-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I5j/LR7OVwP7o6H+8yawiIZXwmJZauD7flU3ahyAAXW4+dqDvT6WQneHFG7uq554 8vUgF4KDVV8BoJipJZqYcA== 0000950137-97-001252.txt : 19970401 0000950137-97-001252.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950137-97-001252 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 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: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-10328 FILM NUMBER: 97568419 BUSINESS ADDRESS: STREET 1: 250 BOYLSTON ST CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6178674200 FORMER COMPANY: FORMER CONFORMED NAME: BRADLEY REAL ESTATE TRUST DATE OF NAME CHANGE: 19920703 10-K405 1 ANNUAL REPORT DATED 12/31/96 1 SECURITIES AND EXCHANGE COMMISSION Exhibit Index Washington, D.C. 20549 on Pages __ and __ FORM 10-K405 Annual Report Pursuant to Section 15(d) of the Securities Exchange Act of 1934 X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - --- ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1996 Commission File Number 1-10328 BRADLEY REAL ESTATE, INC. ----------------------------------------------------- (Exact name of Registrant as specified in its charter) Maryland 04-6034603 ---------- ------------ (State of Organization) (I.R.S. Employer Identification No.) 40 Skokie Blvd., Northbrook, IL 60062 --------------------------------- ------- (Address of Principal Executive Offices) (ZIP Code) Registrant's telephone number, including area code (847) 272-9800 ----------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered --------------------- ------------------------------------------- Common Stock New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] , No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] Aggregate market value of 21,612,088 shares of Common Stock believed to be held by non-affiliates of the registrant based upon the $19.50 closing price for such Shares on March 10, 1997, on the New York Stock Exchange: $421,435,716 Number of Shares outstanding as of March 10, 1997: 21,665,790 DOCUMENTS INCORPORATED BY REFERENCE Registrant expects to file no later than April 1, 1997, its definitive Proxy Statement for the 1997 Annual Meeting of Share Owners and hereby incorporates by reference said Proxy Statement into Part III hereof. 1 2 STATEMENTS MADE OR INCORPORATED IN THIS REPORT INCLUDE A NUMBER OF FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS "ANTICIPATES", "BELIEVES", "EXPECTS", "INTENDS", "FUTURE", AND WORDS OF SIMILAR IMPORT WHICH EXPRESS MANAGEMENT'S BELIEF, EXPECTATIONS OR INTENTIONS REGARDING THE COMPANY'S FUTURE PERFORMANCE OR FUTURE EVENTS OR TRENDS. RELIANCE SHOULD NOT BE PLACED ON FORWARD-LOOKING STATEMENTS BECAUSE THEY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS, WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO DIFFER MATERIALLY FROM ANTICIPATED FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSLY OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. IN ADDITION, THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENT, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. CERTAIN FACTORS THAT MIGHT CAUSE SUCH DIFFERENCES ARE DISCUSSED IN THE SECTION ENTITLED "RISK FACTORS" ON PAGE 12 OF THIS REPORT. Part I ITEM 1. BUSINESS General The objective of Bradley Real Estate, Inc. ("Bradley" or the "Company") is to be a dominant owner of grocery-anchored, open air shopping centers in the Midwestern region of the United States. At December 31, 1996, the Company owned 32 properties in 12 states, aggregating over 7.7 million square feet of rentable space. Approximately 95% of the Company's portfolio square footage is located in Midwest markets, making the Company one of the leading owners and operators of community and neighborhood shopping centers in this region. As of December 31, 1996, the Company's portfolio was 90% occupied. The Company has elected to qualify as a real estate investment trust ("REIT") for federal income tax purposes since its organization in 1961. The Company believes that it is the nation's oldest continually qualified REIT. During 1996, the Company grew substantially, primarily as a result of the merger acquisition on March 15, 1996, of Tucker Properties Corporation ("Tucker") (the "Tucker Acquisition"), which more than doubled the size of the Company's portfolio on a square footage basis and sharpened the Company's Midwest focus. The Company also made two other smaller property acquisitions in 1996. In January 1997, it acquired three additional shopping centers in its Midwest target area, and in March 1997, it sold one of its three remaining properties in New England. As a result of these transactions, at the date of this report, the Company owns 34 properties aggregating approximately 7.8 million square feet in 11 states. As part of its ongoing business, the Company regularly evaluates, and engages in discussions with public and private real estate entities regarding possible portfolio or asset acquisitions or business combinations. The Company expects to complete several additional retail acquisitions during 1997. In evaluating potential acquisitions, the Company focuses principally on community and neighborhood shopping centers in a 10 state area -- Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wisconsin - -- that are anchored by strong regional and independent grocery store chains. The Company favors grocery-anchored shopping centers because, 2 3 based on the Company's experience, such properties offer better prospects for sustainable cash flow growth over time due to their strong and predictable daily consumer traffic and are less susceptible to external economic factors than other types of properties. 1996 Highlights The Company considers that its mission is to provide superior returns to its share owners by creating sustainable growth in per share cash flow through the ownership of grocery focused retail properties in the Midwest region of the United States. During 1996, the Company continued to focus on its three main strategic objectives: managing its existing properties to compete in a challenging retail environment, positioning its capital structure for future growth, and continuing to grow through opportunistic acquisitions. In connection with the stated objective of a strategic focus on the Midwest, the Company relocated its corporate headquarters from Boston, Massachusetts to Northbrook, Illinois during September 1996. The Company's principal executive office is now located at 40 Skokie Boulevard, Suite 600, Northbrook, Illinois 60062. Its telephone number is (847) 272-9800. Management and Leasing Activity: Despite a competitive retail climate, the properties owned by the Company at December 31, 1996, were at a 90% occupancy rate. During 1996, the Company negotiated 328,000 square feet of new leases and 124,000 square feet of renewal leases. Combined, these leases represented approximately 6% of the aggregate portfolio. Significant new and renewal leases completed during the year included an expansion of Best Buy at Burning Tree Plaza from 28,000 square feet to 46,000 square feet; two leases with Petter's Warehouse Direct, one at Har Mar Mall for 17,500 square feet, and one at Sun Ray Shopping Center for 20,000 square feet; a 40,000 square foot lease with Stein Mart at Washington Lawndale Commons; and a 15,000 square foot Kohl's expansion at Speedway SuperCenter. Capital Structure Activity: In March 1996, the Company entered into a $150 million unsecured revolving credit facility with a syndicate of major U.S. banks, lead by The First National Bank of Boston. The $150 million unsecured line of credit replaced a $65 million secured facility. The Company's line of credit bears interest at the lower of the lead bank's base rate or 1.75% over the London Inter-Bank Offering Rate ("LIBOR"). The rates available under the line of credit become more favorable in the event the Company meets certain loan-to-value tests or receives an investment grade credit rating. In November 1996, the Company completed an underwritten public offering of 2,875,000 shares of common stock. The net proceeds, approximately $44.9 million, were used to pay-down short-term indebtedness incurred under the Company's line of credit with the expectation that the Company may reborrow under the line for the acquisition, development, expansion or renovation of properties. Immediately following the offering, the Company's ratio of debt to total market capitalization (defined as the current market value of all outstanding shares of common stock and limited partnership units that are convertible into common stock plus the principal amount of outstanding debt) was reduced to approximately 33%. At December 31, 1996, the Company's ratio of debt to total market capitalization stood at approximately 32%. 3 4 Acquisitions: On March 15, 1996, the Company completed the acquisition of Tucker Properties Corporation ("Tucker"), which more than doubled the previous size of the Company's portfolio on a square footage basis. The acquisition was consummated through the issuance by the Company of 7.4 million shares of its common stock valued at $13.96 per share, in exchange for 100% of the outstanding shares of Tucker, the assumption of Tucker's liabilities and payment of the related transaction costs. Tucker held title to its properties through two partnerships; eight of the properties were held through Tucker Operating Limited Partnership ("TOP"), in which Tucker had a 95.9% general partnership interest, and six properties through Tucker Financing Partnership ("TFP"), a general partnership of which TOP owned 99% and a wholly-owned Tucker subsidiary owned the remaining 1%. Upon the acquisition of Tucker, the Company succeeded to Tucker's interest in TOP, TFP and the wholly-owned Tucker corporate subsidiary, and the name "Bradley" was substituted for "Tucker" in each partnership and subsidiary. The properties held by Bradley Financing Partnership ("BFP"), formerly TFP, secure a $100 million mortgage note due in September 2000, (the "REMIC Note") issued to a trust qualifying as a real estate mortgage investment conduit for Federal income tax purposes. On March 26, 1996, the Company acquired Brookdale Square ("Brookdale"), a 185,000 square foot shopping center located in Brooklyn, Minnesota, a suburb of Minneapolis, for approximately $8.9 million. In connection with the acquisition of Brookdale, the Company completed a "like-kind" exchange for tax purposes and sold its interest in a ground lease at 501-529 Nicollet Avenue in downtown Minneapolis for approximately $12.9 million. On December 27, 1996, the Company acquired Santa Fe Square ("Santa Fe"), a 134,000 square foot property in Olathe, Kansas, a suburb of Kansas City, Kansas, for approximately $9.1 million. Subsequent to year-end, in January 1997, the Company acquired three additional grocery-anchored shopping centers in three separate transactions: Martin's Bittersweet Plaza, a 78,000 square foot center in Mishawaka, Indiana, a suburb of South Bend; Roseville Center, a 77,000 square foot center in Roseville, Minnesota, a suburb of St. Paul; and Warren Plaza, a 90,000 square foot center in Dubuque, Iowa. The aggregate purchase price for the properties was approximately $16.2 million. Dispositions: The Company's strategy entails a focus on grocery-anchored centers in primary and secondary Midwest markets. From time to time, the Company will evaluate assets within its portfolio with an eye toward disposing of assets that no longer fit the Company's strategy either geographically or from a product type standpoint. In addition, if the Company believes that proceeds from the sale of a given property can be reinvested in new assets that provide greater return potential, such property may be considered for sale. In March 1996, the Company completed the sale of its ground lease at 501-529 Nicollet Avenue in downtown Minneapolis for approximately $12.9 million. The sale resulted in a gain of $9.4 million for financial reporting purposes, however, because the transaction was structured in part as a like-kind 4 5 exchange transaction in connection with the acquisition of Brookdale, the gain for income tax purposes amounted to $4.1 million. As part of the Company's stated objective to focus on the Midwest, at December 31, 1996, the Company was holding for sale its three New England properties. The aggregate book value of these properties, $10.3 million, has been separately classified in the Company's December 31, 1996, consolidated balance sheet. The Company intends to redeploy the proceeds from such sales to acquire additional shopping center properties in the Midwest. In March 1997, the Company completed the sale of Hood Commons in Derry, New Hampshire for $11.7 million resulting in a gain of approximately $3.1 million for financial reporting purposes. The Company expects to sell its remaining New England properties during 1997. Operations: Subsequent to the acquisition of Tucker, the Company completed the integration of its former operating systems and personnel with those of Tucker, resulting in what the Company believes is a stronger, more talented and more efficiently structured organization. During the year the Company completely internalized its Midwest property management and leasing activities under an expanded senior management team, all located in the Midwest, and enhanced its technological capabilities, which both provide the potential for improved property management and facilitate the evaluation of potential acquisitions. At December 31, 1996, the Company had 81 employees, increased from 16 employees at December 31, 1995. The Company's Properties The following table and notes describe the Company's properties and rental information for leases in effect as of December 31, 1996: 5 6
PERCENT LEASED AT RENTABLE DECEMBER 31 ANNUALIZED YEAR SQUARE ------------------- ANNUALIZED BASE RENT PER SHOPPING CENTERS ACQUIRED FEET 1996 1995 BASE RENT LEASED SF - -------------------------------------------------------------------------------------------------------------- ILLINOIS - -------- Commons of Chicago Ridge and Annex 1996 309,000 77% 73% $2,398,563 $ 6.00 Chicago Ridge, IL - -------------------------------------------------------------------------------------------------------------- Commons of Crystal Lake(2) 1996 273,000 75% 98% 2,357,251 11.56 Crystal Lake, IL - -------------------------------------------------------------------------------------------------------------- Crossroads Center 1992 242,000 93% 93% 1,256,261 5.56 Fairview Heights, IL - -------------------------------------------------------------------------------------------------------------- Heritage Square 1996 212,000 100% 100% 2,600,274 12.25 Naperville, IL - -------------------------------------------------------------------------------------------------------------- High Point Centre 1996 240,000 100% 100% 2,150,297 8.95 Lombard, IL - -------------------------------------------------------------------------------------------------------------- Meadows Town Mall 1996 382,000 60% 81% 1,420,013 6.17 Rolling Meadows, IL - -------------------------------------------------------------------------------------------------------------- Rivercrest Center 1994 454,000 100% 100% 3,507,723 7.75 Crestwood, IL - -------------------------------------------------------------------------------------------------------------- Rollins Crossing(3) 1996 66,000 93% 100% 538,539 8.81 Round Lake Beach, IL - -------------------------------------------------------------------------------------------------------------- Sheridan Village 1996 298,000 98% 97% 2,197,545 7.53 Peoria, IL - -------------------------------------------------------------------------------------------------------------- Westview Center 1993 328,000 72% 78% 2,274,855 9.67 Hanover Park, IL - -------------------------------------------------------------------------------------------------------------- BASE LEASE/OPTION SQUARE EXPIRATON SHOPPING CENTERS MAJOR TENANTS (1) FEET DATE - --------------------------------------------------------------------------------------------------------- ILLINOIS - -------- Commons of Chicago Ridge T.J.Maxx 25,082 1998/2008 and Annex Marshalls 27,000 1999/2014 Chicago Ridge, IL Office Depot 27,680 2002/2012 Cineplex Odeon 25,000 2008/2018 Michaels Stores 17,550 1999/2004 Pep Boys 22,354 2015/2035 - --------------------------------------------------------------------------------------------------------- Commons of Crystal Lake(2) Jewel/Osco 59,804 2007/2042 Crystal Lake, IL Venture (not owned) 81,338 2006 - --------------------------------------------------------------------------------------------------------- Crossroads Center Kmart (ground lease) 96,268 2001/2020 Fairview Heights, IL T.J.Maxx 33,200 2006/2013 - --------------------------------------------------------------------------------------------------------- Heritage Square Montgomery Ward 111,016 2013/2033 Naperville, IL Circuit City 28,351 2009/2024 Stroud's 26,703 2003/2013 - --------------------------------------------------------------------------------------------------------- High Point Centre Cub Foods 62,000 2008/2033 Lombard, IL T.J.Maxx 25,200 1998/2013 Office Depot 36,416 2003/2013 MacFrugal's 17,040 2006/2021 - --------------------------------------------------------------------------------------------------------- Meadows Town Mall Waccamaw 108,000 1999/2009 Rolling Meadows, IL Elek-Tek 32,000 2001/2011 Women's Club 20,478 1998/2008 - --------------------------------------------------------------------------------------------------------- Rivercrest Center Omni Foods 87,937 2011/2031 Crestwood, IL Venture 79,903 2011/2031 Sears Roebuck and Co. 55,000 2001/2011 T.J.Maxx 34,425 2004/2019 PETsMART 31,639 2010/2030 Best Buy 25,000 2008/2023 OfficeMax 24,000 2007/2017 Hollywood Park 15,000 2000/2005 - --------------------------------------------------------------------------------------------------------- Rollins Crossing(3) Sears Hardware 21,083 2005/2020 Round Lake Beach, IL Super Kmart (not owned) 190,000 2033 - --------------------------------------------------------------------------------------------------------- Sheridan Village Bergner's Dept. Store 162,852 2006/2021 Peoria, IL Cohen's Furniture 16,600 2006 - --------------------------------------------------------------------------------------------------------- Westview Center Cub Foods 67,163 2009/2029 Hanover Park, IL Marshalls 34,302 2004/2019 - ---------------------------------------------------------------------------------------------------------
6 7
INDIANA - ------- Speedway SuperCenter 1996 535,000 98% 98% $3,891,512 $7.40 Kohl's 90,027 2004/2024 and Outlots Kroger 59,515 2013/2043 Speedway, IN Sears Roebuck and Co. 30,825 2004/2024 Old Navy 15,000 2005/2010 Kittles 25,320 2000/2010 PETsMART 21,781 2002/2012 Factory Card Outlet 16,675 2003/2013 Lindo Super Spa 16,589 2000 - ------------------------------------------------------------------------------------------------------------------------------------ The Village 1996 356,000 92% 97% 1,735,543 5.32 JC Penney 60,600 1999/2004 Gary, IN Goldblatt's 55,000 2000/2005 McCrory's 24,500 1998/2003 Post-Tribune Publishing 19,246 1999 Indiana Employment 18,050 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Washington Lawndale 1996 333,000 87% 99% 1,414,962 4.89 Target 83,110 2005/2025 Commons Sears Homelife 34,527 2003/2018 Evansville, IN Allied Sporting Goods 20,285 1997/2012 Jo-Ann Fabrics 15,262 2003/2013 Books-A-Million 20,515 2002/2008 - ------------------------------------------------------------------------------------------------------------------------------------ KANSAS - ------ Santa Fe Square 1996 134,000 95% N/A 1,106,696 8.72 Schnucks 55,820 2007/2027 Olathe, KS - ------------------------------------------------------------------------------------------------------------------------------------ KENTUCKY - -------- Stony Brook 1996 136,000 94% 96% 1,324,847 10.35 Kroger 79,625 2021/2046 Louisville, KY - ------------------------------------------------------------------------------------------------------------------------------------ MAINE - ----- Augusta Plaza 1971 152,000 93% 89% 613,505 4.35 Kmart 85,808 1997/2012 Augusta, ME - ------------------------------------------------------------------------------------------------------------------------------------ MINNESOTA - --------- Brookdale Square 1996 185,000 84% N/A 1,160,984 7.44 Circuit City 36,392 2014/2034 Brooklyn, MN Office Depot 30,395 2004/2014 Drug Emporium 25,782 2000/2010 United Artists 24,534 2002/2022 - ------------------------------------------------------------------------------------------------------------------------------------ Burning Tree Plaza 1993 120,000 100% 100% 1,037,499 8.62 T.J. Maxx 30,000 2004/2019 Duluth, MN Best Buy 28,000 1999/2014 Piece Goods Shops 17,682 1999/2004 - ------------------------------------------------------------------------------------------------------------------------------------ Har Mar Mall 1992 431,000 89% 86% 3,569,078 9.32 HomePlace 54,489 2010/2026 Roseville, MN Barnes & Noble 44,856 2010/2025 Marshalls 34,858 1998/2013 T.J.Maxx 25,025 1998/2008 General Cinema 22,252 2001/2021 General Cinema 19,950 2000/2010 Michaels Stores 17,907 2003/2018 - ------------------------------------------------------------------------------------------------------------------------------------
7 8
