $ 23,440,000 $ 15,623,000 $ 13,366,000
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F5
<PAGE> 43
BRADLEY REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Bradley Real Estate, Inc. ("Bradley" or the "Company") is the nation's oldest
continuously qualified real estate investment trust ("REIT"). Organized in 1961,
the Company, which has property management, leasing, development and acquisition
capabilities, focuses on the ownership and operation of community and
neighborhood shopping centers primarily located in the midwestern United States.
As of December 31, 1998, the Company had ownership interests in 98 shopping
centers in 16 states, aggregating 15.8 million square feet of rentable space,
substantially all of which are 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.
Bradley Operating Limited Partnership (the "Operating Partnership") is the
entity through which the Company conducts substantially all of its business and
owns (either directly or through subsidiaries) substantially all of its assets.
As of December 31, 1998, Bradley owned an approximate 95% economic interest in
and is the sole general partner of the Operating Partnership. This structure is
commonly referred to as an umbrella partnership REIT or "UPREIT." Economic
interests in the Operating Partnership are evidenced by units of partnership
interest ("Units") with the interest of the general partner evidenced by general
partner common and preferred units ("GP Units"). The interests of persons who
have contributed direct or indirect interests in certain properties to the
Operating Partnership are evidenced by limited partner units ("LP Units"). Each
preferred or common LP Unit is designed to provide distributions to the holder
that are equal to the distributions paid on each share of Bradley preferred or
common stock; and each common LP Unit is redeemable (subject to certain
limitations) by the holder for the cash equivalent at the time of redemption of
one share of Bradley common stock or, at Bradley's option, for one share of
Bradley common stock. Under the Partnership Agreement, whenever Bradley issues
any shares of common or preferred stock, it contributes the proceeds to the
Operating Partnership, and concurrently the number of GP Units held by Bradley
is increased by the number of newly issued shares, such that the number of GP
Units is at all times equal to the number of outstanding shares of common or
preferred Bradley stock.
As used herein, the "Company" refers to Bradley Real Estate, Inc. and its
subsidiaries on a consolidated basis, including the Operating Partnership or,
where the context so requires, Bradley Real Estate, Inc. only.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements are prepared on the accrual basis in accordance with
generally accepted accounting principles ("GAAP"). The preparation of financial
statements in conformity with GAAP 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, the Operating Partnership, Bradley Financing
Partnership (a general partnership of which the Operating Partnership owns 99%
and a wholly-owned corporate subsidiary owns the remaining 1%), and the general
partnership interest in the joint venture that owns Williamson Square Shopping
Center which is held through the Operating Partnership. 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.
As of December 31, 1998, the Company's 50% general partner interest in Bradley
Bethal Limited Partnership, a joint venture which owns two neighborhood shopping
centers and one enclosed mall, was accounted for using the equity method. Under
the equity method of accounting, the Company's investment is reflected on the
consolidated balance sheet as an investment in partnership, and the Company's
portion of the net income from such partnership is reflected on the consolidated
statement of income as equity in earnings of partnership.
The ownership interests in the Operating Partnership evidenced by LP Unit
holders represent the minority interest in the Company. Income is allocated to
the minority interest based on the weighted average number of common LP Units
outstanding during the period, amounting to 1,401,464, 799,938, and 249,888
during 1998, 1997, and 1996, respectively. As of December 31, 1998 and 1997,
there were 1,441,678 and 1,522,393 common LP Units outstanding, respectively.
F6
<PAGE> 44
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 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 1 - 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 $3,470,000, $2,604,000, and $2,056,000 for 1998, 1997, and 1996,
respectively.
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 $32,000,
$30,000, and $150,000 in 1998, 1997, and 1996, respectively.
The Company applies 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") for the 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. 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.
Real Estate Investments Held for Sale
Real estate investments held for sale are carried at the lower of cost or fair
value less cost to sell. Depreciation and amortization are suspended during the
period held for sale.
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
Deferred charges consist of leasing 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.
Derivative Financial Instruments
The Company may enter into derivative financial instrument transactions in order
to mitigate its interest rate risk on a related financial instrument. The
Company has designated these derivative financial instruments as hedges and
applies deferral accounting, as the instrument to be hedged exposes the Company
to interest rate risk, and the derivative financial instrument reduces that
exposure. Gains and losses related to the derivative financial instrument are
deferred and amortized over the terms of the hedged instrument. If a derivative
terminates or is sold, the gain or loss is deferred and amortized over the
remaining life of the derivative. Derivatives that do not satisfy the criteria
above are carried at market value, and any changes in market value are
recognized in other income. The Company has only entered into derivative
transactions that satisfy the aforementioned criteria. The fair value of
interest rate protection agreements is estimated using option-pricing models
that value the potential for interest rate protection
F7
<PAGE> 45
agreements to become in-the-money through changes in interest rates during the
remaining terms of the agreements. A negative fair value represents the
estimated amount the Company would have to pay to cancel the contract or
transfer it to other parties.
Earnings Per Share
In accordance with Statement of Financial Accounting Standards No. 128, Earnings
Per Share ("Statement No. 128"), basic EPS is computed by dividing income
available to common share owners by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. A reconciliation of the
numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
Per- Per- Per-
Income Shares share Income Shares share Income Shares share
------ ------ ----- ------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income before extraordinary
item and after preferred
share distributions $56,598,000 23,660,542 $2.39 $29,758,000 21,776,146 $1.36 $27,222,000 17,619,546 $1.54
Effect of dilutive securities:
Dilutive options exercised - 47,452 - 42,451 - 16,352
Convertible preferred stock 2,922,000 1,440,286 - - - -
Stock-based compensation - - - 315 - -
Conversion of LP Units 3,317,000 1,401,464 1,116,000 799,938 285,000 249,888
----------- ---------- ----------- ---------- ----------- ----------
Diluted EPS:
Income before extraordinary item $62,837,000 26,549,744 $2.37 $30,874,000 22,618,850 $1.36 $27,507,000 17,885,786 $1.54
=========== ========== ===== =========== ========== ===== =========== ========== =====
</TABLE>
For the years ended December 31, 1998, 1997, and 1996, options to purchase
153,500, 5,500, and 40,000 shares of common stock, respectively, at prices
ranging from $17.00 to $22.00 were outstanding during 1998, 1997, and 1996,
respectively, but were not included in the computation of diluted EPS because
the options' exercise prices were greater than the average market prices of the
common shares.
Stock Option Plans
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("Statement No. 123") establishes financial accounting and
reporting standards for stock-based employee compensation plans, including 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 has
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 9 for the required disclosures.
NOTE 3 - SUPPLEMENTAL CASH FLOW DISCLOSURE
During 1998 and 1997, shopping center acquisitions included the assumption of
$25,753,000 and $26,677,000 of non-recourse mortgage indebtedness and the
issuance of 62,436 and 1,212,630 LP Units valued at $1,300,000 and $23,350,000,
respectively.
F8
<PAGE> 46
The merger acquisitions of Mid-America Realty Investments, Inc. ("Mid-America")
on August 6, 1998 (see Note 12), and of Tucker Properties Corporation on March
15, 1996 resulted in the following non-cash effects on the Company's balance
sheets for the respective years:
<TABLE>
<CAPTION>
Mid-America Tucker
----------- ------
<S> <C> <C>
Assets acquired $ (159,433,000) $ (310,443,000)
Liabilities assumed 43,973,000 204,615,000
Capital stock and paid-in capital issued, net of costs - 103,698,000
Preferred stock and paid-in capital issued, net of costs 86,882,000 -
--------------- ---------------
Cash used for merger acquisitions $ (28,578,000) $ (2,130,000)
=============== ===============
</TABLE>
The like-kind exchange of Nicollet Avenue for Brookdale Square during 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 1998, 1997, and 1996, 143,151, 1,238, and 3,738 shares of common stock,
respectively, were issued in exchange for an equivalent number of common LP
Units held by the minority interest.
NOTE 4 - REAL ESTATE INVESTMENTS
The following is a summary of the Company's real estate held for investment at
December 31:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Land $ 201,849,000 $ 124,890,000
Buildings 659,286,000 436,389,000
Improvements and alterations 72,957,000 64,124,000
Construction in progress 2,373,000 844,000
------------- -------------
936,465,000 626,247,000
Accumulated depreciation and amortization (59,196,000) (40,574,000)
------------- -------------
$ 877,269,000 $ 585,673,000
============= =============
</TABLE>
In July 1998, the Company completed the sale of One North State, a 640,000
square-foot mixed-use property located in the "loop" area of downtown Chicago,
Illinois for a net sales price of approximately $82,100,000, resulting in a gain
on sale of approximately $30,600,000 for financial reporting purposes. One North
State did not fit with the Company's strategic property focus, and was
classified as held for sale on the consolidated balance sheet as of December 31,
1997. The net gain on sale of properties in 1998 includes an $875,000 provision
for loss on sale of Holiday Plaza, which the Company completed in May 1998. The
loss on Holiday Plaza, a 46,000 square-foot property located in Iowa, represents
the difference between the sales price, net of closing costs, and the carrying
value of the property.
During 1997, the Company completed the sales of its Meadows Town Mall, Augusta
Plaza, Hood Commons, and 585 Boylston Street properties because such properties
were not aligned with the Company's strategic property and market focus. The net
gains on the sales of Augusta Plaza, Hood Commons, and 585 Boylston Street were
$826,000, $3,073,000, and $4,839,000, respectively. The net gain on sale of
properties in 1997 includes a provision for the loss on the sale of Meadows Town
Mall of $1,300,000, which represents the difference between the sales price, net
of closing costs, and the carrying value of the property.
During 1996, the Company sold its interest in a ground lease in a like-kind
exchange for a shopping center. The Company recognized a net gain on sale of the
ground lease of $9,379,000 for financial reporting purposes.
At December 31, 1998, the Company was holding for sale six properties, all
acquired in connection with the Mid-America merger acquisition. Four of these
properties are enclosed malls and are not aligned with the Company's strategic
property focus. The remaining two shopping center properties are located in the
Southeast region of the United States and are not aligned with the Company's
strategic market focus. The dispositions of these properties are expected to be
completed during 1999, although there can be no assurance that any such
dispositions will occur.
The results of operations included in the accompanying financial statements for
properties classified as held for sale as of December 31, 1998 and 1997, or that
were sold during 1998, 1997, and 1996, were $7,568,000, $8,689,000, and
$8,745,000, respectively.
