-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, LzWtdQHqc7CT3PgcuWUusriMHPS+9/EGz5L/ofOlA+ps7A3ONcIFpxNFNSnMCcjr tqHPMPs7TbOUS69tF2YTvQ== 0000950109-95-002274.txt : 19950613 0000950109-95-002274.hdr.sgml : 19950613 ACCESSION NUMBER: 0000950109-95-002274 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19950612 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRADLEY REAL ESTATE INC CENTRAL INDEX KEY: 0000013777 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 046034603 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-87084 FILM NUMBER: 95546559 BUSINESS ADDRESS: STREET 1: 250 BOYLSTON ST CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6174210680 FORMER COMPANY: FORMER CONFORMED NAME: BRADLEY REAL ESTATE TRUST DATE OF NAME CHANGE: 19920703 424B3 1 424(B)(3) FILED PURSUANT TO RULE NO. 424(b)(3) REGISTRATION NO. 33-87084 ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS SUBJECT TO COMPLETION + +PURSUANT TO RULE 424 UNDER THE SECURITIES ACT OF 1933. A REGISTRATION + +STATEMENT RELATING TO THESE SECURITIES HAS BEEN DECLARED EFFECTIVE BY THE + +SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 415 UNDER THE SECURITIES + +ACT OF 1933. A FINAL PROSPECTUS SUPPLEMENT AND PROSPECTUS WILL BE DELIVERED + +TO PURCHASERS OF THESE SECURITIES. THIS PROSPECTUS SUPPLEMENT AND THE + +PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN + +OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN + +WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO + +REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION DATED JUNE 9, 1995 PRELIMINARY PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED JUNE 9, 1995) 2,500,000 SHARES BRADLEY REAL ESTATE, INC. COMMON STOCK ----------- Bradley Real Estate, Inc. (the "Company" or "Bradley") is offering hereby 2,500,000 shares (the "Shares") of its common stock, $.01 par value per share ("Common Stock"). The Shares are a part of the securities of the Company (the "Securities") registered under the Securities Act of 1933, as amended (the "Act") and described in the Prospectus dated June 9, 1995 (the "Prospectus") to which this Prospectus Supplement is attached. The description of the Company, of the Securities generally and of the Common Stock in particular, and the other information contained in or incorporated by reference in the Prospectus are incorporated in, and supplemented by, this Prospectus Supplement. The Common Stock is listed on the New York Stock Exchange (the "NYSE") under the symbol "BTR." On June 8, 1995, the last reported sale price of the Common Stock on the NYSE was $16.25 per share. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Underwriting Price to Discounts and Proceeds to Public Commissions(1) Company(2) - ------------------------------------------------------------------------------- Per Share............... $ $ $ - ------------------------------------------------------------------------------- Total................... $ $ $ - ------------------------------------------------------------------------------- Total Assuming Full Exercise of Over-Allotment Option(3).............. $ $ $
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) See "Underwriting." (2) Before deducting expenses estimated at $500,000, which are payable by the Company. (3) Assuming exercise in full of the 30-day option granted by the Company to the Underwriters to purchase up to 375,000 additional shares, on the same terms, solely to cover over-allotments. See "Underwriting." ----------- THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING.ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. ----------- The Shares offered hereby are offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to their right to reject orders in whole or in part. It is expected that delivery of the Shares offered hereby will be made on or about June , 1995. PAINEWEBBER INCORPORATED ALEX. BROWN & SONS INCORPORATED ----------- THE DATE OF THIS PROSPECTUS SUPPLEMENT IS JUNE , 1995. [This page in paper format contains four photographs depicting the following properties owned by the Company:] RIVERCREST CENTER Crestwood, Illinois GRANDVIEW PLAZA Florissant, Missouri WESTVIEW CENTER Hanover Park, Illinois BURNING TREE PLAZA Duluth, Minnesota -------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OF COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. S-2 PROSPECTUS SUPPLEMENT SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus Supplement or incorporated herein by reference. Unless otherwise indicated, the information in this Prospectus Supplement does not give effect to the exercise of the Underwriters' over-allotment option. Share and per share amounts have been adjusted for the one-for-two reverse stock split effected October 17, 1994. The information contained in the Prospectus to which this Prospectus Supplement is attached is incorporated herein by reference. THE COMPANY Bradley Real Estate, Inc. is one of the nation's oldest continuously qualified real estate investment trusts ("REITs"). Organized in 1961, Bradley focuses on the ownership and operation of community shopping centers, primarily in the Midwest and the Northeast regions of the United States. The Company's philosophy is to enhance the operating performance and value of its portfolio through renovation, expansion and leasing strategies designed to meet the needs of an evolving retail marketplace. The Company also seeks to create value through acquisition of properties which can benefit from the Company's expertise in shopping center management, renovation and expansion. The Company currently owns fifteen shopping centers, one retail/office building and the land under a retail/office tower. In total, the Company's existing properties encompass approximately 3.1 million rentable square feet (including approximately 3.0 million square feet of retail space), leased to over 300 tenants. The Company's existing portfolio was 95% leased as of March 31, 1995. The Company's portfolio is made up primarily of well-established, strategically-located shopping centers in suburban communities near major metropolitan areas. The Company's shopping centers have good visibility and access from major traffic arteries and a diverse tenant mix with supermarkets, drugstores and other consumer necessity or value-oriented retailers constituting over 65% of leased retail space. Major tenants at the Company's properties include national and regional retail chains such as Marshalls, T.J. Maxx, Best Buy, Home Quarters Warehouse, PETsMART, Michaels Stores and Barnes & Noble. Supermarket anchors include Omni Foods, Shaw's, Schnucks and Rainbow Foods, leading grocery chains in their respective markets. Small shop tenants include Blockbuster, Famous Footwear, CVS Pharmacy, Fashion Bug and Radio Shack. The Company has historically concentrated on "value-added" investing which involves the purchase of shopping centers with significant growth potential where management's extensive renovation, re-tenanting and re-leasing skills can be utilized to achieve superior investment returns. Since completing a $25 million capital improvement program in late 1992 (which included the renovation or expansion of most of the shopping centers then in the Company's portfolio), the Company has engaged in an aggressive acquisition program. The Company has acquired nine shopping centers since December 1992, aggregating approximately 1.8 million square feet, at a total acquisition cost of $103.0 million. These acquisitions have been funded primarily with proceeds from two equity offerings, which have substantially increased the Company's equity base. Consistent with its investment strategy, the Company has commenced or completed significant renovation, expansion and/or re-tenanting programs at several of these acquired properties. Such programs have improved the Company's investment returns and positioned the properties for continued growth. The Company continues to evaluate numerous acquisition opportunities, and management believes that conditions remain favorable for the acquisition of additional shopping center properties. With this offering, the Company will position itself for continued growth by expanding its equity base and reducing outstanding indebtedness. At June 8, 1995, the percentage of the Company's debt to total market capitalization (defined as the percentage of (a) outstanding debt to (b) outstanding debt plus the market value of outstanding Common Stock) was approximately 33%. This percentage will be reduced to approximately 15% following the application of the net proceeds of this offering to reduce debt, including a substantial portion of the outstanding balance under the Company's revolving line of credit (the "Line of Credit"). S-3 RECENT DEVELOPMENTS The Company has benefited and expects to continue to benefit from the following recent developments. . Acquisitions In March 1994, the Company purchased its second shopping center in the Chicago area, the 429,000 square foot Rivercrest Center in Crestwood, Illinois ("Rivercrest") for $24.5 million. The purchase of Rivercrest was financed through borrowings under the Line of Credit. At the time of purchase, Rivercrest had a 66,000 square foot vacancy, which the Company leased immediately after purchase to two national retailers, PETsMART and T.J. Maxx, bringing the center to 100% occupancy. In November 1994, the Company acquired Westwind Plaza, an 88,000 square foot community shopping center located in Minnetonka, Minnesota ("Westwind") for $7.5 million. The center was purchased with the assumption of $5.0 million of mortgage debt, with the balance paid through a tax-deferred exchange from the sale of Spruce Tree Centre, a mixed- use office/retail property in St. Paul, Minnesota ("Spruce Tree"). The tax- deferred exchange of Spruce Tree resulted in a gain to the Company of approximately $983,000 for financial reporting purposes. In April 1995, the Company acquired St. Francis Plaza, a 30,000 square foot shopping center located in Santa Fe, New Mexico ("St. Francis Plaza") for $5.2 million. The center was purchased with the assumption of approximately $2.1 million of mortgage debt and the cash proceeds from the sale of 182,500 shares of Common Stock at a price of $17.00 per share to the former owner of St. Francis Plaza, a family partnership controlled by William D. Sanders. . Increased Line of Credit In May 1994, the Line of Credit was increased from $35 million to $65 million with the addition of two lending banks. The Line of Credit is available for acquisitions, renovation and expansion of existing properties and for general working capital purposes. In January 1995, the Company negotiated a 0.50% reduction in the rate of interest on the Line of Credit, from 2.375% to 1.875% over the adjusted LIBOR. The Company intends to repay approximately $33.2 million of the $40.0 million outstanding balance on the Line of Credit with net proceeds from this offering. . Modernization of Organizational Structure The Company was organized in 1961 as Bradley Real Estate Trust, a Massachusetts common law business trust (the "Trust"). In October 1994, following approval by the Trust's shareholders, the Trust was incorporated as a Maryland business corporation through the merger of the Trust into the Company. In connection with its change from a business trust to a corporation, the Company also effected a one-for-two reverse stock split and changed the listing of its shares from the American Stock Exchange to the NYSE. At the time of the incorporation, E. Lawrence Miller, President of the Company since 1985, also became the Company's Chief Executive Officer. References to the Company herein include the Trust with respect to periods prior to the incorporation. . Self-Administration; Internalization of Minnesota Property Management On January 31, 1995, following shareholder approval, the Company acquired the REIT advisory business of its long-time external advisor and thereby became a self-administered REIT. The acquisition, pursuant to which the Company issued 325,000 shares of Common Stock to the owners of the advisor, resulted in the termination of an advisory arrangement extending through August 1999 that had obligated the Company to pay fees to the advisor based upon various percentages of revenues and asset values of the Company, which fees amounted to $672,000 in 1993 and approximately $1.1 million in 1994. Also in January 1995, the Company internalized the management of its eight Minnesota shopping centers by hiring the property management professionals who had been responsible for managing the Minnesota S-4 properties for the last several years. The Company is reviewing its relationship with its remaining independent property managers, with the objective of internalizing all property management functions over time. DISTRIBUTIONS The Company has paid 135 consecutive quarterly distributions to its stockholders. This record of consistent distributions is one of the longest among publicly-traded REITs. In the fourth quarter of 1994, the Company increased its quarterly distribution from $0.32 to $0.33 per share. The Company has declared a $0.33 quarterly distribution payable on June 30, 1995 to stockholders of record on June 5, 1995. The $1.29 of distributions paid in 1994 represented approximately 83% of the Company's per share funds from operations for the same period. The Company intends to maintain a conservative distribution payout policy with cash distributions representing between 75% and 90% of funds from operations per share. See "Market Price of Shares and Distributions." THE OFFERING Shares Offered................ 2,500,000 Shares to be Outstanding after Offering............... 11,221,026* Use of Proceeds............... Approximately $4.7 million to repay outstanding mortgage debt and the remainder (approximately $33.2 million) to repay outstanding borrowings under the Line of Credit. New York Stock Exchange Symbol....................... "BTR" - -------- * Excludes 264,875 shares of Common Stock reserved for issuance under outstanding employee stock options. SUMMARY FINANCIAL DATA The following summary historical financial data for the Company as of the dates and for the periods indicated should be read in conjunction with the Selected Financial Data and the related notes thereto included elsewhere in this Prospectus Supplement.
QUARTER ENDED YEAR ENDED MARCH 31, DECEMBER 31, ----------------- ------------------------- 1995 1994 1994 1993 1992 -------- -------- -------- -------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) OPERATING DATA: Rental income....................... $ 8,615 $ 7,455 $ 32,875 $ 22,875 $11,839 Net income.......................... 1,835 2,094 8,627 5,535 787 Net income per share................ 0.22 0.26 1.05 0.82 0.40 Funds from operations(1)............ 3,592 3,178 12,790 9,099 2,965 BALANCE SHEET DATA: Net real estate investments......... $154,999 $145,403 $155,554 $120,033 $83,750 Total assets........................ 171,523 156,234 166,579 127,931 93,326 Mortgage and bank loans............. 68,066 56,458 66,748 29,317 44,085 Total stockholders' equity.......... 98,020 95,893 94,579 96,384 47,844
- -------- (1) Defined by the National Association of Real Estate Investment Trusts as "net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures." Funds from operations differs from net cash provided by operating activities primarily because funds from operations does not include changes in operating assets and liabilities. Funds from operations is a supplemental measure of performance that does not replace net income as a measure of performance or net cash provided by operating activities as a measure of liquidity. For further information concerning the Company's computation of funds from operations, see "Management's Discussions and Analysis of Financial Condition and Results of Operations--General." S-5 GENERAL THE COMPANY The Company is one of the nation's oldest continuously qualified REITs. Organized in 1961, the Company focuses on the ownership and operation of community shopping centers, primarily in the Midwest and the Northeast regions of the United States. The Company's philosophy is to enhance the operating performance and value of its portfolio through renovation, expansion and leasing strategies designed to meet the needs of an evolving retail marketplace. The Company also seeks to create value through acquisition of properties which can benefit from the Company's expertise in shopping center management, renovation and expansion. The Company currently owns fifteen shopping centers, one retail/office building and the land under a retail/office tower. In total, the Company's existing properties encompass approximately 3.1 million rentable square feet (including approximately 3.0 million square feet of retail space), leased to over 300 tenants. The Company's existing portfolio was 95% leased as of March 31, 1995. The Company's offices are located at 250 Boylston Street, Boston, Massachusetts 02116. Its telephone number is (617) 421-0680. ACQUISITION AND INVESTMENT STRATEGY The Company employs a "value-added" acquisition and investment strategy through which the Company seeks to acquire properties that demonstrate the potential for significant revenue and cash flow growth through the implementation of renovation, expansion, re-tenanting and re-merchandising programs similar to those which the Company has successfully completed at its existing properties. The Company's strategy includes the acquisition of older, well-located but under-performing centers which can benefit from the Company's asset enhancement skills. Additionally, the Company seeks to acquire newer centers where the Company can utilize its extensive relationships with regional and national retailers to re-tenant and re-merchandise the center and achieve improved investment returns. In general, the Company seeks to achieve returns on individual property investments of 11% to 14% within three years of acquisition. The Company may purchase a property at a lower initial yield if the Company expects to enhance the return (through renovation, expansion, re- tenanting and/or re-merchandising) in future years. In addition, as part of its ongoing business, the Company may at any time be engaged in discussions or negotiations with public and private real estate owners regarding possible portfolio or asset acquisitions or business combinations. Since December 1992, the Company has acquired nine shopping centers, aggregating approximately 1.8 million square feet, at a total acquisition cost of $103.0 million. Consistent with its investment strategy, the Company has commenced or completed significant renovation, expansion and/or re-tenanting programs at several of these acquired properties, which have improved the Company's investment returns and positioned the properties for continued growth. Through March 31, 1995, the Company had invested an additional $11.6 million in capital improvements to these properties. Recent examples of the Company's acquisition and investment strategy include the following properties: Rivercrest Shopping Center, Crestwood, IL. Rivercrest is a 429,000 square foot community shopping center located approximately 20 miles southwest of downtown Chicago. Substantially completed in 1992, Rivercrest's major tenants include Omni Foods, Venture, Sears, T.J. Maxx, PETsMART, Best Buy and OfficeMax. The Company purchased Rivercrest in March 1994 for approximately $24.5 million from a subsidiary of a Japanese bank that had foreclosed on the original developer. At the time of purchase, Rivercrest was 84% leased with 66,000 square feet of vacant anchor space formerly occupied by PharMor. Subsequent to purchase, the Company signed leases with two national retailers, T.J. Maxx and PETsMART, to occupy this vacant space and invested $1.6 million in tenant improvements. These tenants began paying rent in August and December, 1994, respectively. Rivercrest was 100% leased at March 31, 1995. Prior to the retenanting, annualized net operating income (defined as gross income less property operating expenses) at Rivercrest was $2.1 million. Following the retenanting, the annualized net operating income (based on leases in place at year end) was $2.9 million, representing a return of approximately 11.0% on the Company's total Rivercrest investment of $26.0 million, including capital expenditures. Additionally, the Company's purchase of Rivercrest included five undeveloped out-parcels which the Company plans to develop when S-6 appropriate tenants are secured. These parcels have the potential to add an additional 50,000 leasable square feet to the center. Terrace Mall, Robbinsdale, MN. Terrace Mall ("Terrace") is a 140,000 square foot community shopping center located seven miles north of downtown Minneapolis. The Company purchased this center in May 1993 for approximately $2.3 million from a major insurance company which had foreclosed on the original developer. The property was originally constructed as an enclosed mall anchored by a 45,000 square foot Rainbow Foods store. While the Rainbow Foods store had been successful, the enclosed mall component of the property was substantially vacant, and when the Company purchased the property it was only 45% leased. Subsequent to purchase, the Company signed a lease with Rainbow Foods to expand its store from 45,000 to 60,000 square feet and commenced a $1.6 million renovation program to expand the supermarket and reconfigure the enclosed mall into an open air shopping center. This renovation program was substantially completed in the first half of 1994. A further $700,000 was invested on tenant improvements for several small shop tenants. As a result, Terrace was 90% leased at December 31, 1994 and 93% leased at March 31, 1995. Net operating income for 1994 was $780,000, representing a return of 17.0% on the Company's total Terrace investment of $4.6 million. Burning Tree Plaza, Duluth, MN. Burning Tree Plaza ("Burning Tree") is a 110,000 square foot community shopping center whose major tenants include Best Buy and Northwest Fabrics. The Company acquired Burning Tree in July 1993 for $4.4 million by acquiring the lien of a secured creditor and then satisfying a lien held by the Resolution Trust Corporation. At the time of purchase, Burning Tree encompassed 80,000 square feet of leasable space and 4.5 acres of undeveloped land which provided the potential to expand the center by an additional 100,000 square feet. In July 1994, the Company commenced the first phase of this expansion, with the construction of a 30,000 square foot store preleased to T.J. Maxx. The T.J. Maxx store, which opened in November 1994, provides a third anchor store for this center. Burning Tree was 99% leased at March 31, 1995. The Company is negotiating with several national and regional retailers to lease the additional expansion square footage, which will be constructed once appropriate tenants are secured. Net operating income at Burning Tree for 1994 (excluding the T.J. Maxx expansion), was $592,000, reflecting a 13.4% return on the Company's initial Burning Tree investment of $4.4 million. Har Mar Mall, Roseville, MN. Har Mar Mall ("Har Mar") is a 397,000 square foot community shopping center located approximately five miles northeast of downtown Minneapolis and six miles northwest of St. Paul. The Company purchased this center in December 1992 for approximately $21.8 million. Har Mar's major tenants include Marshalls, T.J. Maxx, General Cinema, Michaels Stores, Barnes & Noble and HomePlace, reflecting the center's location in one of the strongest shopping districts in the Twin Cities area. Since the acquisition, the Company has been renovating and repositioning the property to take advantage of its superior location within its marketplace. As part of this activity, the Company completed a $1.8 million renovation of the center in 1994 which included a new facade, signage, skylights and other architectural design improvements. Additionally since purchase, the Company has signed leases with three new major tenants, Michaels Stores, Barnes & Noble and HomePlace, for approximately 118,000 square feet of space. Michaels Stores began operations in the third quarter of 1993, Barnes & Noble is expected to open in the third quarter of 1995 and HomePlace is anticipated to open in the fourth quarter of 1995. The Company is investing $4.3 million in tenant improvements for Barnes & Noble and HomePlace and expects a significant increase in net operating income at Har Mar following these two store openings. Recent Acquisition Transactions. In November 1994, the Company acquired Westwind, an 88,000 square foot shopping