PERCENT LEASED AT RENTABLE DECEMBER 31 YEAR SQUARE ----------------- ANNUALIZED SHOPPING CENTERS ACQUIRED FEET 1996 1995 BASE RENT - ------------------------------------------------------------------------------------------------------------ Hub West Shopping Center 1991 78,000 100% 100% $ 826,567 Richfield, MN - ------------------------------------------------------------------------------------------------------------ Richfield Hub Shopping 1988 138,000 96% 97% 1,215,868 Center Richfield, MN - ------------------------------------------------------------------------------------------------------------ Sun Ray Shopping Center 1961 261,000 81% 97% 1,650,360 St. Paul, MN - ------------------------------------------------------------------------------------------------------------ Terrace Mall 1993 137,000 94% 92% 909,289 Robbinsdale, MN - ------------------------------------------------------------------------------------------------------------ Westwind Plaza 1994 88,000 91% 96% 843,574 Minnetonka, MN - ------------------------------------------------------------------------------------------------------------ White Bear Hills 1993 73,000 100% 100% 588,518 White Bear Lake, MN - ------------------------------------------------------------------------------------------------------------ MISSOURI - -------- Grandview Plaza 1971 314,000 78% 98% 2,163,990 Florissant, MO - ------------------------------------------------------------------------------------------------------------ NEW HAMPSHIRE - ------------- Hood Commons 1973 216,000 94% 97% 1,473,253 Derry, NH - ------------------------------------------------------------------------------------------------------------ NEW MEXICO - ---------- St. Francis Plaza 1995 30,000 100% 100% 357,000 Santa Fe, NM - ------------------------------------------------------------------------------------------------------------ TENNESSEE - --------- Williamson Square 1996 335,000 93% 96% 2,107,290 Franklin, TN - ------------------------------------------------------------------------------------------------------------ WISCONSIN - --------- Mequon Pavilions 1996 212,000 99% 98% 2,252,183 Mequon, WI - ------------------------------------------------------------------------------------------------------------ RETAIL/OFFICE BUILDING - ---------------------- One North State 1996 640,000 98% 95% 9,486,289 Chicago, IL - ------------------------------------------------------------------------------------------------------------ 585 Boylston Street 1961 22,000 90% 98% 680,934 Boston, MA - ------------------------------------------------------------------------------------------------------------ BASE ANNUALIZED LEASE/OPTION BASE RENT PER SQUARE EXPIRATION SHOPPING CENTERS LEASED SF MAJOR TENANTS(1) FEET DATE - ------------------------------------------------------------------------------------------------------------ Hub West Shopping Center $10.56 Rainbow Foods 50,817 2012/2022 Richfield, MN U.S. Swim & Fitness 26,185 2001/2003 - ------------------------------------------------------------------------------------------------------------ Richfield Hub Shopping 9.18 Marshalls 26,785 2003/2008 Center Michaels Stores 24,235 1999/2014 Richfield, MN - ------------------------------------------------------------------------------------------------------------ Sun Ray Shopping Center 7.75 JC Penney 40,451 1999/2009 St. Paul, MN Marshalls 26,256 2005/2020 T.J.Maxx 23,955 2000/2005 Petter's 20,000 2007 Michaels Stores 18,127 2004/2019 - ------------------------------------------------------------------------------------------------------------ Terrace Mall 7.06 Rainbow Foods 59,232 2013/2033 Robbinsdale, MN North Memorial 32,000 1999/2004 - ------------------------------------------------------------------------------------------------------------ Westwind Plaza 10.58 Northern Hydraulics 18,165 2002/2012 Minnetonka, MN - ------------------------------------------------------------------------------------------------------------ White Bear Hills 8.05 Festival Foods 45,679 2011/2021 White Bear Lake, MN - ------------------------------------------------------------------------------------------------------------ MISSOURI - -------- Grandview Plaza 8.82 Home Quarters 84,611 2013/2033 Florissant, MO Schnucks 68,025 2011/2026 Walgreens 15,984 2008/2043 - ------------------------------------------------------------------------------------------------------------ NEW HAMPSHIRE - ------------- Hood Commons 7.25 Shaw's 58,258 2013/2033 Derry, NH Ames 50,000 2000/2005 Decelle 26,353 1999/2014 - ------------------------------------------------------------------------------------------------------------ NEW MEXICO - ---------- St. Francis Plaza 11.98 Walgreens 14,950 2013/2043 Santa Fe, NM Wild Oats 14,850 2006/2066 - ------------------------------------------------------------------------------------------------------------ TENNESSEE - --------- Williamson Square 6.78 Wal-Mart 137,493 2008/2038 Franklin, TN Kroger 63,986 2008/2038 Carmike Cinemas 29,000 2008/2018 - ------------------------------------------------------------------------------------------------------------ WISCONSIN - --------- Mequon Pavilions 10.72 Kohl's Food Emporium 45,697 2010/2050 Mequon, WI Furniture Clearance 19,900 1997 - ------------------------------------------------------------------------------------------------------------ RETAIL/OFFICE BUILDING - ---------------------- One North State 15.18 First Chicago 296,782 2003 Chicago, IL Arthur Andersen(4) 126,533 1998 T.J. Maxx 77,675 2001/2011 Filene's Basement 50,000 2002/2012 Int'l Academy of Design 44,000 2003/2008 - ------------------------------------------------------------------------------------------------------------ 585 Boylston Street 34.95 CVS Pharmacy 7,582 2001/2016 Boston, MA - ------------------------------------------------------------------------------------------------------------
8 9 (1) Major tenants are defined as tenants leasing 15,000 square feet or more of the rentable square footage with the exception of 585 Boylston Street and St. Francis Plaza. In some cases, the named tenant occupies the premises as a sublessee. The Company views "anchor" tenants as a subset of the major tenants at each property, generally consisting of those tenants which also represent more than 15% of the property's rentable square footage. (2) The amount of rentable square feet at Commons of Crystal Lake does not include approximately 81,000 square feet which is owned by Metropolitan Life and leased to Venture. (3) The amount of rentable square feet at Rollins Crossing does not include approximately 190,000 square feet which is owned by Kmart Corporation. (4) This tenant exercised its option on April 1, 1996, to terminate its lease, effective as of April 1, 1998, and has paid a $1.8 million cancellation fee. The tenant has moved out of its space. One North State One North State was the only property in the portfolio at December 31, 1996, that represented 10% or more of the historic book value of the Company's total assets at December 31, 1996, or accounted for 10% or more of the Company's gross revenues in 1996. One North State is a mixed-use property located in the "Loop" area of downtown Chicago, Illinois. The property aggregates approximately 640,000 square feet of GLA including approximately 159,000 square feet of retail space. Real estate taxes for this property amounted to approximately $2,917,000 for the period March 15, 1996 through December 31, 1996. The retail portion of this property is anchored by T.J. Maxx and Filene's Basement. The leases to T.J. Maxx and Filene's Basement provide current minimum annual rent of approximately $1,237,000 and $1,000,000, respectively. The office portion of this property is leased primarily to First Chicago and Arthur Andersen. The leases to First Chicago and Arthur Andersen provide current minimum annual rent of approximately $3,942,000 and $1,518,000, respectively. The following tables set forth certain supplemental information with respect to One North State, and reflect Arthur Andersen's termination in 1996 of its lease effective April 1998, and the fact that its leased space was not occupied at December 31, 1996. See "Risk Factors - Real Estate Investment Considerations - Potential Negative Effect of One North State Property." 9 10 a. Percentage occupied at December 31 for the last five years: 1996 78% 1995 95% 1994 95% 1993 95% 1992 89% b. The average effective annual minimum rentals per square foot for 1996, 1995, and 1994 were as follows: 1996 $15.18 1995 $15.45 1994 $16.34 c. Leases in effect at December 31, 1996, expiring over each of the next ten years, assuming no tenants exercise renewal options: No. of Square Minimum Leases Feet Future Rents ------ ------ ------------ 1997 3 8,494 $ 36,000 1998 1 126,533 1,518,400 1999 1 1,177 76,505 2000 1 1,807 182,507 2001 5 83,767 1,645,670 2002 2 51,451 1,101,570 2003 4 343,432 4,712,361 2004 1 6,200 120,000 2005 2 2,035 121,547 2006 - - - 10 11 Tenant Mix and Leases As evidenced by the foregoing tables, the Company's tenant mix is diverse and well represented by supermarkets, drugstores and other consumer necessity or value-oriented retailers. Such tenants tend to be stable performers in both good and bad economic times. As of December 31, 1996, sixteen of the Company's shopping centers were anchored by supermarkets, most of which are leading grocery chains in their respective markets. No tenant included in the Company's portfolio of properties on December 31, 1996, accounted for 10% or more of the Company's rental income in 1996. The terms of the Company's outstanding retail leases vary from tenancies at will to 50 years. Major tenant leases are typically for 10 to 25 years, with one or more extension options available to the lessee upon expiration of the initial lease. By contrast, smaller shop leases are typically negotiated for three to five year terms. The longer term of the major tenant leases serves to protect the Company against significant vacancies and to assure the presence of strong tenants who draw consumers to the Company's centers. The shorter term of the smaller shop leases allows the Company to adjust rental rates for non-major store space on a regular basis and upgrade the overall tenant mix. Leases to major tenants tend to provide lower minimum rents per square foot than smaller shop leases. Major tenant leases for properties included in the portfolio at December 31, 1996, provided an average annual minimum rent of $6.53 per square foot, compared with non-major tenant leases which provided an average annual minimum rent of $10.51. In general, the Company believes that minimum rental rates for anchor tenant leases entered into several years ago are below current market rates, while recent anchor tenant leases and most non-anchor leases provide for minimum rental rates that more closely reflect current market rates. The payment by tenants of minimum rents that are below current market rates is offset in part by payment of percentage rents. Annual minimum future rentals to be received under non-cancelable operating leases in effect at December 31, 1996, for the properties included in the portfolio at December 31, 1996(excluding properties held for sale), and the number of leases that will expire, the square feet covered by such leases and the minimum annual rent in the year of expiration under such expiring leases for the next ten years are as follows:
Leases Expiring ------------------------------------ Year Ending Minimum Number Minimum December 31 Future Rents of Leases Square Feet Future Rents ----------- ------------ --------- ----------- ------------ 1997 $56,997,000 107 312,851 $3,310,512 1998 52,024,000 114 565,892 5,640,188 1999 48,267,000 130 697,434 5,436,589 2000 43,829,000 104 518,155 4,762,942 2001 38,747,000 90 612,005 5,800,715 2002 32,273,000 40 352,282 3,857,982 2003 28,886,000 30 601,037 6,862,889 2004 22,699,000 22 357,283 2,345,931 2005 19,792,000 39 334,033 2,630,149 2006 16,910,000 29 441,153 2,712,121
11 12 Risk Factors General As in every business, there are risk factors that face the Company and its operations. By setting forth below some of the factors that could cause the actual results of the Company's operations or plans to differ materially from the Company's expectations as set forth in statements in this Report or elsewhere that may be considered to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, the Company seeks to avail itself of the "safe harbor" provided in the Private Securities Litigation Reform Act of 1995. Substantial Debt Obligations and Term of Debt The Company's obligations for borrowed money aggregated approximately $188.9 million at December 31, 1996, as compared to $39.4 million at December 31, 1995. The ratio of debt to total market capitalization of the Company was approximately 32% as compared to 20% at December 31, 1995. This increase in the Company's leverage and its ratio of debt to total market capitalization could increase the risk of default under its indebtedness. Failure to pay debt obligations when due could result in the Company losing its interest in the properties collateralizing such obligations. The Company believes that the ratio of debt to total market capitalization is an important factor to consider in evaluating a REIT's debt level because this ratio is one indicator of a company's ability to borrow funds. The Company believes that using the ratio of debt to book value of assets is not as reliable an indicator of a REIT's debt level because the book value of a REIT's assets indicates only the depreciated value of the REIT's property without consideration of the market value of such assets at a particular point in time. The use of the ratio of debt to total market capitalization of a company is more variable than the book value because it is dependent on the current stock price of a company. Accordingly, there can be no assurance that the use of the ratio of debt to total market capitalization in evaluating the Company's debt level will adequately protect it from being too highly leveraged. The maturity in September 2000, of the $100 million REMIC Note may increase the Company's risk of default on its indebtedness. The Company has historically been able to refinance debt when it has become due on terms which it believes to be commercially reasonable. There can be no assurance that the Company will continue to be able to repay or to refinance its indebtedness relating to the REMIC Note or any of its other indebtedness on commercially reasonable or any other terms. The Company's unsecured line of credit bears interest at a variable rate. The balance outstanding under the line of credit at December 31, 1996, was $63.5 million; and the Company may increase outstanding borrowings to $150 million. To the extent the Company's exposure to increases in interest rates is not eliminated through interest rate protection or cap agreements, such increases will adversely affect the Company's net income, funds from operations ("FFO") and cash available for distribution and may affect the amount of distributions it can make to its share owners. 12 13 The Company's line of credit requires the Company to maintain interest rate protection, at a rate satisfactory to the lead lender, with respect to $100 million of indebtedness. The Company has entered into an interest rate protection agreement with The First National Bank of Boston (the "Bank"), with respect to $57 million of indebtedness, whereby the Bank will reimburse the Company the amount by which the then applicable three month LIBOR rate, exceeds the then applicable cap rate per the agreement (currently 9.25%). The Company has entered into an interest rate swap agreement with the Bank with respect to the remaining $43 million required to be hedged, thereby fixing the interest rate on the $43 million over the term of the line of credit agreement. There can be no assurance that these interest rate protection provisions will be effective. The foregoing risks associated with the debt obligations of the Company may adversely affect the market price of the Company's Common Stock and may inhibit the Company's ability to raise capital and issue equity in both the public and private markets. Restrictions on Ability of the Company to Dispose of Properties Pursuant to the terms of the Indenture governing the REMIC Note (the "REMIC Indenture"), the Company cannot prepay principal payments on the REMIC Note and the properties collateralizing the REMIC Note cannot be sold until October 1997. If the Company wishes either to prepay all or part of the $100 million principal of the REMIC Note or to sell any of the properties collateralizing the REMIC Note after such date, it will incur significant prepayment penalties. The prepayment of principal of the REMIC Note requires an additional payment of the greater of either (i) 1% of the amount of principal being prepaid or (ii) the product of (A) the difference between the outstanding principal balance of the REMIC Note before prepayment and the present value of all remaining interest and principal payments thereon and (B) the amount of principal being prepaid divided by the outstanding principal balance of the REMIC Note. After October 1997, in order to release any of the properties collateralizing the REMIC Note from the lien so that such properties may be sold, the REMIC Indenture requires that certain additional conditions be met, including that (i) the aggregate amount of principal repaid on the REMIC Note equal at least 125% of the amount of principal allocated to the property to be released and (ii) certain debt service coverage ratios continue to be satisfied. Pursuant to the terms of the Tucker Acquisition, the Company, as the general partner of Bradley Operating Limited Partnership, may not elect to dissolve the Operating Partnership or sell all or substantially all of the assets of the Operating Partnership without the consent of a majority in interest of the limited partners, except in connection with a merger or other business combination of the Company, until March 15, 1998. Thus the Company is restricted from disposing of all or substantially all of the properties held by the Operating Partnership. Potential Anti-Takeover Effect of Certain Provisions Certain provisions contained in the Company's Articles of Amendment and Restatement (the "Charter") and Bylaws (the "Bylaws") may have the effect of discouraging a third party from making an acquisition proposal for the Company and may thereby inhibit a change in control of the Company. These provisions include the following: (i) the Company's Charter provides for three classes of Directors, with the term of office of one class expiring each year, (ii) the Company's Bylaws provide that the holders of not less than 25% of the 13 14 outstanding shares of Common Stock may call a special meeting of the Company's share owners, and (iii) the Charter generally limits any holder from acquiring more than 9.8% of the value of all outstanding capital stock of the Company. With respect to clause (ii) in the preceding sentence, a recent change in the Maryland General Corporation Law, under which the Corporation is organized, authorizes the Directors of the Company to amend the Bylaws to increase the number of outstanding shares of Common Stock required to call a special meeting from 25% to a majority. These provisions described above could have a potential anti-takeover effect on the Company. The staggered Board provision in the Charter prevents share owners from voting on the election of more than one class of directors at each annual meeting of share owners and thus may have the effect of keeping the members of the Board of Directors of the Company in control for a longer period of time. The staggered Board provision and the provision in the Bylaws requiring holders of at least 25% of the outstanding shares of Common Stock to call a special meeting of share owners may have the effect of making it more difficult for a third party to acquire control of the Company without the consent of its Board of Directors, including certain acquisitions which share owners deem to be in their best interest. In addition, the ownership limits in the Charter may also (i) deter certain tender offers for the shares of Common Stock which might be attractive to certain share owners, or (ii) limit the opportunity for share owners to receive a premium for their shares of Common Stock that might otherwise exist if an investor were attempting to assemble a block of shares in excess of 9.8% of the value of the outstanding shares of Common Stock, or otherwise effect a change in control. The provisions of the Maryland General Corporation Law relating to certain "business combinations" and "control share" acquisitions involving corporations organized under the laws of that state may also inhibit a change in control of the Company. Real Estate Investment Considerations Dependence on Midwestern Region and Retail Industry The substantial majority of the Company's properties are located in the Midwestern region of the United States and such properties consist predominantly of community and neighborhood shopping centers. The Company's performance therefore is linked to economic conditions in the Midwest and in the market for retail space generally. The market for retail space has been adversely affected by the ongoing consolidation in the retail sector, the adverse financial condition of certain large companies in this sector and the excess amount of retail space in certain markets. To the extent that these conditions impact the market rents for retail space, they could result in a reduction of net income, FFO and cash available for distribution and thus affect the amount of distributions the Company can make to its share owners. In addition, the Company predominantly owns and operates shopping centers catering to retail tenants. To the extent that the investing public has a negative perception of the retail sector, the value of shares of common stock of the Company may be negatively impacted, thereby resulting in such shares trading at a discount below the inherent value of the assets of the Company as a whole. 