F9
<PAGE> 47
NOTE 5 - MORTGAGE LOANS, UNSECURED NOTES PAYABLE AND LINE OF CREDIT
Mortgage loans outstanding consist of the following:
<TABLE>
<CAPTION>
December 31,
Effective --------------------------------
Property interest rate Maturity 1998 1997
- ----------------------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Watts Mill Plaza 7.25% February 2000 $ 6,262,000 $ -
Eastville Plaza 7.09% April 2001 2,858,000 -
Rivergate Shopping Center 7.25% January 2002 3,249,000 -
Shenandoah Plaza 7.25% January 2002 4,383,000 -
Fox River Plaza 7.76% April 2002 5,128,000 -
Southport Centre 7.25% April 2002 8,442,000 -
Edgewood Plaza 7.25% June 2002 6,852,000 -
Moorland Square 7.348% November 2002 3,655,000 -
Kimberly West 7.25% January 2003 4,030,000 -
Martin's Bittersweet Plaza 8.875% June 2003 3,562,000 3,679,000
Miracle Hills Park 7.25% August 2004 4,108,000 -
Williamson Square 8.00% August 2005 12,501,000 12,709,000
Spring Mall 7.25% October 2006 9,707,000 9,904,000
Southgate Shopping Center 7.25% October 2007 3,076,000 3,159,000
Salem Consumer Square 7.50% September 2008 14,161,000 -
St. Francis Plaza 8.125% December 2008 1,737,000 1,845,000
Elk Park 7.64% August 2016 9,622,000 9,796,000
Richfield Hub 9.875% September 1998 - 5,270,000
Hub West 9.875% September 1998 - 4,865,000
-------------- --------------
$ 103,333,000 $ 51,227,000
============== ==============
</TABLE>
The net book value of real estate pledged as collateral for loans was
approximately $168,795,000. The mortgage loans collateralized by Rivergate
Shopping Center and Shenandoah Plaza are cross-collateralized.
In November 1997, the Operating Partnership issued $100 million, 7% seven-year
unsecured Notes maturing November 15, 2004, which were rated "BBB-" by Standard
& Poor's Investment Services ("Standard & Poor's") and "Baa3" by Moody's
Investors Service ("Moody's"). The debt securities were issued from a "shelf"
registration filed in September 1997 under which the Operating Partnership could
issue up to $300 million in unsecured non-convertible investment grade debt
securities. The Company utilized the proceeds to prepay a $100 million, 7.23%
mortgage note that had been issued to a trust qualifying as a real estate
mortgage investment conduit for federal income tax purposes (the "REMIC Note").
The REMIC Note was secured by six properties and was originally scheduled to
expire in September 2000. Prepayment of the REMIC Note resulted in an
extraordinary loss on prepayment of debt of $4,054,000 (net of the minority
interest portion), consisting primarily of a prepayment yield maintenance fee.
However, issuance of such unsecured debt extended the Company's weighted average
debt maturity and resulted in a slightly lower effective interest rate on $100
million of debt, while the prepayment of the REMIC Note resulted in the
discharge from the mortgage securing the REMIC Note of properties having an
aggregate gross book value of $181.2 million. The outstanding balance of the
unsecured Notes at December 31, 1998, net of the unamortized discount, was
$99,814,000. The effective interest rate on the unsecured Notes is approximately
7.194%.
In January 1998, the Operating Partnership issued $100 million, 7.2% ten-year
unsecured Notes maturing January 15, 2008 from the aforementioned "shelf"
registration. The issue was rated "BBB-" by Standard & Poors and "Baa3" by
Moody's. Proceeds from the offering were used to pay amounts outstanding under
the bank line of credit which had been increased throughout 1997 primarily for
the acquisitions of additional shopping centers. The outstanding balance of the
unsecured Notes at December 31, 1998, net of the unamortized discount, was
$99,728,000. The effective interest rate on the unsecured Notes is approximately
7.611%.
In May 1998, the Company filed a "shelf" registration under which the Operating
Partnership may issue up to $400 million in unsecured, non-convertible
investment grade debt securities. The "shelf" registration gives the Operating
Partnership the flexibility to issue additional debt securities from time to
time when management determines that market conditions and the opportunity to
utilize the proceeds from the issuance of such securities are favorable. During
September 1998, the Operating Partnership implemented a Medium-Term Note Program
providing it with the added flexibility of issuing Medium-Term Notes due nine
months or more from the date of issue in small amounts in an aggregate principal
amount of up to $150 million from time to time using the debt "shelf"
registration in an efficient and expeditious manner.
F10
<PAGE> 48
In December 1997, the Operating Partnership entered into a new $200 million
unsecured line of credit facility with a syndicate of banks, lead by First
Chicago NBD and BankBoston, replacing a previous $150 million unsecured line of
credit facility. In November 1998, the Operating Partnership amended the line of
credit facility, increasing the maximum capacity to $250 million. The line of
credit bears interest at a rate equal to the lowest of (i) the lead bank's base
rate, (ii) a spread over LIBOR ranging from 0.70% to 1.25% depending on the
credit rating assigned by national credit rating agencies, or (iii) for amounts
outstanding up to $150 million, a competitive bid rate solicited from the
syndicate of banks. Based on the Operating Partnership's current credit rating
assigned by Standard & Poor's and Moody's, the spread over LIBOR is 1.00%.
Additionally, there is a facility fee currently equal to $375,000 per annum. In
the event the current credit ratings were downgraded below "BBB-" or "Baa3" by
either Standard & Poor's or Moody's, respectively, the facility fee would
increase to $625,000 per annum, and the spread over the base rate would increase
by 0.25% and the spread over LIBOR would increase to 1.25%. The line of credit
is guaranteed by the Company and matures in December 2000. The line of credit is
available for the acquisition, development, renovation and expansion of new and
existing properties, working capital and general business purposes. The Company
incurred an extraordinary loss on the prepayment of debt of $577,000 (net of the
minority interest portion) in connection with replacing the previous line of
credit in 1997. At December 31, 1998, the weighted average interest rate on the
line of credit was 6.65%. 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 coverage requirements. The Company believes it was in
compliance with such covenants during 1998 and that such covenants will not
adversely affect the Company's business or the operation of its properties.
From time to time the Company uses Treasury Note purchase agreements and
interest rate caps and swaps to limit its exposure to increases in interest
rates on its floating rate debt and to hedge interest rates in anticipation of
issuing unsecured debt at a time when management believes interest rates are
favorable, or at least desirable given the consequences of not hedging an
interest rate while the Company is exposed to increases in interest rates. The
Company does not use derivative financial instruments for trading or speculative
purposes. During 1998, the Company was party to interest rate cap agreements
which entitled 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 exceeded the applicable cap rate
for the protected amount. During 1998, the Company was also party to a swap
agreement whereby the Company received or made 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
during 1998:
<TABLE>
<CAPTION>
Effect on
Notional Maximum Type of interest
amount rate contract Maturity expense
------------ ------- -------- -------------- ----------
<S> <C> <C> <C> <C>
$ 43,000,000 6.00% Swap April 14, 1998 $38,000
40,000,000 7.50% Cap March 18, 1998 -
17,000,000 7.50% Cap April 11, 1998 -
------------ -------
$100,000,000 $38,000
============ =======
</TABLE>
Additionally, in anticipation of issuing unsecured debt in the first quarter of
1998, during 1997 the Company entered into two Treasury Note purchase agreements
with notional amounts of $37 million each, expiring March 2, 1998. The contracts
were terminated at a cost of $3,798,000 as of January 23, 1998, the date upon
which the Company priced the aforementioned $100 million issuance of ten-year
unsecured Notes. The Company has treated the Treasury Note purchase agreements
as hedges and, accordingly, the loss recognized upon termination of the Treasury
Note purchase agreements was deferred and is amortized over the term of the
underlying debt security as an adjustment to interest expense. The Company had
no interest rate protection agreements outstanding at December 31, 1998.
Scheduled principal amortization of debt outstanding at December 31, 1998 is as
follows:
<TABLE>
<S> <C> <C>
1999 $ 2,547,000
2000 178,053,000
2001 5,437,000
2002 31,147,000
2003 8,192,000
Thereafter 246,999,000
--------------
$ 472,375,000
==============
</TABLE>
F11
<PAGE> 49
NOTE 6 - RENTALS UNDER OPERATING LEASES
Annual minimum future rentals to be received under non-cancelable operating
leases in effect at December 31, 1998 are as follows:
<TABLE>
<S> <C> <C>
1999 $ 102,379,000
2000 92,582,000
2001 82,268,000
2002 72,055,000
2003 61,397,000
Thereafter 333,717,000
--------------
$ 744,398,000
==============
</TABLE>
Total minimum future rentals do not include contingent rentals under certain
leases based upon lessees' sales volume. On May 22, 1998, the Emerging Issues
Task Force ("EITF") of the Financial Accounting Standards Board reached a
consensus under Issue No. 98-9, Accounting for Contingent Rent in Interim
Financial Periods, that despite the fact that the achievement of a future
specified sales target of a lessee may be considered as probable and reasonably
estimable at some earlier point in the year, a lessor should defer recognition
of contingent rental income until such specified targets are met. The
pronouncement was effective May 23, 1998. Previously, the Company recognized
percentage rental income each period based on reasonable estimates of tenant
sales. Contingent rentals earned amounted to approximately $1,897,000,
$1,864,000, and $1,397,000 in 1998, 1997, and 1996, respectively. Certain leases
also require lessees to pay all or a portion of real estate taxes and operating
costs, amounting to $31,615,000, $25,253,000, and $21,748,000, in 1998, 1997,
and 1996, respectively.
No tenant accounted for as much as 10% of rental income in 1998, 1997, or 1996.
No property accounted for as much as 10% of the Company's rental income during
1998. One North State accounted for greater than 10% of the Company's rental
income during 1997 and 1996.
NOTE 7 - 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
common share owners aggregating $33,717,000, $29,387,000, and $23,168,000 in
1998, 1997, and 1996, respectively. During 1998, the Company paid $3,653,000 of
distributions to preferred share owners on the newly issued Series A Preferred
Stock. The following table summarizes the tax status of distributions paid to
common and preferred share owners during 1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Ordinary income 81% 57% 69%
Capital gain 19% 15% 17%
Return of capital -- 28% 14%
--- --- ---
Total 100% 100% 100%
=== === ===
</TABLE>
On January 29, 1999, the Board of Directors declared a regular quarterly
dividend on its common stock of $0.37 per share and a regular quarterly dividend
on its Series A Preferred Stock of $0.525 per share payable March 31, 1999 to
share owners of record on March 10, 1999.
NOTE 8 - SHARE OWNERS' EQUITY
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's over-allotment option) at a price of $16.50 per share. Net
proceeds from the offering of approximately $44,851,000 were used to reduce
outstanding indebtedness incurred under the line of credit.
In May 1997, the Company filed a "shelf" registration with the Securities and
Exchange Commission to register $234,460,000 of equity securities that the
Company may issue through underwriters or in privately negotiated transactions
for cash from time to time.