center in Minnetonka, Minnesota. Westwind was purchased for $7.5 million consisting of the assumption of $5.0 million of mortgage debt and $2.5 million paid primarily from cash proceeds received in the tax-deferred sale of Spruce Tree, a mixed-use retail and office building in St. Paul, Minnesota. The sale of Spruce Tree resulted in a gain to the Company for financial reporting purposes of $983,000. In April 1995, the Company acquired St. Francis Plaza in Santa Fe, New Mexico, a 30,000 square foot two-tenant shopping center, for $5.2 million, which included the assumption of approximately $2.1 million of 8.125% mortgage S-7 debt due 2008 and the cash proceeds from the sale of 182,500 shares of Common Stock at a price of $17.00 per share to the former owner of St. Francis Plaza, a family partnership controlled by William D. Sanders. While the Company has no current plans for additional acquisitions in the Southwest, as the Company grows it may continue to investigate attractive acquisition opportunities in new markets. OPERATING STRATEGY General. The Company's operating strategy is to utilize its experience in owning and managing community shopping centers to improve the operating performance and return on investment of its properties. Tenant Mix. The Company's tenant mix is diverse and dominated by supermarkets, drugstores and other consumer necessity or value-oriented retailers. Such tenants tend to be stable performers in both good and bad economic times. Tenants whose scope of operations is national or regional in nature (including independent franchisees of regional and national retailers) account for over 70% of leased retail space. Major tenants at the Company's properties include Marshalls, T.J. Maxx, Home Quarters Warehouse, Best Buy, PETsMART, Michaels Stores and Barnes & Noble. Nine of the Company's shopping centers are anchored by supermarkets. Supermarket anchors include Omni Foods, Shaw's, Schnucks and Rainbow Foods, leading grocery chains in their respective markets. The Company's roster of small shop tenants includes such nationally and regionally known retailers as Blockbuster, Famous Footwear, CVS Pharmacy, Fashion Bug and Radio Shack and restaurants including Friendly's, Old Country Buffet, Little Caesar's and Wendy's. No tenant accounts for more than 4% of the Company's gross revenues. Supermarkets, drugstores and other consumer necessity or value-oriented retailers account for over 65% of leased retail space. The terms of the Company's outstanding retail leases vary from tenancies at will to 50 years. Major tenant leases are typically for 10 to 25 years, with one or more extension options available to the lessee upon expiration of the initial lease. By contrast, smaller shop leases are typically negotiated for three to five year terms. The longer term of the major tenant leases serves to protect the Company against significant vacancies and to assure the presence of strong tenants who draw consumers to the Company's centers. The shorter term of the small shop leases allows the Company to adjust rental rates for small shop 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 non-anchor tenant leases. Anchor tenant leases provided an average annual minimum rent of $5.80 and $5.72 per square foot at December 31, 1994 and at December 31, 1993, respectively, compared with non-anchor tenant leases which provided an average annual minimum rent of $8.22 and $7.93 per square foot, respectively, at such dates. In general, the Company believes that minimum rental rates for anchor tenant leases entered into several years ago are below current market rates, while recent anchor tenant leases and most non-anchor leases provide for minimum rental rates that more closely reflect current market rates. Property Management and Leasing. The Company believes in an aggressive property management and leasing strategy conducted by professionals with extensive experience, knowledge of local markets and an established track record with regional and national retailers. Through December 31, 1994, all but one of the Company's properties were managed by local independent professional property management firms which reported directly to Company management. Effective in January 1995, the Company internalized the management of its eight Minnesota shopping centers by hiring the eight property management professionals who had been responsible for managing the Minnesota properties for the last several years. In connection with this move, Richard L. Heuer, who directed property management operations for the Company's Minnesota shopping centers, became a Senior Vice President of the Company. The Company is reviewing its relationship with its remaining independent property managers, with the objective of internalizing all property management functions over time, while maintaining the local market knowledge and expertise which the Company believes is crucial to effective property management. S-8 All of the Company's independent property managers have significant experience in their respective markets. The independent managers are actively involved in leasing and lease renewals, particularly with smaller tenants, and receive commissions consistent with established local rates for such transactions. Independent managers also receive property management fees, which range from approximately 2% to 4% of annual gross receipts (depending on the size of the property), and a majority of which are reimbursable under tenant leases. The Company believes the fees and commissions it pays to local property managers are consistent with those paid to other firms for similar services. RECENT DEVELOPMENTS In addition to the acquisitions discussed under "Acquisition and Investment Strategy" above, the Company has benefited and expects to continue to benefit from the following recent developments. . Increased Line of Credit In May 1994, the Line of Credit was increased from $35 million to $65 million as Fleet Bank, N.A. and Wells Fargo Realty Advisors Funding, Incorporated joined The First National Bank of Boston as lenders. The Line of Credit is available for acquisitions, renovation and expansion of existing properties and general working capital purposes. In January 1995, the Company negotiated a 0.50% reduction in the rate of interest on the Line of Credit, from 2.375% to 1.875% over the adjusted LIBOR. The Company intends to repay approximately $33.2 million of the $40.0 million outstanding balance on the Line of Credit with net proceeds from this offering. . Modernization of Organizational Structure The Company was organized in 1961 as Bradley Real Estate Trust, a Massachusetts common law business trust. In October 1994, following approval by the Trust's shareholders, the Trust was incorporated as a Maryland business corporation through a merger of the Trust into the Company. In connection with its change from a business trust to a corporation, the Company also effected a one-for-two reverse stock split and changed the listing of its shares from the American Stock Exchange to the NYSE. At the time of the incorporation, E. Lawrence Miller, President of the Company since 1985, also became the Company's Chief Executive Officer. . Self-Administration; Internalization of Minnesota Property Management On January 31, 1995, following shareholder approval, the Company acquired the REIT advisory business of its long-time external advisor and thereby became a self-administered REIT. The acquisition, pursuant to which the Company issued 325,000 shares of Common Stock to the owners of the advisor, resulted in the termination of an advisory arrangement extending through August 1999 that had obligated the Company to pay fees to the advisor based upon various percentages of revenues and asset values of the Company, which fees amounted to $672,000 in 1993 and approximately $1.1 million in 1994. Also in January 1995, the Company internalized the management of its eight Minnesota shopping centers by hiring the property management professionals who had been responsible for managing the Minnesota properties for the last several years. With the Company's move to self-administration and the internalization of the management of its Minnesota properties, the Company has increased the number of its employees from three to fifteen. S-9 USE OF PROCEEDS The net proceeds to the Company from the sale of the Shares offered hereby are estimated at approximately $37.9 million (approximately $43.6 million if the Underwriters' over-allotment option is exercised in full). The Company intends to use the net proceeds to reduce outstanding indebtedness as follows: approximately $4.7 million to prepay the 9.5% mortgage loans due December 1998 secured by Westwind, and the remainder (approximately $33.2 million) to reduce outstanding borrowings under the Line of Credit. The weighted average interest rate on the Line of Credit was 7.1% during 1994 and 8.2% for the quarter ended March 31, 1995. If the Underwriters' over-allotment option is exercised, the Company intends to use the additional net proceeds further to reduce outstanding borrowings under the Line of Credit. See "Use of Proceeds" in the accompanying Prospectus for a further description of the Company's intention to reborrow under the Line of Credit for acquisitions of individual or portfolios of properties, renovation and expansion of properties and other general corporate purposes. The Line of Credit matures in December 1996. Due to the Company's acquisition-oriented strategy, the Company may at any time be engaged in discussions or negotiations with public or private real estate owners regarding possible portfolio or asset acquisitions or business combinations. As of the date of this Prospectus Supplement, the Company has not entered into any agreement to make an acquisition or to effect a business combination. CAPITALIZATION The following table sets forth the capitalization of the Company as of March 31, 1995 and as adjusted to give effect to this offering and the anticipated use of the proceeds thereof as described under "Use of Proceeds," assuming an offering price of $16.25 per share, the last reported sale price of the Common Stock on the NYSE on June 8, 1995.
MARCH 31, 1995 ---------------------- HISTORICAL AS ADJUSTED ---------- ----------- (IN THOUSANDS) Mortgage loans (1)...................................... $ 27,666 $ 25,040 Line of Credit (2)...................................... 40,400 6,829 -------- -------- Total debt.............................................. $ 68,066 $ 31,869 -------- -------- Stockholders' equity: Shares of Common Stock, par value $.01 per share: authorized 80,000,000 shares; issued and outstanding 8,529,526 shares, as adjusted 11,221,026 shares (3).... $ 85 $ 112 Additional paid-in capital (3).......................... 107,666 148,761 Distributions in excess of accumulated earnings......... (9,731) (9,731) -------- -------- Total stockholders' equity.......................... $ 98,020 $139,142 -------- -------- Total capitalization.................................... $166,086 $171,011 ======== ========
- -------- (1) Mortgage loans bear interest at rates ranging from 8.125% to 11.75% and mature in 1996 through 2008. "As Adjusted" reflects the assumption of $2.1 million of mortgage debt in connection with the Company's acquisition of a property and prepayment of $4.7 million of 9.5% mortgage loans due December 1998 with net proceeds from this offering. See "Use of Proceeds." (2) "As Adjusted" reflects repayment of outstanding borrowings under the Line of Credit of $400,000 since March 31, 1995 and of $33.2 million with net proceeds from this offering. See "Use of Proceeds." (3) "Historical" excludes and "As Adjusted" includes 182,500 shares of Common Stock issued in April 1995 in connection with the Company's acquisition of a property and 9,000 shares of Common Stock issued upon exercise of employee stock options. S-10 MARKET PRICE OF SHARES AND DISTRIBUTIONS The following ranges of high and low sales prices were reported on the NYSE subsequent to October 17, 1994 and on the American Stock Exchange through that date. All share prices and distributions paid have been adjusted to reflect the one-for-two reverse stock split effected October 17, 1994.
PER SHARE QUARTER ENDED HIGH LOW DISTRIBUTION - ------------- ------- ------- ------------ March 31, 1993..................................... $20 1/4 $15 $0.30 June 30, 1993...................................... $20 1/2 $16 1/4 $0.30 September 30, 1993................................. $19 $16 3/4 $0.30 December 31, 1993.................................. $18 3/4 $15 1/4 $0.32 March 31, 1994..................................... $18 3/4 $16 3/4 $0.32 June 30, 1994...................................... $19 1/4 $16 3/4 $0.32 September 30, 1994................................. $17 3/4 $14 1/2 $0.32 December 31, 1994.................................. $15 3/4 $13 5/8 $0.33 March 31, 1995..................................... $16 3/4 $14 7/8 $0.33
The March 31, 1995 distribution was the Company's 135th consecutive quarterly distribution. On May 11, 1995, the Company declared a $0.33 quarterly distribution payable on June 30, 1995 to stockholders of record on June 5, 1995. On June 8, 1995, the last reported sale price of the Common Stock on the NYSE was $16.25 per share. The Company makes quarterly cash distributions to stockholders, generally in March, June, September and December. The $1.29 per share of distributions paid in 1994 represented approximately 83% of the Company's funds from operations per share for this period. The Company intends to maintain a conservative distribution payout policy, with cash distributions representing between 75% and 90% of funds from operations per share. In January of each year, the Company provides its stockholders with information concerning the amount of distributions paid during the preceding year which constitute ordinary income, net capital gain or return of capital. For Federal income tax purposes, the Company has determined that approximately 30% and 26% of the distributions paid in 1993 and 1994, respectively, were non-taxable returns of capital to stockholders. As a result of the Company's purchase of the REIT advisory business of its external advisor and the use of proceeds from this offering to repay indebtedness (and therefore to reduce the amount of deductible interest), the Company expects that the percentage of distributions representing a return of capital to stockholders will be lower in 1995 than it was in 1994. See "Taxation." Dividend Reinvestment and Share Purchase Plan The Company maintains a Dividend Reinvestment and Share Purchase Plan pursuant to which stockholders of record owning at least 100 shares of Common Stock may elect to reinvest cash distributions and to make limited additional cash payments to purchase newly issued shares, without brokerage fees or other transaction costs, at a 3% discount from market price (as determined in the plan). S-11 SELECTED FINANCIAL DATA The following table sets forth selected financial data for the Company for the periods indicated and should be read in conjunction with the financial statements and notes thereto incorporated herein by reference and "Management's Discussion and Analysis of Financial Condition and Results of Operations" that follow.
QUARTER ENDED MARCH 31, YEAR ENDED DECEMBER 31, ----------------- -------------------------- 1995 1994 1994 1993 1992 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) OPERATING DATA: Income Rental income............ $ 8,615 $ 7,455 $ 32,875 $ 22,875 $11,839 Other income............. 85 6 112 594 308 -------- -------- -------- -------- ------- 8,700 7,461 32,987 23,469 12,147 -------- -------- -------- -------- ------- Expenses Operations, maintenance and management.......... 1,277 1,246 5,315 3,731 1,821 Real estate taxes........ 2,008 1,861 8,070 5,772 2,259 Mortgage and other inter- est..................... 1,464 699 4,524 2,947 3,596 Depreciation and amorti- zation.................. 1,757 1,084 5,146 3,564 2,178 Administrative and gener- al...................... 359 477 2,288 1,920 1,331 Tenant abandonment....... -- -- -- -- 175 -------- -------- -------- -------- ------- 6,865 5,367 25,343 17,934 11,360 -------- -------- -------- -------- ------- Income before gain on sale. 1,835 2,094 7,644 5,535 787 -------- -------- -------- -------- ------- Gain on sale............... -- -- 983 -- -- -------- -------- -------- -------- ------- Net income................. $ 1,835 $ 2,094 $ 8,627 $ 5,535 $ 787 ======== ======== ======== ======== ======= Net income per share....... $ 0.22 $ 0.26 $ 1.05 $ 0.82 $ 0.40 Funds from operations(1)... $ 3,592 $ 3,178 $ 12,790 $ 9,099 $ 2,965 Distributions.............. $ 2,812 $ 2,620 $ 10,568 $ 8,285 $ 2,278 Distributions per share.... $ 0.33 $ 0.32 $ 1.29 $ 1.22 $ 1.20 Weighted average number of shares outstanding........ 8,414 8,188 8,192 6,716 1,972 BALANCE SHEET DATA (AT END OF PERIOD): Net real estate invest- ments..................... $154,999 $145,403 $155,554 $120,033 $83,750 Total assets............... $171,523 $156,234 $166,579 $127,931 $93,326 Mortgage and bank loans payable................... $ 68,066 $ 56,458 $ 66,748 $ 29,317 $44,085 Total liabilities.......... $ 73,503 $ 60,341 $ 72,000 $ 31,547 $45,482 Total stockholders' equity. $ 98,020 $ 95,893 $ 94,579 $ 96,384 $47,844
- -------- (1) Defined by the National Association of Real Estate Investment Trusts as "net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures." Funds from operations differs from net cash provided by operating activities primarily because funds from operations does not include changes in operating assets and liabilities. Funds from operations is a supplemental measure of performance that does not replace net income as a measure of performance or net cash provided by operating activities as a measure of liquidity. For further information concerning the Company's computation of funds from operations, see "Management's Discussions and Analysis of Financial Condition and Results of Operations--General." S-12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company and the REIT industry consider funds from operations (defined by the National Association of Real Estate Investment Trusts as "net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures") to be an important measure of performance for an equity REIT, because such measure does not treat depreciation and amortization expenses as operating expenses. The Company acquires, evaluates and sells properties based upon net operating income without taking into account property depreciation and amortization charges and utilizes funds from operations, together with other factors, in setting stockholder distribution levels. Funds from operations differs from cash flows from operating activities set forth in the Statement of Cash Flows in the Company's financial statements primarily because funds from operations does not include changes in operating assets and liabilities. Funds from operations is a supplemental measure of performance that does not replace net income as a measure of performance or net cash provided by operating activities as a measure of liquidity. During 1994, Bradley effected a number of significant developments. Shareholders approved the acquisition of the REIT advisory business of the Company's long-time external advisor and the reorganization of the Company from a Massachusetts common law business trust to a Maryland corporation. In addition, during 1994 the Company (i) purchased Rivercrest, a 429,000 square foot shopping center in Crestwood, Illinois, (ii) purchased Westwind, an 88,000 square foot community shopping center in Minnetonka, Minnesota in a tax- deferred exchange following the sale of Spruce Tree, and (iii) increased the Line of Credit from $35,000,000 to $65,000,000. In 1995, the Company acquired St. Francis Plaza, a 30,000 square foot shopping center in Santa Fe, New Mexico, thereby increasing the Company's shopping center portfolio to a total of approximately 3,000,000 rentable square feet. In September 1994, shareholders of Bradley Real Estate Trust approved the reorganization of the Trust from a Massachusetts common law business trust to a Maryland corporation. The reorganization was consummated in October 1994 and included: (i) the reorganization into a Maryland corporation along with a name change to Bradley Real Estate, Inc. to reflect the new corporate structure, (ii) a one-for-two reverse stock split and (iii) the listing of the Common Stock on the NYSE under the symbol "BTR." The reorganization was effected as a "tax-free" reorganization without recognition of gain or loss to either the Trust or its shareholders and, for both financial reporting and federal income tax purposes, the Company is considered to be a continuation of the same entity as the Trust. In January 1995, pursuant to shareholder approval in September 1994, the Company acquired the real estate investment trust advisory business of its former advisor, R.M. Bradley & Co., Inc. The acquisition enabled the Company to effect the buyout of its advisory contract with the former advisor and to become a self-administered REIT. The acquisition involved the issuance of 325,000 shares of Common Stock to the owners of the advisor. The Company is amortizing the cost of the buyout of the advisory contract, aggregating approximately $5,536,000 including related transaction costs, over the remaining term of the contract which would have expired in August 1999. The Company anticipates that its administrative and general expenses will be reduced as a result of no longer incurring advisory fees, although noncash expenses will be increased as a result of amortizing the cost of the buyout. In calculating funds from operations, the Company has added back, and intends to continue to add back to net income the amortization expense associated with the buyout of the advisory contract. The amortization expense, which amounted to $297,000 for the quarter ended March 31, 1995 and will amount to $99,000 per month ($1,186,000 annually) through August 1999, is being included in funds from operations based on the Company's view that the amortization results from a transaction (the acquisition of an external advisor by a REIT) which is unique to the real estate industry generally and REITs specifically. Further, the Company believes that since this transaction was, by definition, significant and non-recurring in nature, failure to include the amortization expense in funds from operations would materially distort the comparative measurement of funds from operations. S-13 Effective January 1, 1995, the Company brought the property management operations for its Minnesota properties in-house by hiring the eight-member management team previously employed by the independent property management firm managing these properties. The Company anticipates that the additional cost related to directly hiring the Minnesota management team will be substantially offset by savings in third-party management costs, and that there are potential savings on commissions attributable to future leasing transactions negotiated by the Company's own personnel rather than independent brokers. LIQUIDITY AND CAPITAL RESOURCES As a qualified REIT, the Company distributes a substantial portion of its cash flow to its stockholders in the form of dividends. The Company funds these distributions primarily from operating cash flows, although the Line of Credit may also be used. Net cash flows provided by operating activities increased to $4,142,000 during the first quarter of 1995 from $2,639,000 during the comparable 1994 period, while distributions (treated as a charge to cash flows from financing activities in the Company's financial statements) were $2,812,000 in 1995 compared with $2,620,000 in the comparable 1994 period. During 1994, the Company expended approximately $41,000,000 on property acquisitions and capital improvements. Of that amount, approximately $32,000,000 was spent on property acquisitions, approximately $7,200,000 was spent on tenant specific capital improvements and approximately $1,800,000 was spent on non-tenant property improvements. During the quarter ended March 31, 1995, the Company expended an aggregate of $684,000 for property and tenant improvements. At March 31, 1995, the Company had commitments of approximately $3,800,000 to fund renovation, expansion and tenant improvements, of which approximately $3,500,000 is associated with signed leases for HomePlace and Barnes & Noble at Har Mar. In addition, the Company may make further capital expenditures during the remainder of 1995 for expansion at Burning Tree (once additional tenants are secured) and possibly for property and tenant improvements at other properties. The Company expects to utilize undistributed net cash flow from operating activities as well as funds available under the Line of Credit to fund existing and future commitments for tenant and property improvements. In May 1994, The First National Bank of Boston, lead lender under the Line of Credit, completed syndication of the Line of Credit with the addition of Fleet Bank, N.A. and Wells Fargo Realty Advisors Funding, Incorporated as lenders, resulting in the expansion of the Line of Credit from $35,000,000 to $65,000,000. The Line of Credit is secured by a blanket mortgage on six of the Company's properties. The Company used the Line of Credit to fund property acquisitions and capital improvements in 1994 and 1995. During 1994, the interest rate on the Line of Credit was the lower of the lead lending bank's base rate or 2.375% over the adjusted LIBOR. Effective January 30, 1995, the rate was reduced to the lower of the lead lender's base rate or 1.875% over the adjusted LIBOR. The weighted average interest rate on the Line of Credit was 7.1% during 1994 and was 8.2% during the quarter ended March 31, 1995. Approximately $24,600,000 was available under the Line of Credit at March 31, 1995. The Line of Credit contains certain covenants which the Company believes are customary for agreements of this type. Among other provisions, the covenants require lender consent regarding the incurrence of additional indebtedness, the signing of certain leases and the sale and purchase of assets by the Company, and require maintenance of certain financial tests, including minimum net worth and debt service coverage requirements. Additionally, there are customary cross-default and cross-collateral provisions. The Company believes that such covenants will not adversely affect (and to date have not adversely affected) the Company's business or the operation of its properties. In January 1996, approximately $12,000,000 in mortgage loans securing Sun Ray Shopping Center in St. Paul, Minnesota, will mature. These loans bear interest at a weighted average interest rate of 10.53%. The Company is negotiating the refinancing of the mortgage loans with the current lender and is also S-14 reviewing alternative sources of refinancing. The Company expects to extend or refinance the mortgage loans upon maturity at a more favorable interest rate. In January 1995, the Securities and Exchange Commission declared effective the Company's "universal shelf" registration statement which registered $125,000,000 of the Company's Common Stock, preferred stock, debt securities, warrants, rights or units of the foregoing securities that the Company may issue through underwriters or in privately negotiated transactions from time to time. In April 1995, the Company issued 182,500 shares of Common Stock pursuant to such registration statement at a price of $17.00 per share in a negotiated transaction to fund the cash portion of the purchase price of St. Francis Plaza. The Company intends to use the net proceeds from the sale of the Shares pursuant to this offering under such registration statement to prepay approximately $4,700,000 of mortgage debt and to substantially reduce outstanding borrowings under the Line of Credit. The Company believes that this offering positions the Company for future growth by maximizing its financial flexibility to take advantage of acquisition, renovation and expansion opportunities. The Company continues to evaluate prospective acquisitions of individual properties and entire portfolios. To fund potential acquisitions, the Company may issue additional securities under its universal shelf registration statement or in other privately negotiated transactions, which may involve business combinations, or may borrow under its Line of Credit to temporarily finance acquisitions (and, potentially, renovations and expansions), with such borrowings being subsequently repaid with the proceeds of further equity or debt offerings, depending upon market conditions at the time. The Company funds normal and routine repairs and maintenance and distributions to stockholders from its operating activities and from borrowings under the Line of Credit. The Company anticipates that adequate operating cash flow or financing (including borrowings under the Line of Credit) will be available to fund tenant and property improvements, leasing commissions, operating and administrative expenses, interest payments on outstanding indebtedness and distributions to its stockholders, in both the short and long term. RESULTS OF OPERATIONS First Quarter 1995 Compared to First Quarter 1994 Rental income increased $1,160,000 or 16% from $7,455,000 for the quarter ended March 31, 1994 to $8,615,000 for the quarter ended March 31, 1995. This increase was primarily due to the acquisitions of Rivercrest and Westwind on March 30, 1994 and November 1, 1994, respectively, offset by the sale of Spruce Tree on November 1, 1994, and increased occupancy of certain other properties in the Company's portfolio. Other income increased $79,000 from $6,000 to $85,000. During the first quarter of 1995, the Company received approximately $26,000 related to a tax abatement at one of its properties and approximately $29,000 in interest earned on funds from a tax escrow account. Total expenses increased $1,498,000 or 28% from $5,367,000 to $6,865,000. Of the increased expenses, $607,000 were attributable to increases in operating expenses, real estate taxes and depreciation associated with the portfolio changes described in the preceding paragraph. The portfolio changes were responsible for substantially all of the $31,000 increase in operations, maintenance and management from $1,246,000 to $1,277,000. Real estate taxes increased $147,000 from $1,861,000 to $2,008,000, primarily reflecting an increase of $304,000 resulting from the portfolio changes, offset by tax reductions of $147,000 at two other properties. Mortgage and other interest increased $765,000 from $699,000 to $1,464,000 primarily due to additional borrowings under the Line of Credit to purchase Rivercrest and the assumption of $4,890,000 in mortgages in connection with the Westwind acquisition. The Company intends to repay a substantial portion of the outstanding balance on the Line of Credit and to prepay the Westwind mortgages with net proceeds from this offering. Depreciation and amortization increased $673,000 from $1,084,000 to $1,757,000, with $376,000 of the increase primarily attributable to the acquisition of the new portfolio properties as well as other capital improvements to the Company's properties; the remaining $297,000 increase reflects amortization of the cost of the Company's buyout of its contract with its former advisor. The $118,000 decrease in administrative and general expenses from $477,000 to $359,000 primarily reflects the elimination of advisory fees ($230,000 in the first quarter of 1994), offset by the cost of self-administration. S-15 Net income decreased $259,000 or 12% from $2,094,000 ($0.26 per share) in the first quarter of 1994 to $1,835,000 ($0.22 per share) in the first quarter of 1995. Per share amounts reflect weighted average shares outstanding of 8,413,849 for 1995 and 8,188,492 for the first quarter of 1994. Share and per share amounts have been adjusted for the one-for-two reverse stock split effected October 17, 1994. For the first quarter of 1995, funds from operations increased $414,000 or 13% from $3,178,000 in 1994 to $3,592,000. 1994 Compared to 1993 Rental income increased $10,000,000 or 44% from $22,875,000 in 1993 to $32,875,000 in 1994. The increase was primarily attributable to the acquisition of Terrace, acquired in May 1993; Westview Center and Burning Tree, acquired in July 1993; White Bear Hills, acquired in December 1993; and Rivercrest, acquired in March 1994. Other income decreased $482,000 or 81% from $594,000 in 1993 to $112,000 in 1994. During 1993, the Company had received (i) a $300,000 termination fee from a restaurant tenant at Har Mar, (ii) approximately $58,000 in interest from the temporary investment of the net proceeds of funds raised in the December 1992 public equity offering, and (iii) a $110,000 payment from the Company's directors and officers insurance carrier to cover legal fees incurred in a prior year lawsuit. Total expenses increased $7,409,000 or 41% from $17,934,000 in 1993 to $25,343,000 in 1994, due primarily to increases in the following expenses which were attributable to the addition of properties to the Company's portfolio as described above: (i) operations, maintenance and management expenses increased $1,584,000 from $3,731,000 to $5,315,000, (ii) real estate taxes increased $2,298,000 from $5,772,000 to $8,070,000 and (iii) depreciation and amortization increased $1,582,000 from $3,564,000 to $5,146,000. Mortgage and other interest increased $1,577,000 or 54% from $2,947,000 in 1993 to $4,524,000 in 1994, primarily due to higher outstanding borrowings and higher prevailing rates of interest paid under the Line of Credit, offset by lower outstanding mortgage debt in 1994 as a result of an aggregate of $20,500,000 being repaid during 1993 on the Hood Commons and Grandview Plaza construction loans, which loans carried an average interest rate in excess of that paid on the Line of Credit. Administrative and general expenses increased $368,000 or 19% from $1,920,000 in 1993 to $2,288,000 in 1994 reflecting both increased advisory fees related to the expanded portfolio and increased costs for shareholder services related to a greater number of shareholders following the Company's December 1992 and June 1993 public equity offerings. The acquisition of Westwind for approximately $7,500,000 was effected in a tax-deferred exchange following the sale of Spruce Tree for $2,750,000, which resulted in a gain of approximately $983,000. The aggregate result for 1994 was a $3,092,000 or 56% increase in net income from $5,535,000 (or $0.82 per share) in 1993 to $8,627,000 (or $1.05 per share) in 1994. Income in 1994 before the gain for financial reporting purposes on the sale of Spruce Tree was $7,644,000 (or $0.93 per share), an increase of 38%. Per share amounts reflect weighted average shares outstanding of 6,715,813 for 1993 and 8,191,831 for 1994. Net cash flows provided by operating activities increased to $10,877,000 during 1994 from $6,532,000 during 1993, while distributions (treated as a charge to cash flows from financing activities in the Company's financial statements) were $10,568,000 in 1994 compared with $8,285,000 in 1993. Funds from operations increased $3,691,000 or 41% from $9,099,000 in 1993 to $12,790,000 in 1994. 1993 Compared to 1992 Rental income increased $11,036,000 or 93% from $11,839,000 in 1992 to $22,875,000 in 1993. The increase was primarily attributable to: (i) the ownership of Har Mar, Crossroads Center and Spruce Tree, acquired in December 1992, Terrace acquired in May 1993, Westview Center and Burning Tree, acquired in S-16 July 1993 and White Bear Hills, acquired in December 1993, (ii) the commencement of new leases at Grandview Plaza with Home Quarters Warehouse, Inc. and Jennifer Convertibles during the second and fourth quarters of 1992, respectively, as the construction for these tenancies was completed, and (iii) a full year of rent under leases with U.S. Swim and Fitness and Rainbow Foods at Hub West, as that property's renovation and expansion project was completed in the second quarter of 1992. Other income increased $286,000 from $308,000 to $594,000. During 1993, the Company received a one-time $300,000 termination fee from a restaurant tenant at Har Mar, earned approximately $58,000 in interest from temporarily investing the net proceeds of funds received from the public equity offering in December 1992 and received a $110,000 payment from the Company's directors and officers insurance carrier to cover legal fees incurred in a prior year lawsuit. During 1992, the Company received a $100,000 escrow deposit, previously written-off, plus approximately $47,000 of interest resulting from the successful outcome of the prior year lawsuit. Total expenses increased $6,574,000 or 58% from $11,360,000 to $17,934,000 due primarily to increases in the following expenses which are primarily attributable to the properties acquired in December 1992 and in 1993 and to a lesser extent, to increased expenses after completion of construction and re- tenanting at Grandview Plaza and Hub West: (i) operations, maintenance and management increased $1,910,000 from $1,821,000 to $3,731,000, (ii) real estate taxes increased $3,513,000 from $2,259,000 to $5,772,000 and (iii) depreciation and amortization increased $1,386,000 from $2,178,000 to $3,564,000. Administrative and general increased $589,000 from $1,331,000 to $1,920,000 reflecting both increased advisory fees related to the expanded portfolio and increased costs for shareholder services related to the increased number of shares outstanding. These increases were offset by a decrease in mortgage and other interest of $649,000 from $3,596,000 to $2,947,000 due to lower outstanding debt in 1993 as a result of (i) $8,000,000 being paid on the Hood Commons loan in March 1993, and the remaining $3,000,000 being paid in May 1993, (ii) approximately $9,500,000 being paid on the balance outstanding on the Grandview Plaza construction loan in July 1993, and (iii) an overall lower outstanding balance on the Line of Credit in 1993 compared to 1992. The aggregate result for 1993 was an increase of $4,748,000 or 603% in net income from $787,000 (or $0.40 per share) in 1992 to $5,535,000 (or $0.82 per share) in 1993. Per share amounts reflect weighted average shares outstanding of 1,972,054 for 1992 and 6,715,813 for 1993. Net cash flows provided by operating activities increased to $6,532,000 during 1993 from $3,343,000 during 1992, while distributions were $8,285,000 in 1993 compared with $2,278,000 in 1992. Funds from operations increased 207% to $9,099,000 in 1993 from $2,965,000 in 1992; however, because of the significantly greater number of shares outstanding for 1993 than for 1992, funds from operations per share were less in 1993 than in 1992. PROPERTIES The Company's portfolio is made up primarily of well-established, strategically located shopping centers in suburban communities near major metropolitan areas. The Company's shopping centers have good visibility and access from major traffic arteries and a diverse tenant mix dominated by supermarkets, drugstores and other consumer necessity or value-oriented retailers. The following table and notes describe the Company's properties as of March 31, 1995, unless otherwise specified. S-17
PERCENT LEASED AT ----------------------- BASE LEASE/ RENTABLE OPTION YEAR SQUARE DECEMBER 31, MARCH 31, SQUARE EXPIRATION ACQUIRED FEET 1993 1994 1995 MAJOR TENANTS(1) FEET DATE SHOPPING CENTERS -------- -------- ------ ------ --------- ---------------- ------ ----------- Har Mar Mall(2)......... 1992 397,000 84% 90% 91% HomePlace 54,500 2010/2025 Roseville, Minnesota Barnes & Noble 44,250 2010/2025 Marshalls 34,858 1998/2013 T.J. Maxx 25,025 1998/2008 General Cinema 22,252 2001/2021 General Cinema 19,950 2000/2010 Michaels Stores 17,907 2003/2018 Sun Ray Shopping Center(3).............. 1961 254,000 89% 97% 92% J.C. Penney 40,451 1999/2009 St. Paul, Minnesota Marshalls 26,256 2005/2020 T.J. Maxx 23,955 1995/2005 Kowalski's 23,218 2000/2010 Michaels Stores 17,556 2004/2019 Terrace Mall(4)......... 1993 140,000 87% 90% 93% Rainbow Foods 59,897 2013/2033 Robbinsdale, Minnesota North Memorial 32,000 1999/2004 Richfield Hub Shopping Center(5).............. 1988 138,000 100% 96% 97% Marshalls 26,785 2003/2008 Richfield, Minnesota Michaels Stores 24,235 1999/2014 Westwind Plaza(6)....... 1994 88,000 N/A 100% 100% Northern Hydraulics 18,165 2002/2012 Minnetonka, Minnesota Burning Tree Plaza(7)... 1993 110,000 96% 98% 99% T.J. Maxx 30,000 2004/2019 Duluth, Minnesota Best Buy 28,000 1999/2014 Northwest Fabrics 17,682 1999/2004 Hub West Shopping Center(8).............. 1991 77,000 100% 100% 100% Rainbow Foods 50,817 2012/2017 Richfield, Minnesota U.S. Swim & Fitness 26,185 2001/2003 White Bear Hills(9)..... 1993 67,000 99% 100% 100% Gateway Foods 45,679 2011/2021 White Bear Lake, Minnesota Rivercrest Center(10)... 1994 429,000 N/A 100% 100% Omni Foods 87,937 2011/2031 Crestwood, Illinois Venture 79,903 2012/2032 Sears Roebuck and Co. 55,000 2001/2005 T.J. Maxx 34,425 2004/2019 PETsMART 31,639 2009/2030 Best Buy 25,000 2008/2023 OfficeMax 24,000 2007/2017 Hollywood Park 15,000 2000/2005 Westview Center(11)..... 1993 326,000 95% 81% 81% Cub Foods 67,163 2009/2029 Hanover Park, Illinois Marshalls 34,302 2004/2019 Crossroads Center(12)... 1992 242,000 100% 99% 98% K-Mart (ground lease) 96,268 2001/2020 Fairview Heights, T.J. Maxx 25,200 1998/2013 Illinois Grandview Plaza(13)..... 1971 314,000 99% 97% 98% Home Quarters 84,611 2013/2033 Florissant, Missouri Schnucks 68,025 2011/2026 J.C. Penney 63,892 1996 Walgreens 15,984 2043 St. Francis Plaza(14)... 1995 30,000 N/A N/A 100% Walgreens 14,950 2043 Santa Fe, New Mexico Wild Oats 14,850 2006/2037 Hood Commons(15)........ 1973 216,000 95% 98% 97% Shaw's 58,258 2013/2033 Derry, New Hampshire Ames 50,000 2000/2005 Decelle 26,640 1999/2014 Augusta Plaza(16)....... 1971 152,000 93% 89% 91% K-Mart 85,808 1997/2012 Augusta, Maine RETAIL/OFFICE BUILDING 585 Boylston Street(17). 1961 22,000 78% 100% 90% CVS Pharmacy 7,582 2001/2016 Boston, MA Various Office Tenants 11,902 Varies GROUND LEASE 501-529 Nicollet Ave.(18)............... 1969 51,000 100% 100% 100% Brookfield 51,000 2086 Minneapolis, MN
S-18 - -------- (1) Major tenants are defined as tenants occupying 15,000 square feet or greater of the rentable square footage with the exception of 585 Boylston Street and St. Francis Plaza. In some cases, the named tenant occupies the premises as a sublessee. The Company views "anchor" tenants as a subset of the major tenants at each property, consisting of those tenants which also represent more than 15% of the property's rentable square footage. (2) At Har Mar, the lease to HomePlace provides current minimum annual rent of $584,592 upon rent commencement at the completion of tenant fit up which is expected to occur in the fourth quarter of 1995. The lease to Barnes & Noble provides for minimum annual rent of $641,628 upon rent commencement at the completion of tenant fit up which is expected to occur in the third quarter of 1995. The lease to Marshalls provides for minimum annual rent of $155,400. The lease to T.J. Maxx provides current minimum annual rent of $168,920. The 22,252 square foot lease to General Cinema provides current minimum annual rent of $201,000 and the 19,950 square foot lease to General Cinema provides current minimum annual rent of $17,100. The lease to Michaels Stores provides current minimum annual rent of $111,919. There are five tenants, occupying an aggregate of 12,294 square feet, which are tenants-at-will. Six leases for an aggregate 14,059 square feet will expire during the last nine months of 1995. The Company expects that the majority of these leases will be renewed. (3) At Sun Ray, the lease to J.C. Penney expires in 1999, with the tenant having the option to terminate upon 12 months' notice, and provides current minimum annual rent of $146,812. The lease to T.J. Maxx provides current minimum annual rent of $161,696. The lease to Kowalski's provides current minimum annual rent of $58,045. The lease to Michaels Stores provides current minimum annual rent of $109,728. There are four tenants, occupying an aggregate of 9,825 square feet, which are tenants-at-will. During the last nine months of 1995, leases for 6,476 square feet will expire. The Company expects that the majority of these leases will be renewed. (4) At Terrace, the lease to Rainbow Foods provides current minimum annual rent of $449,228. There are no leases expiring in 1995. (5) At Richfield Hub, the lease to Marshalls provides current minimum annual rent of $174,103. The lease to Michaels Stores provides current minimum annual rent of $121,175. There are four tenants, occupying an aggregate of 5,623 square feet, which are tenants-at-will. During the last nine months of 1995, one lease for 850 square feet will expire. (6) At Westwind the lease to Northern Hydraulics provides current minimum annual rent of $109,898. During the last nine months of 1995, seven leases for 17,391 square feet, will expire. The Company expects the majority of these leases to be renewed. (7) At Burning Tree, the T.J. Maxx lease provides $225,000 in current minimum annual rent. The lease to Best Buy provides $182,000 in current minimum annual rent. The lease to Northwest Fabrics provides current minimum annual rent of $88,410. There is one tenant, occupying 1,400 square feet, which is a tenant-at-will. During the last nine months of 1995, one lease for 2,180 square feet will expire. (8) At Hub West, which is adjacent to Richfield Hub, the lease to Rainbow Foods provides current minimum annual rent of $464,976. The lease to U.S. Swim & Fitness provides current minimum annual rent of $321,595. None of the present lease agreements are scheduled to expire until 1999. (9) At White Bear Hills, the Gateway Foods lease provides current minimum annual rent of $239,815. During the last nine months of 1995, one lease for 1,200 square feet will expire. (10) At Rivercrest, the lease to Omni Foods provides current minimum annual rent of $678,873. The lease to Venture provides current minimum annual rent of $299,636. The lease to Sears Roebuck and Co. provides current minimum annual rent of $261,250. The lease to T.J. Maxx provides current minimum annual rent of $275,400. The lease to PETsMART provides current minimum annual rent of $256,593. The lease to Best Buy provides current minimum annual rent of $168,750. The lease to OfficeMax provides current minimum annual rent of $192,000. The lease to Hollywood Park provides current minimum annual rent of $130,059. There are no leases expiring in the remainder of 1995. (11) At Westview, the lease to Cub Foods provides current minimum annual rent of $503,723. The lease to Marshalls provides current minimum annual rent of $257,263. One tenant occupying 1,800 square feet is a tenant-at-will. During the last nine months of 1995, two leases for 11,400 square feet will expire. The Company expects both of these leases to be renewed. S-19 (12) At Crossroads Center, the lease to K-Mart is a ground lease that provides current minimum annual rent of $38,000. The lease to T.J. Maxx provides current minimum annual rent of $163,800. During the last nine months of 1995, two leases for 14,349 square feet will expire, both of which the Company believes will be renewed. (13) At Grandview Plaza, the lease to Home Quarters Warehouse provides $676,888 in current minimum annual rent. The Schnucks lease provides current minimum annual rent of $509,903. The lease to J.C. Penney provides $365,487 in current minimum annual rent and expires in 1998, however the tenant has exercised its option to accelerate the expiration of the lease term to March 1996. The lease to Walgreens provides current minimum annual rent of $181,255. One tenant occupying 2,000 square feet is a tenant-at- will. During the last nine months of 1995, one lease for 800 square feet will expire. (14) St. Francis Plaza was purchased in April 1995 for $5.2 million. The lease to Walgreens provides current minimum annual rent of $149,500. The lease to Wild Oats provides current minimum annual rent of $207,500. There are no leases expiring until 2006. (15) At Hood Commons, the lease to Shaw's provides current minimum annual rent of $466,064. The lease to Ames provides current minimum annual rent of $116,096. The lease to Decelle provides current minimum annual rent of $210,824. There are two tenants occupying an aggregate of 4,290 square feet, which are tenants-at-will. During the last nine months of 1995, three leases aggregating 11,070 square feet will expire. The Company expects the majority of these leases to be renewed. (16) At Augusta Plaza, the lease to K-Mart provides current minimum annual rent of $162,792. During the last nine months of 1995, one lease for 2,400 square feet will expire. (17) At 585 Boylston Street, the lease to CVS Pharmacy provides current minimum annual rent of $434,000. There are no leases expiring in the remainder of 1995. The leases to the various office tenants (three in total) provide aggregate current minimum annual rent of $201,191. (18) At 501-529 Nicollet Avenue, the unsubordinated ground lease of 51,000 square feet of land to Brookfield Development (California), Inc. is for a 99-year term that commenced in 1987. This lease provides for stepped minimum rents over its term, with the actual cash paid in each year through 1993 being $800,000, in 1994 being $950,000, in 1995 being $990,000 and thereafter increasing by $40,000 each year through 1998 and by $50,000 each year through 2003, following which minimum rent reverts to $1,100,000 annually for all subsequent years. Under the "leveling" method of averaging contractual minimum rent payments over the life of the lease, the minimum annual rent recognized as income by the Company for financial reporting purposes each year is $1,089,000. The groundtenant has constructed an approximately 670,000 square foot mixed-use retail and office tower, known as Dain Bosworth Plaza, on the site. Major tenants of the building include Neiman Marcus, Dain Bosworth and Marquette Bank. PORTFOLIO LEASE EXPIRATIONS The following table shows, as of March 31, 1995, tenant lease expirations for the remainder of 1995 and for the following nine calendar years, assuming that no tenants exercise renewal options:
AVERAGE ANNUAL MINIMUM NO. OF SQUARE MINIMUM RENT PER LEASE EXPIRING LEASES FEET RENT SQUARE FOOT -------------- ------ ------- ---------- ----------- 1995................................... 29 106,130 $ 989,979 $ 9.33 1996................................... 47 178,715 1,645,429 9.21 1997................................... 55 256,239 1,908,596 7.45 1998................................... 31 185,723 1,601,779 8.62 1999................................... 41 309,687 2,496,919 8.06 2000................................... 27 198,477 1,362,169 6.86 2001................................... 16 273,903 2,043,214 7.46 2002................................... 12 63,123 703,436 11.14 2003................................... 10 93,782 862,133 9.19 2004................................... 10 141,040 1,193,010 8.46
S-20 ENVIRONMENTAL MATTERS Under various federal, state and local laws, ordinances and regulations, an owner of real estate may be held liable for the costs of investigation, removal and/or remediation of hazardous or toxic substances, including petroleum products. The presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner's ability to sell or rent such property or to borrow using such property as collateral. Other Federal, state and local laws, ordinances and regulations require the removal or encapsulation of asbestos-containing material in the event of remodeling or renovation. Management of the Company is sensitive to environmental issues and believes that each of the Company's properties is in compliance in all material respects with applicable environmental requirements. Substantially all of the Company's existing properties have been subject to Phase I or similar environmental assessments by environmental engineers or consultants and, as necessary, some of the properties have been subject to Phase II environmental assessments. At Rivercrest, soil tests relating to an outlot which has been groundleased to a restaurant tenant indicated the presence of petroleum residues which the Company removed in April 1995 at a cost of approximately $40,000. The Company has received a report from its environmental engineer indicating that no further action is necessary on this outlot. In connection with the removal or closure of three discontinued underground storage tanks at Hood Commons in Derry, New Hampshire, the Company became aware of petroleum residues in the soil adjacent to one of the tanks. The estimated cost of removal of these soils is $25,000, a substantial portion of which the Company expects will be recoverable from the State of New Hampshire's environmental reimbursement fund. The Company does not regard these removal costs to be material, and is not aware, based upon the Phase I and Phase II reports that it has received or its own knowledge, of any further hazardous or toxic site contamination requiring removal or remediation by the Company. In connection with the remodeling or renovation of properties, the Company has caused the removal or encapsulation of asbestos in accordance with applicable requirements. INSURANCE The Company carries comprehensive general liability coverage and umbrella liability coverage on all of its properties with limits of liability which the Company deems adequate to insure against liability claims and provide for the costs of defense. Similarly, the Company is insured against the risk of direct physical damage in amounts the Company estimates to be adequate to reimburse the Company on a replacement cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the reconstruction period, except that the limit on insurance of its properties for loss caused by earthquake or flood is $10 million in the aggregate. EFFECT OF GENERAL ECONOMIC AND REAL ESTATE CONDITIONS While the tenant mix at the Company's properties emphasizes consumer necessity and value-oriented retailers (such as supermarkets and drugstores), neither the Company nor its tenants are immune to the effects of economic downturns. The Company's bad debt expense increased from $95,000 (0.4% of total revenue) in 1993 to $259,000 (0.8% of total revenue) in 1994, reflecting the Company's larger portfolio and business difficulties of certain small shop tenants. A significant worsening of general economic conditions in the areas where the Company's properties are located could result in the inability of tenants to meet their lease obligations and could otherwise adversely affect the Company's ability to attract or retain tenants or to maintain current rental rates for new leases. During the past two years, no major tenant of the Company has filed for bankruptcy protection. However, no assurance can be given that tenants will not seek bankruptcy protection or that, if tenants do seek bankruptcy protection, they will affirm their leases and continue to make rental payments in a timely manner. S-21 MANAGEMENT The following persons serve as the directors and executive officers of the Company. The Company's Board of Directors consists of nine persons, eight of whom are neither employed by nor otherwise affiliated with the Company.
NAME POSITION - ---- -------- E. Lawrence Miller...... President, Chief Executive Officer and Director (term expires in 1996) William L. Brown........ Director (term expires in 1996) Don L. Foote............ Director (term expires in 1997) Joseph E. Hakim......... Director (term expires in 1996) John B. Hynes, III...... Director (term expires in 1998) Stephen G. Kasnet....... Director (term expires in 1997) Paul G. Kirk, Jr........ Director (term expires in 1998) W. Nicholas Thorndike... Director (term expires in 1998) A. Robert Towbin........ Director (term expires in 1997) Thomas J. O'Keeffe...... Chief Financial Officer Thomas P. D'Arcy........ Senior Vice President Richard L. Heuer........ Senior Vice President Marianne Dunn........... Vice President Carmella C. Brown....... Treasurer and Controller
E. Lawrence Miller, age 52, has been President of the Company since 1985, was appointed a director in 1992 and was named Chief Executive Officer in 1994. From 1984 through 1994, he also served as Senior Vice President of R.M. Bradley & Co., Inc., the Company's former external advisor ("RMB"), where he had been employed since 1984. Previously, Mr. Miller served as general counsel of Northeast Operations for Prudential Insurance Company of America. Mr. Miller serves as First Vice Chairman and a member of the Executive Committee of the Board of Governors of the National Association of Real Estate Investment Trusts and is a member of the Urban Land Institute and of the International Council of Shopping Centers. William L. Brown, age 73, was Chairman of the Board of Bank of Boston Corporation and The First National Bank of Boston from 1983 to 1989, Chief Executive Officer from 1983 to 1987 and President from 1971 to 1982. He was a director of both Bank of Boston Corporation and The First National Bank of Boston until March 1992. He is also a director of GC Companies, Inc., Standex International Corporation, Stone & Webster, Incorporated, Ionics, Incorporated, North American Mortgage Company and the John F. Kennedy Library Foundation. Don L. Foote, age 65, is a private investor. He is a director of Capital Savings Bank in Baltimore, Maryland and a Trustee of PRA Securities Trust. Joseph E. Hakim, age 48, is Chief Executive Officer and a director of Joseph P. Kennedy Enterprises, Inc. in New York, New York, a Kennedy family-owned asset management company for which he has held a variety of executive positions since 1974. In this capacity, Mr. Hakim also serves as Chief Executive Officer of Merchandise Mart Properties, Inc. in Chicago, Illinois, a subsidiary of Joseph P. Kennedy Enterprises, Inc., which manages approximately 7.5 million square feet of properties. Mr. Hakim is Treasurer of the Joseph P. Kennedy, Jr. Foundation and the Robert F. Kennedy Memorial. John B. Hynes, III, age 37, is a Senior Vice President of RMB, overseeing the operations of RMB's Commercial Brokerage Division. Prior to joining RMB in 1993, Mr. Hynes directed the Boston office of Lincoln Property Company (commercial real estate development) as its Operating Partner, and prior to that time was a Vice President of the Codman Company of Boston. He is a member of numerous Boston real estate industry organizations. S-22 Stephen G. Kasnet, age 50, is Managing Director of First Winthrop Corporation and Winthrop Financial Associates (real estate development and management companies), which he joined in 1991. Prior to that time, he was Executive Vice President of Cabot, Cabot & Forbes (a real estate development and management company) from October 1989 and prior to that was Executive Vice President of RMB. He is Chairman of the Board of Warren Bancorp, Inc. and Warren Five Cents Savings Bank in Peabody, Massachusetts, a Trustee of Pioneer Winthrop Real Estate Investment Fund and a member of the Urban Land Institute. Paul G. Kirk, Jr., age 57, is counsel to, and until 1989 was a partner of, the law firm of Sullivan & Worcester in Boston, Massachusetts. He is also Chairman and Treasurer of Kirk-Sheppard & Co., Inc., a business advisory and consulting firm. From 1985 to 1989, he served as Chairman of the Democratic Party of the United States, and from 1983 to 1985 as its Treasurer. Mr. Kirk is a director of ITT Corporation, ITT Hartford Insurance Co. and Rayonier, Inc. He is a Trustee of Stonehill College and St. Sebastion's School, Co-Chairman of the Commission on Presidential Debates, Chairman of the John F. Kennedy Library Foundation and Chairman of the National Democratic Institute for International Affairs. W. Nicholas Thorndike, age 62, serves as a corporate director or trustee of a number of organizations, including Courier Corporation, Providence Journal Company, Eastern Utility Associates, The Putnam Funds and Data General Corporation. He also serves as a Trustee of Massachusetts General Hospital, having served as Chairman of the Board from 1987 to 1992 and President from 1992 to 1994. Until December 1988, he was Chairman and Managing Partner of Wellington Management Company (an investment adviser). In February 1994, he was appointed a successor trustee of certain private trusts in which he had no beneficial interest and concurrently became (until October 1994) Chairman of two privately-owned corporations controlled by such trusts. These corporations filed voluntary petitions under Chapter 11 of the Federal Bankruptcy Code in August 1994. A. Robert Towbin, age 60, was appointed President and Chief Executive Officer of the Russian-American Enterprise Fund in January 1994, which merged with the Fund for Large Enterprises in Russia in May 1995. Mr. Towbin now serves as Vice Chairman of the newly formed U.S. Russia Investment Fund. Mr. Towbin was a Managing Director of Lehman Brothers from 1987 to 1994. Prior to that time, he was a director and Vice Chairman of L.F. Rothschild, Unterberg, Towbin Holdings, Inc. Mr. Towbin serves as a director of the Columbus New Millenium Fund, Gerber Scientific, Inc., Globalstar Telecommunications Limited and K&F Industries Inc., and is a former director of several other public companies. He is a member of the Securities Industry Association and is a director of numerous charitable and civic organizations. Thomas J. O'Keeffe, age 50, has been Chief Financial Officer of the Company since 1985. He is also Senior Vice President and Chief Financial Officer of RMB, where he has been employed since 1980. Mr. O'Keeffe is Chief Financial Officer of the John F. Kennedy Library Foundation and is a director of the Boston Minuteman Council, Boy Scouts of America. Thomas P. D'Arcy, age 35, was named Senior Vice President of the Company in 1992, having previously served as Vice President of the Company since 1989. Prior to joining the Company, Mr. D'Arcy was employed by RMB as a member of its property management and real estate brokerage departments for over eight years. Mr. D'Arcy is a member of the International Council of Shopping Centers and the Building Owners and Managers Association. Richard L. Heuer, age 43, joined the Company as a Senior Vice President in late 1994. Mr. Heuer was previously employed by the Welsh Companies, the independent property management company that formerly managed the Company's Minnesota properties. Marianne Dunn, age 36, was named Vice President of the Company in 1993, having served as Investment Manager since 1990. Prior to joining the Company, Ms. Dunn was employed by Windsor Bank & Trust as an Assistant Treasurer in the consumer lending department. Ms. Dunn is a member of the International Council of Shopping Centers. S-23 Carmella C. Brown, age 31, was named Treasurer of the Company in 1995 and has been the Controller since 1993, having previously served as Accounting Manager since 1990. She was also employed by RMB from 1990 to 1994, prior to which she was employed by KPMG Peat Marwick as a Senior Accountant. Ms. Brown is a member of the American Institute of Certified Public Accountants and the Massachusetts Society of Certified Public Accountants. The Board of Directors has standing Executive, Audit and Compensation Committees. The Executive Committee, consisting of Messrs. Thorndike (as Chairman), Hakim, Kasnet, Kirk and Miller, has the authority to exercise all of the powers of the full Board between Board meetings, to the extent permitted by Maryland law, and also serves the function of a nominating committee. The Audit Committee, consisting of Messrs. Brown (as Chairman), Foote and Hynes, makes recommendations to the full Board as to the selection of the Company's independent public accounting firm, meets with representatives of such firm on at least an annual basis, and reviews transactions between the Company and any director, officer or affiliate for potential conflicts of interest. The Compensation Committee, consisting of Messrs. Kirk (as Chairman), Brown and Towbin, provides oversight of executive compensation and the issuance and administration of option grants under the Company's 1993 Stock Option Plan. TAXATION The Company believes that it has operated, and the Company intends to continue to operate, in such manner as to qualify as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the "Code"), but no assurance can be given that it will at all times so qualify. The provisions of the Code pertaining to real estate investment trusts are highly technical and complex. The following is a brief and very general summary of certain provisions which currently govern the federal income tax treatment of the Company and its shareholders. For the particular provisions which govern the federal income tax treatment of the Company and its shareholders, reference is made to Sections 856 through 860 of the Code and the Income Tax Regulations promulgated thereunder. The following summary is qualified in its entirety by such reference. Under the Code, if certain requirements are met in a taxable year, a real estate investment trust will generally not be subject to federal income tax with respect to income which it distributes to its stockholders. If the Company fails to qualify during any taxable year as a real estate investment trust, unless certain relief provisions are available, it will be subject to tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates, which could have a material adverse effect upon its stockholders. In any year in which the Company qualifies to be taxed as a real estate investment trust, distributions made to its stockholders out of current or accumulated earnings or profits will be treated as dividends except that distributions of net capital gains designated by the Company as capital gain dividends will be taxed as long-term capital gains to the stockholders. To the extent that distributions exceed current or accumulated earnings and profits, they will constitute a return of capital, rather than dividend or capital gain income, and will be applied in reducing the basis for the stockholders' shares of Common Stock, or if in excess of such basis, will be taxed in the same manner as gain from the sale of those shares. On January 31, 1995, the Company acquired the REIT advisory business of its former advisor in a transaction in which the Company is considered to have succeeded to the accumulated earnings and profits of the former advisor. In order to qualify as a real estate investment trust for 1995, the Company must, before the end of 1995, make distributions to its stockholders of an amount which aggregates at least the sum of (i) the Company's own earnings and profits during 1995 plus (ii) the accumulated earnings and profits of the former advisor through the time of the acquisition. In anticipation of the acquisition transaction, the former advisor's accountants performed an analysis of the former advisor's earnings and profits, indicating total accumulated earnings and profits of $2,141,000. The former advisor has informed the Company that S-24 subsequent distributions made to the former advisor's stockholders prior to the acquisition are estimated to have reduced the accumulated earnings and profits of the former advisor to which the Company succeeded at the time of the acquisition to approximately $1,400,000. Although there can be no assurance that the earnings and profits analysis and the information as to the advisor's distributions to its own stockholders correctly state the amount of accumulated earnings and profits to which the Company succeeded at the time of the acquisition, the Company anticipates that its normal quarterly distributions during 1995 will exceed the Company's earnings and profits during the year by more than $2,141,000. The amount of the former advisor's accumulated earnings and profits to which the Company succeeded and which are included in the Company's 1995 distributions to its stockholders will be taxable to such stockholders as ordinary income, rather than treated as a return of capital. As a consequence, the percentage of distributions that is a non-taxable return of capital to stockholders in 1995 is likely to be lower than it was in 1994. See "Market Price of Shares and Distributions." Investors are urged to consult their own tax advisors with respect to the tax consequences arising under federal law and the laws of any state, municipality or other taxing jurisdiction. Foreign investors should consult their own tax advisors concerning the tax consequences of an investment in the Company including the possibility of United States income tax withholding on Company distributions. UNDERWRITING Under the terms and subject to the conditions of the Underwriting Agreement, the Underwriters named below (the "Underwriters"), for whom PaineWebber Incorporated and Alex. Brown & Sons Incorporated are acting as representatives (the "Representatives"), have severally agreed to purchase from the Company, and the Company has agreed to sell to the Underwriters, the number of shares of Common Stock set forth opposite their respective names below:
NUMBER OF SHARES --------- PaineWebber Incorporated........................................... Alex. Brown & Sons Incorporated.................................... --------- 2,500,000 =========
The Underwriters are committed to take and pay for all of the Shares offered hereby, if any are taken. The Company has been advised by the Representatives that the Underwriters propose to offer the Shares to the public at the initial public offering price set forth on the cover page of this Prospectus Supplement and to certain dealers at such price less a concession of $ per Share. The Underwriters may allow, and such dealers may re-allow, a discount not in excess of $ per Share to other brokers and dealers. The initial public offering price, concession and discount to dealers may be changed by the Representatives after the shares of Common Stock are released for sale to the public. The Representatives have informed the Company that the Underwriters do not intend to confirm sales to any account over which they exercise discretionary authority. The Company has granted the Underwriters an option, exercisable for 30 days from the date of this Prospectus Supplement, to purchase up to 375,000 additional shares of Common Stock at the initial public offering price, less the underwriting discounts set forth on the cover page of this Prospectus Supplement. If S-25 the Underwriters exercise their over-allotment option, each Underwriter will be obligated, subject to certain conditions, to purchase the number of additional shares of Common Stock proportionate to such Underwriter's initial number of shares reflected in the table above. The Underwriters may exercise their over- allotment option only for the purpose of covering over-allotments, if any, made in connection with the distribution of the shares of Common Stock offered hereby to the public. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act. Subject to certain exceptions, the Company has agreed not to offer, sell or otherwise dispose of any shares of Common Stock or any securities or interests convertible into or exercisable or exchangeable for shares of Common Stock or register for sale under the Securities Act any shares of Common Stock or any securities or interests convertible into or exercisable for shares of Common Stock, except for the shares of Common Stock offered hereby, for 90 days from the date of this Prospectus Supplement without the prior written consent of PaineWebber Incorporated. LEGAL MATTERS Certain legal matters, including the legality of the Shares, will be passed upon for the Company by Goodwin, Procter & Hoar (a partnership including professional corporations), Boston, Massachusetts. Certain legal matters will be passed upon for the Underwriters by Latham & Watkins, Washington, D.C. and, as to certain matters of Maryland law, by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland. William B. King, whose professional corporation is a partner in Goodwin, Procter & Hoar, is Secretary of the Company and is the beneficial owner of approximately 6,500 shares of Common Stock. S-26 PROSPECTUS $121,897,500 BRADLEY REAL ESTATE, INC. COMMON STOCK PREFERRED STOCK DEBT SECURITIES WARRANTS OR RIGHTS UNITS OF SECURITIES ---------------- Bradley Real Estate, Inc. ("Bradley" or the "Company") may offer from time to time in one or more series (i) shares of its common stock, $.01 par value per share ("Common Stock"), (ii) shares of its preferred stock, $.01 par value per share ("Preferred Stock" and, together with the Common Stock, the "Capital Stock"), (iii) its unsecured debt securities consisting of bonds, debentures, notes and/or other evidences of indebtedness ("Debt Securities"), (iv) warrants or rights ("Warrants") for Common Stock, Preferred Stock and/or Debt Securities and (v) units ("Units") consisting of two or more of the foregoing securities, with an aggregate public offering price of up to $121,897,500 in amount, at prices and on terms to be determined at the time of offering. The Common Stock, Preferred Stock, Debt Securities, Warrants and Units (collectively, the "Securities") may be offered separately or together, in separate series, in amounts, at prices and on terms to be set forth in one or more supplements to this Prospectus (each a "Prospectus Supplement"). The specific terms of the Securities for which this Prospectus is being delivered will be set forth in the applicable Prospectus Supplement and will include, where applicable: (i) in the case of Common Stock, the offering price; (ii) in the case of Preferred Stock, the specific designation and stated value per share, any dividend, liquidation, redemption, conversion, voting and other rights, and the offering price; (iii) in the case of Debt Securities, the specific title, aggregate principal amount, ranking, currency, form (which may be registered or bearer, or certificated or global), authorized denominations, maturity, rate (or manner of calculation thereof) and time of payment of interest, terms for redemption at the option of the Company or repayment at the option of the holder, terms for sinking fund payments, terms for conversion into Preferred Stock or Common Stock, covenants and the offering price; (iv) in the case of Warrants, the number and terms thereof, any applicable designation thereof, and the designation and the number of securities issuable upon their exercise, the exercise price, the terms of the offering and sale thereof and, where applicable, the duration and detachability thereof; and (v) in the case of Units, a description of the securities comprising such Units and the offering price thereof. In addition, such specific terms may include limitations on direct or beneficial ownership and restrictions on transfer of the Securities, in each case as may be consistent with the Company's Articles of Incorporation, as amended (the "Charter") or otherwise appropriate to preserve the status of the Company as a real estate investment trust ("REIT") for federal income tax purposes. The applicable Prospectus Supplement will also contain information, where appropriate, about certain United States federal income tax considerations relating to, and any listing on a securities exchange of, the Securities covered by such Prospectus Supplement. The Securities may be offered directly by the Company, through agents designated from time to time by the Company or to or through underwriters or dealers. If any agents or underwriters are involved in the sale of any of the securities, their names, and any applicable purchase price, fee, commission or discount arrangement between or among them, will be set forth, or will be calculable from the information set forth, in an accompanying Prospectus Supplement. See "Plan of Distribution." No Securities may be sold without delivery of a Prospectus Supplement describing the method and terms of the offering of such Securities. ---------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. ---------------- THE DATE OF THIS PROSPECTUS IS JUNE 9, 1995. AVAILABLE INFORMATION No person has been authorized to give any information or to make any representation not contained or incorporated by reference in this Prospectus or the accompanying Prospectus Supplement and, if given or made, such information or representation must not be relied upon as having been authorized by the Company or any underwriter, dealer or agent. Neither the delivery of this Prospectus or the accompanying Prospectus Supplement nor any sale made hereunder of thereunder shall, under any circumstances, create an implication that the information contained herein or in the accompanying Prospectus Supplement is correct as of any date subsequent to the date hereof or thereof or that there has been no change in the affairs of the Company since the date hereof or hereof. Neither this Prospectus nor the accompanying Prospectus Supplement constitutes an offer to sell or a solicitation of an offer to buy Securities in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC" or the "Commission"). Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York, New York 10048, and Northwest Atrium Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained upon written request from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. In addition, the Common Stock is listed on the New York Stock Exchange ("NYSE"), and such materials can be inspected and copied at the NYSE, 20 Broad Street, New York, New York 10005. The Company has filed with the Commission a Registration Statement on Form S- 3 under the Securities Act of 1933, as amended (the "Securities Act") with respect to the Securities. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. The Registration Statement, including exhibits thereto, may be inspected and copied at the locations described above. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents previously filed by the Company with the Commission pursuant to the Exchange Act (Commission File No. 1-10328) are incorporated in this Prospectus by reference: (i) the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994; (ii) the Company's definitive proxy statement with respect to its Annual Meeting of Stockholders on May 11, 1995; (iii) the Company's Report on Form 10-Q for the quarter ended March 31, 1995; and (iv) the Company's Report on Form 8-K dated October 17, 1994 reporting the change in form of organization of the Company from a Massachusetts common law business trust to a Maryland corporation. All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of all Securities shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated herein by reference shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a 2 statement contained herein (or in an applicable Prospectus Supplement) or in any subsequently filed document that is incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed to constitute a part of this Prospectus or any Prospectus Supplement, except as so modified or superseded. The Company will provide, without charge, to each person, including any beneficial owner, to whom a copy of this Prospectus is delivered, at the request of such person, a copy of any or all of the documents incorporated herein by reference (other than exhibits thereto, unless such exhibits are specifically incorporated by reference into such documents). Written requests for such copies should be directed to Ms. Donna MacAuley, Bradley Real Estate, Inc., 250 Boylston Street, Boston, Massachusetts 02116, telephone (617) 421- 0680. THE COMPANY Bradley Real Estate, Inc. is one of the nation's oldest continuously qualified REITs. The Company focuses on the ownership and operation of community shopping centers. The Company's philosophy is to enhance the operating performance and value of its portfolio through renovation, expansion and leasing strategies designed to meet the needs of an evolving retail marketplace. The Company also seeks to create value through acquisition of properties which can benefit from the Company's expertise in shopping center management, renovation and expansion. The Company currently owns fifteen shopping centers, one retail/office building and the land under a retail/office tower. In total, the Company's existing properties encompass approximately 3.1 million rentable square feet (including approximately 3.0 million square feet of retail space), leased to over 300 tenants. The Company's existing portfolio was 95% leased as of March 31, 1995. The Company was organized in 1961 as Bradley Real Estate Trust, a Massachusetts common law business trust (the "Trust"). In October, 1994, following approval by the Trust's shareholders, the Trust was incorporated as a Maryland business corporation through a merger of the Trust into the Company. In connection with its change from a business trust to a corporation, the Company also effected a one-for-two reverse stock split and changed the listing of its shares from the American Stock Exchange to the NYSE. References to the Company in this Prospectus and in any Prospectus Supplement shall be deemed to include the Trust, to the extent applicable. The Company's offices are located at 250 Boylston Street, Boston, Massachusetts 02116. Its telephone number is (617) 421-0680. 3 USE OF PROCEEDS Unless otherwise described in the applicable Prospectus Supplement, the Company intends to use the net proceeds from the sale of Securities primarily to repay indebtedness, to acquire additional shopping centers and to fund expansions and/or improvements to such shopping centers or to certain shopping centers already owned by the Company. The Company continually evaluates prospective acquisitions of additional shopping centers and portfolios of shopping centers, which the Company believes can be purchased at attractive initial yields and/or which demonstrate the potential for revenue and cash flow growth through implementation of renovation, expansion, re-tenanting and re-leasing programs similar to those that the Company has undertaken with respect to its existing portfolio of properties. During 1994, the Company increased its revolving bank line of credit and drew on such line to acquire a new shopping center, as well as for other general corporate purposes including renovations and expansions of existing properties. It is the Company's expectation that net proceeds from the sale of the Securities will be used to make further acquisitions and also to repay such bank borrowings and other outstanding debt from time to time. Acquisitions of additional shopping centers are approved only after a detailed analysis by the Company's management of the effect of the acquisition (and of any contemplated expansion or renovation and related re-tenanting and re-leasing program with respect to the acquired properties) on the Company as a whole, and with the objective that the acquisition of the particular shopping centers be accretive, rather than dilutive, to outstanding shares of Common Stock (i.e., that anticipated per share funds from operations of the Company will increase following the acquisition of the properties and after giving effect to the cost to the Company of the additional capital used to make such acquisition). No assurance can be made that each acquisition will in fact be accretive, or may become so only after an initially dilutive period following the acquisition. The Company also expects to continue to evaluate the effect of each acquisition and of the particular Securities issued, or other funding source, for such acquisition, with the objective that the ratio of all of the Company's indebtedness to the Company's total market capitalization (the sum of the market value of the Company's outstanding capital stock plus indebtedness) not exceed 50%. There can be no assurance that the Company will be able to achieve this objective (particularly because a decrease in the per share market value of outstanding stock is beyond the Company's control and would result in increasing such ratio), or that the Company's Board of Directors may not change this objective as market conditions change or in connection with a specific investment opportunity. Pending their use as described above, the net proceeds from the sale of any Securities may be used for other general corporate purposes of the Company or invested in short-term securities. 4 RATIOS OF EARNINGS TO FIXED CHARGES The following table sets forth the historical ratios of earnings to fixed charges of the Company for the periods indicated:
QUARTER ENDED YEAR ENDED DECEMBER 31, MARCH 31, -------------------------------------------------- ------------------- 1990 1991 1992 1993 1994 1994 1995 ------ ------ ------ ------ ------ ------ ------ 1.25:1 1.19:1 1.16:1 2.72:1 2.70:1 3.74:1 2.11:1
To date, the Company has not issued any shares of Preferred Stock. Accordingly, the ratios of earnings to combined fixed charges and Preferred Stock dividends are unchanged from the ratios shown above. For purposes of computing these ratios, earnings have been calculated by adding fixed charges (excluding capitalized interest) to income before income taxes and extraordinary items. Fixed charges consist of interest costs, whether expensed or capitalized, the interest component of rental expense, if any, and amortization of debt discounts and issue costs, whether expensed or capitalized. DESCRIPTION OF DEBT SECURITIES The Debt Securities will be issued in one or more series under an Indenture (the "Indenture") which may be supplemented by supplemental indentures (each, an "Indenture Supplement") between the Company and a bank trustee (the "Trustee") to be named prior to the issuance of any Debt Securities. The terms of Debt Securities include those stated in the Indenture and those made part of the Indenture (before any Indenture Supplements) by reference to the Trust Indenture Act of 1939, as amended (the "Act"). A copy of the form of the Indenture is filed as an exhibit to the Registration Statement and is incorporated herein by reference. The following is a summary of the Indenture, which summary does not purport to be complete, and is qualified in its entirety by reference to the detailed provisions of the Indenture, including the definitions of certain terms. Parenthetical references to Sections are references to the corresponding section of the Indenture unless otherwise indicated. GENERAL The Indenture does not limit the aggregate principal amount of Debt Securities that may be issued thereunder and provides that Debt Securities may be issued from time to time in one or more series. All Debt Securities of one series need not be issued at the same time and, unless otherwise provided, a series may be reopened without the consent of the holders of the Debt Securities of such series, for issuance of additional Debt Securities of such series. Debt Securities will be unsecured general obligations of the Company which may be convertible into shares of Common Stock or Preferred Stock of the Company. Debt Securities of any series may bear interest from the date of delivery at the rate shown on the cover page of the applicable Prospectus Supplement. The indebtedness represented by the Debt Securities of any series may be subordinated in right of payment to the prior payment in full of the Senior Indebtedness of the Company, as described under "Subordination of Debt Securities". The particular terms of the Debt Securities of any series will be set forth in the applicable Indenture Supplement and described in the applicable Prospectus Supplement. Such description will include any applicable modifications of, or additions to, the general terms of the Debt Securities as described herein or in the Indenture, as modified by any applicable Indenture Supplement. Accordingly, for a description of the Debt Securities of any series, reference must be made to both the Prospectus Supplement relating thereto and the description of the Debt Securities set forth in this Prospectus. The Indenture will provide that the Company may, but need not, designate more than one Trustee thereunder, each with respect to one or more series of Debt Securities. Any Trustee under the Indenture may resign or be removed with respect to one or more series of Debt Securities and a successor Trustee may be appointed to act with respect to such series. In the event that two or more persons are acting as Trustee with 5 respect to different series of Debt Securities, each such Trustee shall be a Trustee of a trust under the Indenture separate and apart from the trust administered by any other Trustee, and, except as otherwise indicated herein, any action described herein to be taken by each Trustee may be taken by each such Trustee with respect to, and only with respect to, the one or more series of Debt Securities for which it is Trustee under the Indenture. PROSPECTUS SUPPLEMENT The applicable Prospectus Supplement will describe the following terms of the series of Debt Securities offered in connection therewith: (a) the title of such Debt Securities (which shall distinguish such Debt Securities from all other series thereof); (b) the currency or currencies, including composite currencies, in which payment of the principal of (and premium, if any) and/or interest on such Debt Securities shall be payable (if other than Dollars) and the manner of determining the equivalent thereof in Dollars; (c) any limit upon the aggregate principal amount of such Debt Securities which may be authenticated and delivered under the Indenture; (d) the manner in which the amount of payments of principal of (and premium, if any) and/or interest on such Debt Securities may be determined with reference to an index; (e) the dates, or the method for determining such dates, on which the principal of such Debt Securities will be payable; (f) the rate or rates, or the method by which such rate or rates shall be determined, at which such Debt Securities will bear interest, if any, and the basis upon which interest will be calculated if other than that of a 360-day year of twelve 30-day months; (g) the place or places where the principal of (and premium, if any) and/or interest, if any, on such Debt Securities of the series will be payable, where such Debt Securities may be surrendered for conversion or registration of transfer or exchange and where notices or demands to or upon the Company in respect of such Debt Securities and this Indenture may be served; (h) the period or periods within which, the price or prices at which, the currency or currencies, currency unit or units or composite currency or currencies in which, and any other terms and conditions upon which such Debt Securities may, pursuant to any optional or mandatory redemption provisions, be redeemed, in whole or in part, at the option of the Company, if the Company is to have the option; (i) any mandatory or optional sinking fund or analogous provision; (j) the period or periods within which and the price or prices at which such Debt Securities may, pursuant to any optional or mandatory redemption provisions (including any provisions for redemption at the option of the holder thereof), be redeemed and other terms and conditions of any such optional or mandatory redemption; (k) whether such Debt Securities will be in registered or bearer form and, if in registered form, the terms and conditions relating thereto; (l) whether such Debt Securities of shall be issued in the form of one or more Global Securities (as defined below), and, if so, the identity of the Depositary of such series; (m) the currency or currencies, including composite currencies, in which payment of the principal of (and premium, if any) and/or interest of such Securities will be payable if other than the currency of the United States; (n) whether such Debt Securities are to be issued upon the exercise of warrants or rights, the time, manner and place for such Debt Securities to be authenticated and delivered; (o) any deletions from, modifications of, or additions to, the Events of Default or covenants of the Company with respect to such Securities of such series, whether or not such Events of Default or covenants are consistent with the Events of Default or covenants set forth in the general provisions of the applicable Indenture; (p) if other than the Trustee, the identity of each Security Registrar and/or Paying Agent; (q) the applicability, if any, of the defeasance and covenant defeasance provisions described in the general provisions of the applicable Indenture and any applicable Indenture Supplement thereto; (r) the circumstances, if any, under which the Company will pay any additional amounts on such Debt Securities in respect of any tax, assessment or governmental charge and, if so, whether the Company will have the option to redeem such Debt Securities in lieu of making such payment; (s) if such Debt Securities are to be issued at an original issue discount, as described below, the amount of principal, if any, payable upon acceleration of such Debt Securities following an Event of Default; and (t) any other terms of such Debt Securities not inconsistent with the provisions of the Indenture. If so provided in the applicable Indenture Supplement, Debt Securities may be issued at a substantial discount below their principal amount and provide for less than the entire principal amount thereof to be payable upon declaration of acceleration of the maturity thereof (collectively the "Original Issue Discount 6 Securities"). In such cases, special U.S. federal income tax, accounting and other considerations applicable to Original Issue Discount Securities will be described in the applicable Prospectus Supplement. DENOMINATION, INTEREST, REGISTRATION AND TRANSFER Unless otherwise provided in any applicable Indenture Supplement, Debt Securities will be issued only in fully registered form in denominations of $1,000 principal amount or any integral multiple thereof (Section 302). Debt Securities are exchangeable and transfers thereof will be registrable without charge therefor, except that the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith (Section 305). Unless otherwise specified in the applicable Prospectus Supplement, the principal of (and applicable premium, if any) and interest on any series of Debt Securities will be payable at the corporate trust office of the Trustee, the address of which will be stated in the applicable Prospectus Supplement; provided that, at the option of the Company, payment of interest may be made by check mailed to the address of the person entitled thereto as it appears in the applicable register for such Debt Securities or by wire transfer of funds to such person at an account maintained within the United States. All monies paid by the Company to a paying agent or a Trustee for the payment of the principal of or any premium, if any, or interest on any Debt Security which remain unclaimed at the end of three years after the same has become due and payable will be repaid to the Company, and the holder of such Debt Security thereafter may look only to the Company for payment thereof. Subject to certain limitations imposed upon Debt Securities issued in book- entry form, the Debt Securities of any series will be exchangeable for any authorized denomination of other Debt Securities of the same series and of a like aggregate principal amount and tenor upon surrender of such Debt Securities at the corporate trust office of the applicable Trustee or at the office of any transfer agent designated by the Company for such purpose. In addition, subject to certain limitations imposed upon Debt Securities issued in book-entry form, the Debt Securities of any series may be surrendered for conversion or registration of transfer or exchange thereof at the corporate trust office of the applicable Trustee or at the office of any transfer agent designated by the Company for such purpose. Every Debt Security surrendered for conversion, registration of transfer or exchange must be duly endorsed or accompanied by a written instrument of transfer, and the person requesting such action must provide evidence of title and identity satisfactory to the applicable Trustee or transfer agent. No service charge will be made for any registration of transfer or exchange of any Debt Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. If the applicable Prospectus Supplement refers to any transfer agent (in addition to the applicable Trustee) initially designated by the Company with respect to any series of Debt Securities, the Company may at any time rescind the designation of any such transfer agent or approve a change in the location through which any such transfer agent acts, except that the Company will be required to maintain a transfer agent in each place of payment for such series. The Company may at any time designate additional transfer agents with respect to any series of Debt Securities. CONSOLIDATION, MERGER, SALE OR CONVEYANCE The Indenture provides that the Company, without the consent of the holders of the then outstanding Debt Securities may merge or consolidate with, or sell or convey all or substantially all of its assets to, any other corporation or entity, provided that (i) either the Company shall be the continuing entity, or the successor entity (if other than the Company) shall be an entity organized and existing under the laws of the United States or a state thereof or the District of Columbia (although it may, in turn, be owned by a foreign entity) and such entity shall expressly assume by the applicable Indenture Supplement all of the obligations of the Company under the Debt Securities and the Indenture; (ii) immediately after giving effect to such transactions no default or Event of Default shall have occurred and be continuing, and (iii) the Company 7 shall have delivered to the Trustee an officers' certificate and opinion of counsel, stating that the transaction and the applicable Indenture Supplement comply with the Indenture (Section 801). REORGANIZATION AND OTHER TRANSACTIONS The Indenture does not afford the holders of Debt Securities any protection from a decline of credit quality, nor does it give any protection in the event of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction ("Leveraged Transaction") involving the Company that may adversely affect holders