14 15 Financial Condition and Bankruptcy of Tenants Since substantially all of the Company's income has been, and will continue to be, derived from rental income from retail shopping centers, the Company's net income, FFO and cash available for distribution would be adversely affected if a significant number of tenants were unable to meet their obligations to the Company or if the Company were unable to lease, on economically favorable terms, a significant amount of space in its shopping centers. In addition, in the event of default by a tenant, the Company may experience delays and incur substantial costs in enforcing its rights as landlord. At any time, a tenant of the Company's properties may seek the protection of the bankruptcy laws, which could result in the rejection and termination of the tenant lease. Such an event could cause a reduction of net income, FFO and cash available for distribution and thus affect the amount of distributions the Company can make to its share owners. No assurance can be given that any present tenant which has filed for bankruptcy protection will continue making payments under its lease or that any tenants will not file for bankruptcy protection in the future or, if any tenants file, that they will continue to make rental payments in a timely manner. In addition, a tenant may, from time to time, experience a downturn in its business, which may weaken its financial condition and result in a reduction or failure to make rental payments when due. If a lessee or sublessee defaults in its obligations to the Company, the Company may experience delays in enforcing its right as lessor or sublessor and may incur substantial costs and experience significant delays associated with protecting its investment, including costs incurred in renovating and releasing the property. Potential Negative Effect of One North State Property During the year ended December 31, 1996, more than 10% of the total revenue of the Company was derived from rents and expense reimbursements from tenants of the One North State property, which is a "mixed use" property located in downtown Chicago. The total rents currently being paid by certain of this property's tenants may be in excess of current market rates. The leases of these tenants begin to expire in 2001. One office tenant, Arthur Andersen, however, has exercised an option to terminate its lease, effective as of April 1, 1998, and paid the Company a $1.8 million cancellation fee. Pursuant to the terms of the REMIC Indenture, this termination fee was paid into a reserve account which is required to be used, among other things, to pay for tenant alterations, leasing commissions and other lease inducements directly related to this space. Any unused amount of this reserve account must be used to repay the principal amounts owed under the REMIC Note. The inability of the Company to lease such property, or a significant reduction in the amount of rent and expense reimbursements paid by the tenants of such property, could have an adverse impact on the operating results of the Company. Vacancies and Lease Renewals The Company is continually faced with expiring tenant leases at its properties. Some lease expirations provide the Company with the opportunity to increase rentals or to hold the space available for a stronger long-term tenancy. In other cases, there may be no immediately foreseeable strong tenancy for space, and the space may remain vacant for a longer period than anticipated or may be able to be re-leased only at less favorable rents. In such situations, the Company may be subject to competitive and economic conditions over which it has no control. Accordingly, there is no assurance that the effects of possible vacancies or lease renewals at such properties 15 16 may not reduce the rental income, net income, FFO and funds available for distribution below levels anticipated by the Company. Possible Environmental Liabilities Under various federal, state and local laws, ordinances and regulations, an owner of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on or in such property. Such laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner's ability to sell or rent such property or to use such property as collateral in its borrowings. All of the Company's properties, including those acquired in the Tucker Acquisition, have been subjected to Phase I or similar environmental audits (which involve inspection without soil sampling or ground water analysis) by independent environmental consultants. Except as described below, these environmental audit reports have not revealed any potential significant environmental liability, nor is management aware of any environmental liability with respect to the properties that it believes would have a material adverse effect on the Company's business, assets or results of operations. No assurance can be given that existing environmental studies with respect to the properties reveal all environmental liabilities or that any prior owner of any such property did not create any material environmental condition not known to the Company. Phase II site assessments of the Commons of Chicago Ridge property acquired from Tucker have disclosed the presence of contaminants in fill material and soil at the property that could be associated with the property's former use as a landfill and as the former site of an asphalt plant and storage tanks for petroleum products (which storage tanks have been removed from the property), but not at such levels as would require reporting to environmental agencies. These Phase II site assessments also disclosed the presence in groundwater of contaminants similar to those detected in the soil samples. Environmental assessments of the property have also detected methane gas, probably associated with the former use of the property as landfill. A regular maintenance program was implemented by Tucker and is being continued by the Company to control the migration and effect of the methane gas. There can be no assurance that an environmental regulatory agency such as the Illinois Environmental Protection Agency will not in the future require further investigation to determine the source and vertical and horizontal extent of the contamination. If any such investigation is required and confirms the existence of contaminants at the levels disclosed in the Phase II site assessments, it is possible that the relevant agency could require the Company to take action to address the contamination, which action could range from ongoing monitoring to remediation of the contamination. Based on the information currently available, management does not believe that the cost of responding to such contamination would be material to the Company. In connection with the execution of the merger agreement relating to the Tucker Acquisition, the Company and certain individuals who had previously provided a limited indemnity to Tucker for environmental liabilities at Commons of Chicago Ridge (the "Individuals") have agreed to share the cost of having an outside consultant conduct a new Phase II investigation of the soil and groundwater of the property and to prepare a report recommending what action the Company should take with respect to such matters. In the event that the Company decides to implement any of the recommendations of such consultant (the "Recommended Work"), the Individuals have agreed to pay fifty 16 17 percent of the costs of the Recommended Work, with the Individuals' aggregate liability for the Recommended Work limited to a maximum of $200,000. The Individuals have also agreed to indemnify the Company and its subsidiaries and affiliates against all claims, losses, costs and expenses incurred by such parties arising out of any administrative, regulatory or judicial action, suit, investigation or proceeding in connection with any applicable environmental health or safety law regarding hazardous substances, materials, wastes or petroleum products, or any common law right of action regarding such substances, materials, wastes or products, whether brought by a governmental or regulatory authority or by a third party, that is initiated on or before October 4, 2003, with respect to conditions or acts at the Commons of Chicago Ridge which existed prior to October 4, 1993. In connection with this indemnification obligation, the Company has agreed to keep the Individuals reasonably informed of various activities relating to the property and to consult with the Individuals with respect to any potential claims, settlements and remediation which could trigger the indemnification obligations of the Individuals. There can be no assurance that the Individuals will be in a position to honor their indemnity obligations or that the liabilities may not exceed the limit of their indemnity obligations. Regardless of such indemnification, based on the information currently available, management of the Company does not believe that the environmental liabilities and expenses relating to the Commons of Chicago Ridge property would have a material effect on the liquidity, financial condition or operating results of the Company. Insurance The Company carries comprehensive general liability coverage and umbrella liability coverage on all of its properties with limits of liability which the Company deems adequate to insure against liability claims and provide for cost of defense. Similarly, the Company is insured against the risk of direct physical damage in amounts the Company estimates to be adequate to reimburse the Company on a replacement cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the reconstruction period. Currently, the Company also insures the properties for loss caused by earthquake or flood in the aggregate amount of $10 million per occurrence. Because of the high cost of this type of insurance coverage and the wide fluctuations in price and availability, the Company has made the determination that the risk of loss due to earthquake and flood does not justify the cost to increase coverage limits any further under current market conditions. Should the availability and pricing of this coverage become more cost advantageous, management would re-evaluate its position. Uncertainty of Meeting Acquisition Objectives The Company continually seeks prospective acquisitions of additional shopping centers and portfolios of shopping centers which the Company believes can be purchased at attractive initial yields and/or which demonstrate the potential for revenue and cash flow growth through implementation of renovation, expansion, re-tenanting and re-leasing programs similar to those that the Company has undertaken with respect to properties in its existing portfolio. There can be no assurance that the Company will effect any potential acquisition that it may evaluate. The evaluation process involves costs which are non-recoverable in the case of acquisitions which are not consummated. In addition, notwithstanding the Company's adherence to its criteria for evaluating and due diligence regarding potential acquisitions, there can be no assurance that any acquisition that is consummated will meet the Company's expectations. 17 18 Competition All of the properties owned by the Company are located in developed areas. There are numerous other retail properties and real estate companies within the market area of each such property which compete with the Company for tenants and development and acquisition opportunities. The number of competitive retail properties and real estate companies in such areas could have a material effect on (i) the Company's ability to rent space at the properties and the amount of rents charged and (ii) development and acquisition opportunities. The Company competes for tenants and acquisitions with others who have greater resources than the Company. Adverse Consequence of Failure to Qualify as a REIT and Other Tax Risks The Company believes that it has operated in a manner that permits it to qualify as a REIT under the Internal Revenue Code (the "Code") for each taxable year since its formation in 1961. Although management of the Company believes that the Company is organized and is operating in such a manner, no assurance can be given that the Company will be able to continue to operate in a manner so as to qualify or remain so qualified. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations and the determination of various factual matters and circumstances not entirely within the Company's control. For example, in order to qualify as a REIT, at least 95% of the Company's gross income in any year must be derived from qualifying sources and the Company must make distributions to share owners aggregating annually at 95% of its REIT taxable income (excluding net capital gains). In addition, no assurance can be given that new legislation, new regulations, administrative interpretations or court decisions will not change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification. The Company, however, is not aware of any currently pending tax legislation that would adversely affect its ability to continue to operate as a REIT. If the Company fails to qualify as a REIT, it will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at corporate rates. In addition, unless entitled to relief under certain statutory provisions, it will also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost. This treatment would reduce the net earnings of the Company available for investment or distribution to share owners because of the additional tax liability for the year or years involved. In addition, distribution would no longer be required to be made. To the extent that distributions to share owners would have been made in anticipation of the Company's qualifying as a REIT, the Company might be required to borrow funds or to liquidate certain of its investments to pay the applicable tax. The failure to qualify as a REIT would also constitute a default under certain debt obligations of the Company. In connection with the Tucker Acquisition, Tucker represented to the Company that, since its formation, it also operated so as to qualify as a REIT under the Code up to the time of the Tucker Acquisition. If Tucker failed to qualify as a REIT in any year in which it elected so to qualify and consequently becomes liable to pay taxes as a regular non-REIT corporation, the liabilities of Tucker that the Company assumed upon effectiveness of the 18 19 Tucker Acquisition include such tax liability. Moreover, Tucker's failure to qualify as a REIT could disqualify the Company as a REIT for the periods following the Tucker Acquisition. The Company's acquisition of Tucker's general partner interest in the Operating Partnership and Tucker's indirect interests in certain subsidiary partnerships of the Operating Partnership involve special tax considerations, including the qualification of each such partnership as a "partnership" for federal income tax purposes, which also could impact the Company's ability to qualify as a REIT. The failure to qualify as a REIT would have a material adverse effect on an investment in the Company as the taxable income of the Company would be subject to federal income taxation at corporate rates, and, therefore, the amount of cash available for distribution to its share owners would be reduced or eliminated. ITEM 2. PROPERTIES The properties owned by the Company at December 31, 1996, are described under Item 1 and in Note 3 of the Notes to Financial Statements contained in this Report. The Company's principal office is located at 40 Skokie Boulevard in Northbrook, Illinois, where the Company leases approximately 10,000 square feet of space from an unrelated landlord. The Company maintains regional property management and leasing offices at its Har Mar Mall in Roseville, Minnesota and its Grandview Plaza in Florissant, Missouri. ITEM 3. LEGAL PROCEEDINGS Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS Not applicable. ITEM 4.A. EXECUTIVE OFFICERS OF THE REGISTRANT The Company's by-laws provide that the officers of the Company shall be a President, a Treasurer, a Secretary and such other officers as are elected or appointed by the Directors. Each officer holds office at the pleasure of the Directors. The Directors have determined that the following officers are executive officers of the Company within the meaning of Rule 3b-7 under the Securities Exchange Act: President and Chief Executive Officer - Thomas P. D'Arcy, age 37, has held this position since February 1996, having served as Executive Vice President since September 1995, Senior Vice President since 1992 and Vice President since 1989. Prior to joining the Company, Mr. D'Arcy was employed by R.M. Bradley & Co., Inc. as a member of its property management and real estate brokerage departments for over eight years. Executive Vice President - Richard L. Heuer, age 44, has held this position since late 1994. Prior to joining the Company, Mr. Heuer was employed by the Welsh Companies from September 1993, and Towle Real Estate Company from 1988, which companies were the independent property management companies that managed the Company's Minnesota properties. 19 20 Executive Vice President - E. Paul Dunn, age 50, has held this position since March 1996. Prior to joining the Company, Mr. Dunn was Executive Vice President of the Welsh Companies in Minneapolis, Minnesota since 1983. Senior Vice President - Marianne Dunn, age 37, was named Senior Vice President of the Company in September 1995, having served as Vice President of the Company since 1993 and as Investment Manager since 1990. Chief Financial Officer and Treasurer - Irving E. Lingo, Jr., age 45, has held the position with the Company since September 1995. Prior to joining the Company, Mr. Lingo served as Chief Financial Officer of Lingerfelt Industrial Properties, a division of The Liberty Property Trust, from June 1993 to September 1995. Prior to June 1993, Mr. Lingo was Vice President-Finance of CSX Realty, a subsidiary of CSX Corporation, from 1991-1992. None of the Officers or Directors of the Company is related to any other Officer or Director of the Company. No description is required with respect to any of the foregoing persons of any type of event referred to in Item 401(f) of Regulation S-K. 20 21 PART II ITEM 5. MARKET FOR THE REGISTRANT'S SHARES AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the New York Stock Exchange ("NYSE") under the symbol "BTR". The ranges of high and low prices reported on the NYSE during 1995 and 1996 were: Quarter Ended High Low Quarter Ended High Low - ------------- ---- --- ------------- ---- --- March 31, 1995 $16 3/4 $14 7/8 March 31, 1996 $15 $12 7/8 June 30, 1995 16 3/8 15 June 30, 1996 15 13 7/8 September 30, 1995 16 7/8 15 3/8 September 30, 1996 16 5/8 13 3/4 December 31, 1995 16 1/4 13 1/8 December 31, 1996 18 16 3/8 The closing sale price on the NYSE on March 10, 1997, was $19.50. At December 31, 1996, there were approximately 763 holders of record of the Company's shares. Dividends have been paid by the Company during the past two full years as follows: Payment Per Share Payment Per Share - ------- --------- ------- --------- March 31, 1995 $.33 March 29, 1996 $.33 June 30, 1995 .33 June 28, 1996 .33 September 29, 1995 .33 September 27, 1996 .33 December 29, 1995 .33 December 27, 1996 .33 The Company has determined that approximately 14% and 16% of the distributions paid in 1996 and 1995, respectively, were non-taxable returns of capital to share owners, approximately 69% and 84% of the distributions paid in 1996 and 1995, respectively, were ordinary dividends and 17% of the distributions paid in 1996 were a capital gain. Recent Issue of Unregistered Securities On January 1, 1997, Bradley Operating Limited Partnership ("BOLP") issued 281,300 limited partnership units that may be exchanged after one year for an equal number of shares of Common Stock of the Company. Such units were issued, as a part of the consideration paid for Roseville Center, to the existing privately held partnership that contributed Roseville Center to BOLP. No registration statement was required in connection with the issuance because the transaction did not involve a public offering and was exempt under Section 4(2) of the Securities Act. The value of the Common Stock of the Company at the date of the transaction for which each limited partnership unit may be exchanged was $18.375 per share. 21 22 ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ------ ------ ------ ------ ------ (Thousands of dollars, except per share data) Rental income $ 77,512 $ 36,405 $ 32,875 $ 22,875 $11,839 Other income 1,327 167 112 594 308 Expenses 60,711 28,141 25,343 17,934 11,360 ------------------------------------------------------------------------- Income before gain on sale of property 18,128 8,431 7,644 5,535 787 Gain on sale of property 9,379 - 983 - - ========================================================================= Income before allocation to minority interest 27,507 8,431 8,627 5,535 787 Income allocated to minority interest (285) - - - - ------------------------------------------------------------------------- Net income $ 27,222 $ 8,431 $ 8,627 $ 5,535 $ 787 ========================================================================= Total assets at end of year $502,284 $180,545 $166,579 $127,931 $93,326 ------------------------------------------------------------------------- Mortgage and bank loans payable at end of year $188,894 $ 39,394 $ 66,748 $ 29,317 $44,085 ------------------------------------------------------------------------- Per share: Net income $1.54 $0.85 $1.05 $0.82 $0.40 Distributions $1.32 $1.32 $1.29 $1.22 $1.20 Weighted average shares outstanding 17,619,546 9,863,767 8,191,831 6,715,813 1,972,054