F12
<PAGE> 50
On December 1, 1997, the Company completed an offering of 990,000 shares of its
common stock from the "shelf" registration at a price to the public of $20.375
per share. Net proceeds from the offering of $19,166,000 were used to reduce
outstanding indebtedness under the line of credit. The shares were sold under a
program entered into with PaineWebber Incorporated ("PaineWebber") on October
21, 1997, pursuant to which the Company had the right, but not the obligation,
until April 21, 1998, to sell shares of its common stock at the market price on
the day following notification to PaineWebber of its intent to sell common stock
to PaineWebber, acting as underwriter, with an aggregate value up to $60
million, in amounts ranging from $5 million to $20 million per transaction. No
additional shares were sold under the program, which expired April 21, 1998. The
Company completed an additional offering of 300,000 shares of its common stock
on December 10, 1997 through C.E. Unterberg, Towbin at a price to the public of
$20.50 per share. Net proceeds from the offering of $5,726,000 were used to
reduce outstanding indebtedness under the line of credit. A. Robert Towbin, a
director of the Company, serves as Managing Director of C.E. Unterberg, Towbin.
In February 1998, the Company issued 392,638 shares of common stock from the
"shelf" registration at a price based upon the then market value of $20.375 per
share, leaving $201,412,000 available under the "shelf" registration. Net
proceeds from the offering of approximately $7,601,000 were used to reduce
outstanding borrowings under the line of credit.
During 1998, the Company implemented a new Dividend Reinvestment and Stock
Purchase Plan (the "Plan"), replacing the Company's 1993 Dividend Reinvestment
and Share Purchase Plan, to provide both new and existing owners of the
Company's common stock, Series A Convertible Preferred Stock and other classes
of equity securities outstanding from time to time, as well as existing owners
of LP Units of the Operating Partnership, with an economical and convenient
method of increasing their investment in the Company. Under the Plan,
participants may purchase additional shares of common stock at a discount
(ranging from 0% to 3% as determined by the Company in its sole discretion from
time to time) and without brokerage fees or other transaction costs by, (i)
reinvesting all or a portion of their cash dividends, (ii) purchasing shares of
common stock directly from the Company as frequently as once per month by making
optional cash payments of a minimum of $100 to a maximum of $10,000 per quarter,
or (iii) with prior approval by the Company, purchasing shares of common stock
directly from the Company by making optional cash payments in excess of $10,000.
During 1998, 1997, and 1996, the Company issued 308,016, 38,592, and 13,082
shares under this and the prior plan, raising $6,049,000, $770,000, and
$196,000, respectively.
NOTE 9 - STOCK OPTION PLANS AND STOCK-BASED COMPENSATION
The Company's 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 1998, 1997 and 1996, options for 148,000, 94,500, and 17,500
shares, respectively, were granted under this Plan. At December 31, 1998 and
1997, options for 372,550 and 252,000 shares, respectively, were outstanding. A
committee of the Board of Directors administers the Plan and is responsible for
selecting persons eligible for awards and for determining the term and duration
of any award.
In 1997, the Company's share owners approved a Superior Performance Incentive
Plan, originally intended to provide an award pool to be divided among senior
executives and directors of the Company in an amount based upon the amount (if
any) by which total returns to share owners of the Company exceeded total
returns to stockholders of other REITs included in an industry index, over a
three-year period. Because of administrative complexities that made the
implementation of such Plan impractical, at year-end 1997, after working with an
independent compensation consultant, the Board of Directors terminated the Plan
and substituted a non-recurring award of approximately 115,000 shares of the
Company's common stock to certain senior executives, plus a cash amount to
reimburse the executives for taxes resulting from such award. As a result, a
non-recurring charge of $3,415,000 was included in the Company's 1997 financial
statements.
The Company has estimated the fair value of stock options granted on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1998, 1997, and 1996, respectively:
dividend yield of 7.50%, 7.13% and 8.96%; expected volatility of 22%, 16%, and
23%; risk-free interest rates of 4.8%, 5.5%, and 6.1%; and expected lives of
five years for all three 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:
F13
<PAGE> 51
<TABLE>
<CAPTION>
1998 1997 1996
---------------- --------------- ----------------
<S> <C> <C> <C>
Net income to common share owners As Reported $56,598,000 $25,127,000 $27,222,000
Pro Forma $56,409,000 $25,069,000 $27,202,000
Net income per common share As Reported, basic $2.39 $1.15 $1.54
As Reported, diluted $2.37 $1.15 $1.54
Pro Forma, basic $2.38 $1.15 $1.54
Pro Forma, diluted $2.36 $1.15 $1.54
</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>
Outstanding at December 31, 1995 295,251 $11.50 - $22.00
Granted 17,500 $14.74
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
Granted 94,500 $18.16 - $19.35
Expired (12,000) $19.35 - $21.25
Exercised (10,500) $14.74 - $17.00
-----------
Outstanding at December 31, 1997 252,000 $11.50 - $21.25
Granted 148,000 $21.35
Expired (27,250) $14.88 - $19.35
Exercised (200) $19.35
-----------
Outstanding at December 31, 1998 372,550 $11.50 - $21.25
===========
</TABLE>
One third of 92,750 options granted to employees during 1998 and still
outstanding vest on each of the first, second, and third anniversary of the
grant date over a three-year period, and have a duration of ten years from the
grant date, subject to earlier termination in certain circumstances. One half of
56,800 options granted to employees during 1997 and still outstanding vest on
each of the first and second anniversary of the grant date over a two-year
period, and have a duration of ten years from the date of grant, subject to
earlier termination in certain circumstances. All other options outstanding at
December 31, 1998 are fully vested and exercisable. The weighted average
exercise price per share and the weighted average contractual life of options
outstanding at December 31, 1998 were $18.39 and 7.66 years, respectively. The
weighted average fair value of options granted during 1998, 1997, and 1996 were
$1.82, $1.36, and $1.21, respectively.
NOTE 10 - 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 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 fair values of the fixed rate
unsecured Notes, calculated based on the Company's estimated interest rate
spread over the applicable treasury rate with a similar remaining maturity, are
at or slightly below their carrying values. The Company's line of credit is at a
variable rate, which results in a carrying value that approximates its fair
value.
F14
<PAGE> 52
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Retirement Savings Plan
The Company provides its employees with a retirement savings plan which is
qualified under Section 401(k) of the Internal Revenue Code. The provisions of
the plan provide for an employer discretionary matching contribution currently
equal to 35% of the employee's contributions up to 5% of the employee's
compensation. The employer matching contribution is determined annually by the
Board of Directors, and amounted to $72,000, $43,000, and $13,000 in 1998, 1997,
and 1996, respectively. Employer contributions and any earnings thereon are
vested in accordance with the following schedule:
Years of Service Percentage
---------------- ----------
1 20%
2 40%
3 60%
4 80%
5 100%
Legal Actions
The Company is a party to several legal actions which arose in the normal course
of business. In the opinion of management, there will be no adverse consequences
from these actions which would be material to the Company's financial position
or results of operations.
NOTE 12 - MID-AMERICA MERGER AND ISSUANCE OF PREFERRED STOCK
On August 6, 1998, pursuant to an Agreement and Plan of Merger dated May 30,
1998, the Company completed the merger acquisition (the "Merger") of
Mid-America. The Merger and the merger agreement were approved by the
stockholders of Mid-America at its special meeting of stockholders held on
August 5, 1998. Upon completion of the Merger, the Company acquired
Mid-America's 22 retail properties located primarily in the Midwest, and
succeeded to Mid-America's 50% general partner interest in Mid-America Bethal
Limited Partnership (renamed Bradley Bethal Limited Partnership), a joint
venture which owns two neighborhood shopping centers and one enclosed mall.
Pursuant to the terms of the merger agreement each of the approximately
8,286,000 outstanding shares of Mid-America common stock were exchanged for 0.42
shares of a newly created 8.4% Series A Convertible Preferred Stock ("Series A
Preferred Stock"). The Series A Preferred Stock pays an annual dividend equal to
8.4% of the $25.00 liquidation preference and is convertible into shares of
Bradley's common stock at a conversion price of $24.49 per share, subject to
certain adjustments. At any time after five years, the Series A Preferred Stock
is redeemable at Bradley's option for $25.00 per share so long as the Bradley
common stock is trading at or above the conversion price. In connection with the
Merger, Bradley assumed all of Mid-America's outstanding liabilities and paid
certain transaction costs, making the total purchase price approximately $159
million. The merger was structured as a tax-free transaction and was treated as
a purchase for accounting purposes. Accordingly, the purchase price was
allocated to the assets purchased and the liabilities assumed based upon the
fair value at the date of acquisition. The results of operations of Mid-America
have been included in the Company's consolidated financial statements from
August 6, 1998.
The following table sets forth certain summary unaudited pro forma operating
data for the Company as if the Merger had occurred as of January 1, 1998 and
1997 (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------------------------
Historical Pro Forma Historical Pro Forma
1998 1998 1997 1997
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Total revenue $131,037 $144,458 $97,552 $120,817
Income before extraordinary items $59,520 $65,003 $29,758 $39,199
Net income to common share owners $56,598 $57,737 $25,127 $27,261
Basic net income per common share $2.39 $2.44 $1.15 $1.25
Diluted net income per common share $2.37 $2.39 $1.15 $1.25
</TABLE>
F15
<PAGE> 53
The unaudited pro forma operating data is presented for comparative purposes
only and is not necessarily indicative of what the actual results of operations
would have been for the years ended December 31, 1998 and 1997, nor does such
data purport to represent the results to be achieved in future periods.
NOTE 13 - SEGMENT REPORTING
The Company, which has internal property management, leasing, and development
capabilities, owns and seeks to acquire open-air community and neighborhood
shopping centers in the Midwest, generally consisting of the states of Illinois,
Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North
Dakota, Ohio, South Dakota, Tennessee, and Wisconsin. Ninety-five of the
Company's 98 shopping centers are located in these states. Such shopping centers
are typically anchored by grocery and drug stores complemented with stores
providing a wide range of other goods and services to shoppers. During 1998,
1997, and 1996, the Company also owned a mixed-use office property located in
downtown Chicago, Illinois, which was sold in July 1998 (see Note 4). Because
this property required a different operating strategy and management expertise
than all other properties in the portfolio, it was considered a separate
reportable segment.
The Company assesses and measures operating results on an individual property
basis for each of its 98 shopping centers without differentiation, based on net
operating income, and then converts such amounts in the aggregate to a
performance measure referred to as Funds From Operations ("FFO"). Since all of
the Company's shopping centers exhibit highly similar economic characteristics,
cater to the day-to-day living needs of their respective surrounding
communities, and offer similar degrees of risk and opportunities for growth, the
shopping centers have been aggregated and reported as one operating segment.
FFO, computed in accordance with the March 1995 "White Paper" on FFO published
by the National Association of Real Estate Investment Trusts and as followed by
the Company, represents income before allocation to minority interest (computed
in accordance with GAAP), excluding gains or losses from debt restructuring and
sales of property, plus depreciation and amortization, and after preferred stock
distributions and adjustments for unconsolidated partnerships. Adjustments for
unconsolidated partnerships are computed to reflect FFO on the same basis. 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, but does add back to net income
significant non-recurring events that materially distort the comparative
measurement of company performance over time. FFO does not represent cash
generated from operating activities in accordance with GAAP and should not be
considered an alternative to cash flow as a measure of liquidity. Since the
NAREIT White Paper provides guidelines only for computing FFO, the computation
of FFO may vary from one REIT to another. FFO is not necessarily indicative of
cash available to fund cash needs.