of Debt Securities, except to the limited extent described above. The Indenture does not contain any provision requiring the Company to repurchase any of Debt Securities in the event of a Leveraged Transaction, even though the Company's creditworthiness and the market value of Debt Securities may decline significantly as a result of any such transaction. CONVERSION RIGHTS If and to the extent set forth in the Indenture and the applicable Indenture Supplement and described in the applicable Prospectus Supplement, any portion of the principal amount of any Debt Securities of any series which is $1,000 or an integral multiple thereof may be converted into shares of Common Stock and/or Preferred Stock of the Company at any time prior to redemption or maturity, following the date set forth in the applicable Prospectus Supplement. The conversion price and the specific class of capital stock of the Company into which Debt Securities are convertible will be set forth on the cover page of the applicable Prospectus Supplement (subject to adjustments as described below), except that the right to convert Debt Securities of a series called for redemption will terminate at the close of business on the specific redemption date and will be lost if not exercised prior to that time (Section 1601). To protect the Company's status as a REIT, the holder may not convert any Debt Security if as a result of such conversion any person would then be deemed to beneficially own in excess of 9.8% in value of all outstanding shares of the Company's capital stock (Section 1601). The conversion price will be subject to adjustment under certain conditions, including in connection with (i) the payment of dividends or other distributions in respect of any class of capital stock of the Company in shares of capital stock; (ii) subdivisions, combinations, reorganizations and reclassifications of any class of capital stock; (iii) the issuance to all or substantially all holders of shares of any class of capital stock of rights or warrants entitling them to subscribe for, or purchase shares of, capital stock at a price per share (or having a conversion price per share) at less than the current market price per share (Paragraph 2 of Section 1604) of such holders' respective class of capital stock (subject to the limitation that under certain circumstances shares of capital stock issued under the Company's dividend reinvestment plan will not be deemed to be issued pursuant to rights or warrants for purposes of this clause (iii)); and (iv) distributions to all or substantially all of the holders of any class of capital stock of the Company of evidences of indebtedness or assets (including any securities, other than those rights, warrants, dividends or other distributions referred to in clause (iii) above and dividends or other distributions not otherwise prohibited under the terms of the Indenture, including certain purchase rights relating to the dividend reinvestment plan) of the Company; subject to the limitation that all adjustments by reason of any of the foregoing would not be made until they result in a cumulative change in the applicable conversion price of at least 1% (Section 1604). A conversion price adjustment made according to the provisions of any series of Debt Securities (or the absence of a provision for such an adjustment) might result in a constructive distribution to the holders of Debt Securities of such series or of shares of a class of capital stock. The Company may, at its option, but shall not be required to, make any of the adjustment to the conversion price, in addition to those adjustments described above, to avoid or diminish any income tax to any holders of any shares of any class of capital stock resulting from any dividend or other distribution thereof (or rights to acquire such shares) or from any event treated as such for income tax purposes or for any other reason. The Board of Directors of the Company will have the power to resolve any ambiguity or correct any error in the provision relating to the 8 adjustment of the conversion price of any series of Debt Securities. Its actions shall be final and conclusive (Section 1604). In the event the Company shall (i) effect any capital reorganization or reclassification of any class of its shares of capital stock, (ii) consolidate or merge with or into any trust or corporation (other than a consolidation or merger in which the Company is the surviving entity), or (iii) sell or transfer substantially all its assets, the holders of any series of Debt Securities shall have the right, if entitled to convert such Debt Securities, to receive upon conversion thereof, the same kind and amount of capital stock and other securities, cash or property as shall have been issuable or distributable prior to such consolidation, merger, sale or transfer (Sections 1604(5) and 1610). Fractional shares will not be issued upon conversion, but, in lieu thereof, the Company will pay on the applicable conversion date a cash adjustment based upon market price (Sections 1604 and 1608). The record holders of Debt Securities at the close of business on an interest payment record date shall be entitled to receive the interest payable on such Debt Securities on the corresponding interest payment date notwithstanding the conversion thereof. However, Debt Securities surrendered for conversion during the period from the close of business on any record date to the opening of business on the corresponding interest payment date must be accompanied by payment of an amount equal to the interest payable on such interest payment date. Holders of Debt Securities who convert Debt Securities on an interest payment date will receive the interest payable on such date and need not include payment of such interest upon surrender of Debt Securities for conversion. Except as aforesaid, no payment or adjustment is to be made on conversion for interest accrued on Debt Securities or for dividends on shares of any class of Capital Stock (Sections 307 and 1603). SUBORDINATION OF DEBT SECURITIES The indebtedness evidenced by Debt Securities of any series may be subordinated and junior in rights of payment, to the extent set forth in the Indenture and the applicable Indenture Supplement, to the prior payment in full of amounts then due on all Senior Indebtedness (as defined below). No payment shall be made by the Company on account of principal of (or premium, if any) or interest on Debt Securities of any series or on account of the purchase or other acquisition of Debt Securities of any series, if there shall have occurred and be continuing a default with respect to any Senior Indebtedness permitting the holders to accelerate the maturity thereof or with respect to the payment of any Senior Indebtedness, and such default shall be the subject of a judicial proceeding or the Company shall have received notice of such default from any holder of Senior Indebtedness, unless and until such default or event of default shall have been cured or waived or shall have ceased to exist. By reason of these provisions, in the event of default on any Senior Indebtedness, whether now outstanding or hereafter issued, payments of principal of (and premium, if any) and interest on Debt Securities of any series may not be permitted to be made until such Senior Indebtedness is paid in full, or the event of default on such Senior Indebtedness is cured or waived (Section 1502). Upon any acceleration of the principal of Debt Securities or any distribution of assets of the Company upon any receivership, dissolution, winding-up, liquidation, reorganization, or similar proceedings of the Company, whether voluntary or involuntary, or in bankruptcy or insolvency, all amounts due or to become due upon all Senior Indebtedness must be paid in full before the holders of Debt Securities of any series or the Trustee are entitled to receive or retain any assets so distributed in respect of Debt Securities (Section 1602). By reason of this provision, in the event of insolvency, holders of Debt Securities of any series may recover less, ratably, than holders of Senior Indebtedness. "Senior Indebtedness" is defined to mean the principal of and interest on, or substantially similar payments to be made by the Company in respect of, the following, whether outstanding at the date of execution of the Indenture or thereafter incurred, created or assumed: (a) indebtedness of the Company for money borrowed or represented by purchase-money obligations, (b) indebtedness of the Company evidenced 9 by notes, debentures, or bonds, or other securities issued under the provisions of an indenture, fiscal agency agreement or other instrument, (c) obligations of the Company as lessee under leases of property either made as part of any sale and lease-back transaction to which the Company is a party or otherwise, (d) indebtedness of partnerships and joint ventures which is included in the Company's consolidated financial statements, (e) indebtedness, obligations and liabilities of others in respect of which the Company is liable contingently or otherwise to pay or advance money or property or as guarantor, endorser of otherwise or which the Company has agreed to purchase or otherwise acquire, and (f) any binding commitment of the Company to fund any real estate investment or to fund any investment in any entity making such real estate investment; but excluding, however, (1) any such indebtedness, obligation or liability referred to in clauses (a) through (f) above as to which, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such indebtedness, obligation or liability is not superior in right of payment to the Securities, or ranks pari passu with the Securities, (2) any such indebtedness, obligation or liability which is subordinated to indebtedness of the Company to substantially the same extent as or to a greater extent than the Securities are subordinated and (3) the Securities. As used in the preceding sentence the term "purchase-money obligations" shall mean indebtedness or obligations evidenced by a note, debenture, bond or other instrument (whether or not secured by any lien or other security interest but excluding indebtedness or obligations for which recourse is limited to the property purchased) issued or assumed as all or a part of the consideration for the acquisition of property, whether by purchase, merger, consolidation or otherwise, but shall not include any trade accounts payable. A distribution may consist of cash, securities or other property. "Indebtedness" with respect to any person means (a) all indebtedness for borrowed money whether or not evidenced by bonds, notes, debentures or a similar instrument, (b) that portion of obligations with respect to leases that is properly classified as a liability on a balance sheet in accordance with generally accepted accounting principles, (c) notes payable and drafts accepted representing extensions of credit, (d) any balance owed for all or any part of the deferred purchase price of property or services, which purchase price is due more than six months from the date of incurrence of the obligation in respect thereof (except any such balance that constitutes (i) a trade payable or an accrued liability arising in the ordinary course of business or (ii) a trade draft or note payable issued in the ordinary course of business in connection with the purchase of goods or services), if and to the extent such debt would appear as a liability upon a balance sheet of such person prepared in accordance with generally accepted accounting principles (e) all indebtedness for letters of credit or bankers acceptances issued for the account of such person or performance, surety or similar bonds, (f) all indebtedness under interest rate swaps, caps or similar agreements and foreign exchange contracts, currency swaps or similar agreements, (g) any liability of others of the kind described in the preceding clauses (a)-(f), which such person has guaranteed or which is otherwise its legal liability, and (h) any and all deferrals, renewals, extensions and refunding of, or amendments, modifications or supplements to, any liability of the kind described in any of the preceding clauses (a)-(f); provided, however, that, in computing the "Indebtedness" of any person, there shall be excluded any particular indebtedness if, upon or prior to the maturity thereof and at the time of determination of such indebtedness, there shall have been deposited with a depository in trust money (or evidences of indebtedness if permitted by the instrument creating such indebtedness) in the necessary amount to pay, redeem or satisfy such indebtedness as it becomes due, and the amount so deposited shall not be included in any computation of the assets of such person. DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE As indicated in the applicable Prospectus Supplement, the Company may be permitted, at its option, to discharge certain obligations to holders of any series of Debt Securities issued under any Indenture that have not already been delivered to the applicable Trustee for cancellation and that either have become due and payable or will become due and payable within one year (or scheduled for redemption within one year) by irrevocably depositing with the applicable Trustee in trust, money, U.S. Government Obligations or a combination thereof in an amount sufficient to pay the entire indebtedness on such Debt Securities in respect 10 of principal (and premium, if any) and interest to the date of such deposit (if such Debt Securities have become due and payable) or to the stated maturity or redemption date, as the case may be (Section 401). OPTIONAL REDEMPTION Debt Securities of any series will be subject to redemption, in whole or in part, or on any date subsequent to the date set forth in the Prospectus Supplement, at the option of the Company on at least 60 days' prior notice (45 days prior notice in the case of redemption of all Securities of any series) by mail, at a redemption price equal to 100% (or such greater price as is set forth in the Prospectus Supplement relating to such series of Debt Securities) of the principal amount plus interest accrued to the date of redemption (Section 1102). The Company may exercise its redemption powers over a holder's Debt Securities at any time to the extent deemed sufficient by the Company to prevent the holder of such securities or any other person having an interest therein, if such securities were converted into Capital Stock, from being deemed to own Excess Shares (See "Description of Common Stock--Redemption and Restriction on Transfer of Shares"). The Indenture does not contain any provision requiring the Company to repurchase Debt Securities at the option of the holders in the event of a Leveraged Transaction, even though the Company's creditworthiness and the market value of Debt Securities may decline significantly as a result of such transaction. Nor does the Indenture protect holders thereof against any decline in credit quality. CERTAIN COVENANTS The applicable Prospectus Supplement will describe any material covenants in respect of the Debt Securities of any particular series. Unless otherwise indicated in the applicable Prospectus Supplement, the Debt Securities will include the following covenants: Corporate Existence. Except as permitted under "Consolidation, Merger, Sale or Conveyance," the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, all material rights (charter and statutory) and material franchises; provided, however, that the Company shall not be required to preserve any right or franchise if it determines that the preservation thereof is no longer desirable in the conduct of its business (Section 1004). Maintenance of Office or Agency. The Company will maintain in each location where Debt Securities of any series shall be paid an office or agency where such Debt Securities may be presented or surrendered for payment, registration of transfer or exchange, or conversion and where notices and demands in respect of such Debt Securities, the Indenture and/or the Company may be served. The Company will give prompt written notice to the Trustee of each location, and any change thereto, of such office or agency (Section 1002). Maintenance of Properties and Insurance. The Company will cause all of its properties used or useful in, and material to the conduct of its business or the business of any subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be reasonably necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times (Section 1005). In addition, the Company will and will cause each subsidiary to, keep all of its insurable properties insured against loss or damage at least equal to their then full insurable value with insurers of recognized responsibility (Section 1006). There is, however, no prohibition against the Company selling or otherwise disposing for value of its properties in the ordinary course of business or discontinuing the operation or maintenance of any such properties, if the Company determines that their preservation is no longer desirable in the conduct of its business and not disadvantageous in any material respect to the holders of Debt Securities. Money for Securities Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent with respect to any series of Debt Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Debt Securities of that series, segregate and hold in trust for the benefit of the persons entitled thereto a sum sufficient to pay such amounts until such sums shall be 11 paid to such persons or otherwise disposed of as provided in the Indenture. If the Company shall have one or more Paying Agents for any series of Securities, it will, on or before each due date of any payment of principal, premium, if any or interest on any Debt Securities of that series, deposit with a Paying Agent a sum sufficient to pay any such sum which sum will be held in trust for the benefit of the persons entitled thereto and will cause each Paying Agent for any series of Debt Securities to execute and deliver to the Trustee a paying agency agreement setting forth the terms and conditions of such agency (Section 1003). Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, within 30 days after the Company shall have received notice that the same has become delinquent, (i) all material taxes, assessments and governmental charges levied or imposed upon it or any subsidiary or upon the income, profits or property of the Company or any subsidiary, and (ii) all material lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any subsidiary, unless such lien would not have a material adverse effect upon such property; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings (Section 1010). Payment of Debt Securities and Reports to the Trustee. The Company is obligated to pay the principal of, premium, if any, and interest on, Debt Securities when due in accordance with their terms (Section 1001). The Company also covenants to file with the Trustee copies of all reports filed with the SEC promptly after making such SEC filings (Sections 704 and 1007), and also to deliver to the Trustee within 120 days after the end of each fiscal year a certificate as to the Company's compliance with the terms of the Indenture during such fiscal year (Section 1008). Limitation on Distributions and Acquisitions of Shares. The Indenture provides that the Company will not (i) declare or pay any dividend or make any distribution to holders of its capital stock (other than dividends or distributions payable in its shares or other than as the Company determines is necessary to maintain its REIT status) or (ii) purchase, redeem or otherwise acquire or retire for value any of its capital stock or permit any subsidiary to do so, if at the time of such action an Event of Default (as defined in the Indenture) has occurred and is continuing or would exist immediately after giving effect to such action (Section 1009). Further Covenants. The Prospectus Supplement with respect to any series of Debt Securities will describe any further covenants to the Company set forth in the Indenture Supplement relating to such series, which may include any limitations on incurrence of additional debt. MODIFICATION OF THE INDENTURE With certain exceptions, the rights and obligations of the Company and the rights of holders of any series of Debt Securities may only be modified by the Company and the Trustee with the consent of the holders of at least a majority in principal amount of each series of affected Debt Securities. Without the consent of each affected Debt Security holder, no amendment or waiver or supplement may (i) reduce the principal of, or rate of interest on, any Debt Security; (ii) change the stated maturity date of the principal of, premium, if any, on, or any installment of interest on, any Debt Security; (iii) change the currency for payment of the principal of, or premium, if any, or interest on, any Debt Security; (iv) impair the right to institute suit for the enforcement of any such payment when due; (v) reduce the amount of outstanding Debt Securities necessary to consent to an amendment or waiver provided for in the Indenture; or (vi) modify any provisions of the Indenture relating to the modification, supplement and amendment of the Indenture or waivers of past defaults, except as otherwise specified (Section 902 and Section 316(b) of the Act). 12 EVENTS OF DEFAULT, NOTICE AND WAIVER The following events are Events of Default under the Indenture in respect of any applicable series of Debt Securities: (i) default in the payment of interest on Debt Securities of such series when due and payable, which continues for 30 days; (ii) default in the payment of principal of (and premium, if any) on such Debt Securities when due, at maturity, upon redemption or otherwise, or failure to deposit any sinking fund payment when due; (iii) failure to perform any other covenant of the Company contained in the Indenture or such Debt Securities which continues for 60 days after written notice is given as provided in the Indenture; (iv) default under any bond, debenture or other Indebtedness of the Company or any subsidiary, if (a) either (x) such event of default results from the failure to pay any such Indebtedness at maturity or (y) as a result of such event of default, the maturity of such Indebtedness has been accelerated prior to its expressed maturity and such acceleration shall not be rescinded or annulled or the accelerated amount paid within ten days after notice to the Company of such acceleration, or such Indebtedness having been discharged, and (b) the principal amount of such Indebtedness, together with the principal amount of any other Indebtedness in default for failure to pay principal or interest thereon, or the maturity of which has been so accelerated, aggregates $20,000,000 or more; (v) certain events of bankruptcy, insolvency or reorganization relating to the Company, and (vi) any other Event of Default provided with respect to Debt Securities of such series. The Indenture Supplement with respect to any series of Debt Securities may provide for additional or modified Events of Default for the Debt Securities of such series. If an Event of Default shall occur and be continuing, the Trustee or the holders of a majority in aggregate principal amount of the applicable series of Debt Securities may declare such Debt Securities due and payable (Section 502). The Indenture provides that the Trustee shall, within 90 days after the occurrence of any default or Event of Default with respect to Debt Securities of any series, give to the holders of Debt Securities notice of all uncured defaults or Events of Default known to it. The Trustee shall be protected if in good faith it determines that the withholding of such notice is in the interest of the holders of Debt Securities of any series (Section 605). The Indenture provides that the holders of a majority in aggregate principal amount of the outstanding Debt Securities of any series may direct the time, method and place of conducting any proceedings for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to Debt Securities of such series (Section 512). The right of a holder to institute a proceeding with respect to the Indenture is subject to certain conditions including notice and indemnity to the Trustee, but the holder has an absolute right to receipt of principal of (and premium, if any) and interest on such holder's Debt Security on or after the respective due dates expressed in Debt Securities and to institute suit for the enforcement of any such payments (Section 508). The holders of a majority in principal amount of the outstanding Debt Securities of any series may on behalf of the holders of all Debt Securities of such series waive certain past defaults, except a default in payment of the principal of (and premium, if any) or interest on any Debt Securities of such series or in respect of certain provisions of the Indenture which cannot be modified or amended without the consent of the holder of each Debt Security affected thereby (Section 513). The Company will be required to furnish the Trustee annually a statement of certain officers of the Company stating whether or not they know of any Default or Events of Default (as defined in the Indenture) and, if they have such knowledge, a description of the efforts to remedy the same (Section 1008). GLOBAL SECURITIES Debt Securities of a series may be issued in whole or in part in the form of one or more global securities ("Global Securities") that will be deposited with, or on behalf of, a depositary identified in the applicable Prospectus Supplement relating to such series. Global Securities may be issued in either registered or bearer form and in either temporary or permanent form. The specific terms of the depositary arrangement with respect to a series of Debt Securities will be described in the applicable Prospectus Supplement relating to such series. 