Reference is made to "Management's Discussion and Analysis" (Item 7) for a discussion of various factors or events which materially affect the comparability of the information set forth above. 22 23 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES General The Company believes that improving its financial flexibility will position the Company for future growth, allowing it to take advantage of acquisition, renovation and expansion opportunities. The Company further considers its liquidity and ability to generate cash from operating and from financing activities to be sufficient, and expects them to continue to be sufficient, to meet its operating expense, debt service, REIT share owner distribution requirements and acquisition opportunities through 1997. Due to the capital intensive nature of real estate in general, the avenues available for raising capital, as well as the mix of debt and equity, are a critical component in the ability of the Company to continue to grow. The Company funds operating expenses and distributions primarily from operating cash flows, although its bank line of credit may also be used for these purposes. The Company funds acquisitions and capital expenditures primarily from the line of credit and, to a lesser extent, operating cash flows, as well as through the issuance of securities. The Company may also acquire properties through the direct issuance of securities of the Company, or via Bradley Operating Limited Partnership, through the issuance of limited partnership units in the Operating Partnership. Additionally, the Company may dispose of certain non-core properties, reinvesting the proceeds from such dispositions in properties with better growth potential and that are more consistent with the Company's strategic focus. In addition, the Company may acquire partial interests in real estate assets through participation in joint venture transactions. As of December 31, 1996, financial liquidity was provided by approximately $7,462,000 in cash and cash equivalents and by the Company's unused balance on the line of credit of $86,500,000. In addition, the Company has an effective "universal shelf" registration statement under which the Company may issue up to $34,460,000 in debt or equity securities. The Company expects to file further "universal shelf" registration statements which will give it flexibility to issue additional debt or equity securities from time to time when the Company determines that market conditions and the opportunity to utilize the proceeds from the issuance of such securities are favorable. The Company focuses its investment activities on community and neighborhood shopping centers primarily in the Midwestern United States anchored by regional and national grocery store chains. The Company will continue to seek acquisition opportunities in both primary and secondary Midwest markets where management can utilize its extensive experience in shopping center renovation, expansion, re-leasing and re-merchandising to achieve long-term cash flow growth and favorable investment returns. Operating Activities Net cash flows provided by operating activities increased to $31,633,000 during 1996, from $12,733,000 during 1995 and $10,877,000 in 1994. These increases were due primarily to the growth of the Company's portfolio. 23 24 Funds from operations ("FFO") increased $15,096,000 or 99% during 1996, from $15,249,000 in 1995 to $30,345,000 in 1996. FFO increased by $2,867,000 or 23% during 1995 from $12,382,000 in 1994. The Company generally considers FFO to be a relevant and meaningful supplemental measure of the performance of an equity REIT because it is predicated on a cash flow analysis, contrasted with net income, a measure predicated on generally accepted accounting principles which gives effect to non-cash items such as depreciation. FFO, as defined by the National Association of Real Estate Investment Trusts ("NAREIT") and as followed by the Company, represents net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from sales of property, plus depreciation and amortization. In computing FFO, the Company does not add back to net income the amortization of costs incurred in connection with the Company's financing activities or depreciation of non-real estate assets. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and should not be considered as an alternative to cash flow as a measure of liquidity. Since the definition of FFO is a guideline, computation of FFO may vary from one REIT to another. FFO is not necessarily indicative of cash available to fund cash needs. Investing Activities Net cash flows from investing activities decreased to a net use of cash of $16,715,000 during 1996, from a net use of cash of $9,953,000 in 1995 and a net use of cash of $33,653,000 in 1994. During 1996 and 1995, the Company completed two corporate acquisitions through the issuance of a total of 7,753,157 shares of the Company's common stock. The first acquisition, completed in January 1995, was the acquisition of the real estate investment trust advisory business of its former advisor, thus enabling the Company to become self-administered. The acquisition was completed through the issuance of 325,000 shares of common stock to the owners of the former advisor. On March 15, 1996, the Company closed the merger acquisition of Tucker after approval by the share owners of the two companies. The acquisition was completed through the issuance of 7.4 million common shares of the Company valued at $13.96 per share, the payment of certain transaction costs and the assumption of all of Tucker's liabilities, including the $100,000,000 REMIC Note discussed below. The acquisition was structured as a tax-free transaction, and was accounted for using the purchase method of accounting. The Company has succeeded to Tucker's interest in two partnerships which hold title to all of the former Tucker properties, and as a result now owns some of its properties directly and the others through the two partnerships (now renamed Bradley Operating Limited Partnership ("BOLP") and Bradley Financing Partnership). The Company has in excess of a 95% general partner interest in each partnership. In addition to the acquisition of Tucker, during 1996 the Company spent approximately $25,989,000 on property acquisitions and capital improvements. Of that amount, approximately $18,012,000 was spent on property acquisitions, approximately $7,310,000 on tenant specific capital improvements and approximately $667,000 for other property improvements. Throughout 1996 and 1995, excluding the acquisition of fourteen properties in connection with the acquisition of Tucker, the Company acquired three shopping centers in separate transactions at an aggregate cost of approximately $23,261,000. The first property was acquired for $9,100,000 with cash drawn 24 25 From the Company's line of credit. The second property acquisition was structured as a "like-kind" exchange for Federal income tax purposes, whereby the Company applied proceeds of $12,900,000 from the sale of a ground lease in exchange for the acquisition of a shopping center for $8,900,000. The excess cash proceeds from the sale were used to pay-down the Company's line of credit. The third property was acquired for approximately $5,261,000 with financing provided by the assumption of $2,094,000 in debt and the cash proceeds from the issuance of 182,500 shares of common stock in a privately negotiated transaction. In January 1997, the Company acquired three additional Midwest shopping centers in separate transactions for a total price of approximately $16,200,000. The consideration for these three acquisitions involved the payment of approximately $7,200,000 of cash provided by the Company's line of credit, the assumption of $3,800,000 mortgage indebtedness to which one of the properties was subject and the issuance of BOLP limited partnership units which the holders may ultimately exchange for 281,300 shares of the Company's common stock. Financing Activities Net cash flows provided by financing activities declined to a net use of cash of $8,153,000 during 1996 from a net use of cash of $2,276,000 during 1995 and a source of cash of $22,019,000 in 1994. Distributions (treated as a reduction in cash flows from financing activities in the Company's financial statements) were $23,168,00 in 1996, $13,098,000 in 1995, and $10,568,000 in 1994. During 1996 and 1995, the Company completed two public offerings under the Company's "shelf" registration statement, issuing a total of 5,375,000 shares of common stock raising a total of approximately $82,300,000 after offering costs. Net proceeds from the 1996 and 1995 public offerings of approximately $44,900,000 and $37,400,000, respectively, were applied principally to pay-down outstanding borrowings under the applicable bank lines of credit that had been incurred, and mortgage notes that had been assumed, in connection with the purchase of certain properties. On March 15, 1996, concurrently with the Tucker acquisition, the Company entered into a new $150,000,000 unsecured revolving credit facility with The First National Bank of Boston and other banks, replacing the previous $65,000,000 line of credit that had been secured by a blanket mortgage on six of the Company s properties. The new line bears interest at a rate equal to the lower of the bank's base rate or 1.75% over LIBOR. Additionally, there is a commitment fee ranging from 0.125% to 0.250% per annum of the unfunded line of credit balance depending on the outstanding balance during a calendar quarter. The rates available under the line become more favorable in the event the Company meets certain loan-to-value tests or receives an investment grade unsecured debt rating. The Company has entered into interest rate protection agreements with respect to $100,000,000 of the potential borrowings under the line of credit. In addition to replacing outstanding borrowings under the Company's and Tucker's previously outstanding secured lines of credit, the new facility is available for the acquisition, development, renovation and expansion of new and existing properties, and for other working capital purposes. The line of credit contains certain financial and operational covenants that, among other provisions, limit the amount of secured and unsecured indebtedness the Company may have outstanding at any time, and provide for the maintenance of certain financial tests including minimum net worth and debt service 25 26 coverage requirements. The Company believes it was in compliance with such covenants during 1996 and that such covenants will not adversely affect the Company's business or the operation of its properties. Capital Strategy The Tucker liabilities assumed included a $100,000,000 mortgage note secured by six properties. The note had been issued to an entity qualifying as a real estate mortgage investment conduit (REMIC) for Federal income tax purposes. The REMIC Note has a fixed, 7.3% rate of interest, matures in September 2000 and becomes prepayable, with a significant prepayment premium, in October 1997. Management's objective is to obtain an investment grade rating from one or more national rating agencies that will increase the Company's financial flexibility by permitting it to issue fixed-rate unsecured debt on favorable terms. Management believes that the bank line of credit, as well as the current value of the Company's assets, provide the Company with the necessary flexibility to refinance the REMIC Note, as well as its other debt obligations when due, although there can be no assurance that refinancing terms at the time of maturity will be favorable. Management believes that the Company's recent growth has enhanced the Company's ability to raise further capital in the public markets and, as indicated above, the Company intends to position itself to take advantage of favorable opportunities by increasing the dollar amount of securities that it may issue pursuant to a "universal shelf" registration statement. While the public capital markets have generally been favorable for selected REITs during the past few years, there can be no assurance either that the public markets will remain receptive to providing new capital to REITs or that the terms upon which the Company may be able to raise funds will be attractive or favorable to the Company or to its share owners. At December 31, 1996, the Company was holding for sale its Augusta Plaza, Hood Commons and 585 Boylston Street properties because such properties are not aligned with the Company's strategic market focus. The dispositions of these properties are expected to be completed during 1997. Proceeds received from such sale or sales would provide additional liquidity to the Company and may be applied in whole or in part to tax-deferred "like-kind" exchange acquisitions of additional properties. On March 13, 1997, the Company completed the sale of Hood Commons for $11.7 million, resulting in a gain of approximately $3.1 million for financial reporting purposes. Excess proceeds, after the payment of closing costs, were used to pay-down the Company's line of credit. RESULTS OF OPERATIONS 1996 Compared to 1995 During 1996, the Company acquired sixteen properties, including fourteen properties in connection with the acquisition of Tucker, and sold its interest in a ground lease. Including operations for the newly acquired properties and the gain on sale of $9,379,000, net income increased from $8,431,000 in 1995 to $27,222,000 in 1996. Excluding the gain on sale, net income increased approximately 112%, from $8,431,000 to $17,843,000. On a per share basis, excluding the gain on sale of property, net income increased 18.8% from $0.85 per share to $1.01 per share. Per share amounts reflect weighted average shares outstanding of 17,619,546 in 1996 and 9,863,767 in 1995. The increased shares primarily reflect the 7,428,157 shares issued in connection with the 26 27 acquisition of Tucker in March 1996 and the 2,875,000 share public offering completed in 1996. Property Specific Revenues and Expenses (in thousands of dollars)
Properties Acquisitions/ Held Both 1996 1995 Difference Dispositions Years ------ ------ ---------- ------------ ------------ Rental income $77,512 $36,405 $41,107 $41,443 $(336) Operations, maintenance and management $12,949 $ 5,858 $ 7,091 $ 6,432 $ 659 Real estate taxes $16,787 $ 8,726 $ 8,061 $ 8,346 $(285) Depreciation and amortization $13,286 $ 7,317 $ 5,969 $ 5,463 $ 506
Results attributable to acquisition and disposition activities Rental income increased from $36,405,000 in 1995 to $77,512,000 in 1996, an increase of $41,107,000. Approximately $42,279,000 of the net increase was attributable to the Company's acquisition activities, partially offset by approximately $836,000 attributable to disposition activities. Other income increased from $167,000 in 1995 to $1,327,000 in 1996. The increase was partially a result of income received from a sales tax sharing agreement at Rollins Crossing, one of the properties acquired from Tucker. In addition, interest income earned on the Company's cash and escrow balances increased due to an increase in the weighted average daily balances, including, since the acquisition of Tucker, approximately $3,600,000 held in various escrow accounts in accordance with the $100 million REMIC mortgage note assumed in connection with the Tucker transaction. Operations, maintenance and management expense increased from $5,858,000 in 1995 to $12,949,000 in 1996. Approximately $6,432,000 of the increase was attributable to the Company's acquisition activities. Real estate taxes increased from $8,726,000 in 1995 to $16,787,000 in 1996. Approximately $8,346,000 of the increase was attributable to the Company s acquisition activities. Depreciation and amortization increased from $7,317,000 in 1995 to $13,286,000 in 1996, an increase of $5,969,000. Approximately $5,463,000 of the increase was attributable to the Company's acquisition and disposition activities. Results for properties fully operating throughout both periods The remaining decrease in rental income of approximately $336,000 was attributable to decreases at Westview Shopping Center and Grandview Plaza in the aggregate of $1,115,000, partially offset by increases in rental income at Har Mar Mall, Burning Tree Plaza and Rivercrest Shopping Center of approximately $712,000 in the aggregate. Westview Shopping Center has continued to suffer from the vacancy of Burlington Coat Factory in 1994. However, as a result of management's efforts to reduce real estate taxes at the property, the Company negotiated a decrease in the assessed value of the property, and received a tax abatement during 1996 resulting in a decrease in real estate tax expense of approximately $669,000, more than offsetting the decrease in rental income. The increase in rental income at Har Mar Mall was primarily attributable to a full year's rental income from Barnes & Noble Superstore and HomePlace. During the second half of 1996, the Company also signed leases at Har Mar Mall for approximately 26,000 square feet, or 6% of the Center, contributing to the increase. The increase in rental income at 27 28 Rivercrest Shopping Center was primarily the result of an increase in real estate tax reimbursements. The remaining increase in operations, maintenance and management expense of $659,000 was attributable to increases at Sun Ray Shopping Center, Har Mar Mall, and Rivercrest Shopping Center. The increase was also due to a harsh winter in Minnesota and New England in 1996, resulting in an increase in snow removal costs of approximately $172,000 for properties held in the portfolio throughout 1996 and 1995. The increase in operations, maintenance and management expense was partially offset by cost savings resulting from the completion of the internalization of the property management function for the properties in the Midwest. The remaining increase in depreciation and amortization of $506,000 was primarily a result of new construction and leasing at White Bear Hills, Har Mar Mall and Burning Tree Plaza as well as new tenancies at various other locations. Non-Property Specific Expenses Mortgage and other interest increased from $4,705,000 in 1995 to $13,404,000 in 1996. Interest expense on the line of credit, net of amounts capitalized, increased from $2,011,000 to $5,666,000. The increase in interest expense on the line of credit was due to a higher average outstanding balance primarily as a result of paying off Tucker's secured line of credit with the Company's unsecured line of credit in March 1996, and the repayment of three mortgages secured by Sun Ray Shopping Center for approximately $12,300,000 with cash drawn on the line of credit. The weighted average interest rate on the mortgage notes secured by Sun Ray Shopping Center was 10.53%. The weighted average interest rate on outstanding borrowings under the line of credit decreased to 7.84% in 1996 from 8.00% in 1995. Mortgage interest expense increased from $2,694,000 in 1995 to $7,738,000 in 1996, primarily the result of the Company's assumption of a $100,000,000 REMIC mortgage note in connection with the acquisition of Tucker. The effective rate on the REMIC is 7.23% and mortgage interest on the REMIC was approximately $5,729,000 during 1996. The increase in mortgage interest expense was partially offset by a decrease attributable to the repayment of three mortgage notes secured by Sun Ray Shopping Center. General and administrative expenses increased from $1,535,000 in 1995 to $3,532,000 in 1996. Although the acquisition of Tucker created substantial operating efficiencies, following the Tucker acquisition the Company reorganized its internal operations to function by disciplines rather than geography. The reorganization included the addition of executive management for leasing, asset management and acquisition activities. The Company also completed the internalization of its property management and leasing functions for all of its Midwest retail properties. Primarily as a result of the Tucker acquisition and the internal reorganization, the Company has increased the number of employees from 16 at December 31, 1995, to 81 at December 31, 1996, resulting in an increase in payroll costs. General and administrative expenses as a percentage of total income was approximately 4.5% during 1996, compared with 4.2% during 1995. As the Company implements its growth plan, management expects such percentage to decrease since the growth in income does not require an equally proportionate increase in general and administrative expenses. However, there can be no assurance that the Company will achieve the necessary growth to result in such a reduction. 28 29 In connection with the Company's stated objective to focus on the Midwest, the Company relocated its headquarters from Boston, Massachusetts (where the Company was founded in 1961) to Northbrook, Illinois. As a result of the headquarters move, the Company incurred a one-time relocation charge of $409,000, or $0.02 per share during 1996. During 1996, the Company incurred a charge of $344,000, or $0.02 per share, consisting of deferred financing costs related to the Company's former bank line of credit and certain deferred acquisition costs related to acquisitions which the Company chose not to pursue due to the efforts required to finalize the Tucker transaction. 