The accounting policies of the segments are the same as those described in Note
2. The revenues, net operating income, and assets for each of the reportable
segments are summarized in the following tables as of December 31, 1998 and
1997, and for each of the years in the three-year period then ended. Non-segment
assets to reconcile to total assets include the investment in partnership, cash
and cash equivalents, accounts receivable, and deferred financing and other
costs. The computation of FFO for the reportable segments and for the Company,
and a reconciliation to income before extraordinary item are as follows:
F16
<PAGE> 54
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1998 1997 1996
------------- ------------ ------------
TOTAL PROPERTY REVENUE:
<S> <C> <C> <C>
Mixed-use office property $ 8,321,000 $ 14,469,000 $ 11,490,000
Shopping center properties 122,174,000 82,347,000 66,805,000
------------- ------------ ------------
130,495,000 96,816,000 78,295,000
------------- ------------ ------------
TOTAL PROPERTY DIRECT OPERATING EXPENSES:
Mixed-use office property 3,117,000 6,120,000 4,942,000
Shopping center properties 37,511,000 26,290,000 24,794,000
------------- ------------ ------------
40,628,000 32,410,000 29,736,000
------------- ------------ ------------
Net operating income 89,867,000 64,406,000 48,559,000
------------- ------------ ------------
NON-PROPERTY (INCOME) EXPENSES:
Other non-property income (542,000) (736,000) (544,000)
Equity in earnings of partnership, excluding depreciation and amortization (655,000) -- --
Mortgage and other interest 27,681,000 16,562,000 13,404,000
General and administrative 7,183,000 5,123,000 4,034,000
Amortization of deferred finance and non-real estate related costs 962,000 747,000 1,035,000
Preferred share distributions 2,922,000 -- --
------------- ------------ ------------
37,551,000 21,696,000 17,929,000
------------- ------------ ------------
Funds from Operations $ 52,316,000 $ 42,710,000 $ 30,630,000
============= ============ ============
RECONCILIATION TO INCOME BEFORE EXTRAORDINARY ITEM:
Funds from Operations $ 52,316,000 $ 42,710,000 $ 30,630,000
Depreciation of real estate assets and amortization of tenant improvements (18,635,000) (13,407,000) (10,289,000)
Amortization of deferred leasing commissions (2,184,000) (1,259,000) (966,000)
Other amortization (1,193,000) (1,193,000) (1,247,000)
Depreciation and amortization included in equity in earnings of partnership (69,000) -- --
Non-recurring stock-based compensation -- (3,415,000) --
Net gain on sale of properties 29,680,000 7,438,000 9,379,000
------------- ------------ ------------
Income before allocation to minority interest and after preferred share
distributions 59,915,000 30,874,000 27,507,000
Income allocated to minority interest (3,317,000) (1,116,000) (285,000)
Preferred share distributions 2,922,000 -- --
------------- ------------ ------------
Income before extraordinary item $ 59,520,000 $ 29,758,000 $ 27,222,000
============= ============ ============
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
TOTAL ASSETS:
Mixed-use office property $ -- $ 54,860,000
Shopping center properties 946,489,000 605,539,000
------------ ------------
946,489,000 660,399,000
Non-segment assets 22,191,000 8,392,000
------------ ------------
$968,680,000 $668,791,000
============ ============
</TABLE>
F17
<PAGE> 55
NOTE 14 - SUBSEQUENT EVENT
On February 23, 1999, the Operating Partnership issued $50 million of 8.875%
Series B Cumulative Redeemable Preferred Units in a private placement. The net
proceeds of approximately $49 million were used to pay-down the line of credit
with the expectation that the increased borrowing capacity under the line of
credit will be used to develop or acquire additional shopping centers.
NOTE 15 - SUPPLEMENTARY QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1998
-------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
--------- --------- --------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Rental income $ 28,736 $ 30,601 $ 33,305 $ 35,802
Net gain (loss) on sale of properties $ (875) -- $ 30,555 --
Net income to common share owners $ 6,351 $ 6,964 $ 36,092 $ 7,191
Basic net income per common share $ 0.27 $ 0.29 $ 1.52 $ 0.30
Diluted net income per common share $ 0.27 $ 0.29 $ 1.44 $ 0.30
</TABLE>
<TABLE>
<CAPTION>
1997
-------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
--------- --------- --------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Rental income $ 22,855 $ 23,034 $ 24,033 $ 26,193
Net gain (loss) on sale of properties $ 3,073 $ (1,300) -- $ 5,665
Extraordinary loss on prepayment of debt, net of minority interest -- -- -- $ (4,631)
Net income to common share owners $ 8,924 $ 5,028 $ 6,561 $ 4,614
Basic net income per common share $ 0.41 $ 0.23 $ 0.30 $ 0.21
Diluted net income per common share $ 0.41 $ 0.23 $ 0.30 $ 0.21
</TABLE>
F18
<PAGE> 56
SCHEDULE III
BRADLEY REAL ESTATE, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
The following table sets forth detail with respect to the properties owned by
the Company at December 31, 1998 (dollars in thousands). The aggregate cost of
those properties for federal income tax purposes was approximately $952,773,000.
<TABLE>
<CAPTION>
Initial cost to the Gross amount carried at December 31, 1998
Company
Capitalized
Buildings Subsequent Buildings
and to and Accumulated
SHOPPING CENTERS Land Improvements Acquisition Land Improvements Total Depreciation
<S> <C> <C> <C> <C> <C> <C> <C>
GEORGIA
Shenandoah Plaza $ 1,333 $ 3,110 $ -- $ 1,333 $ 3,110 $ 4,443 $ 48
Newman, GA
ILLINOIS
Bartonville Square 471 1,130 116 523 1,194 1,717 20
Peoria, IL
Butterfield Square 3,902 9,106 -- 3,902 9,106 13,008 155
Libertyville, IL
Commons of Chicago Ridge & 5,087 15,113 1,096 5,879 15,417 21,296 1,106
Annex
Chicago Ridge, IL
Commons of Crystal Lake 3,546 20,093 542 3,546 20,635 24,181 1,459
Crystal Lake, IL
Crossroads Centre 2,846 8,538 1,048 2,878 9,554 12,432 1,953
Fairview Heights, IL
Fairhills Shopping Center 2,031 4,982 36 2,031 5,018 7,049 194
Springfield, IL
Heritage Square 8,047 17,099 128 8,047 17,227 25,274 1,222
Naperville, IL
High Point Centre 2,969 16,822 137 2,969 16,959 19,928 1,201
Lombard, IL
Parkway Pointe 799 3,197 -- 799 3,197 3,996 123
Springfield, IL
Rivercrest 7,349 17,147 2,701 7,353 19,844 27,197 2,729
Crestwood, IL
Rollins Crossing 1,996 8,509 1,348 2,257 9,596 11,853 652
Round Lake Beach, IL
Sangamon Center North 1,952 7,809 (88) 1,939 7,734 9,673 302
Springfield, IL
Sheridan Village 2,841 19,010 307 2,882 19,276 22,158 1,412
Peoria, IL
Sterling Bazaar 2,120 4,480 583 2,292 4,891 7,183 142
Peoria, IL
Twin Oaks Centre 1,687 6,062 -- 1,687 6,062 7,749 65
Silvis, IL
Wardcliffe Shopping Center 478 1,841 112 542 1,889 2,431 56
Peoria, IL
Westview Center 6,417 14,973 3,638 6,161 18,867 25,028 2,891
Hanover Park, IL
INDIANA
County Line Mall 5,244 11,066 105 5,255 11,160 16,415 404
Indianapolis, IN
Double Tree Plaza 2,370 5,529 -- 2,370 5,529 7,899 47
Winfield, IN
</TABLE>
<TABLE>
<CAPTION>
Lives on
Date Which
Acquired by Depreciation
SHOPPING CENTERS Company is Computed
<S> <C> <C>
GEORGIA
Shenandoah Plaza 1998 39
Newman, GA
ILLINOIS
Bartonville Square 1998 3 - 39
Peoria, IL
Butterfield Square 1998 39
Libertyville, IL
Commons of Chicago Ridge & 1996 2 - 39
Annex
Chicago Ridge, IL
Commons of Crystal Lake 1996 1 - 39
Crystal Lake, IL
Crossroads Centre 1992 1 - 39
Fairview Heights, IL
Fairhills Shopping Center 1997 1 - 39
Springfield, IL
Heritage Square 1996 1 - 39
Naperville, IL
High Point Centre 1996 2 - 39
Lombard, IL
Parkway Pointe 1997 39
Springfield, IL
Rivercrest 1994 2 - 39
Crestwood, IL
Rollins Crossing 1996 5 - 39
Round Lake Beach, IL
Sangamon Center North 1997 1 - 39
Springfield, IL
Sheridan Village 1996 2 - 39
Peoria, IL
Sterling Bazaar 1997/98 3 - 39
Peoria, IL
Twin Oaks Centre 1998 39
Silvis, IL
Wardcliffe Shopping Center 1997 1 - 39
Peoria, IL
Westview Center 1993 1 - 39
Hanover Park, IL
INDIANA
County Line Mall 1997 5 - 39
Indianapolis, IN
Double Tree Plaza 1998 39
Winfield, IN
</TABLE>
F19
<PAGE> 57
<TABLE>
<CAPTION>
Initial cost to the Gross amount carried at December 31, 1998
Company
Capitalized
Buildings Subsequent Buildings
and to and Accumulated
SHOPPING CENTERS Land Improvements Acquisition Land Improvements Total Depreciation
<S> <C> <C> <C> <C> <C> <C> <C>
Germantown 2,497 5,735 113 2,497 5,848 8,345 97
Jasper, IN
Kings Plaza 625 3,046 5 625 3,051 3,676 71
Richmond, IN
Lincoln Plaza 1,015 4,060 -- 1,015 4,060 5,075 61
New Haven, IN
Martin's Bittersweet Plaza 993 3,969 57 993 4,026 5,019 209
Mishawaka, IN
Rivergate Shopping Center 174 4,645 -- 174 4,645 4,819 50
Shelbyville, IN
Sagamore Park Centre 2,209 5,567 326 2,434 5,668 8,102 118
West Lafayette, IN
Speedway SuperCenter & Outlots 6,098 34,555 2,646 6,410 36,889 43,299 2,568
Speedway, IN
The Village 1,152 6,530 1,690 1,152 8,220 9,372 587
Gary, IN
Washington Lawndale Commons 2,488 13,062 831 2,488 13,893 16,381 1,129
Evansville, IN
IOWA
Burlington Plaza West 838 4,458 84 853 4,527 5,380 185
Burlington, IA
Davenport Retail Center 1,125 4,500 108 1,233 4,500 5,733 173
Davenport, IA
Kimberly West 990 2,718 18 990 2,736 3,726 29
Davenport, IA
Parkwood Plaza 1,530 7,062 212 1,530 7,274 8,804 289
Urbandale, IA
Southgate Shopping Center 721 4,441 17 721 4,458 5,179 123
Des Moines, IA
Spring Village 925 3,636 99 975 3,685 4,660 160