13 DESCRIPTION OF CAPITAL STOCK The description of the Company's capital stock set forth below does not purport to be complete and is qualified in its entirety by reference to the Company's Charter and Bylaws, each as amended and restated, copies of which are exhibits to the Registration Statement of which this Prospectus is a part. GENERAL Under its Charter, the Company has authority to issue up to 150 million shares of stock, consisting of 80 million shares of Common Stock, par value $.01 per share, 50 million shares of "Excess Stock" (as described below), par value $.01 per share, and 20 million shares of Preferred Stock, par value $.01 per share. Under Maryland law, stockholders generally are not responsible for a corporation's debts or obligations. At March 31, 1995 there were approximately 8,522,037 shares of Common Stock issued and outstanding and no Preferred Stock issued or outstanding. COMMON STOCK All shares of Common Stock offered hereby have been duly authorized and will, when issued and paid for as described in the applicable Prospectus Supplement, be fully paid and nonassessable. Subject to the preferential rights of any other shares or series of stock and to the provisions of the Company's Charter regarding Excess Stock, holders of shares of Common Stock are entitled to receive dividends on Common Stock if, as and when authorized and declared by the Board of Directors of the Company out of assets legally available therefor and to share ratably in the assets of the Company legally available for distribution to its stockholders in the event of its liquidation, dissolution or winding-up after payment of, or adequate provision for, all known debts and liabilities of the Company. Subject to the provisions of the Company's Charter regarding Excess Stock, each outstanding share of Common Stock entitles the holder to one vote on all matters submitted to a vote of stockholders, including the election of directors, and except as provided with respect to any other class or series of stock, the holders of Common Stock will possess exclusive voting power. There is no cumulative voting in the election of directors, which means that the holders of a majority of the outstanding shares of Common Stock can elect all of the directors then standing for election, and the holders of the remaining shares of Common Stock will not be able to elect any directors. Subject to the Company's Charter regarding Excess Stock, all shares of Common Stock have equal dividend, distribution, liquidation and other rights, and have no preferences, appraisal or exchange rights. Holders of Common Stock have no conversion, sinking fund or redemption rights, or preemptive rights to subscribe for any securities of the Company. The Company intends to furnish its stockholders with annual reports containing audited consolidated financial statements and an opinion thereon expressed by an independent public accounting firm and quarterly reports for the first three quarters of each fiscal year containing unaudited financial information. Pursuant to the Maryland General Corporation Law ("MGCL") and the Company's Charter, the Corporation generally cannot dissolve, amend its Charter, merge, sell all or substantially all of its assets, engage in a share exchange or engage in similar transactions outside the ordinary course of business unless approved by the affirmative vote of holders of shares entitled to cast a majority of all the votes entitled to be cast. The transfer agent and registrar for the Common Stock is The First National Bank of Boston. 14 PREFERRED STOCK General. Shares of Preferred Stock may be issued from time to time, in one or more series, as authorized by the Board of Directors of the Company. Prior to issuance of shares of each series, the Board of Directors is required by the MGCL and the Company's Charter to fix for each series, subject to the provisions of the Company's Charter regarding Excess Stock, the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption, as are permitted by Maryland law. The Preferred Stock will, when issued, be fully paid and nonassessable by the Company and will have no preemptive rights, other than as determined by the Board of Directors. The Board of Directors could authorize the issuance of shares of Preferred Stock with terms and conditions that could have the effect of discouraging a takeover or other transaction that holders of Common Stock might believe to be in their best interests or in which holders of some, or a majority, of the shares of Common Stock might receive a premium for their shares over the then market price of such shares of Common Stock. Terms. The following description of the Preferred Stock sets forth certain general terms and provisions of the Preferred Stock to which any Prospectus Supplement may relate. The statements below describing the Preferred Stock are in all respects subject to and qualified in their entirety by reference to the applicable provisions of the Company's Charter and Bylaws and any applicable amendment to the Charter designating terms of a series of Preferred Stock (a "Designating Amendment"). Reference is made to the Prospectus Supplement relating to the Preferred Stock offered thereby for specific terms, including: (1) The title and stated value of such Preferred Stock; (2) The number of shares of such Preferred Stock offered, the liquidation preference per share and the offering price of such Preferred Stock; (3) The dividend rate(s), period(s) and/or payment date(s) or method(s) of calculation thereof applicable to such Preferred Stock; (4) The date from which dividends on such Preferred Stock shall accumulate, if applicable; (5) The voting rights, if any, of such Preferred Stock; (6) The procedures for any auction and remarketing, if any, for such Preferred Stock; (7) The provision for a sinking fund, if any, for such Preferred Stock; (8) The provision for redemption, if applicable, of such Preferred Stock; (9) Any listing of such Preferred Stock on any securities exchange; (10) If convertible, the terms and conditions upon which such Preferred Stock will be convertible into Common Stock, including the initial conversion price (or manner of calculation thereof) and the conversion period; (11) Any other specific terms, preferences, rights, limitations or restrictions of such Preferred Stock; (12) A discussion of federal income tax considerations applicable to such Preferred Stock; (13) The relative ranking and preference of such Preferred Stock as to dividend rights and rights upon liquidation, dissolution or winding up of the affairs of the Company; (14) Any limitations on issuance of any series of Preferred Stock ranking senior to or on a parity with such series of Preferred Stock as to dividend rights and rights upon liquidation, dissolution or winding up of the affairs of the Company; and (15) Any limitations on direct or beneficial ownership and restrictions on transfer, in each case as may be appropriate to preserve the status of the Company as a REIT. Rank. Unless otherwise specified in the Prospectus Supplement, the Preferred Stock will, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company, rank (i) senior to 15 all classes or series of Common Stock of the Company, and to all equity securities ranking junior to such Preferred Stock; (ii) on a parity with all equity securities issued by the Company the terms of which specifically provide that such equity securities rank on a parity with the Preferred Stock; and (iii) junior to all equity securities issued by the Company the terms of which specifically provide that such equity securities rank senior to the Preferred Stock. The term "equity securities" does not include convertible debt securities. Dividends. Holders of the Preferred Stock of each series will be entitled to receive, when, as and if declared by the Board of Directors of the Company, out of assets of the Company legally available for payment, cash dividends at such rates and on such dates as will be set forth in the applicable Prospectus Supplement. Each such dividend shall be payable to holders of record as they appear on the share transfer books of the Company on such record dates as shall be fixed by the Board of Directors of the Company. Dividends on any series of the Preferred Stock may be cumulative or non- cumulative, as provided in the applicable Prospectus Supplement. Dividends, if cumulative, will be cumulative from and after the date set forth in the applicable Prospectus Supplement. If the Board of Directors of the Company fails to declare a dividend payable on a dividend payment date on any series of the Preferred Stock for which dividends are non-cumulative, then the holders of such series of the Preferred Stock will have no right to receive a dividend in respect of the dividend period ending on such dividend payment date, and the Company will have no obligation to pay the dividend accrued for such period, whether or not dividends on such series are declared payable on any future dividend payment date. If Preferred Stock of any series is outstanding, no dividends will be declared or paid or set apart for payment on any capital stock of the Company of any other series ranking, as to dividends, on a parity with or junior to the Preferred Stock of such series for any period unless (i) if such series of Preferred Stock has a cumulative dividend, full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment on the Preferred Stock of such series for all past dividend periods and the then current dividend period or (ii) if such series of Preferred Stock does not have a cumulative dividend, full dividends for the then current dividend period have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment on the Preferred Stock of such series. When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon Preferred Stock of any series and the shares of any other series of Preferred Stock ranking on a parity as to dividends with the Preferred Stock of such series, all dividends declared upon Preferred Stock of such series and any other series of Preferred Stock ranking on a parity as to dividends with such Preferred Stock shall be declared pro rata so that the amount of dividends declared per share of Preferred Stock of such series and such other series of Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the Preferred Stock of such series (which shall not include any accumulation in respect of unpaid dividends for prior dividend periods if such Preferred Stock does not have a cumulative dividend) and such other series of Preferred Stock bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on Preferred Stock of such series which may be in arrears. Except as provided in the immediately preceding paragraph, unless (i) if such series of Preferred Stock has a cumulative dividend, full cumulative dividends on the Preferred Stock of such series have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for all past dividend periods and the then current dividend period, and (ii) if such series of Preferred Stock does not have a cumulative dividend, full dividends on the Preferred Stock of such series have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for the then current dividend period, no dividends (other than in shares of Common Stock or other shares of capital stock ranking junior to the Preferred Stock of such series as to dividends and upon liquidation) shall be declared or paid or set aside for payment nor shall any other distribution be declared or made upon the Common Stock, or any other capital stock of the Company ranking junior to or on a parity with the Preferred Stock of such series as to dividends or upon liquidation, nor shall any shares of Common Stock, or any other shares of capital stock of the Company ranking junior to or on a 16 parity with the Preferred Stock of such series as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Company (except by conversion into or exchange for other capital stock of the Company ranking junior to the Preferred Stock of such series as to dividends and upon liquidation). Any dividend payment made on shares of a series of Preferred Stock shall first be credited against the earliest accrued but unpaid dividend due with respect to shares of such series which remains payable. Redemption. If so provided in the applicable Prospectus Supplement, the Preferred Stock shall be subject to mandatory redemption or redemption at the option of the Company, as a whole or in part, in each case upon the terms, at the times and at the redemption prices set forth in such Prospectus Supplement. The Prospectus Supplement relating to a series of Preferred Stock that is subject to mandatory redemption will specify the number of shares of such Preferred Stock that shall be redeemed by the Company in each year commencing after a date to be specified, at a redemption price per share to be specified, together with an amount equal to all accrued and unpaid dividends thereon (which shall not, if such Preferred Stock does not have a cumulative dividend, include any accumulation in respect of unpaid dividends for prior dividend periods) to the date of redemption. The redemption price may be payable in cash or other property, as specified in the applicable Prospectus Supplement. If the redemption price for Preferred Stock of any series is payable only from the net proceeds of the issuance of shares of capital stock of the Company, the terms of such Preferred Stock may provide that, if no such shares of capital stock shall have been issued or to the extent the net proceeds from any issuance are insufficient to pay in full the aggregate redemption price then due, such Preferred Stock shall automatically and mandatorily be converted into the applicable shares of capital stock of the Company pursuant to conversion provisions specified in the applicable Prospectus Supplement. Notwithstanding the foregoing, unless (i) if a series of Preferred Stock has a cumulative dividend, full cumulative dividends on all shares of such series of Preferred Stock shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods and the then current dividend period, and (ii) if a series of Preferred Stock does not have a cumulative dividend, full dividends on all shares of the Preferred Stock of such series have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for the then current dividend period, no shares of such series of Preferred Stock shall be redeemed unless all outstanding shares of Preferred Stock of such series are simultaneously redeemed; provided, however, that the foregoing shall not prevent the purchase or acquisition of Preferred Stock of such series to preserve the REIT status of the Company or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of Preferred Stock of such series. In addition, unless (i) if such series of Preferred Stock has a cumulative dividend, full cumulative dividends on all outstanding shares of such series of Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods and the then current dividend period, and (ii) if such series of Preferred Stock does not have a cumulative dividend, full dividends on the Preferred stock of such series have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for the then current dividend period, the Company shall not purchase or otherwise acquire directly or indirectly any shares of Preferred Stock of such series (except by conversion into or exchange for capital stock of the Company ranking junior to the Preferred Stock of such series as to dividends and upon liquidation); provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of Preferred Stock of such series to preserve the REIT status of the Company or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of Preferred Stock of such series. If fewer than all of the outstanding shares of Preferred Stock of any series are to be redeemed, the number of shares to be redeemed will be determined by the Company and such shares may be redeemed pro rata 17 from the holders of record of such shares in proportion to the number of such shares held or for which redemption is requested by such holder (with adjustments to avoid redemption of fractional shares) or by lot in a manner determined by the Company. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of record of Preferred Stock of any series to be redeemed at the address shown on the share transfer books of the Company. Each notice shall state: (i) the redemption date; (ii) the number of shares and series of the Preferred Stock to be redeemed; (iii) the redemption price; (iv) the place or places where certificates for such Preferred Stock are to be surrendered for payment of the redemption price; (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date; and (vi) the date upon which the holder's conversion rights, if any, as to such shares shall terminate. If fewer than all the shares of Preferred Stock of any series are to be redeemed, the notice mailed to each such holder thereof shall also specify the number of shares of Preferred Stock to be redeemed from each such holder. If notice of redemption of any Preferred Stock has been given and if the funds necessary for such redemption have been set aside by the Company in trust for the benefit of the holders of any Preferred Stock so called for redemption, then from and after the redemption date dividends will cease to accrue on such Preferred Stock, and all rights of the holders of such shares will terminate, except the right to receive the redemption price. Liquidation Preference. Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, then, before any distribution or payment shall be made to the holders of any Common Stock or any other class or series of capital stock of the Company ranking junior to the Preferred Stock in the distribution of assets upon any liquidation, dissolution or winding up of the Company, the holders of each series of Preferred Stock shall be entitled to receive out of assets of the Company legally available for distribution to stockholders liquidating distributions in the amount of the liquidation preference per share (set forth in the applicable Prospectus Supplement), plus an amount equal to all dividends accrued and unpaid thereon (which shall not include any accumulation in respect of unpaid noncumulative dividends for prior dividend periods). After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Preferred Stock will have no right or claim to any of the remaining assets of the Company. In the event that, upon any such voluntary or involuntary liquidation, dissolution or winding up, the available assets of the Company are insufficient to pay the amount of the liquidating distributions on all outstanding shares of Preferred Stock and the corresponding amounts payable on all shares of other classes or series of capital stock of the Company ranking on a parity with the Preferred Stock in the distribution of assets, then the holders of the Preferred Stock and all other such classes or series of capital stock shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. If liquidating distributions shall have been made in full to all holders of Preferred Stock, the remaining assets of the Company shall be distributed among the holders of any other classes or series of capital stock ranking junior to the Preferred Stock upon liquidation, dissolution or winding up, according to their respective rights and preferences and in each case according to their respective number of shares. For such purposes, the consolidation or merger of the Company with or into any other corporation, trust or entity, or the sale, lease or conveyance of all or substantially all of the property or business of the Company, shall not be deemed to constitute a liquidation, dissolution or winding up of the Company. Voting Rights. Holders of the Preferred Stock will not have any voting rights, except as set forth below or as indicated in the applicable Prospectus Supplement. Whenever dividends on any shares of Preferred Stock shall be in arrears for six or more consecutive quarterly periods, the holders of such shares of Preferred Stock (voting separately as a class with all other series of Preferred Stock upon which like voting rights have been conferred and are exercisable) will be entitled to vote for the election of two additional directors of the Company at a special meeting called by the holders of record of at least ten percent (10%) of any series of Preferred Stock so in arrears (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of the 18 stockholders) or at the next annual meeting of stockholders, and at each subsequent annual meeting until (i) if such series of Preferred Stock has a cumulative dividend, all dividends accumulated on such shares of Preferred Stock for the past dividend periods and the then current dividend period shall have been fully paid or declared and a sum sufficient for the payment thereof set aside for payment or (ii) if such series of Preferred Stock does not have a cumulative dividend, four consecutive quarterly dividends shall have been fully paid or declared and a sum sufficient for the payment thereof set aside for payment. In such case, the entire Board of Directors of the Company will be increased by two directors. Unless provided otherwise for any series of Preferred Stock, so long as any shares of Preferred Stock of a series remain outstanding, the Company will not, without the affirmative vote or consent of the holders of at least a majority of the shares of such series of Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting (such series voting separately as a class), (i) authorize or create, or increase the authorized or issued amount of, any class or series of capital stock ranking prior to such series of Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up or reclassify any authorized capital stock of the Company into such shares, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such shares; or (ii) amend, alter or repeal the provisions of the Company's Charter or the Designating Amendment for such series of Preferred Stock, whether by merger, consolidation or otherwise (an "Event"), so as to materially and adversely affect any right, preference, privilege or voting power of such series of Preferred Stock or the holders thereof; provided, however, with respect to the occurrence of any of the Events set forth in (ii) above, so long as the Preferred Stock remains outstanding with the terms thereof materially unchanged, taking into account that upon the occurrence of an Event the Company may not be the surviving entity, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting power of holders of Preferred Stock and provided further that (x) any increase in the amount of the authorized Preferred Stock or the creation or issuance of any other series of Preferred Stock, or (y) any increase in the amount of authorized shares of such series or any other series of Preferred Stock, in each case ranking on a parity with or junior to the Preferred Stock of such series with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers. The foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of such series of Preferred Stock shall have been redeemed or called for redemption and sufficient funds shall have been set aside by the Company in trust for the benefit of the holders of such shares to effect such redemption. Conversion Rights. The terms and conditions, if any, upon which any series of Preferred Stock is convertible into shares of Common Stock will be set forth in the applicable Prospectus Supplement relating thereto. Such terms will include the number of shares of Common Stock into which the shares of Preferred Stock are convertible, the conversion price (or manner of calculation thereof), the conversion period, provisions as to whether conversion will be at the option of the holders of the Preferred Stock or the Company, the events requiring an adjustment of the conversion price and provisions affecting conversion in the event of the redemption of such series of Preferred Stock. Restrictions on Ownership. As discussed below under "Description of Capital Stock--Restrictions on Transfer," for the Company to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"), not more than 50% in value of its outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) during the last half of a taxable year. To assist the Company in meeting this requirement, the Company may take certain actions to limit the beneficial ownership, directly or indirectly, by a single person of the Company's outstanding equity securities, including any Preferred Stock of the Company. Therefore, the Designating Amendment for each series of Preferred Stock may contain provisions restricting the ownership and transfer of the Preferred Stock. The applicable Prospectus Supplement will specify any additional ownership limitation relating to a series of Preferred Stock. 