1995 Compared to 1994 The aggregate result for 1995 was a $196,000 or 2% decrease in net income from $8,627,000 ($1.05 per share) to $8,431,000 ($.85 per share). In 1994, income before the gain on sale of property was $7,644,000 ($.93 per share), compared with $8,431,000 in 1995, ($.85 per share). Per share amounts reflect weighted average shares outstanding of 9,863,767 in 1995 and 8,191,831 in 1994, the increased number of shares primarily reflecting the 2,500,000 share public offering completed in July 1995. Rental income increased $3,530,000 or 11% from $32,875,000 in 1994 to $36,405,000 in 1995. Approximately $3,594,000 of this increase was due to the acquisitions of Westwind Plaza and Rivercrest Center in 1994 and St. Francis Plaza in 1995. These increases were partially offset by the sale of Spruce Tree Centre in late 1994. Rental income from Har Mar Mall increased approximately $598,000 while rental income from Burning Tree Plaza increased approximately $260,000 from the prior year. Rental income at Har Mar Mall increased primarily due to the signing of leases with Barnes & Noble and HomePlace. The increase at Burning Tree Plaza was substantially attributable to the expansion of T.J. Maxx. Other income increased $55,000 or 49% from $112,000 in 1994 to $167,000 in 1995. This increase was primarily due to an increase in interest income, resulting from the temporary investment of proceeds from a July 1995 stock offering. Total expenses increased $2,798,000 or 11% from $25,343,000 in 1994 to $28,141,000 in 1995. Operations, maintenance and management expense increased $543,000 during 1995 (from $5,315,000 in 1994 to $5,858,000), due primarily to an increase in operating expenses of $295,000 at Rivercrest Center, $285,000 at Har Mar Mall and $269,000 at Westview Center, partially offset by the sale of Spruce Tree Centre. Real estate tax expense increased $656,000 during 1995 (from $8,070,000 to $8,726,000); $375,000 of the increase was due to the change in properties in the Company's portfolio. The remaining increase of $281,000 was due to tax increases at all of the properties, most notably the Illinois properties, with the exception of Har Mar Mall, which had a $355,000 reduction in real estate taxes following negotiation of abatements. Mortgage and other interest expense increased $181,000 during 1995 (from $4,524,000 in 1994 to $4,705,000). Approximately $270,000 of this increase was due to mortgages secured by St. Francis Plaza and Westwind Plaza, partially offset by a decrease in interest expense on the line of credit ($63,000) due to a decrease in the average debt balance, and an increase in capitalized 29 30 interest. The average interest rate on outstanding borrowings under the line of credit increased from 7.1% in 1994 to 8.0% in 1995. Depreciation and amortization expense increased from $5,146,000 in 1994 to $7,317,000 in 1995. Of this $2,171,000 increase, $1,193,000 was related to amortizing the cost of the purchase of the advisory business of the Company's former external advisor, consummated in January 1995; $300,000 of the increase was due to changes in the Company s real estate holdings; and the balance of the increase was due to real estate improvements. Administrative and general expense decreased $753,000 in 1995, from $2,288,000 in 1994 to $1,535,000 in 1995. This decrease primarily reflects cost savings associated with the Company becoming self-administered following the purchase of the advisory business of the former advisor in January 1995. The acquisition of Westwind Plaza for approximately $7,500,000 was effected in a tax-deferred exchange following the sale of Spruce Tree Centre for $2,750,000, which resulted in a gain on sale of property of $983,000 recognized in 1994. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Index to Financial Statements and Schedule later in this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable 30 31 PART III Registrant plans to provide information required for ITEMS 10 through 13 in its definitive Proxy Statement for its 1997 Annual Meeting of Share Owners, which information is hereby incorporated by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: (1) and (2) The Financial Statements and Schedules required by Item 8 are listed in the Index to Financial Statements and Schedules following the signatures to this Report. (3) The following exhibits (listed according to the exhibit index set forth in the instructions to Item 601 of Regulation S-K), are a part of this Report. Exhibit No. Description Page - ----------- ----------- ---- 3.1 Articles of Amendment and Restatement of Bradley N/A Real Estate, Inc., incorporated by reference to Exhibit 3.1 of the Company's Current Report on Form 8-K dated October 17, 1994. 3.2 Articles of Merger between Bradley Real N/A Estate Trust and Bradley Real Estate, Inc., incorporated by reference to Exhibit 3.2 of the Company's Current Report on Form 8-K dated October 17, 1994. 3.3 Articles of Merger between Tucker Properties N/A Corporation and Bradley Real Estate, Inc. incorporated by reference to Exhibit 3.3 of the Company's Annual Report on Form 10-K dated March 25, 1996. 3.4 By-laws of Bradley Real Estate, Inc., N/A incorporated by reference to Exhibit 3.3 of the Company's Current Report on Form 8-K dated October 17, 1994. 4.1 Form of stock certificate for shares of N/A Common Stock of Bradley Real Estate, Inc., incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K dated October 17, 1994. 10.1 Amended and Restated Agreement of Limited N/A Partnership of Bradley Operating Limited Partnership in the form executed on March 15, 1996, incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K dated November 3, 1995. 31 32 10.2 Revolving Credit Agreement dated as of March 15, 1996 N/A by and among the Company, Bradley Operating Limited Partnership and The First National Bank of Boston, incorporated by reference to Exhibit 10.2 of the Company's Annual Report on Form 10-K dated March 25, 1996. 10.3 Indenture dated as of June 1, 1994 between Tucker N/A Financing Partnership (name changed March 15, 1996 to Bradley Financing Partnership) and Bankers Trust Company of California, N.A. relating to 7.30% Mortgage Notes due September 30, 2000, incorporated by reference to Exhibit 10.3 of the Company's Annual Report on Form 10-K dated March 25, 1996. 10.4 1993 Stock Option and Incentive Plan, as amended and 51 restated on September 9, 1996. 10.5 Superior Performance Incentive Plan, incorporated by N/A reference to Appendix A to the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders. 21.1 Subsidiaries of the Company. 64 23.1 Consent of KPMG Peat Marwick LLP (regarding Form S-3 65 and Form S-8 Registration Statements). 27.1 Financial Data Schedule 66 (b) Report on Form 8-K The following Forms 8-K were filed during the period October 1, 1996 through December 31, 1996: 1) October 1, 1996, reporting in Item 5., change of the Company's address. 2) October 31, 1996, reporting in Item 5., an underwriting agreement dated October 29, 1996, relating to a public offering of 2,500,000 shares of Common Stock plus up to 375,000 additional such shares to be issued pursuant to the over-allotment option provided for in such underwriting agreement. 32 33 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized this 19th day of March 1997. BRADLEY REAL ESTATE, INC. by: /s/ Thomas P. D'Arcy ----------------------------- Thomas P. D'Arcy, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Thomas P. D'Arcy March 19, 1997 - --------------------------------------------- Thomas P. D'Arcy, President, CEO and Director /s/ Irving E. Lingo, Jr. March 19, 1997 - --------------------------------------------- Irving E. Lingo, Jr., Chief Financial Officer and Treasurer /s/ Stephen G. Kasnet March 19, 1997 - --------------------------------------------- Stephen G. Kasnet, Director /s/ W. Nicholas Thorndike March 19, 1997 - --------------------------------------------- W. Nicholas Thorndike, Director /s/ William L. Brown March 19, 1997 - --------------------------------------------- William L. Brown, Director /s/ Paul G. Kirk, Jr. March 19, 1997 - --------------------------------------------- Paul G. Kirk, Jr., Director /s/ Joseph E. Hakim March 19, 1997 - --------------------------------------------- Joseph E. Hakim, Director /s/ A. Robert Towbin March 19, 1997 - --------------------------------------------- A. Robert Towbin, Director 33 34 INDEX TO FINANCIAL STATEMENTS AND SCHEDULE PAGE Report of Independent Auditors for the years ended December 31, 1996, 1995 and 1994 F2 Financial Statements Consolidated Balance Sheets - December 31, 1996 and 1995 F3 For the years ended December 31, 1996, 1995 and 1994: Consolidated Statements of Income F4 Consolidated Statements of Changes in Share Owners' Equity F5 Consolidated Statements of Cash Flows F6 Notes to Financial Statements F7 Schedule: Schedule III - Real Estate and Accumulated Depreciation F17 All other schedules have been omitted since they are not required, not applicable, or the information is included in the financial statements or notes thereto. F1 35 Independent Auditors' Report The Board of Directors and Share Owners Bradley Real Estate, Inc. and subsidiaries: We have audited the consolidated financial statements of Bradley Real Estate, Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bradley Real Estate, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Boston, Massachusetts January 24, 1997, except as to Note 10, which is as of March 13, 1997 F2 36 BRADLEY REAL ESTATE, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 1995 ----------------------------------------- ASSETS Real estate investments - at cost $ 490,133,000 $ 189,405,000 Accumulated depreciation and amortization (30,670,000) (27,591,000) --------------- --------------- Net real estate investments 459,463,000 161,814,000 Real estate investments held for sale 10,285,000 - Other assets: Cash and cash equivalents 7,462,000 697,000 Rents and other receivables net of allowance for doubtful accounts of $1,636,000 in 1996 and $711,000 for 1995 9,543,000 8,671,000 Deferred charges, net and other assets 15,531,000 9,363,000 --------------- --------------- $ 502,284,000 $ 180,545,000 =============== =============== LIABILITIES AND SHARE OWNERS' EQUITY Mortgage loans $ 125,394,000 $ 24,794,000 Line of credit 63,500,000 14,600,000 Accounts payable and accrued expenses 19,505,000 6,053,000 --------------- --------------- 208,399,000 45,447,000 --------------- --------------- Minority interest 4,160,000 - --------------- --------------- Share Owners' equity: Shares of preferred stock, par value $.01 per share: Authorized 20,000,000 shares; 0 shares issued and outstanding - - Shares of common stock, par value $.01 per share: Authorized 80,000,000 shares; Issued and outstanding shares, 21,658,790 and 11,230,313 at December 31, 1996 and 1995, respectively 217,000 112,000 Shares of excess stock, par value $.01 per share: Authorized 50,000,000 shares; 0 shares issued and outstanding - - Additional paid-in capital 298,875,000 148,407,000 Distributions in excess of accumulated earnings (9,367,000) (13,421,000) --------------- --------------- 289,725,000 135,098,000 --------------- --------------- $ 502,284,000 $ 180,545,000 =============== ===============
The accompanying notes are an integral part of these consolidated financial statements. F3 37 BRADLEY REAL ESTATE, INC. CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1996 1995 1994 ----------------------------------------------------------------- INCOME Rental income $ 77,512,000 $ 36,405,000 $ 32,875,000 Other income 1,327,000 167,000 112,000 --------------- -------------- -------------- 78,839,000 36,572,000 32,987,000 --------------- -------------- -------------- EXPENSES: Operations, maintenance and management 12,949,000 5,858,000 5,315,000 Real estate taxes 16,787,000 8,726,000 8,070,000 Mortgage and other interest 13,404,000 4,705,000 4,524,000 Administrative and general 3,532,000 1,535,000 2,288,000 Corporate office relocation 409,000 - - Write-off of deferred financing and acquisition costs 344,000 - - Depreciation and amortization 13,286,000 7,317,000 5,146,000 --------------- -------------- -------------- 60,711,000 28,141,000 25,343,000 --------------- -------------- -------------- Income before gain on sale of property 18,128,000 8,431,000 7,644,000 Gain on sale of property 9,379,000 - 983,000 --------------- -------------- -------------- Income before allocation to minority interest 27,507,000 8,431,000 8,627,000 Income allocated to minority interest (285,000) - - --------------- -------------- -------------- Net income $ 27,222,000 $ 8,431,000 $ 8,627,000 =============== ============== ============== Net income per share $ 1.54 $ 0.85 $ 1.05 =============== ============== ============== Weighted average shares outstanding 17,619,546 9,863,767 8,191,831
The accompanying notes are an integral part of these consolidated financial statements. F4 38 BRADLEY REAL ESTATE, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHARE OWNERS' EQUITY
Retained Earnings (Distributions Additional in Excess of Shares at Par Paid-In Accumulated Value Capital Earnings) ------------------------------------------------------ Balance at December 31, 1993 $ 16,377,000 $ 86,820,000 $ (6,813,000) Net income - - 8,627,000 Cash distributions ($1.29 per share) - - (10,568,000) Dividend reinvestment participation 15,000 121,000 - Reverse one-for-two stock split (8,195,000) 8,195,000 - Change in par value from $1 to $.01 (8,115,000) 8,115,000 - -------------- ------------- ------------- Balance at December 31, 1994 82,000 103,251,000 (8,754,000) Net income - - 8,431,000 Cash distributions ($1.32 per share) - - (13,098,000) Issuance of stock, net of offering costs of $2,595,000 30,000 45,394,000 - Dividend reinvestment participation - 251,000 - Exercise of stock options - 128,000 - Reorganization costs - (617,000) - -------------- ------------- ------------- Balance at December 31, 1995 112,000 148,407,000 (13,421,000) Net income - - 27,222,000 Cash distributions ($1.32 per share) - - (23,168,000) Shares issued to acquire Tucker Properties Corporation 75,000 103,623,000 - Issuance of stock, net of offering costs of $2,618,000 29,000 44,822,000 - Dividend reinvestment participation - 196,000 - Exercise of stock options 1,000 1,617,000 - Reallocation of minority interest - 158,000 - Shares issued in exchange for Operating Partnership units - 52,000 - -------------- ------------- ------------- Balance at December 31, 1996 $ 217,000 $ 298,875,000 $ (9,367,000) ============== ============= =============
The accompanying notes are an integral part of these consolidated financial statements. F5 39 BRADLEY REAL ESTATE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 1995 1994 ----------------------------------------------------- Cash flows from operating activities: Net income $ 27,222,000 $ 8,431,000 $ 8,627,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,286,000 7,317,000 5,146,000 Gain on sale of property (9,379,000) - (983,000) Write-off of deferred financing and acquisition costs 344,000 - - Income allocated to minority interest 285,000 - - Change in operating assets and liabilities, net of the effect of the Tucker acquisition: (Increase) decrease in rents and other receivables 1,659,000 (2,895,000) (1,428,000) Increase in accounts payable, accrued expenses and other liabilities 512,000 362,000 2,822,000 Increase in deferred charges (2,296,000) (482,000) (3,307,000) ------------- ------------ ------------- Net cash provided by operating activities 31,633,000 12,733,000 10,877,000 ------------- ------------ ------------- Cash flows from investing activities: Expenditures for real estate investments (18,730,000) (9,410,000) (36,253,000) Purchase of Tucker, net of cash acquired (2,130,000) - - Excess proceeds from like-kind exchange of properties 4,145,000 - 2,600,000 Decrease in investing - related deferred charges - 106,000 - Expenditures for purchase of advisory business - (649,000) - ------------- ------------ ------------- Net cash used by investing activities (16,715,000) (9,953,000) (33,653,000) ------------- ------------ ------------- Cash flows from financing activities: Borrowings from lines of credit 132,500,000 15,300,000 38,700,000 Payments under lines of credit (129,708,000) (39,700,000) (5,800,000) Expenditures to acquire new line of credit (1,468,000) - - Pay-off of Westwind mortgage loans with proceeds from offering - (4,712,000) - Pay-off of secured mortgage loans with borrowings from lines of credit (32,234,000) - - Distributions paid (23,168,000) (13,098,000) (10,568,000) Distributions to minority interest holders (309,000) - - Proceeds from public offerings, net 44,851,000 40,508,000 - Proceeds from exercise of stock options 1,618,000 128,000 - Principal payments on mortgage loans (431,000) (336,000) (449,000) Reorganization costs - (617,000) - Proceeds from shares issued under dividend reinvestment plan 196,000 251,000 136,000 ------------- ------------ ------------- Net cash provided by (used in) financing activities (8,153,000) (2,276,000) 22,019,000 ------------- ------------ ------------- Net increase (decrease) in cash and cash equivalents 6,765,000 504,000 (757,000) Cash and cash equivalents: Beginning of year 697,000 193,000 950,000 ------------- ------------ ------------- End of year $ 7,462,000 697,000 193,000 ============= ============ ============= Supplemental cash flow information: Interest paid, net of amount capitalized $ 13,366,000 $ 4,854,000 $ 4,218,000
The accompanying notes are an integral part of these consolidated financial statements. F6 40 BRADLEY REAL ESTATE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ORGANIZATION Bradley Real Estate, Inc. (the "Company") is the nation's oldest continuously qualified real estate investment trust. Organized in 1961, the Company focuses on the ownership and operation of community and neighborhood shopping centers primarily in the Midwestern United States. As of December 31, 1996, the Company owned 32 properties (30 shopping centers and two office/retail buildings) in 12 states, aggregating over 7.7 million square feet of rentable space. Approximately 95% of the Company's portfolio square footage is located in Midwest markets, making the Company one of the leading owners of community and neighborhood shopping centers in this region. The Company's shopping centers have a diverse tenant mix dominated by supermarkets, drug stores and other consumer necessity or value-oriented retailers. On March 15, 1996, the Company completed the acquisition of Tucker Properties Corporation ("Tucker"). The acquisition was consummated through the issuance by the Company of approximately 7.4 million shares of its common stock valued at $13.96 per share, and was accounted for using the purchase method of accounting. The results of operations of Tucker have been included in the Company's financial statements from March 15, 1996. Tucker held title to all of its properties through two partnerships; eight properties through Tucker Operating Limited Partnership ("TOP"), in which Tucker had a 95.9% general partnership interest, and six properties through Tucker Financing Partnership ("TFP"), a general partnership of which TOP owned 99% and a wholly-owned Tucker corporate subsidiary owned the remaining 1%. Upon the acquisition of Tucker, the Company succeeded to Tucker's interest in TOP, TFP and the wholly-owned Tucker corporate subsidiary, and the name "Bradley" was substituted for "Tucker" in each subsidiary and partnership. NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The financial statements are prepared on the accrual basis in accordance with generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. The consolidated financial statements of the Company include the accounts and operations of the Company, Bradley Operating Limited Partnership ("BOLP"), Bradley Financing Partnership, and the general partnership interest in the joint venture that owns Williamson Square Shopping Center which is held through BOLP. Due to the Company's ability as general partner to directly or indirectly control each of these subsidiaries, each is consolidated for financial reporting purposes. Upon the acquisition of Tucker, the limited partners in TOP received 314,739 operating partnership units ("OP Units") in BOLP in exchange for their limited partnership units in TOP. The OP Units are convertible into common shares of the Company on a one-for-one basis, subject to certain limitations. During 1996, a total of 3,738 OP Units were converted to common shares, leaving 311,001 OP Units outstanding at December 31, 1996. At December 31, 1996, the minority interest ownership percentage in the Company was approximately 1.42%. Rents and Other Receivables Management has determined that all of the Company's leases with its various tenants are operating leases. Revenues for such leases are recognized using the straight-line method over the remaining term of the leases. Real Estate Investments Real estate investments are carried at cost less accumulated depreciation. The provision for depreciation and amortization has been calculated using the straight-line method based upon the following estimated useful lives of assets: Buildings 31.5 - 39 years Improvements and alterations 2 - 39 years Expenditures for maintenance, repairs and betterments that do not materially prolong the normal useful life of an asset are charged to operations as incurred and amounted to $2,056,000, $874,000, and $626,000 for 1996, 1995 and 1994, respectively. F7 41 Additions and betterments that substantially extend the useful lives of the properties are capitalized. Upon sale or other disposition of assets, the cost and related accumulated depreciation and amortization are removed from the accounts and the resulting gain or loss, if any, is reflected in net income. Real estate investments include capitalized interest and other costs on significant construction in progress. Capitalized costs are included in the cost of the related asset and charged to operations through depreciation over the asset's estimated useful life. Interest capitalized amounted to $150,000, $137,000, and $89,000 in 1996, 1995 and 1994, respectively. Management reviews each property for impairment whenever events or changes in circumstances indicate that the carrying value of a property may not be recoverable. The review of recoverability is based on an estimate of undiscounted future cash flows expected to result from its use and eventual disposition. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value of the property exceeds its estimated fair value. On March 31, 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("Statement No. 121"). This Statement provides guidance for recognition and measurement of impairment of long-lived assets, certain identifiable intangibles and goodwill related both to assets to be held and used and assets to be disposed of. Statement No. 121 is effective for financial statements issued for fiscal years beginning after December 15, 1995. Thus, the Company adopted Statement No. 121 as of January 1, 1996. Adoption of Statement No. 121 had no effect on the financial position or results of operations of the Company. Real Estate Investments Held for Sale Real estate investments held for sale are carried at the lower of cost or the fair value less cost to sell. Depreciation and amortization are suspended during the sale period. Cash Equivalents Cash and cash equivalents consist of cash in banks and short-term investments with original maturities of less than ninety days. Deferred Charges A majority of deferred charges consist of agency commissions incurred in leasing the Company's properties. Such charges are amortized using the straight-line method over the term of the related lease. In addition, deferred charges include costs incurred in connection with securing long-term debt, including the costs of entering into interest rate protection agreements. Such costs are amortized over the term of the related agreement. Earnings Per Share Earnings per share are based on the weighted average number of shares outstanding during each year exclusive of outstanding stock options, which do not materially affect earnings per share. Per share data and weighted average shares outstanding as reported on the accompanying financial statements for 1994 reflect a one-for-two reverse share split effected on October 17, 1994. Stock Option Plans In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("Statement No. 123"). Statement No. 123 establishes financial accounting and reporting standards for stock-based employee compensation plans. This includes all arrangements by which employees receive shares of stock or other equity instruments of the employer or the employer incurs liabilities to employees in amounts based on the price of the employer's stock. Statement No. 123 defines a fair value based method of accounting for an employee stock option or similar equity instrument and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, it also allows an entity to continue to measure compensation cost using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("Opinion No. 25"). The Company elected to continue using Opinion No. 25 and make pro forma disclosures of net income and earnings per share as if the fair value method of accounting defined in Statement No. 123 had been applied. See Note 8 for the required disclosures. F8 42 NOTE 2 - SUPPLEMENTAL CASH FLOW DISCLOSURE The merger acquisition of Tucker on March 15, 1996 resulted in the following non-cash effect on the Company's balance sheet: Assets acquired $ (310,443,000) Liabilities assumed 204,615,000 Capital stock issued, at $.01 par value 75,000 Additional paid-in capital 103,623,000 --------------- Purchase of Tucker, net of cash acquired $ (2,130,000) ===============