Davenport, IA
Warren Plaza 1,103 4,892 59 1,108 4,946 6,054 259
Dubuque, IA
KANSAS
Mid-State Plaza 1,435 3,349 843 1,452 4,175 5,627 145
Salina, KS
Santa Fe Square 1,999 7,089 261 1,999 7,350 9,349 376
Olathe, KS
Shawnee Parkway Plaza 1,838 4,290 -- 1,838 4,290 6,128 44
Shawnee, KS
Westchester Square 3,279 9,837 103 3,281 9,938 13,219 303
Lenexa, KS
KENTUCKY
Camelot Shopping Center 2,595 6,052 -- 2,595 6,052 8,647 104
Louisville, KY
Dixie Plaza 1,116 2,567 -- 1,116 2,567 3,683 44
Louisville, KY
Midtown Mall 1,490 5,953 -- 1,490 5,953 7,443 127
Ashland, KY
</TABLE>
<TABLE>
<CAPTION>
Lives on
Date Which
Acquired by Depreciation
SHOPPING CENTERS Company is Computed
<S> <C> <C>
Germantown 1998 2 - 39
Jasper, IN
Kings Plaza 1998 39
Richmond, IN
Lincoln Plaza 1998 39
New Haven, IN
Martin's Bittersweet Plaza 1997 4 - 39
Mishawaka, IN
Rivergate Shopping Center 1998 39
Shelbyville, IN
Sagamore Park Centre 1998 1 - 39
West Lafayette, IN
Speedway SuperCenter & Outlots 1996 2 - 39
Speedway, IN
The Village 1996 1 - 39
Gary, IN
Washington Lawndale Commons 1996 3 - 39
Evansville, IN
IOWA
Burlington Plaza West 1997 3 - 39
Burlington, IA
Davenport Retail Center 1997 39
Davenport, IA
Kimberly West 1998 4 - 39
Davenport, IA
Parkwood Plaza 1997 10 - 39
Urbandale, IA
Southgate Shopping Center 1997 39
Des Moines, IA
Spring Village 1997 2 - 39
Davenport, IA
Warren Plaza 1997 4 - 39
Dubuque, IA
KANSAS
Mid-State Plaza 1997 2 - 39
Salina, KS
Santa Fe Square 1996 2 - 39
Olathe, KS
Shawnee Parkway Plaza 1998 39
Shawnee, KS
Westchester Square 1997 1 - 39
Lenexa, KS
KENTUCKY
Camelot Shopping Center 1998 39
Louisville, KY
Dixie Plaza 1998 39
Louisville, KY
Midtown Mall 1998 39
Ashland, KY
</TABLE>
F20
<PAGE> 58
<TABLE>
<CAPTION>
Initial cost to the Gross amount carried at December 31, 1998
Company
Capitalized
Buildings Subsequent Buildings
and to and Accumulated
SHOPPING CENTERS Land Improvements Acquisition Land Improvements Total Depreciation
<S> <C> <C> <C> <C> <C> <C> <C>
Plainview Village 3,630 8,470 16 3,630 8,486 12,116 145
Louisville, KY
Stony Brook 3,106 9,319 188 3,121 9,492 12,613 705
Louisville, KY
MICHIGAN
Courtyard (The) 2,427 7,283 1 2,427 7,284 9,711 156
Burton, MI
Redford Plaza 5,235 15,460 -- 5,235 15,460 20,695 297
Redford, MI
MINNESOTA
Brookdale Square 2,230 6,694 33 2,230 6,727 8,957 480
Brooklyn Center, MN
Burning Tree Plaza 609 3,744 7,216 609 10,960 11,569 1,914
Duluth, MN
Central Valu Center 1,445 7,097 193 1,448 7,287 8,735 198
Columbia Heights, MN
Elk Park 5,486 10,466 8 5,494 10,466 15,960 291
Elk River, MN
Har Mar Mall 6,551 15,263 10,007 6,786 25,035 31,821 5,110
Roseville, MN
Hub West 757 345 4,191 773 4,520 5,293 973
Richfield, MN
Richfield Hub 3,000 5,390 5,358 3,024 10,724 13,748 3,642
Richfield, MN
Roseville Center 1,405 4,040 376 1,405 4,416 5,821 223
Roseville, MN
Southport Centre 4,239 10,700 92 4,239 10,792 15,031 117
Apple Valley, MN
Sun Ray Shopping Center 82 2,945 12,803 111 15,719 15,830 8,693
St. Paul, MN
Terrace Mall 630 1,706 2,411 630 4,117 4,747 857
Robbinsdale, MN
Westview Valu Center 2,629 6,133 5 2,634 6,133 8,767 170
West St. Paul, MN
Westwind Plaza 1,949 5,547 318 1,949 5,865 7,814 636
Minnetonka, MN
White Bear Hills 750 3,762 514 755 4,271 5,026 611
White Bear Lake, MN
MISSOURI
Ellisville Square 3,291 7,679 4 3,291 7,683 10,974 82
Ellisville, MO
Grandview Plaza 414 2,205 15,353 437 17,535 17,972 5,699
Florissant, MO
Liberty Corners 1,050 6,057 -- 1,050 6,057 7,107 208
Liberty, MO
Maplewood Square 1,554 3,626 -- 1,554 3,626 5,180 15
Maplewood, MO
Prospect Plaza 893 3,006 423 893 3,429 4,322 6
Gladstone, MO
</TABLE>
<TABLE>
<CAPTION>
Lives on
Date Which
Acquired by Depreciation
SHOPPING CENTERS Company is Computed
<S> <C> <C>
Plainview Village 1998 3 - 39
Louisville, KY
Stony Brook 1996 3 - 39
Louisville, KY
MICHIGAN
Courtyard (The) 1998 1 - 39
Burton, MI
Redford Plaza 1998 39
Refdord, MI
MINNESOTA
Brookdale Square 1996 5 - 39
Brooklyn Center, MN
Burning Tree Plaza 1993 3 - 39
Duluth, MN
Central Valu Center 1997 5 - 39
Columbia Heights, MN
Elk Park 1997 15 - 39
Elk River, MN
Har Mar Mall 1992 2 - 39
Roseville, MN
Hub West 1991 7 - 39
Richfield, MN
Richfield Hub 1988 2 - 39
Richfield, MN
Roseville Center 1997 3 - 39
Roseville, MN
Southport Centre 1998 3 - 39
Apple Valley, MN
Sun Ray Shopping Center 1961 1 - 39
St. Paul, MN
Terrace Mall 1993 1 - 39
Robbinsdale, MN
Westview Valu Center 1997 39
West St. Paul, MN
Westwind Plaza 1994 2 - 39
Minnetonka, MN
White Bear Hills 1993 3 - 39
White Bear Lake, MN
MISSOURI
Ellisville Square 1998 5 - 39
Ellisville, MO
Grandview Plaza 1971 2 - 39
Florissant, MO
Liberty Corners 1997 39
Liberty, MO
Maplewood Square 1998 39
Maplewood, MO
Prospect Plaza 1998 39
Gladstone, MO
</TABLE>
F21
<PAGE> 59
<TABLE>
<CAPTION>
Initial cost to the Gross amount carried at December 31, 1998
Company
Capitalized
Buildings Subsequent Buildings
and to and Accumulated
SHOPPING CENTERS Land Improvements Acquisition Land Improvements Total Depreciation
<S> <C> <C> <C> <C> <C> <C> <C>
Watts Mill Plaza 4,429 10,335 -- 4,429 10,335 14,764 44
Kansas City, MO
NEBRASKA
Bishop Heights 593 734 -- 593 734 1,327 8
Lincoln, NE
Cornhusker Plaza 1,123 3,038 -- 1,123 3,038 4,161 32
South Sioux City, NE
Eastville Plaza 542 3,333 -- 542 3,333 3,875 36
Fremont, NE
Edgewood Plaza 1,900 10,764 -- 1,900 10,764 12,664 115
Lincoln, NE
Ile de Grand 735 4,204 -- 735 4,204 4,939 45
Grand Island, NE
Meadows (The) 1,359 3,701 -- 1,359 3,701 5,060 40
Lincoln, NE
Miracle Hills Park 2,179 5,340 29 2,179 5,369 7,548 58
Omaha, NE
NEW MEXICO
St. Francis Plaza 1,578 3,683 -- 1,578 3,683 5,261 346
Santa Fe, NM
OHIO
Clock Tower Plaza 2,870 11,909 -- 2,870 11,909 14,779 102
Lima, OH
Salem Consumer Square 5,974 21,380 -- 5,974 21,380 27,354 182
Trotwood, OH
SOUTH DAKOTA
Baken Park 2,388 7,002 191 2,408 7,173 9,581 195
Rapid City, SD
TENNESSEE
Williamson Square 2,570 14,561 465 2,570 15,026 17,596 1,170
Franklin, TN
WISCONSIN
Fairacres Shopping Center 1,549 3,806 5 1,549 3,811 5,360 41
Oshkosh, WI
Fitchburg Ridge 764 1,783 -- 764 1,783 2,547 23
Fitchburg, WI
Fox River Plaza 1,548 6,106 28 1,548 6,134 7,682 92
Burlington, WI
Garden Plaza 1,384 3,962 25 1,384 3,987 5,371 59
Franklin, WI
Madison Plaza 2,014 6,121 149 2,055 6,229 8,284 217
Madison, WI
Mequon Pavilions 2,761 15,647 213 2,761 15,860 18,621 1,142
Mequon, WI
Moorland Square 1,919 5,119 -- 1,919 5,119 7,038 55
New Berlin, WI
Oak Creek Centre 1,478 3,448 151 1,478 3,599 5,077 76
Oak Creek, WI
</TABLE>
<TABLE>
<CAPTION>
Lives on
Date Which
Acquired by Depreciation
SHOPPING CENTERS Company is Computed
<S> <C> <C>
Watts Mill Plaza 1998 39
Kansas City, MO
NEBRASKA
Bishop Heights 1998 39
Lincoln, NE
Cornhusker Plaza 1998 39
South Sioux City, NE
Eastville Plaza 1998 39
Fremont, NE
Edgewood Plaza 1998 39
Lincoln, NE
Ile de Grand 1998 39
Grand Island, NE
Meadows (The) 1998 39
Lincoln, NE
Miracle Hills Park 1998 4 - 39
Omaha, NE
NEW MEXICO
St. Francis Plaza 1995 39
Santa Fe, NM
OHIO
Clock Tower Plaza 1998 39
Lima, OH
Salem Consumer Square 1998 39
Trotwood, OH
SOUTH DAKOTA
Baken Park 1997 1 - 39
Rapid City, SD
TENNESSEE
Williamson Square 1996 1 - 39
Franklin, TN
WISCONSIN
Fairacres Shopping Center 1998 2 - 39
Oshkosh, WI
Fitchburg Ridge 1998 39
Fitchburg, WI
Fox River Plaza 1998 4 - 39
Burlington, WI
Garden Plaza 1998 3 - 39
Franklin, WI
Madison Plaza 1997 3 - 39
Madison, WI
Mequon Pavilions 1996 1 - 39
Mequon, WI
Moorland Square 1998 39
New Berlin, WI
Oak Creek Centre 1998 3 - 39
Oak Creek, WI
</TABLE>
F22
<PAGE> 60
<TABLE>
<CAPTION>
Initial cost to the Gross amount carried at December 31, 1998
Company
Capitalized
Buildings Subsequent Buildings
and to and Accumulated
SHOPPING CENTERS Land Improvements Acquisition Land Improvements Total Depreciation
<S> <C> <C> <C> <C> <C> <C> <C>
Park Plaza 970 4,020 -- 970 4,020 4,990 112
Manitowoc, WI
Spring Mall
Greenfield, WI 1,790 12,317 40 1,822 12,325 14,147 346
-------- -------- -------- -------- -------- -------- --------
SUBTOTAL $199,499 $656,879 $ 80,087 $201,849 $734,616 $936,465 $ 59,196
-------- -------- -------- -------- -------- -------- --------
Real estate held for sale 13,947 32,383 162 13,947 32,545 46,492 --
-------- -------- -------- -------- -------- -------- --------
GRAND TOTAL $213,446 $689,262 $ 80,249 $215,796 $767,161 $982,957 $ 59,196
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Lives on
Date Which
Acquired by Depreciation
SHOPPING CENTERS Company is Computed
<S> <C> <C>
Park Plaza 1997 39
Manitowoc, WI
Spring Mall
Greenfield, WI 1997 15 - 39
SUBTOTAL
Real estate held for sale 1998
GRAND TOTAL
</TABLE>
<TABLE>
<CAPTION>
COST: December 31,
1998 1997 1996
<S> <C> <C> <C>
Balance, beginning of year $ 680,795,000 $ 507,631,000 $ 189,405,000
Acquisitions and other additions 359,507,000 199,301,000 320,053,000
Sale of properties and other deductions (57,345,000) (26,137,000) (1,827,000)
------------- ------------- -------------
Balance, end of year $ 982,957,000 $ 680,795,000 $ 507,631,000
============= ============= =============
ACCUMULATED DEPRECIATION:
Balance, beginning of year $ 42,430,000 $ 37,883,000 $ 27,591,000
Depreciation provided 18,670,000 13,407,000 10,292,000
Sale of properties and other deductions (1,904,000) (8,860,000) --
------------- ------------- -------------
Balance, end of year $ 59,196,000 $ 42,430,000 $ 37,883,000
============= ============= =============