19 Transfer Agent and Registrar. The transfer agent and registrar for the Preferred Stock will be set forth in the applicable Prospectus Supplement. RESTRICTIONS ON TRANSFERS For the Company to qualify as a REIT under the Code, among other things, not more than 50% in value of its outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals (defined in the Code to include certain entities) during the last half of a taxable year (other than the first year), and such capital stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months (other than the first year) or during a proportionate part of a shorter taxable year. The Charter of the Company contains provisions, designed to ensure that the Company remains a qualified REIT, that limit any holder from owning, or being deemed to own by virtue of the attribution provisions of the Code, shares of capital stock having a value that is more than 9.8% (the "Ownership Limit") of the value of all outstanding capital stock of the Company. The Charter provides that each person (which includes natural persons, corporations, trusts, partnerships and other entities) shall be deemed to own stock that such person (i) actually owns, (ii) constructively owns after applying attribution rules specified in the Code, and (iii) has the right to acquire upon exercise of any rights, options or warrants or conversion of any convertible securities held by such person. The fact that certain affiliated entities, such as separate mutual funds advised by the same investment adviser, may own more than 9.8% of the value of all outstanding capital stock in the aggregate will not of itself result in the Ownership Limit being exceeded, merely because a single person may be considered to be the "beneficial owner" of such stock for purposes of Section 13(g) of the Exchange Act. The Board of Directors may waive the Ownership Limit if evidence satisfactory to the Board of Directors and the Company's tax counsel is presented that the changes in ownership will not then or in the future jeopardize the Company's status as a REIT. Any transfer of capital stock or any Security convertible into capital stock that would create direct or indirect ownership of capital stock in excess of the Ownership Limit or that would result in the disqualification of the Company as a REIT, including any transfer that results in the Company being "closely held" within the meaning of Section 856(h) of the Code, shall be null and void, and the intended transferee will acquire no rights to the capital stock. Shares of capital stock owned, or deemed to be owned, or transferred to a stockholder in excess of the Ownership Limit will automatically be exchanged for shares of Excess Stock that will be transferred, by operation of law, to a trustee (to be named by the Board of Directors of the Company, but unaffiliated with the Company) as trustee for the exclusive benefit (except to the extent described below) of one or more charitable beneficiaries designated from time to time by the Company. The Excess Stock held in trust will be considered as issued and outstanding shares of stock of the Company, will be entitled to receive distributions declared by the Company and may be voted by the trustee for the exclusive benefit of the charitable beneficiary. Any dividend or distribution paid to a purported transferee of Excess Stock prior to the discovery by the Company that capital stock has been transferred in violation of the provisions of the Company's Charter (a "prohibited transfer") shall be repaid to the Company upon demand and thereupon paid over by the Company to the trustee. Any votes of holders of shares of capital stock purported to have been cast by a purported transferee prior to such discovery of a prohibited transfer will be retroactively deemed not to have been cast, but said retroactive nullification of the vote of the relevant shares of capital stock shall not adversely affect the rights of any person (other than the purported transferee) who has relied in good faith upon the effectiveness of the matter that was the subject of the stockholder action as to which such votes were cast. Excess Stock is not transferable. Subject to the redemption rights of the Company discussed below, the trustee of the trust may, however, sell and transfer the interest in the trust to a transferee in whose hands the interest in the trust representing Excess Stock would not be an interest in Excess Stock, and upon such sale the shares of Excess Stock represented by the sold interest shall be automatically exchanged for shares of capital stock of the class that was originally exchanged into such Excess Stock. Upon such sale, the trustee shall distribute to the purported transferee only so much of the sales proceeds as is not more than the price paid by the purported transferee in the prohibited transfer that resulted in the exchange of Excess Stock for 20 the capital stock purported to have been transferred (or, if the purported transferee received such capital stock by gift, devise or otherwise without giving value for such stock, only an amount that does not exceed the market price for such stock, as determined in the manner set forth in the Charter, at the time of the prohibited transfer), and the trustee shall distribute all remaining proceeds from such sale to the charitable beneficiary. In addition to the foregoing transfer restrictions, the Company will have the right, for a period of 90 days during the time any Excess Stock is held by the trustee, to purchase all or any portion of the Excess Stock from the trustee for the lesser of the price paid for the capital stock by the original purported transferee (or, if the purported transferee received such capital stock by gift, devise or otherwise without giving value for such stock, the market price of the capital stock at the time of such prohibited transfer) or the market price of the capital stock on the date the Company exercises its options to purchase. Upon any such purchase by the Company, the trustee shall distribute the purchase price to the original purported transferee. The 90-day period begins on the date on which the Company receives written notice of the prohibited transfer or other event resulting in the exchange of capital stock for Excess Stock. If the foregoing transfer restrictions are determined to be void or invalid by virtue of any legal decision, statute, rule or regulation, then the intended transferee of any Excess Stock may be deemed, at the option of the Company, to have acted as an agent on behalf of the Company in acquiring the Excess Stock and to hold the Excess Stock on behalf of the Company. These restrictions will not preclude settlement of transactions on the New York Stock Exchange or any other stock exchange on which capital stock of the Company is listed. The foregoing restrictions on transferability and ownership also will not apply if the Board of Directors determines that it is no longer in the best interests of the Company to continue to qualify as a REIT. The Company's Charter requires that, upon demand by the Company, each stockholder and each proposed transferee of capital stock will disclose to the Company in writing any information with respect to the direct, indirect and constructive ownership of shares of stock as the Board of Directors deems necessary to comply with the provisions of the Code applicable to REITs, to comply with the requirements of any taxing authority or governmental agency or to determine any such compliance. The Ownership Limitation provided by the Company's Charter may have the effect of delaying, deferring or preventing the acquisition of control of the Company. However, the Charter provides that the Ownership Limit shall not apply to shares of capital stock acquired pursuant to an all cash tender offer for all outstanding shares of capital stock in conformity with applicable laws where not less than two-thirds of the outstanding shares of capital stock (not including securities held by the tender offeror and/or its affiliates and associates) are tendered and accepted pursuant to such tender offer and where the tender offeror commits in such tender offer, if the offer is accepted by the holders of two-thirds of the outstanding stock, promptly after the tender offeror's purchase of the tendered stock to give any non-tendering stockholders a reasonable opportunity to put their capital stock to the tender offeror at a price not less than that paid pursuant to the tender offer. CERTAIN PROVISIONS OF MARYLAND LAW The following summary of certain provisions of the MGCL does not purport to be complete and is qualified in its entirety by reference to the MGCL. Business Combinations. Under the MGCL, certain "business combinations" (including a merger, consolidation, share exchange, or, in certain circumstances, an asset transfer or issuance or reclassification of equity securities) between a Maryland corporation and any person who beneficially owns 10% or more of the voting power of the corporation's shares of capital stock or an affiliate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then-outstanding voting stock of the corporation (an "Interested Stockholder") or an affiliate thereof are prohibited for five years after the most recent date on which the Interested Stockholder becomes an Interested Stockholder. Thereafter, any such business combination must be recommended by the 21 board of directors of the corporation and approved by the affirmative vote of at least (a) 80% of the votes entitled to be cast by holders of outstanding voting shares of the corporation and (b) two-thirds of the votes entitled to be cast by holders of outstanding voting shares of the corporation other than shares held by the Interested Stockholder with whom (or with whose affiliate) the business combination is to be effected, unless, among other conditions, the corporation's common stockholders receive a minimum price (as defined in the MGCL) for their shares and the consideration is received in cash or in the same form as previously paid by the Interested Stockholder for its shares. These provisions of Maryland law do not apply, however, to business combinations that are approved or exempted by the board of directors of the corporation prior to the time that the Interested Stockholder becomes an Interested Stockholder. Control Share Acquisitions. The MGCL provides that "control shares" of a Maryland corporation acquired in a "control share acquisition" have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares of stock owned by the acquiror or by officers or directors who are employees of the corporation. "Control shares" are voting shares of stock that, if aggregated with all other shares of stock previously acquired by that person, or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting power: (i) one-fifth or more but less than one-third, or (ii) one-third or more but less than a majority, or (iii) a majority of all voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A "control share acquisition" means the acquisition of control shares, subject to certain exceptions. A person who has made or proposes to make a control share acquisition, upon satisfaction of certain conditions (including an undertaking to pay expenses), may compel the board of directors to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. If no request for a meeting is made, the corporation may itself present the question at any meeting of stockholders. If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then, subject to certain conditions and limitations, the corporation may redeem any or all of the control shares (except those for which voting rights have been previously been approved) for fair value determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquiror or of any meeting of stockholders at which the voting rights of such shares are considered and not approved. If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of the appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition, and certain limitations and restrictions otherwise applicable to the exercise of dissenters' rights do not apply in the context of a control share acquisition. The control share acquisition statute does not apply to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or to acquisitions approved or exempted by a corporation's articles of incorporation or bylaws. The Company's Bylaws contain a provision exempting any and all acquisitions of the Company's shares of capital stock from the control shares provision of the MGCL. There can be no assurance that this provision will not be amended or repealed in the future. DESCRIPTION OF WARRANTS The Company may issue warrants or rights (collectively, the "Warrants") for the purchase of any series of Debt Securities or shares of any class of capital stock of the Company. Warrants may be issued independently or together with any other Securities and may be attached to or separate from such Securities. 22 Each series of Warrants will be issued under a separate warrant agreement or rights agreement (each, a "Warrant Agreement") to be entered into between the Company and a warrant agent or rights agent ("Warrant Agent"). The Warrant Agent will act solely as an agent of the Company in connection with the Warrants of such series and will not assume any obligation or relationship of agency or trust for or with any holders or beneficial owners of Warrants. The applicable Prospectus Supplement will describe the following terms, where applicable, of the Warrants in respect of which this Prospectus is being delivered: (1) the title of such Warrants; (2) the aggregate number of such Warrants; (3) the price or prices at which such Warrants will be issued; (4) the designation, aggregate principal amount and terms of the Securities purchasable upon exercise of such Warrants; (5) the designation and terms of the Securities, if any, with which such Warrants are issued and the number of such Warrants issued with each such Security; (6) if applicable, the date on and after which such Warrants and the related Securities will be separately transferable; (7) the price at which the Securities purchasable upon exercise of such Warrants may be purchased; (8) the date on which the right to exercise such Warrants shall commence and the date on which such right shall expire; (9) the minimum or maximum amount of such Warrants which may be exercised at any one time; (10) information with respect to book-entry procedures, if any; (11) a discussion of certain federal income tax considerations; and (12) any other terms of such Warrants, including terms, procedures and limitations relating to the exchange and exercise of such Warrants. DESCRIPTION OF UNITS OF SECURITIES The Company may issue Units consisting of two or more other constituent Securities, which Units may be issuable as, and for the period of time specified therein may be transferable as, a single Security only, as distinguished from the separate constituent Securities comprising such Units. Any such Units will be offered pursuant to a Prospectus Supplement which will (1) identify and designate the title of any series of Units; (2) identify and describe the separate constituent Securities comprising such Units; (3) set forth the price or prices at which such Units will be issued; (4) describe, if applicable, the date on and after which the constituent Securities comprising the Units will become separately transferable; (5) provide information with respect to book-entry procedures, if any; (6) discuss applicable federal income tax considerations relating to the Units; and (7) any other terms of the Units and their constituent Securities. PLAN OF DISTRIBUTION The Company may sell Securities through underwriters or dealers, directly to one or more purchasers, or through agents. The distribution of the Securities may be effected from time to time in one or more transactions at a fixed price or prices, which may be changed, at market prices prevailing at the time of sale or at prices related to such prevailing market prices, or at negotiated prices. In connection with the sale of Securities, underwriters or agents may receive compensation from the Company or from purchasers of Securities, for whom they may act as agents, in the form of discounts, concessions, or commissions. Underwriters may sell Securities to or through dealers, and such dealers may receive compensation in the form of discounts, concessions, or commissions from the underwriters and/or commissions from the purchasers for whom they may act as agents. Underwriters, dealers, and agents that participate in the distribution of Securities may be deemed to be underwriters, and any discounts or commissions they receive from the Company, and any profit on the resale of Securities they realize may be deemed to be underwriting discounts and commissions, under the Securities Act. Any such underwriter or agent will be identified, and any such compensation received from the Company will be described, in the applicable Prospectus Supplement. 23 Unless otherwise specified in the related Prospectus Supplement, each series of Securities will be a new issue with no established trading market, other than the Common Stock which is listed on the NYSE. Any shares of Common Stock sold pursuant to a Prospectus Supplement will be listed on the NYSE, subject to official notice of issuance. The Company may elect to list any series of Debt Securities or Preferred Stock on an exchange, but is not obligated to do so. It is possible that one or more underwriters may make a market in a series of Securities, but will not be obligated to do so and may discontinue any market making at any time without notice. Therefore, no assurance can be given as to the liquidity of, or the trading market for, the Securities. Under agreements into which the Company may enter, underwriters will be, and dealers and agents who participate in the distribution of Securities may be, entitled to indemnification by the Company against certain liabilities, including liabilities under the Securities Act. Underwriters, dealers and agents may engage in transactions with, or perform services for, or be customers of, the Company in the ordinary course of business. If so indicated in the applicable Prospectus Supplement, the Company may itself, or may authorize underwriters or other persons acting as the Company's agents to solicit offers by certain institutions to purchase Securities from the Company pursuant to contracts providing for payment and delivery on a future date. Institutions with which such contracts may be made include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions and others, but in all cases such institutions must be approved by the Company. The obligations of any purchaser under any such contract will be subject to the condition that the purchase of the Securities shall not at the time of delivery be prohibited under the laws of the jurisdiction to which such purchaser is subject. The underwriters and such other agents will not have any responsibility in respect of the validity or performance of such contracts. In order to comply with the securities laws of certain states, if applicable, the Securities offered hereby will be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states Securities may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with. Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the Securities offered hereby may not simultaneously engage in market making activities with respect to the Securities for a period of two business days prior to the commencement of such distribution. LEGAL MATTERS Certain legal matters, including the legality of the Securities, will be passed upon for the Company by Goodwin, Procter & Hoar (a partnership including professional corporations), Boston, Massachusetts. William B. King, whose professional corporation is a partner in Goodwin, Procter & Hoar, is Secretary of the Company and is the beneficial owner of approximately 6,500 shares of Common Stock. EXPERTS The financial statements and schedules of the Company as of December 31, 1994 and 1993, and for each of the years in the three-year period ended December 31, 1994, have been incorporated by reference herein and in the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. To the extent that KPMG Peat Marwick LLP audits and reports on financial statements of the Company issued at future dates, and consents to the use of their report thereon, such financial statements also will be incorporated by reference in the Registration Statement in reliance upon their report and said authority. 24 [This page in paper format contains a map showing the locations of the properties owned by the Company:] Map excludes St. Francis Plaza in Santa Fe, New Mexico. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH THEY RELATE. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. --------------- TABLE OF CONTENTS
PAGE ---- PROSPECTUS SUPPLEMENT Prospectus Supplement Summary............................................. S-3 The Company............................................................... S-6 Use of Proceeds........................................................... S-10 Capitalization............................................................ S-10 Market Price of Shares and Distributions.................................. S-11 Selected Financial Data................................................... S-12 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... S-13 Properties................................................................ S-17 Management................................................................ S-22 Taxation.................................................................. S-24 Underwriting.............................................................. S-25 Legal Matters............................................................. S-26 PROSPECTUS Available Information..................................................... 2 Incorporation of Certain Documents by Reference........................... 2 The Company............................................................... 3 Use of Proceeds........................................................... 4 Ratio of Earnings to Fixed Charges........................................ 5 Description of Debt Securities............................................ 5 Description of Capital Stock.............................................. 14 Description of Warrants................................................... 22 Description of Units of Securities........................................ 23 Plan of Distribution...................................................... 23 Legal Matters............................................................. 24 Experts................................................................... 24
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 2,500,000 SHARES BRADLEY REAL ESTATE, INC. COMMON STOCK ------------------------------ PROSPECTUS SUPPLEMENT ------------------------------ PAINEWEBBER INCORPORATED ALEX. BROWN & SONS INCORPORATED --------------- JUNE , 1995 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----