The like-kind exchange of Nicollet Avenue and Brookdale Square in March 1996, resulted in a decrease in other net operating assets of $1,649,000 and the Company assuming net operating liabilities of $173,000. During 1996, 3,738 shares of Common Stock were issued in exchange for an equivalent number of OP Units held by the minority interest. In 1995, the Company issued 325,000 shares of Common Stock having a value of $4,916,000 in connection with the acquisition of the REIT advisory business of its former advisor. In 1995, a property was purchased for $5,261,000 which included the Company's assumption of $2,094,000 in non-recourse mortgages. In 1994, a property was purchased for $7,496,000 which included the Company's assumption of $4,980,000 in non-recourse mortgages. NOTE 3 - REAL ESTATE INVESTMENTS The following is a summary of the Company's real estate investments that are held for lease at December 31:
1996 1995 ---- ---- Land $ 97,904,000 $ 35,781,000 Buildings 332,671,000 88,674,000 Improvements and alterations 55,041,000 63,098,000 Construction in progress 4,517,000 1,852,000 -------------- ------------- 490,133,000 189,405,000 Accumulated depreciation and amortization (30,670,000) (27,591,000) -------------- ------------- $ 459,463,000 $ 161,814,000 ============== =============
During the second quarter of 1996, the Company placed for sale its Augusta Plaza, Hood Commons and 585 Boylston Street properties because such properties are not aligned with the Company's strategic market focus. The dispositions of these properties are expected to be completed during 1997. The following table sets forth the detail with respect to the properties with ownership interests held by the Company at December 31, 1996. The aggregate cost of those properties for Federal income tax purposes was approximately $498,738,000. F9 43 NOTE 3 - REAL ESTATE INVESTMENTS (continued)
Initial cost to the Company ---------------------------------------- Buildings and Capitalized Subsequent SHOPPING CENTERS Encumbrances Land Improvements to Acquisiton ------------ ---- ------------- -------------------- ILLINOIS Rivercrest Center $ - $ 7,349,000 $ 17,147,000 $ 1,951,000 Crestwood, IL Westview Center - 6,417,000 14,973,000 1,139,000 Hanover Park, IL Crossroads Center - 2,846,000 8,538,000 651,000 Fairview Heights, IL Commons of Chicago Ridge - 5,087,000 15,113,000 986,000 and Annex Chicago Ridge, IL Commons of Crystal ** 3,546,000 20,093,000 65,000 Lake Crystal Lake, IL Heritage Square ** 8,047,000 17,099,000 - Naperville, IL Meadows Town Mall - 1,036,000 5,965,000 749,000 Rolling Meadows, IL Sheridan Village ** 2,841,000 19,010,000 156,000 Peoria, IL High Point Centre - 2,969,000 16,822,000 65,000 Lombard, IL Rollins Crossing - 1,996,000 8,509,000 261,000 Round Lake Beach, IL MINNESOTA Har Mar Mall - 6,551,000 15,263,000 8,461,000 Roseville, MN Sun Ray Shopping - 82,000 2,945,000 11,933,000 Center St. Paul, MN Richfield Hub 5,355,000 3,000,000 5,390,000 5,148,000 Shopping Center Richfield, MN Brookdale Square - 2,230,000 6,694,000 14,000 Shopping Center Brooklyn, MN Hub West Shopping 4,942,000 757,000 345,000 4,165,000 Center Richfield, MN White Bear Hills - 750,000 3,762,000 484,000 White Bear Lake, MN Terrace Mall - 630,000 1,706,000 2,369,000 Robbinsdale, MN Burning Tree Plaza - 609,000 3,744,000 3,961,000 Duluth, MN Westwind Plaza - 1,949,000 5,547,000 35,000 Minnetonka, MN INDIANA Speedway SuperCenter ** 6,098,000 34,555,000 1,151,000 and Outlots Speedway, IN The Village Shopping - 1,152,000 6,530,000 190,000 Center Gary, IN Washington Lawndale ** 2,488,000 13,062,000 89,000 Commons Evansville, IN KANSAS Santa Fe Square - 1,999,000 7,089,000 - Olathe, KS TENNESSEE Williamson Square 12,902,000 2,570,000 14,561,000 281,000 Franklin, TN WISCONSIN Mequon Pavilions - 2,761,000 15,647,000 4,000 Mequon, WI KENTUCKY Stony Brook - 3,106,000 9,319,000 89,000 Louisville, KY MISSOURI Grandview Plaza - 414,000 2,205,000 14,870,000 Florissant, MO NEW MEXICO St. Francis Plaza 1,945,000 1,578,000 3,683,000 - Santa Fe, NM RETAIL/OFFICE BUILDING One North State ** 16,765,000 37,317,000 610,000 Chicago, IL ----------- ------------ ------------ ----------- Real estate investments held for lease 25,144,000 97,623,000 332,633,000 59,877,000 Real estate investments held for sale - 735,000 3,079,000 13,684,000 ----------- ------------ ------------ ----------- Total real estate investments $25,144,000 $ 98,358,000 $335,712,000 $73,561,000 =========== ============ ============ ===========
** The property is encumbered by a $100 million REMIC note. See Note 4 for further information. F-10 44 Gross amount carried at December 31, 1996
Building Date Lives on which and Accumulated Acquired Depreciation Land Improvements Total Depreciation by Company is Computed - ---- ------------ ----- ------------ ---------- -------------- $ 7,349,000 $ 19,098,000 $ 26,447,000 $ 1,528,000 1994 7 - 39 6,404,000 16,125,000 22,529,000 1,706,000 1993 4 - 39 2,878,000 9,157,000 12,035,000 1,184,000 1992 2 - 31.5 5,087,000 16,099,000 21,186,000 289,000 1996 3 - 39 3,546,000 20,158,000 23,704,000 402,000 1996 4 - 39 8,047,000 17,099,000 25,146,000 340,000 1996 3 - 39 1,036,000 6,714,000 7,750,000 138,000 1996 3 - 39 2,841,000 19,166,000 22,007,000 395,000 1996 4 - 39 2,969,000 16,887,000 19,856,000 319,000 1996 10 - 39 1,996,000 8,770,000 10,766,000 173,000 1996 3 - 39 6,786,000 23,489,000 30,275,000 2,892,000 1992 5 - 39 91,000 14,869,000 14,960,000 7,531,000 1961 3 - 33 3,000,000 10,538,000 13,538,000 2,854,000 1988 2 - 39 2,230,000 6,708,000 8,938,000 132,000 1996 3 - 39 757,000 4,510,000 5,267,000 684,000 1991 31.5 755,000 4,241,000 4,996,000 314,000 1993 39 630,000 4,075,000 4,705,000 504,000 1993 6 - 39 609,000 7,705,000 8,314,000 703,000 1993 5 - 39 1,949,000 5,582,000 7,531,000 312,000 1994 39 6,098,000 35,706,000 41,804,000 673,000 1996 2 - 39 1,152,000 6,720,000 7,872,000 136,000 1996 8 - 39 2,488,000 13,151,000 15,639,000 275,000 1996 3 - 39 1,999,000 7,089,000 9,088,000 - 1996 3 - 39 2,570,000 14,842,000 17,412,000 309,000 1996 3 - 39 2,761,000 15,651,000 18,412,000 312,000 1996 5 - 39 3,106,000 9,408,000 12,514,000 193,000 1996 5 - 39 427,000 17,062,000 17,489,000 5,389,000 1971 2 - 33 1,578,000 3,683,000 5,261,000 157,000 1995 3 - 39 16,765,000 37,927,000 54,692,000 826,000 1996 3 - 39 - ---------- ----------- ----------- ---------- 97,904,000 392,229,000 490,133,000 30,670,000 740,000 16,758,000 17,498,000 7,213,000 1961-1973- - ---------- ----------- ----------- ---------- $98,644,000 $408,987,000 $507,631,000 $37,883,000 ========== =========== =========== ==========
F-11 45 NOTE 4 - MORTGAGE LOANS AND LINE OF CREDIT Mortgage loans outstanding at December 31 consist of the following:
1996 1995 ------------ ------------ Mortgage loan secured $ 5,355,000 $ 5,431,000 by Richfield Hub Shopping Center, at 9.875%, maturing September 1998. Mortgage loan secured 4,942,000 5,014,000 by Hub West Shopping Center, at 9.875%, maturing September 1998. Mortgage loan secured 1,945,000 2,029,000 by St. Francis Plaza, at 8.125%, maturing December 2008. Mortgage loans - 12,320,000 secured by Sun Ray Shopping Center, at rates ranging from 9.625% to 11.75%. These loans were paid-off on January 2, 1996. Mortgage loan secured 12,902,000 - by Williamson Square, at 8.000%, maturing August 2005. Mortgage note secured - by six properties, at 7.230%,maturing September 2000, including unamortized premium of $250,000. 100,250,000 - ------------ ----------- $125,394,000 $ 24,794,000 ============ ============
The net book value of real estate pledged as collateral for loans was approximately $214,192,000 (see Note 3). The mortgage loans collateralized by Richfield Hub Shopping Center and Hub West Shopping Center are cross-collateralized. In connection with the acquisition of Tucker, the Company assumed the obligations under a $100 million mortgage note with a fair value of $100,300,000 at the date of acquisition. The mortgage note is secured by Commons of Crystal Lake, Heritage Square, Sheridan Village, Speedway SuperCenter (excluding Outlots), Washington Lawndale Commons and One North State. The mortgage note was issued to a trust qualifying as a real estate mortgage investment conduit for Federal income tax purposes (the "REMIC Note"). Pursuant to terms of the indenture governing the REMIC Note, prior to October 1997, principal payments on the REMIC Note cannot be made and the properties collateralizing the REMIC Note cannot be sold. If the Company wishes either to repay all or part of the $100 million principal of the REMIC Note or to sell any of the properties collateralizing the REMIC Note after such date, the Company will incur significant prepayment penalties. The prepayment of principal of the REMIC Note requires an additional payment of the greater of either (i) 1% of the amount of principal being prepaid or (ii) the product of (A) the difference between the outstanding principal balance of the REMIC Note before prepayment and the present value of all remaining interest and principal payments thereon and (B) the amount of principal being prepaid divided by the outstanding principal balance of the REMIC Note. After October 1997, in order to release any of the properties collateralizing the REMIC Note from the lien, the REMIC indenture requires that certain additional conditions be met, including that (i) the aggregate amount of principal repaid on the REMIC Note equals at least 125% of the amount of principal allocated to the property to be released and (ii) certain debt service coverage ratios continue to be satisfied. On March 15, 1996, the Company entered into a new $150 million unsecured revolving credit facility with The First National Bank of Boston and other bank lenders, replacing the previous $65 million line of credit, which was secured by a blanket mortgage on six of the Company's properties. The new line bears interest at a rate equal to the lower of the bank's base rate or 1.75% over LIBOR. Additionally, there is a commitment fee ranging from 0.125% to 0.250% per annum of the unfunded line of credit balance depending on the outstanding balance during a calendar quarter. The rates available under the line become more favorable in the event the Company meets certain loan-to-value tests or receives an investment grade unsecured debt rating. At December 31, 1996, the weighted average interest rate on the line of credit was 7.51%. In addition to replacing outstanding borrowings under the Company's and Tucker's previously outstanding secured lines of credit, the facility is available for the acquisition, development, renovation and expansion of new and existing properties (including, but not limited to, capital improvements, tenant improvements and leasing commissions), and other working capital purposes. The line of credit matures March 1998. The line of credit contains certain financial and operational covenants that, among other provisions, limit the amount of secured and unsecured indebtedness the Company may have outstanding at any time, and provide for the maintenance of certain financial tests including F12 46 minimum net worth and debt service coverage requirements. The Company believes that such covenants will not adversely affect the Company's business or the operation of its properties. In order to reduce the Company's (and thus the lenders') exposure to the risks associated with floating rate debt, the line of credit requires that the Company maintain interest rate protection, at a rate satisfactory to the lead lender, with respect to at least $100 million of indebtedness. The Company uses interest rate caps and swaps to limit its exposure to increases in interest rates on its floating rate debt. The Company does not use them for trading or speculative purposes. At December 31, 1996, the Company was party to interest rate cap agreements which entitle the Company to receive on a quarterly basis, the amount, if any, by which the applicable three-month LIBOR Rate (as defined in the interest rate protection agreement) for the protected amount exceeds the applicable cap rate for the protected amount. The Company was also party to a swap agreement whereby the Company receives or makes quarterly payments based on the differential between the three-month LIBOR Rate (as defined in the interest rate protection agreement) for the protected amount and the applicable fixed swap rate for the protected amount. The following summarizes the interest rate protection agreements outstanding at December 31, 1996:
Effect on Notional Maximum Type of Interest Fair Value Amount Rate Contract Maturity Expense December 31, 1996 --------------------------------------------------------------------------------------------------- $43,000,000 6.00% Swap April 14, 1998 $149,000 $(116,000) 40,000,000 7.50% Cap March 18, 1998 0 16,000 17,000,000 7.50% Cap April 11, 1998 0 8,000 ----------- ------- --------- $100,000,000 $149,000 $ (92,000) ============ ======== =========
The fair values of the interest rate protection agreements are estimated using option-pricing models that value the potential for the interest rate protection agreements to become in-the-money through changes in interest rates during the remaining terms of the agreements. The negative fair value represents the estimated amount the Company would have to pay to cancel the contract or transfer it to other parties. The aggregate unamortized cost of the interest rate protection agreements was $195,000 at December 31, 1996. Scheduled principal payments on mortgage loans and the line of credit outstanding at December 31, 1996 are as follows: 1997 $ 442,000 1998 73,972,000 1999 344,000 2000 100,621,000 2001 403,000 Thereafter 13,112,000 ------------ $188,894,000 ============ NOTE 5 - RENTALS UNDER OPERATING LEASES Annual minimum future rentals to be received under non-cancelable operating leases in effect at December 31, 1996 are as follows: 1997 $ 56,997,000 1998 52,024,000 1999 48,267,000 2000 43,829,000 2001 38,747,000 Later Years 204,304,000 -------------- $ 444,168,000 ============== Total minimum future rentals do not include contingent rentals under certain leases based upon lessees' sales volume. Contingent rentals earned amounted to approximately $1,397,000, $1,083,000, and $1,121,000 in 1996, 1995 and 1994, respectively. Certain leases also require lessees to pay all or a portion of real estate taxes and operating costs, amounting to $21,748,000, $10,774,000, and $9,259,000 in 1996, 1995 and 1994, respectively. No tenant accounted for as much as 10% of rental income in 1996, 1995 or 1994. One North State accounted for greater than 10% of the Company's rental income during 1996. F13 47 NOTE 6 - INCOME TAXES The Company has elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code (the "Code"). Under the Code, a qualifying REIT that distributes at least 95% of its ordinary taxable income to its share owners is entitled to a tax deduction in the amount of the distribution. In addition, qualifying REITs are permitted to deduct capital gain distributions in the determination of the tax on capital gains. The Company paid distributions to share owners aggregating $23,168,000, $13,098,000, and $10,568,000 in 1996, 1995 and 1994, respectively. The Company has determined that for Federal income tax purposes approximately 69% of the distributions paid in 1996 were ordinary dividends, approximately 17% were a capital gain and approximately 14% were a return of capital; approximately 84% of the distributions paid in 1995 were ordinary dividends and approximately 16% were a return of capital; and approximately 74% of the distributions paid in 1994 were ordinary dividends and approximately 26% were a return of capital. NOTE 7 - SHARE OWNERS' EQUITY In December 1994, the Company filed a "shelf" registration with the Securities and Exchange Commission to register $125 million of common stock, preferred stock, debt securities, warrants, rights or units of the foregoing securities that the Company may issue through underwriters or in privately negotiated transactions for cash from time to time. In January 1995, the Company issued 325,000 shares of common stock in conjunction with the purchase of the REIT advisory business of its former advisor. In April 1995, the Company issued 182,500 shares of common stock at a price of $17 per share, which proceeds were applied to the acquisition of St. Francis Plaza. In July 1995, the Company completed a public share offering of 2,500,000 shares of common stock at a price of $16 per share. Net proceeds from the offering were approximately $37,405,000 (net of offering costs of approximately $2,595,000), of which $32,600,000 was used to pay-down the Company's bank line of credit and $4,712,000 was used to pay-off the non-recourse mortgages assumed in November 1994, in connection with the Westwind Plaza purchase. In November 1996, the Company completed a public offering of 2,875,000 shares of common stock (including shares issued pursuant to the exercise of the underwriter over-allotment option) at a price of $16.50 per share. Net proceeds from the offering, approximately $44,851,000 (net of offering costs of $2,618,000), were used to reduce outstanding indebtedness incurred under the line of credit. Under the Company's Dividend Reinvestment and Share Purchase Plan in effect since 1993, share owners of record owning at least 100 shares may elect to reinvest cash dividends and make limited additional cash payments (minimum $100, maximum $2,500 per quarter) to purchase newly issued shares of the Company without brokerage fees or other transaction costs, at a 3% discount from market prices (as determined in the Plan). During 1996, 1995 and 1994, the Company issued 13,082, 16,714, and 8,530 shares, respectively, under this Plan. NOTE 8 - STOCK OPTION PLANS The Company's 1993 Stock Option and Incentive Plan authorizes options and other stock-based awards to be granted for up to 5% of the Company's shares outstanding. During 1996 and 1995, options for 17,500 and 217,500 shares, respectively, were granted under this Plan. All of the options granted in 1996 were pursuant to an amendment to the Plan approved by the share owners that year, which provides for an annual option grant for 2,500 shares to each non-employee director at an exercise price equal to the fair market value of the subject shares at the date of grant. At December 31, 1996 and 1995, options for 180,000 and 295,251 shares, respectively, remained outstanding under this and a prior stock option plan. A committee of the Board of Directors administers the Plan and is responsible for selecting persons eligible for awards and for determining the terms and duration of any award. The Company has estimated the fair value of each option granted on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1996 and 1995, respectively: dividend yield of 8.96% and 8.87%; expected volatility of 23% and 18%; risk-free interest rates of 6.1% for both years; and expected lives of five years for both years. The Company applies Opinion No. 25 and related Interpretations in accounting for awards under the Plan. Accordingly, no compensation cost relating to the stock option plans has been recognized in the accompanying financial statements. Had compensation cost for the Company's Plan been determined consistent with Statement No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: F14 48