</TABLE>
F23
<PAGE> 61
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, 1998 and 1997, and
the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1998, 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 LLP
Chicago, Illinois
January 22, 1999, except as to Note 14, which
is as of February 23, 1999
F24
<PAGE> 1
Exhibit 10.1.2
AMENDMENT TO THE SECOND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF BRADLEY
OPERATING LIMITED PARTNERSHIP
This Amendment to the Second Restated Agreement of Limited Partnership
of Bradley Operating Limited Partnership, dated July 31, 1998 (this
"Amendment"), amends the Second Restated Agreement of Limited Partnership, dated
September 2, 1997, as amended by and among Bradley Real Estate, Inc. and each of
the limited partners executing the signature page thereto (the "Partnership
Agreement").
Capitalized terms not otherwise defined in this Amendment shall have
the meanings set forth in the Partnership Agreement.
WHEREAS, pursuant to Section 17.1 of the Partnership Agreement, the
General Partner, without the consent of the Limited Partners, may amend the
Partnership Agreement by executing a written instrument setting forth the terms
of such amendment; and
WHEREAS, the General Partner deems advisable an amendment to Section
19.14 of the Partnership Agreement in order to clarify the requirements for
notice of certain transactions.
NOW, THEREFORE, the Partnership Agreement is hereby amended by changing
Section 19.14 thereof so that, as amended, such section shall read as follows:
19.14 Notice for Certain Transactions. In the event of (a) a
dissolution or liquidation of the Partnership or the General Partner, (b) a
merger, consolidation or combination of the Partnership or the General Partner
with or into another Person in which the General Partner is not the surviving
entity or in which a vote of the stockholders of the General Partner is required
(including the events set forth in Section 17.2), (c) the sale of all or
substantially all of the assets of the Partnership or the General Partner, or
(d) the transfer by the General Partner of all or any part of its interest in
the Partnership, the General Partner shall give written notice thereof to each
Limited Partner at least twenty (20) Trading Days prior to the effective date
or, to the extent applicable, record date of such transaction, whichever comes
first.
[Remainder of Page Intentionally Left Blank.]
<PAGE> 2
IN WITNESS WHEREOF this agreement has been executed as of the date
first above written.
BRADLEY REAL ESTATE, INC.
Thomas P. D'Arcy
Chairman, President and Chief Executive Officer
<PAGE> 1
Exhibit 10.2.3
THIRD AMENDMENT TO
UNSECURED REVOLVING CREDIT AGREEMENT
THIS THIRD AMENDMENT TO UNSECURED REVOLVING CREDIT AGREEMENT (the
"Amendment") is made as of November 23, 1998 by and among Bradley Operating
Limited Partnership, a Delaware limited partnership ("Borrower"), The First
National Bank of Chicago, individually and as "Administrative Agent",
BankBoston, N.A., individually and as "Co-Agent", Bank of America National Trust
& Savings Association, individually and as "Co-Agent", Fleet National Bank,
individually and as "Co-Agent", certain other lenders shown on the signature
pages of the Credit Agreement described below ("Original Lenders"), and the two
(2) additional banks identified on the signature pages of this Amendment ("New
Lenders").
RECITALS
A. Borrower, Administrative Agent, Documentation Agent and Original Lenders, as
described below, entered into an Unsecured Revolving Credit Agreement dated as
of December 23, 1997, as amended by (i) a First Amendment dated as of January
31, 1998 and (ii) a Second Amendment dated as of June 30, 1998 (as so amended,
the "Credit Agreement"). All capitalized terms used herein and not otherwise
defined shall have the meanings given to them in the Credit Agreement.
B. Pursuant to the terms of the Credit Agreement, the Original Lenders agreed to
provide Borrower with a revolving credit facility in an aggregate principal
amount of up to $200,000,000, subject to future increase to $250,000,000. The
parties hereto desire to amend the Credit Agreement in order to, among other
things, (i) increase the Aggregate Commitment to $250,000,000; (ii) admit each
of the New Lenders as a "Lender" under the Credit Agreement; (iii) adjust the
respective Percentages of the Lenders; and (iv) make certain other modifications
to the Credit Agreement.
NOW, THEREFORE, in consideration of the foregoing Recitals and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
AGREEMENTS
1. The foregoing Recitals to this Amendment hereby are incorporated into and
made a part of this Amendment.
2. The "Increase Date" shall be the date on which all of the following
conditions shall have been fulfilled (or waived by the Original Lenders and New
Lenders):
(i) no Default or Event of Default then exists;
(ii) Borrower shall have executed and delivered to the Administrative
Agent for delivery to each New Lender two Notes, one in the form attached
hereto as Exhibit B-1 in the amount of such New Lender's Commitment and one
in the form attached hereto as Exhibit B-2 with respect to Competitive Bid
Loans;
(iii) as applicable, Borrower shall have executed and delivered to the
Administrative Agent for delivery to the Original Lenders an amended and
restated Note in the form attached hereto as Exhibit B-3 in the adjusted
amount of such Original Lender's Commitment and a Note in the form attached
hereto as Exhibit B-2 with respect to the Competitive Bid Loans. Upon the
execution and delivery of the Amended and Restated Notes all corresponding
prior Notes will be superseded and returned to Borrower; and
(iv) Borrower shall have executed and delivered, or caused to be
executed and delivered, to the Administrative Agent (and, upon receipt from
Borrower, the Administrative Agent shall deliver to the other Lenders) (A)
a certificate dated as of the Increase Date signed by Borrower and
Guarantors (i) confirming that no Default or Event of Default exists under
the Loan Documents; and (ii) representing and warranting that the Loan
Documents are then in full force and effect and that, to the best of their
knowledge, Borrower and Guarantors then have no defenses or offsets to, or
claims or counterclaims relating to, their obligations under the Loan
Documents, and (B) an opinion of counsel regarding the due authorization
and enforceability of this Agreement, together with supporting resolutions
and other evidence, all satisfactory to the Administrative Agent. From and
after the Increase Date, each of the Original Lenders and each New Lender
shall be considered a "Lender" under the Credit Agreement and the Loan
Documents. Borrower and the Original Lenders hereby consent to the addition
of each of the New Lenders as a Lender. Each New Lender's Commitment and
Percentage shall be as shown below such New Lender's signature block on
this Amendment. The adjusted Commitments and Percentages for the Original
Lenders are also shown on the signature pages to this Amendment.
<PAGE> 2
If the Increase Date has not occurred by November 24, 1998, either
Borrower or Administrative Agent may elect to terminate this Amendment which
thereupon shall have no further force or effect and the Credit Agreement shall
continue as if this Amendment had not been executed.
3. From and after the Increase Date the Aggregate Commitment shall equal
Two Hundred Fifty Million Dollars ($250,000,000). Prior to the Increase Date the
Aggregate Commitment shall continue to be Two Hundred Million Dollars
($200,000,000).
4. Section 1.1 of the Credit Agreement is hereby amended by deleting "and
BancBoston Securities, Inc., collectively." from the definition of "Arranger."
Section 1.1 is further amending by inserting the following definitions:
"Majority Lenders" means Lenders in the aggregate having at least 75% of the
Aggregate Commitment or, if the Aggregate Commitment has been terminated,
Lender's in the aggregate holding at least 75% of the aggregate unpaid principal
amount of the outstanding Advances; "Year 2000 Issues" means reasonably
anticipated costs, problems and uncertainties associated with the inability of
certain computer applications to effectively handle data including dates on and
after January 1, 2000, as such inability affects the business, operations and
financial condition of the Borrower and its Subsidiaries and of the Borrower's
and its Subsidiaries' material customers, suppliers and vendors; and "Year 2000
Program" is defined in Section 6.27.
5. All references to "Arrangers" in the Credit Agreement are hereby changed
to "Arranger."
6. Section 2.8 is hereby amended to add the following to the end of that
section "including, but not limited to, that letter agreement dated October 12,
1998."
7. The following is hereby added as a new Section 6.27 to the Credit
Agreement.
6.27 Year 2000.
The Borrower has made a full and complete assessment of the
Year 2000 Issues and has a realistic and achievable program for
remediating the Year 2000 Issues on a timely basis (the "Year 2000
Program"). Based on such assessment and on the Year 2000 Program, the
Borrower does not as of the Increase Date reasonably anticipate that
Year 2000 Issues will have a material adverse effect on the business,
properties, condition or results of operations of the Consolidated
Group taken as a whole.