1996 1995 ---- ---- Net income As Reported $27,222,000 $8,431,000 Pro Forma $27,202,000 $8,231,000 Net income per share As Reported $1.54 $0.85 Pro Forma $1.54 $0.83
The effect of applying Statement No. 123 for disclosing compensation costs under such pronouncement may not be representative of the effects on reported net income for future years. A summary of option transactions during the periods covered by these financial statements is as follows:
Exercise Prices Shares Per Share ------------------------------------- Outstanding at December 31, 1993 and 1994 91,375 $11.50 - $22.00 Granted 217,500 $14.875 - $16.50 Expired (4,624) $16.66 - $21.25 Exercised (9,000) $11.50 - $14.875 -------- Outstanding at December 31, 1995 295,251 $11.50 - $22.00 Granted 17,500 $14.7375 Expired (24,251) $14.75 - $22.00 Exercised (108,500) $11.50 - $17.00 -------- Outstanding at December 31, 1996 180,000 $11.50 - $21.25 ========
All options outstanding at December 31, 1996 are fully vested and exercisable and have a duration of ten years from the date of grant, subject to earlier termination in certain circumstances. The weighted average exercise price per share and the weighted average contractual life of options outstanding at December 31, 1996 were $15.65 and 6.90 years, respectively. The weighted average fair value of options granted during 1996 and 1995 approximates the exercise prices for such options on the date of grant. NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments", requires the Company to disclose fair value information of all financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. The Company's financial instruments, other than debt and interest rate protection agreements for the Company's line of credit, are generally short-term in nature and contain minimal credit risk. These instruments consist of cash and cash equivalents, rents and other receivables, and accounts payable. The carrying amount of these assets and liabilities in the consolidated balance sheets are assumed to be at fair value. The Company's mortgage loans are at fixed rates, and when compared with borrowing rates currently available to the Company with similar terms and average maturities, approximate fair value. The Company's line of credit is at a variable rate, which results in a carrying value that approximates its fair value. The fair values of the interest rate protection agreements and methodologies for determining their fair values are described in Note 4. NOTE 10 - SUBSEQUENT EVENTS In separate transactions during January 1997, the Company acquired three shopping centers located in Indiana, Iowa and Minnesota, aggregating 245,000 square feet for a total purchase price of approximately $16.2 million. Roseville Center was purchased for approximately $5.4 million through the issuance of 281,300 limited partnership units in BOLP and cash drawn from the Company's line of credit. Martin's Bittersweet Plaza was purchased for approximately $4.8 million with financing provided by the assumption of $3.8 million in debt, with the balance funded with the Company's line of credit. Warren Plaza was purchased for approximately $6.0 million with cash drawn from the Company's line of credit. On March 13, 1997, the Company completed the sale of Hood Commons for $11.7 million, resulting in a gain of approximately $3.1 million for financial reporting purposes. F15 49 NOTE 11 - PRO FORMA INFORMATION On March 15, 1996, the Company closed the merger acquisition of Tucker. The acquisition was completed through the issuance of 7.4 million common shares of the Company valued at $13.96 per share, in exchange for 100% of the outstanding shares of Tucker, payment of certain transaction costs and the assumption of all of Tucker's liabilities. The Tucker share owners received .686 of a share of Bradley for each outstanding Tucker share. The acquisition was structured as a tax-free transaction, and was accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to the assets purchased and the liabilities assumed based upon the fair values at the date of acquisition. The excess of the fair value of assets acquired and liabilities assumed over the purchase price was not material. Such excess was allocated to reduce proportionately, the values assigned to the properties acquired. The following table sets forth certain summary unaudited pro forma operating data for the years ended December 31, 1996 and 1995, as if the merger had been consummated as of the beginning of 1996 and 1995, after giving effect to certain adjustments including a reduction in depreciation expense due to longer useful lives and estimated cost savings of the combined entity.
--------------------------------------- Years ended December 31, 1996 1995 --------------------------------------- (Unaudited) Total revenues $ 89,561,000 $ 87,428,000 Net income $ 29,213,000 $ 17,135,000 Net income per share $ 1.53 $ 0.99
The unaudited pro forma operating data are presented for comparative purposes only and are not necessarily indicative of what the actual results of operations would have been for the years ended December 31, 1996 and 1995, nor does such data purport to represent the results to be achieved in future periods. NOTE 12 - SUPPLEMENTARY QUARTERLY DATA (UNAUDITED)
March 31, June 30, Sept. 30, Dec. 31, 1996 1996 1996 1996 ------------------------------------------------------- (Thousands of dollars except per share data) Rental income $ 11,219 $ 21,982 $ 21,442 $ 22,869 Gain on sale of property $ 9,379 $ - $ - $ - Net income $ 11,375 $ 4,852 $ 4,885 $ 6,110 Net income per share $ .91 $ .26 $ .26 $ .30 March 31, June 30, Sept. 30, Dec. 31, 1995 1995 1995 1995 ------------------------------------------------------- (Thousands of dollars except per share data) Rental income $ 8,615 $ 8,686 $ 9,396 $ 9,708 Net income $ 1,835 $ 1,638 $ 2,357 $ 2,601 Net income per share $ .22 $ .19 $ .21 $ .23
F16 50 SCHEDULE III BRADLEY REAL ESTATE, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION
Cost December 31, ---- ------------ 1996 1995 1994 ---- ---- ---- Balance, beginning of year $ 189,405,000 $ 177,939,000 $ 138,189,000 Improvements and other additions 320,053,000 11,466,000 41,433,000 Sale of property (1,827,000) - (1,683,000) -------------- -------------- -------------- Balance, end of year $ 507,631,000 $ 189,405,000 $ 177,939,000 ============= ============== ============== Accumulated Depreciation ------------------------ Balance, beginning of year $ 27,591,000 $ 22,385,000 $ 18,156,000 Depreciation provided 10,292,000 5,206,000 4,330,000 Sale of property - - (101,000) ------------- -------------- -------------- Balance, end of year $ 37,883,000 $ 27,591,000 $ 22,385,000 ============= ============== ==============
F17 EX-10.4 2 93 STOCK OPTION & INCENTIVE PLAN 1 EXHIBIT 10.4 BRADLEY REAL ESTATE, INC. 1993 Stock Option and Incentive Plan As Amended and Restated on September 9, 1996 1. PURPOSE; DEFINED TERMS (a) This 1993 Stock Option and Incentive Plan (the "Plan") is intended as a performance incentive for officers, Directors, employees and consultants of Bradley Real Estate, Inc. (the "Company") and its Subsidiaries (as hereinafter defined) to enable the persons to whom Options or other Awards are granted (the "Optionees" or "Grantees") to acquire or increase a proprietary interest in the success of the Company. The Company intends that this purpose will be effected by the granting of "incentive stock options" ("Incentive Options") as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified stock options ("Nonqualified Options"), and rights to receive restricted stock ("Restricted Stock Awards"), unrestricted stock ("Unrestricted Stock Awards"), performance shares ("Performance Share Awards"), stock appreciation rights ("Stock Appreciation Rights") and dividend equivalent rights ("Dividend Equivalent Rights"). (b) The undifferentiated terms "Option" and "Options" include both Incentive Options and Nonqualified Options. The terms "Award" and "Awards" include Options, Restricted Stock Awards, Unrestricted Stock Awards, Performance Share Awards, Stock Appreciation Rights and Dividend Equivalent Rights. The term "Subsidiaries" includes any corporation, partnership or other organization in which the Company owns at the time of the grant of the Award fifty percent or more of the economic interest in the equity of such organization. 2. AWARDS TO BE GRANTED AND ADMINISTRATION (a) Options granted under the Plan may be either Incentive Options or Nonqualified Options, and shall be designated as such at the time of grant. To the extent that any Option intended to be an Incentive Option shall fail to qualify as an "incentive stock option" under the Code, such Option shall be deemed to be a Nonqualified Option; and, subject to the preceding part of this sentence, any Option not designated as either an Incentive Option or a Nonqualified Option shall be presumed to be intended to be an Incentive Option unless clear by its terms that it is not eligible to qualify as an Incentive Option. (b) The Plan shall be administered by a committee (the "Committee") of not less than two Directors of the Company appointed by the Board of Directors of the Company (the "Board of Directors"). It is the intention of the Company that each member of the Committee shall be a "non-employee director" as that term is defined and interpreted pursuant to Rule 16b-3(b)(3) or any successor rule thereto promulgated under the Securities Exchange Act of 1934, as amended (the "Act"), and an "outside director" within the 2 meaning of Section 162(m) of the Code and the regulations promulgated thereunder. Unless otherwise determined by the Board of Directors, the members of the Compensation Committee of the Board of Directors shall serve as the Committee under the Plan to the extent such members of the Compensation Committee are "non-employee directors" and "outside directors." Action by the Committee shall require the affirmative vote of a majority of all its members. (c) Subject to the terms and conditions of the Plan, the Committee shall have the power: (i) To determine from time to time the Awards to be granted to eligible persons under the Plan and to prescribe the terms and provisions (which need not be identical) of Awards granted under the Plan to such persons; (ii) To construe and interpret the Plan and grants thereunder and to establish, amend, and revoke rules and regulations for administration of the Plan. In this connection, the Committee may correct any defect or supply any omission, or reconcile any inconsistency in the Plan, in any Award agreement, or in any related agreements, in the manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. All decisions and determinations by the Committee in the exercise of this power shall be final and binding upon the Company and the Optionees and Grantees; (iii) To amend any outstanding Award, subject to Section 17 hereof, and to accelerate or extend the vesting or exercisability of any Award and to waive conditions or restrictions on any Awards, to the extent it shall deem appropriate; and (iv) Generally, to exercise such powers and to perform such acts as are deemed necessary or expedient to promote the best interests of the Company with respect to the Plan. 3. AUTHORIZED SHARES (a) Awards may be granted under the Plan for up to such aggregate number of Shares of Common Stock, par value $.01 per share, of the Company ("Shares") as does not exceed 5% of the total number of outstanding Shares (which limit shall be applied in the case of each Award on the basis of the total number of outstanding Shares at the time of such grant and without considering as outstanding any Shares that are the subject of any Awards granted on the same day as such grant or any unexercised options under the Plan or any other option plan of the Company); provided, however, that the maximum number of Shares for which Incentive Options may be granted under the Plan shall not exceed 500,000 Shares (which number is subject to adjustment as provided in Section 13). Subject to such overall limitations, Shares may be issued pursuant to any type or types of Award; provided, however, that Options or Stock Appreciation Rights with respect to not more than 250,000 Shares (which number is subject to adjustment as provided in Section 13) may be granted to any one individual during any one calendar year period. 2 3 (b) Whenever any outstanding Option under the Plan expires, is cancelled or is otherwise terminated (other than by exercise in the case of Incentive Options), the Shares allocable to the unexercised portion of such Option may again be the subject of Awards under the Plan. The Shares underlying any other Awards which are forfeited, canceled, reacquired by the Company, satisfied without the issuance of Shares or otherwise terminated (other than by exercise) shall also be added back to the Shares available for issuance under the Plan. 4. ELIGIBILITY (a) Incentive Options may be granted only to officers or other employees of the Company or its Subsidiaries, including members of the Board of Directors who are also officers or employees of the Company or any of its Subsidiaries. All other Awards may be granted to officers or other employees of the Company or any of its Subsidiaries and to consultants (which term includes persons who provide services to the Company or its Subsidiaries). Nonqualified Options may be granted to non-employee members of the Board of Directors pursuant to Section 7. (b) No person shall be eligible to receive any Incentive Option under the Plan if, at the date of grant, such person beneficially owns stock representing in excess of 9.8 percent of the voting power of all outstanding capital stock of the Company. (c) Notwithstanding any other provision of the Plan, the aggregate fair market value (determined as of the time the Incentive Option is granted) of the Shares with respect to which Incentive Options are exercisable for the first time by any individual during any calendar year (under all plans of the Company and its parent and Subsidiaries, if any) shall not exceed $100,000. 5. TERMS OF THE OPTION AGREEMENTS Subject to the terms and conditions of the Plan, each option agreement shall contain such provisions as the Committee shall from time to time deem appropriate. Option agreements need not be identical, but each option agreement by appropriate language shall include the substance of all of the following provisions, and any such provisions may be included in the option agreement by reference to the Plan: (a) Expiration; Termination of Employment. Each Option shall expire on the date specified in the option agreement, which date shall not be later than the tenth anniversary of the date on which the Option was granted ("grant date") in the case of an Incentive Option and not later than one week following the tenth anniversary of the grant date in the case of a Nonqualified Option. If an Optionee's employment with the Company or any of its Subsidiaries terminates for any reason, the Committee may in its discretion provide, at any time, that any outstanding Option granted to such Optionee under the Plan shall be exercisable for such period following termination of employment as may be specified by the Committee, subject to the expiration date of such Option. 3 4 (b) Minimum Shares Exercisable. The minimum number of shares with respect to which an Option may be exercised at any one time shall be one hundred (100) shares, or such lesser number as is subject to exercise under the Option at the time. (c) Exercise. Each Option shall be exercisable in such installments (which need not be equal) and at such times as may be designated by the Committee. To the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date the Option expires. (d) Purchase Price. The purchase price per Share subject to each Option shall be determined by the Committee; provided, however, that the purchase price per Share subject to each Incentive Option shall be not less than the fair market value of the Shares on the date such Option is granted, which unless otherwise determined by the Committee in any particular case shall be deemed to be the average closing price of the Shares as reported on the principal stock exchange on which the Shares are listed on each of the ten business days immediately preceding the date of the grant of the Option. (e) Rights of Optionees. No Optionee shall be deemed for any purpose to be the owner of any Shares subject to any Option unless and until (i) the Option shall have been exercised pursuant to the terms thereof, (ii) all requirements under applicable law and regulations shall have been complied with to the satisfaction of the Company, (iii) the Company shall have issued and delivered the Shares to the Optionee, and (iv) the Optionee's name shall have been entered as a stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such Shares. (f) Transfer. No Option granted hereunder shall be transferable by the Optionee other than by will or by the laws of descent and distribution, and such Option may be exercised during the Optionee's lifetime only by the Optionee, or his or her guardian or legal representative. Notwithstanding the foregoing, the Committee may provide in an option agreement that the optionee may transfer, without consideration for the transfer, his Nonqualified Option to members of his immediate family, to trusts for the benefit of such family members, to partnerships in which such family members are the only partners and to charities. 6. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE (a) Any Option granted under the Plan may be exercised by the Optionee in whole or, subject to Section 5 (b) hereof, in part by delivering to the Company on any business day a written notice specifying the number of Shares the Optionee then desires to purchase (the "Notice"). (b) Payment for the Shares purchased pursuant to the exercise of any Option shall be made either: (i) in cash or by check for good funds or other payment acceptable to the Company equal to the Option exercise price for the number of shares specified in the Notice (the "Total Option Price"); (ii) if authorized by the applicable option agreement and if 4 5 permitted by law, by delivery of Shares that the Optionee may freely transfer having a fair market value, determined by reference to the provisions of Section 5 (d) hereof, equal to or less than the Total Option Price, plus cash in an amount equal to the excess, if any, of the Total Option Price over the fair market value of such Shares; (iii) by the Optionee delivering the Notice to the Company together with irrevocable instructions to a broker to promptly deliver the Total Option Price to the Company in cash or by other method of payment acceptable to the Company, provided, however, that the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity or other agreements as the Company shall prescribe as a condition of payment under this clause (iii); (iv) if the Directors have authorized the loan of funds to the Optionee for the purpose of enabling or assisting the Optionee to effect the exercise of the Option, with the proceeds of such loan; or (v) any combination of the foregoing which in the aggregate equals the Total Option Price. (c) The delivery of certificates representing Shares to be purchased pursuant to the exercise of an Option will be contingent upon the Company's receipt of the Total Option Price and of any written representations from the Optionee required by the Committee, and the fulfillment of any other requirements contained in the option agreement or applicable provisions of law. 7. OPTIONS GRANTED TO INDEPENDENT DIRECTORS (a) Each Director who is not also an employee of the Company or any of its Subsidiaries (an "Independent Director") who is serving as Director of the Company on the next business day after the adjournment of each annual meeting of stockholders, beginning with the 1996 annual meeting, shall automatically be granted on such day a Nonqualified Option to acquire 2,500 Shares. The exercise price per share for the Shares covered by an Option granted under this Section 7 shall be equal to the fair market value of the Shares, determined by reference to the formula stated in Section 5(d), on the date the Option is granted. (b) An Option granted under this Section 7 shall be exercisable in full as of the grant date and for a term of ten years thereafter provided that if the Optionee ceases to be a Director for any reason, such Option shall thereafter be exercisable by the Optionee, or by his or her legal representative, for a period of two years from the date of termination, or until the expiration of the stated term of the Option if earlier. Options granted under this Section 7 may be exercised only by written notice to the Company specifying the number of shares to be purchased. Payment of the full purchase price of the shares to be purchased may be made by one or more of the methods specified in Section 6(b) (i), (ii) or (iii). An Optionee shall have the rights of a stockholder only as to Shares acquired upon the exercise of an Option and not as to unexercised Options. (c) The provisions of this Section 7 shall govern the rights and obligations of the Company and Independent Directors respecting Options granted or to be granted to Independent Directors pursuant to this Section 7, notwithstanding any other provision of the Plan. 5 6 8. RESTRICTED STOCK AWARDS (a) A Restricted Stock Award is an Award entitling the recipient to acquire Shares, at par value or such other purchase price determined by the Committee, subject to such restrictions and conditions as the Committee may determine at the time of grant ("Restricted Stock"). Conditions may be based on continuing employment (or other business relationship) and/or achievement of pre-established performance goals and objectives. (b) Upon execution of a written instrument setting forth the Restricted Stock Award and paying any applicable purchase price, a Grantee shall have the rights of a stockholder with respect to the voting of the Restricted Stock, subject to such conditions contained in the written instrument evidencing the Restricted Stock Award. Unless the Committee shall otherwise determine, certificates, evidencing the Restricted Stock shall remain in the possession of the Company until such Restricted Stock is vested as provided in Section 8(d) below. (c) Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the written instrument evidencing the Restricted Stock Award. If a Grantee's employment (or other business relationship) with the Company and its Subsidiaries terminates for any reason, the Company shall have the right to repurchase all shares of Restricted Stock with respect to which conditions have not lapsed at their purchase price, from the Grantee or the Grantee's legal representative. (d) The Committee at the time of grant shall specify the date or dates and/or the attainment of preestablished performance goals, objectives and other conditions on which the non-transferability of the Restricted Stock and the Company's right of repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or the attainment of such pre-established performance goals, objectives and other conditions, the shares on which all restrictions have lapsed shall no longer be Restricted Stock and shall be deemed "vested." Except as may otherwise be provided by the Committee at any time, a Grantee's rights in any shares of Restricted Stock that have not vested shall automatically terminate upon the Grantee's termination of employment (or other business relationship) with the Company and its Subsidiaries and such shares shall either be forfeited or subject to the Company's right of repurchase as provided in this Section 8. (e) The written instrument evidencing the Restricted Stock Award may require or permit the immediate payment, waiver, deferral or investment of dividends paid on the Restricted Stock. 