8. Section 8.3 of the Credit Agreement is hereby amended by deleting
the fifth sentence and replacing it in its entirety with the following:
The total investment in any one of categories (i), (iii) or
(iv) shall not exceed 5% of Capitalization Value, the total investment
in category (ii) shall not exceed 10% of Capitalization Value, the
total investment in (v) shall not exceed 20% of Capitalization Value
and the total investment in all the foregoing investment categories in
the aggregate shall be less than or equal to 20% of Capitalization
Value.
9. Section 8.13 of the Credit Agreement is hereby deleted and replaced
in its entirety with the following:
8.13 Dividends. Provided there is no Monetary Default or Event
of Default then existing, Bradley Real Estate, Inc. may make
distributions to its shareholders provided that the aggregate amount of
distributions in any period of four consecutive fiscal quarters is not
in excess of 95% of its Funds From Operations for such period and such
distribution would not result in the occurrence of an Event of Default
or a breach of Section 9.7 hereof. Notwithstanding the foregoing,
unless at the time of distribution there is a Monetary Default or Event
of Default then existing, Bradley Real Estate, Inc. shall be permitted
at all times to distribute whatever amount is necessary to maintain its
tax status as a real estate investment trust.
10. The following is added as a new Section 8.14 to the Credit
Agreement.
8.14 Year 2000 Compliance
Promptly notify the Administrative Agent in the event
Borrower or Guarantors discover or determine that any computer
application (including those of its suppliers and vendors)
that is material to Borrower's or any of Borrower's
Subsidiaries' business and operations will not be Year 2000
compliant on a timely basis, except to the extent that
Borrower does not reasonably anticipate that such failure will
have a material adverse effect on the business, properties,
condition or results of operations of the Consolidated Group
taken as a whole.
<PAGE> 3
11. Section 14.13(a) of the Credit Agreement is hereby amended by
inserting "(x) amends this Section 14.13(a); or" to the end of Section 14.13(a).
12. Section 14.13 is hereby amended by inserting the following after
subsection (b)
"; or (c) the Majority Lenders, to amend 9.7(c) or 9.7(d) or the
definitions referenced therein, or this 14.13(c)."
13. Except as specifically modified hereby, the Credit Agreement is and
remains unmodified and in full force and effect and is hereby ratified and
confirmed. All references in the Loan Documents to the "Agreement" or the
"Revolving Credit Agreement" henceforth shall be deemed to refer to the Credit
Agreement as amended by this Amendment. The Guarantors hereby consent to this
Amendment and specifically acknowledge and agree that their obligations under
the Guaranty continue in full force and effect with respect to all of the
"Facility Indebtedness" and all "Obligations" (as defined in the Guaranty) which
are now or hereafter due to the Lenders or the Administrative Agent under the
Credit Agreement as amended by this Amendment.
14. This Amendment may be executed in any number of counterparts, all
of which taken together shall constitute one agreement, and any of the parties
hereto may execute this Amendment by signing any such counterpart. This
Amendment shall be construed in accordance with the internal laws (and not the
law of conflicts) of the State of Illinois, but giving effect to federal laws
applicable to national banks. This Amendment shall be effective when it has been
executed by Borrower, Guarantors, the Co-Agents, the Administrative Agent, the
New Lenders and a sufficient number of Original Lenders to constitute Required
Lenders and each such party has notified the Administrative Agent by telecopy or
telephone that it has taken such action.
[NO FURTHER TEXT ON THIS PAGE]
<PAGE> 4
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Amendment as of the date first above written.
BORROWER: BRADLEY OPERATING LIMITED PARTNERSHIP
By: BRADLEY REAL ESTATE, INC., its General Partner
By:
Title:
The undersigned, as Guarantors under the Credit Agreement, hereby
consent to and join in this Amendment and agree that the Guaranty shall continue
in full force and effect.
GUARANTORS: BRADLEY FINANCING PARTNERSHIP
By: BRADLEY FINANCING CORP., its General Partner
By:
Title:
BRADLEY REAL ESTATE, INC.
By:
Its:
ORIGINAL LENDERS: THE FIRST NATIONAL BANK OF CHICAGO
By:
Title:
Commitment: $30,000,000
Percentage of Aggregate Commitment: 12%
Address for Notices:
One First National Plaza
Chicago, Illinois 60670
Attention: Real Estate Finance Division
Telephone: 312/732-2107
Telecopy: 312/732-1117
<PAGE> 5
BANKBOSTON, N.A.
By:
Title:
Commitment: $27,000,000
Percentage of Aggregate Commitment: 10.8%
Address for Notices:
100 Federal Street
Boston, Massachusetts 02110
Attention: Howard N. Blackwell
Telephone: 617/434-2291
Telecopy: 617/434-1337
BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION
By:
Title:
Commitment: $30,000,000
Percentage of Aggregate Commitment: 12%
Address for Notices:
231 South LaSalle Street
Chicago, Illinois 60697-1516
Attention: Richard G. Baer, Jr.
Telephone: 312/828-5149
Telecopy: 312/974-4970
<PAGE> 6
FLEET NATIONAL BANK
By:
Title:
Commitment: $27,000,000
Percentage of Aggregate Commitment: 10.8%
Address for Notices:
75 State Street
MS: MABOF11C
Boston, Massachusetts 02109
Attention: Thomas Hanold
Telephone: 617/346-2881
Telecopy: 617/346-3220
U.S. BANK NATIONAL ASSOCIATION,
F/K/A AND D/B/A FIRST BANK NATIONAL ASSOCIATION
By:
Title:
Commitment: $20,000,000
Percentage of Aggregate Commitment: 8%
Address for Notices:
One Illinois Center
111 E. Wacker Drive, Suite 3000
Chicago, IL 60601
Attention: Jim Benko
Telephone: 312/228-9420
Telecopy: 312/228-9402
<PAGE> 7
FIRST UNION NATIONAL BANK
By:
Title:
Commitment: $18,000,000
Percentage of Aggregate Commitment: 7.2%
Address for Notices:
One First Union Center, DC-6
Charlotte, North Carolina 28288-0166
Attention: John A. Schissel
Telephone: 704/383-1967
Telecopy: 704/383-6205
KEYBANK NATIONAL ASSOCIATION
By:
Title:
Commitment: $25,000,000
Percentage of Aggregate Commitment: 10%
Address for Notices:
Commercial Real Estate Division
190 South LaSalle Street, Suite 2840
Chicago, Illinois 60603
Attention: David C. Bluestone
Telephone: 312/251-3582
Telecopy: 312/251-0687
<PAGE> 8
LASALLE NATIONAL BANK
By:
Title:
Commitment: $25,000,000
Percentage of Aggregate Commitment: 10%
Address for Notices:
135 South LaSalle Street, Suite 1225
Chicago, Illinois 60603
Attention: John Hein
Telephone: 312/904-8620
Telecopy: 312/904-6467
MELLON BANK, N.A.
By:
Title:
Commitment: $18,000,000
Percentage of Aggregate Commitment: 7.2%
Address for Notices:
One Mellon Bank Center, Suite 2940
Pittsburgh, Pennsylvania 15258
Attention: Janis Carey
Telephone: 412/234-1159
Telecopy: 412/234-8657
NEW LENDERS: AMSOUTH BANK
By:
Title:
Commitment: $15,000,000
Percentage of Aggregate Commitment: 6%
Address for Notices:
1900 5th Avenue North, 9th Floor
Birmingham, Alabama 35288
Attention: Lawrence Clark
Telephone: 205/581-7493
Telecopy: 205/326-4075
<PAGE> 9
COMERICA BANK
By:
Title:
Commitment: $15,000,000
Percentage of Aggregate Commitment: 6%
Address for Notices:
500 Woodward Avenue
Detroit, Michigan 48226-9306
Attention: Leslie Vogel
Telephone: 313/222-9290
Telecopy: 313/222-9295
ADMINISTRATIVE AGENT: THE FIRST NATIONAL BANK OF CHICAGO
By:
Title:
Address for Notices:
One First National Plaza
Chicago, Illinois 60670
Attention: Real Estate Finance Division
Telephone: 312/732-2107
Telecopy: 312/732-1117
CO-AGENTS: BANKBOSTON, N.A.
By:
Title:
Address for Notices:
100 Federal Street
Boston, Massachusetts 02110
Attention: Howard N. Blackwell
Telephone: 617/434-2291
Telecopy: 617/434-1337
<PAGE> 10
BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION
By:
Title:
Address for Notices:
231 South LaSalle Street
Chicago, Illinois 60697-1516
Attention: Richard G. Baer, Jr.
Telephone: 312/828-5149
Telecopy: 312/974-4970
FLEET NATIONAL BANK
By:
Title:
Address for Notices:
75 State Street
MS: MABOF11C
Boston, Massachusetts 02109
Attention: Thomas Hanold
Telephone: 617/346-2881
Telecopy: 617/346-3220
<PAGE> 11
EXHIBIT B-1
FORM OF NOTE
$_______________ ___________________, 1998
On or before the Maturity Date, as defined in that certain Unsecured
Revolving Credit Agreement dated as of December 23, 1997, as amended (the
"Agreement") between BRADLEY OPERATING LIMITED PARTNERSHIP, a Delaware limited
partnership ("Borrower"), Bradley Financing Partnership, Bradley Real Estate,
Inc. and The First National Bank of Chicago, a national bank organized under the
laws of the United States of America, individually and as Administrative Agent
for the Lenders, BankBoston, N.A., a national bank organized under the laws of
the United States of America, individually and as Documentation Agent for the
Lenders and certain other lenders party thereto (as such terms are defined in
the Agreement), Borrower promises to pay to the order of ______________________
_________________________ (the "Lender"), or its successors and assigns, the
principal sum of ____________________ AND NO/100 DOLLARS ($__________) or the
aggregate unpaid principal amount of all Loans (other than Competitive Bid
Loans) made by the Lender to the Borrower pursuant to Section 2.1 of the
Agreement, without set-off or counterclaim in immediately available funds at the
office of the Administrative Agent in Chicago, Illinois, together with interest
on the unpaid principal amount hereof at the rates and on the dates set forth in
the Agreement and all other then due fees or charges as provided herein or in
the Agreement. The Borrower shall pay this Note ("Note") in full on or before
the Maturity Date in accordance with the terms of the Agreement.
The Lender shall, and is hereby authorized to, record on the schedule
attached hereto, or to otherwise record in accordance with its usual practice,
the date and amount of each Advance and the date and amount of each principal
payment hereunder.
This Note is issued pursuant to, and is entitled to the benefits of,
the Agreement and the other Loan Documents, to which Agreement and Loan
Documents, as they may be amended from time to time, reference is hereby made
for, inter alia, a statement of the terms and conditions under which this Note
may be prepaid or its maturity accelerated. Capitalized terms used herein and
not otherwise defined herein are used with the meanings attributed to them in
the Agreement.
If there is an Event of Default or Default under the Agreement or any
other Loan Document and Lender exercises its remedies provided under the
Agreement and/or any of the Loan Documents, then in addition to all amounts
recoverable by the Lender under such documents, Lender shall be entitled to
receive reasonable attorneys fees and expenses incurred by Lender in exercising
such remedies.
Borrower and all endorsers severally waive presentment, protest and
demand, notice of protest, demand and of dishonor and nonpayment of this Note
(except as otherwise expressly provided for in the Agreement), and any and all
lack of diligence or delays in collection or enforcement of this Note, and
expressly agree that this Note, or any payment hereunder, may be extended from
time to time, and expressly consent to the release of any party liable for the
obligation secured by this Note, the release of any of the security of this
Note, the acceptance of any other security therefor, or any other indulgence or
forbearance whatsoever, all without notice to any party and without affecting
the liability of the Borrower and any endorsers hereof.
This Note shall be governed and construed under the internal laws of
the State of Illinois.
BORROWER AND LENDER, BY ITS ACCEPTANCE HEREOF, EACH HEREBY WAIVE ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHT UNDER THIS PROMISSORY NOTE OR ANY OTHER LOAN DOCUMENT OR RELATING THERETO
OR ARISING FROM THE LENDING RELATIONSHIP WHICH IS THE SUBJECT OF THIS NOTE AND
AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY.
BRADLEY OPERATING LIMITED PARTNERSHIP
By: BRADLEY REAL ESTATE, INC., its general partner
By:__________________________________________
Its:_________________________________________
<PAGE> 12
PAYMENTS OF PRINCIPAL
Unpaid
Principal Notation
Date Balance Made by
<PAGE> 13
EXHIBIT B-2
FORM OF COMPETITIVE BID NOTE
________________, 1998
On or before the last day of each "Interest Period" applicable to a
"Competitive Bid Loan", as defined in that certain Unsecured Revolving Credit
Agreement dated as of December 23, 1997, as amended (the "Agreement") between
BRADLEY OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership
("Borrower"), Bradley Real Estate, Inc., Bradley Financing Partnership,
BankBoston, N.A., individually and as Documentation Agent for the Lenders,
individually and as Administrative Agent for the Lenders and certain other
lenders party thereto (as such terms are defined in the Agreement), Borrower
promises to pay to the order of _________________________ (the "Lender"), or its
successors and assigns, the unpaid principal amount of such Competitive Bid Loan
made by the Lender to the Borrower pursuant to Section 2.16 of the Agreement,
without set-off or counterclaim in immediately available funds at the office of
the Administrative Agent in Chicago, Illinois, together with interest on the
unpaid principal amount hereof at the rates and on the dates established
pursuant to the Agreement. The Borrower shall pay any remaining unpaid principal
amount of such Competitive Bid Loans under this Competitive Bid Note ("Note") in
full on or before the Maturity Date in accordance with the terms of the
Agreement.
The Lender shall, and is hereby authorized to, record on the schedule
attached hereto, or to otherwise record in accordance with its usual practice,
the date, amount and due date of each Competitive Bid Loan and the date and
amount of each principal payment hereunder.
This Note is issued pursuant to, and is entitled to the security under
and benefits of, the Agreement and the other Loan Documents, to which Agreement
and Loan Documents, as they may be amended from time to time, reference is
hereby made for, inter alia, a statement of the terms and conditions under which
this Note may be prepaid or its maturity accelerated. Capitalized terms used
herein and not otherwise defined herein are used with the meanings attributed to
them in the Agreement.
If there is an Event of Default or Default under the Agreement or any
other Loan Document and Lender exercises its remedies provided under the
Agreement and/or any of the Loan Documents, then in addition to all amounts
recoverable by the Lender under such documents, Lender shall be entitled to
receive reasonable attorneys fees and expenses incurred by Lender in exercising
such remedies.
Borrower and all endorsers severally waive presentment, protest and
demand, notice of protest, demand and of dishonor and nonpayment of this Note
(except as otherwise expressly provided for in the Agreement), and any and all
lack of diligence or delays in collection or enforcement of this Note, and
expressly agree that this Note, or any payment hereunder, may be extended from
time to time, and expressly consent to the release of any party liable for the
obligation secured by this Note, the release of any of the security of this
Note, the acceptance of any other security therefor, or any other indulgence or
forbearance whatsoever, all without notice to any party and without affecting
the liability of the Borrower and any endorsers hereof.
This Note shall be governed and construed under the internal laws of
the State of Illinois.
BORROWER AND LENDER, BY ITS ACCEPTANCE HEREOF, EACH HEREBY WAIVE ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHT UNDER THIS PROMISSORY NOTE OR ANY OTHER LOAN DOCUMENT OR RELATING THERETO
OR ARISING FROM THE LENDING RELATIONSHIP WHICH IS THE SUBJECT OF THIS NOTE AND
AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY.
BRADLEY OPERATING LIMITED PARTNERSHIP
By: Bradley Real Estate, Inc., its general partner
By: ________________________________________
Its: ________________________________________
<PAGE> 14
PAYMENTS OF PRINCIPAL
Unpaid
Principal Notation
Date Balance Made by
<PAGE> 15
EXHIBIT B-3
FORM OF AMENDED AND RESTATED NOTE
$_______________ ___________, 1998
On or before the Maturity Date, as defined in that certain Amended and Restated
Unsecured Revolving Credit Agreement dated as of December 23, 1997, as amended
(the "Agreement") between BRADLEY OPERATING LIMITED PARTNERSHIP, a Delaware
limited partnership ("Borrower"), Bradley Financing Partnership, Bradley Real
Estate, Inc. and The First National Bank of Chicago, a national bank organized
under the laws of the United States of America, individually and as
Administrative Agent for the Lenders, BankBoston, N.A., a national bank
organized under the laws of the United States of America, individually and as
Documentation Agent for the Lenders and certain other lenders party thereto (as
such terms are defined in the Agreement), Borrower promises to pay to the order
of _________________________ (the "Lender"), or its successors and assigns, the
principal sum of ____________________ AND NO/100 DOLLARS ($__________) or the
aggregate unpaid principal amount of all Loans (other than Competitive Bid
Loans) made by the Lender to the Borrower pursuant to Section 2.1 of the
Agreement, without set-off or counterclaim in immediately available funds at the
office of the Administrative Agent in Chicago, Illinois, together with interest
on the unpaid principal amount hereof at the rates and on the dates set forth in
the Agreement and all other then due fees or charges as provided herein or in
the Agreement. The Borrower shall pay this Amended and Restated Note ("Note") in
full on or before the Maturity Date in accordance with the terms of the
Agreement.
The Lender shall, and is hereby authorized to, record on the schedule
attached hereto, or to otherwise record in accordance with its usual practice,
the date and amount of each Advance and the date and amount of each principal
payment hereunder.
This Note amends, restates and supersedes in its entirety that certain
Note dated December 23, 1997 made by Borrower in favor of Lender in the maximum
principal amount of .
This Note is issued pursuant to, and is entitled to the benefits of,
the Agreement and the other Loan Documents, to which Agreement and Loan
Documents, as they may be amended from time to time, reference is hereby made
for, inter alia, a statement of the terms and conditions under which this Note
may be prepaid or its maturity accelerated. Capitalized terms used herein and
not otherwise defined herein are used with the meanings attributed to them in
the Agreement.
If there is an Event of Default or Default under the Agreement or any
other Loan Document and Lender exercises its remedies provided under the
Agreement and/or any of the Loan Documents, then in addition to all amounts
recoverable by the Lender under such documents, Lender shall be entitled to
receive reasonable attorneys fees and expenses incurred by Lender in exercising
such remedies.
Borrower and all endorsers severally waive presentment, protest and
demand, notice of protest, demand and of dishonor and nonpayment of this Note
(except as otherwise expressly provided for in the Agreement), and any and all
lack of diligence or delays in collection or enforcement of this Note, and
expressly agree that this Note, or any payment hereunder, may be extended from
time to time, and expressly consent to the release of any party liable for the
obligation secured by this Note, the release of any of the security of this
Note, the acceptance of any other security therefor, or any other indulgence or
forbearance whatsoever, all without notice to any party and without affecting
the liability of the Borrower and any endorsers hereof.
This Note shall be governed and construed under the internal laws of
the State of Illinois.
BORROWER AND LENDER, BY ITS ACCEPTANCE HEREOF, EACH HEREBY WAIVE ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHT UNDER THIS PROMISSORY NOTE OR ANY OTHER LOAN DOCUMENT OR RELATING THERETO
OR ARISING FROM THE LENDING RELATIONSHIP WHICH IS THE SUBJECT OF THIS NOTE AND
AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY.
BRADLEY OPERATING LIMITED PARTNERSHIP
By: BRADLEY REAL ESTATE, INC., its general partner
By:___________________________________________
Its:__________________________________________
<PAGE> 16
PAYMENTS OF PRINCIPAL
Unpaid
Principal Notation
Date Balance Made by
<PAGE> 1
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
Bradley Spring Mall, Inc., a Delaware corporation
Bradley Spring Mall Limited Partnership, a Delaware limited partnership
BTR Development Corp., a Delaware corporation
BTR Development Limited Partnership, a Delaware limited partnership
Williamson Square Associates Limited Partnership, a Delaware limited partnership
<PAGE> 1
Exhibit 23.1
CONSENT OF KPMG LLP
The Board of Directors of Bradley Real Estate, Inc.:
We consent to incorporation by reference in the registration statements (Nos.
333-63707, 333-42357, 333-28167, 33-87084, 33-62200, 33-64811 and 333-69131) on
Form S-3 of Bradley Real Estate, Inc., the registration statements (Nos.
333-30587, 33-34884 and 33-65180) on Form S-8 of Bradley Real Estate, Inc., and
the registration statements (Nos. 333-36577 and 333-51675) on Form S-3 of
Bradley Operating Limited Partnership of our report dated January 22, 1999,
except as to Note 14, which is as of February 23, 1999, relating to the
consolidated balance sheets of Bradley Real Estate, Inc. and subsidiaries as of
December 31, 1998 and 1997, 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, 1998 and related schedule, which report
appears in the December 31, 1998 Annual Report on Form 10-K of Bradley Real
Estate, Inc.
KPMG LLP
Chicago, Illinois
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000013777
<NAME> BRADLEY REAL ESTATE INC.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 19,072,000
<ALLOWANCES> 4,078,000
<INVENTORY> 0
<CURRENT-ASSETS> 31,670,000
<PP&E> 982,957,000
<DEPRECIATION> 59,196,000
<TOTAL-ASSETS> 968,680,000
<CURRENT-LIABILITIES> 29,415,000
<BONDS> 472,375,000
0
86,809,000
<COMMON> 349,254,000
<OTHER-SE> 30,827,000
<TOTAL-LIABILITY-AND-EQUITY> 968,680,000
<SALES> 128,444,000
<TOTAL-REVENUES> 131,037,000
<CGS> 0
<TOTAL-COSTS> 40,628,000
<OTHER-EXPENSES> 30,157,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,681,000
<INCOME-PRETAX> 56,598,000
<INCOME-TAX> 0
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