9. UNRESTRICTED STOCK AWARDS (a) The Committee may, in its sole discretion, grant (or sell at a purchase price determined by the Committee) an Unrestricted Stock Award, pursuant to which the Grantee may receive Shares free of any restrictions under the Plan. Unrestricted Stock Awards may 6 7 be granted or sold as described in the preceding sentence in respect of past services or other valid consideration, or in lieu of any cash compensation due to such Grantee. (b) The Committee may permit the Grantee of any Unrestricted Stock Award to elect in advance to defer receipt of such Award in accordance with such rules and procedures as may be established by the Committee for that purpose. The Grantee of any deferred Unrestricted Stock Award shall be entitled to receive Dividend Equivalent Rights on the deferred Shares unless otherwise specified by the Committee. (c) The right to receive Shares on a deferred basis may not be sold, assigned, transferred, pledged or otherwise encumbered, other than by will or the laws of descent and distribution. 10. PERFORMANCE SHARE AWARDS (a) Nature of Performance Share Awards. A Performance Share Award is an Award entitling the recipient to acquire Shares upon the attainment of specified performance goals. The Committee may make Performance Share Awards independent of or in connection with the granting of any other Award under the Plan. The Committee in its sole discretion shall determine whether and to whom Performance Share Awards shall be made, the performance goals applicable under each such Award, the periods during which performance is to be measured, and all other limitations and conditions applicable to the Performance Share Awards. (b) Restrictions on Transfer. Performance Share Awards and all rights with respect to such Awards may not be sold, assigned, transferred, pledged or otherwise encumbered, other than by will or the laws of descent and distribution. (c) Rights as a Shareholder. A participant receiving a Performance Share Award shall have the rights of a shareholder only as to Shares actually received by the participant under the Plan and not with respect to Shares subject to the Award but not actually received by the participant. A participant shall be entitled to receive a stock certificate evidencing the acquisition of Shares under a Performance Share Award only upon satisfaction of all conditions specified in the written instrument evidencing the Performance Share Award (or in a performance plan adopted by the Committee). (d) Termination. Except as may otherwise be provided by the Committee at any time prior to termination of employment (or other business relationship), a participant's rights in all Performance Share Awards shall automatically terminate upon the participant's termination of employment (or business relationship) with the Company and its Subsidiaries for any reason. (e) Acceleration, Waiver, Etc. At any time prior to the participant's termination of employment (or other business relationship), the Committee may in its sole discretion accelerate, waive or, subject to Section 17 hereof, amend any or all of the goals, restrictions or conditions imposed under any Performance Share Award. 7 8 11. STOCK APPRECIATION RIGHTS (a) Nature of Stock Appreciation Rights. A Stock Appreciation Right is an Award entitling the recipient to receive an amount in cash or Shares or a combination thereof having a value equal to the excess of the fair market value of a Share, determined by reference to Section 5(d) hereof, on the date of exercise over the exercise price per Stock Appreciation Right set by the Committee at the time of grant, which price shall not be less than 85% of the fair market value of the Shares on the grant date (or over the option exercise price per share, if the Stock Appreciation Right was granted in tandem with an Option) multiplied by the number of Shares with respect to which the Stock Appreciation Right shall have been exercised, with the Committee having the right to determine the form of payment. (b) Grant of Stock Appreciation Rights. A Stock Appreciation Right may be granted by the Committee in tandem with, or independently of, any Option granted pursuant to the Plan (other than Options granted pursuant to Section 7). In the case of a Stock Appreciation Right granted in tandem with a Nonqualified Option, such Stock Appreciation Right may be granted either at or after the time of the grant of such Option. In the case of a Stock Appreciation Right granted in tandem with an Incentive Stock Option, such Stock Appreciation Right may be granted only at the time of the grant of the Option. (c) Terms and Conditions of Stock Appreciation Rights. Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined from time to time by the Committee, subject to the following: (i) Stock Appreciation Rights granted in tandem with an Option shall be exercisable at such time or times and to the extent that the related Option shall be exercisable. (ii) A Stock Appreciation Right or applicable portion thereof granted in tandem with an Option shall terminate and no longer be exercisable upon the termination or exercise of the related Option. Upon exercise of a Stock Appreciation Right, the applicable portion of any related Option shall be surrendered. (iii) Stock Appreciation Rights granted in tandem with an Option shall be transferable only when and to the extent that the underlying Option would be transferable. Stock Appreciation Rights not granted in tandem with a Option shall not be transferable otherwise than by will or the laws of descent or distribution. All Stock Appreciation Rights shall be exercisable during the participant's lifetime only by the participant or the participant's legal representative. 12. DIVIDEND EQUIVALENT RIGHTS (a) Dividend Equivalent Rights. A Dividend Equivalent Right is an Award entitling the recipient to receive credits based on cash dividends that would be paid on the Shares specified in the Dividend Equivalent Right (or other Award to which it relates) if such Shares were held by the recipient. A Dividend Equivalent Right may be granted hereunder 8 9 as a component of another Award or as a freestanding Award. The terms and conditions of Dividend Equivalent Rights shall be specified in the grant. Dividend equivalents credited to the holder of a Dividend Equivalent Right may be paid currently or may be deemed to be reinvested in additional Shares, which may thereafter accrue additional equivalents. Any such reinvestment shall be at fair market value of the Shares, determined by reference to Section 5(d) hereof, on the date of reinvestment or, at the discretion of the Company, at such other price as may then apply under any dividend reinvestment plan sponsored by the Company. Dividend Equivalent Rights may be settled in cash or Shares or a combination thereof, in a single installment or installments, at the discretion of the Company. A Dividend Equivalent Right granted as a component of another Award may provide that such Dividend Equivalent Right shall be settled upon exercise, settlement, or payment of, or lapse of restrictions on, such other Award, and that such Dividend Equivalent Right shall expire or be forfeited or annulled under the same conditions as such other Award. A Dividend Equivalent Right granted as a component of another Award may also contain terms and conditions different from such other Award. (b) Interest Equivalents. Any Award under the Plan that is settled in whole or in part in cash on a deferred basis may provide in the grant for interest equivalents to be credited with respect to such cash payment. Interest equivalents may be compounded and shall be paid upon such terms and conditions as may be specified by the grant. 13. ADJUSTMENT UPON CHANGES IN CAPITALIZATION (a) If the Shares as a whole are increased, decreased, changed into or exchanged for a different number or kind of shares or securities of the Company, whether through merger, consolidation, reorganization, recapitalization, reclassification, stock dividend, stock split, combination of shares, exchange of shares, change in corporate structure or the like, an appropriate and proportionate adjustment shall be made in the number and kind of shares subject to the Plan, and in the number, kind, and per share exercise price of shares subject to outstanding unexercised Options or other Awards or portions thereof granted prior to any such change; but no such adjustments shall be made with respect to outstanding unexercised Options or other Awards solely as a result of the Company's issuance of additional Shares or purchase of outstanding Shares in either case for fair consideration as determined by the Board of Directors. In the event of any such adjustment in an outstanding Award, the Optionee or Grantee thereafter shall have the right to purchase the number of Shares under such Award at the per share price, as so adjusted, which the Optionee or Grantee could purchase at the total purchase price applicable to the Award immediately prior to such adjustment. (b) Adjustments under this Section 13 shall be determined by the Committee and such determinations shall be conclusive. The Committee shall have the discretion and power in any such event to determine and to make effective provision for acceleration of the time or times at which any Option or portion thereof shall become exercisable. No fractional Shares shall be issued under the Plan on account of any adjustment specified above. 9 10 14. EFFECT OF CERTAIN TRANSACTIONS In the case of (i) the dissolution or liquidation of the Company, (ii) a reorganization, merger, consolidation or other business combination in which the Company is acquired by another entity or in which the Company is not the surviving entity, or (iii) the sale of all or substantially all of the assets of the Company to another entity, the Plan and the Awards issued hereunder shall terminate upon the effectiveness of any such transaction or event, unless provision is made in connection with such transaction for the assumption of Awards theretofore granted, or the substitution for such Awards of new awards, by the successor entity or parent thereof, with appropriate adjustment as to the number and kind of shares and the per share exercise prices, as provided in Section 13. In the event of such termination, all outstanding Options and Stock Appreciation Rights shall be exercisable in full for at least fifteen days prior to the date of such termination whether or not otherwise exercisable during such period. 15. TAX WITHHOLDING (a) Each Grantee (which term shall be deemed to include an Optionee) shall, no later than the date as of which the value of any Award granted hereunder or of any Shares or other amounts received thereunder first becomes includable in the gross income of the Grantee for federal income tax purposes (the "Tax Date"), pay to the Company, or make arrangements satisfactory to the Company regarding payment of, any federal, state, or local taxes of any kind required by law to be withheld with respect to such income. (b) With the consent of the Committee, a Grantee may elect to have such tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from Shares to be issued pursuant to an Award a number of Shares with an aggregate fair market value (determined in accordance with Section 5(d) as of the date the withholding is effected) that would satisfy the withholding amount due, or (ii) transferring to the Company Shares owned by the Grantee with an aggregate fair market value (determined in accordance with Section 5(d) as of the date the withholding is effected) that would satisfy the withholding amount due. 16. CHANGE OF CONTROL PROVISIONS Upon the occurrence of a Change of Control as defined in this Section 16: (a) Each outstanding Option and Stock Appreciation Right shall automatically become fully exercisable. (b) All restrictions and conditions on each Restricted Stock Award, Performance Share Award and Dividend Equivalent Right shall automatically lapse and all Awards under the Plan shall be deemed fully vested. (c) "Change of Control" shall mean the occurrence of any one of the following events: 10 11 (i) any "person," as such term is used in Sections 13(d) and 14(d) of the Act (other than the Company, any of its Subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its Subsidiaries), together with all "affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 25% or more of either (A) the combined voting power of the Company's then outstanding securities having the right to vote in an election of the Board of Directors ("voting securities") or (B) the then outstanding Shares (in either such case other than as a result of an acquisition of securities directly from the Company); or (ii) persons who, as of the effective date of the amendment and restatement of the Plan, constitute the Company's Board of Directors (the "Incumbent Directors") cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a Director of the Company subsequent to the Effective Date whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors shall, for purposes of this Plan, be considered an Incumbent Director; or (iii) the stockholders of the Company shall approve (A) any consolidation or merger of the Company or any Subsidiary where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate 80% or more of the voting securities of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or (C) any plan or proposal for the liquidation or dissolution of the Company. Notwithstanding the foregoing, a "Change of Control" shall not be deemed to have occurred for purposes of the foregoing clause (i) solely as the result of an acquisition of securities by the Company which, by reducing the number of Shares or other voting securities outstanding, increases (x) the proportionate number of Shares beneficially owned by any person to 25% or more of the Shares then outstanding or (y) the proportionate voting power represented by the voting securities beneficially owned by any person to 25% or more of the combined voting power of all then outstanding voting securities; provided, however, that if any person referred to in clause (x) or (y) of this sentence shall thereafter become the beneficial owner of any additional Shares or other voting securities (other than pursuant to a stock split, stock dividend, or similar transaction), then a "Change of Control" shall be deemed to have occurred for purposes of the foregoing clause (i). 11 12 17. AMENDMENT OF THE PLAN The Board of Directors may discontinue the Plan or amend the Plan at any time, and from time to time, subject to any required regulatory approval, the limitation set forth in Section 7(c) and the limitation that, except as provided in Sections 5, 13 and 14 hereof, no amendment shall be effective unless approved by the stockholders of the Company in accordance with applicable law and regulations at an annual or special meeting held within twelve months before or after the date of adoption of such amendment, where such amendment will: (a) increase the number of Shares as to which Awards may be granted under the Plan. (b) change in substance Section 4 hereof relating to eligibility to participate in the Plan; (c) change in substance Section 5(d) relating to the requirement that the purchase price per Share subject to each Incentive Option be not less than the fair market value of the Shares on the date such Incentive Option is granted; (d) increase the maximum term of Options provided for herein; or (e) otherwise materially increase the benefits accruing to participants under the Plan. Except as provided in Section 5, 13 and 14 hereof, rights and obligations under any Award granted before any amendment of the Plan shall not be altered or impaired by such amendment, except with the consent of the Grantee. 18. NONEXCLUSIVITY OF THE PLAN Neither the adoption of the Plan by the Board of Directors nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board of Directors to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of Shares or stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. Neither the Plan nor any Award granted hereunder shall be deemed to confer upon any employee any right to continued employment with the Company or its Subsidiaries. 19. GOVERNMENT AND OTHER REGULATIONS; GOVERNING LAW (a) The obligation of the Company to sell and deliver Shares with respect to Awards granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such 12 13 approvals by governmental agencies as may be deemed necessary or appropriate by the Committee. (b) The Plan shall be governed by Maryland law, except to the extent that such law is preempted by federal law. 20. EFFECTIVE DATE OF PLAN; STOCKHOLDER APPROVAL The Plan first became effective on March 4, 1993, the date that it was approved by the Board of Trustees of the Company's predecessor, Bradley Real Estate Trust; the Plan was approved by the shareholders of said Trust in accordance with applicable laws and regulations at the annual meeting held on May 20, 1993. The Plan was amended and restated by the Board of Directors on March 13, 1996; such amendment and restatement was approved by the stockholders of the Company in accordance with applicable laws and regulations at the annual meeting held on May 9, 1996. Following amendment by the Securities and Exchange Commission of Rule 16b-3 under the Act effective August 15, 1996, the Plan was further amended and restated by the Board of Directors on September 9, 1996. No Awards may be granted under the Plan after March 4, 2003 the tenth anniversary of the original effective date of the Plan. 13 EX-21.1 3 LIST OF SUBSIDIARIES 1 Exhibit 21.1 SUBSIDIARIES OF BRADLEY REAL ESTATE, INC. Bradley Real Estate Management, Inc., a Massachusetts corporation Bradley Midwest Management, Inc., a Minnesota corporation Bradley Operating Limited Partnership, a Delaware limited partnership Bradley Financing Corp., a Delaware corporation Bradley Financing Partnership, a Delaware partnership Bradley Management Corp., a Delaware corporation Bradley Management Limited Partnership, a Delaware limited partnership Williamson Square Associates Limited Partnership, an Illinois limited partnership 64 EX-23.1 4 CONSENT OF INDEPENDENT AUDITORS 1 Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Bradley Real Estate, Inc.: We consent to incorporation by reference in the registration statements (Nos. 33-87084 and 33-62200) on Form S-3 and the registration statements (Nos. 33-34884 and 33-65180) on Form S-8 of Bradley Real Estate, Inc. of our report dated January 24, 1997, except as to Note 10, which is as of March 13, 1997, relating to the consolidated balance sheets and related schedule of Bradley Real Estate, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, changes in share owners' equity and cash flows for each of the years in the three-year period ended December 31, 1996, which report appears in the December 31, 1996, annual report on Form 10-K405 of Bradley Real Estate, Inc. KPMG PEAT MARWICK LLP Boston, Massachusetts March 24, 1997 65 -----END PRIVACY-ENHANCED MESSAGE-----