-----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, DFZCcSbA9Pye8uRMOtZ2F5rqMQplDK+N4HpktpiExKUWKd+nwrCjO2fQojPWMqca UGJcRoyFKj+mtwE4fS4lYg== 0000950137-99-000587.txt : 19990330 0000950137-99-000587.hdr.sgml : 19990330 ACCESSION NUMBER: 0000950137-99-000587 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990329 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: SEC FILE NUMBER: 001-10328 FILM NUMBER: 99575282 BUSINESS ADDRESS: STREET 1: 40 SKOKIE BLVD STE 600 CITY: NORTHBROOK STATE: IL ZIP: 60062-1626 BUSINESS PHONE: 8472729800 MAIL ADDRESS: STREET 1: 40 SKOKIE BOULEVARD SUITE 600 CITY: NORTHBROOK STATE: IL ZIP: 60062-1626 FORMER COMPANY: FORMER CONFORMED NAME: BRADLEY REAL ESTATE TRUST DATE OF NAME CHANGE: 19920703 10-K405 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 15(d) of the Securities Exchange Act of 1934 X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1998 Commission File Number 1-10328 BRADLEY REAL ESTATE, INC. (Exact name of Registrant as specified in its charter) Maryland 04-6034603 (State of Organization) (I.R.S. Employer Identification No.) 40 Skokie Blvd., Northbrook, IL 60062 (Address of Principal Executive Offices) (ZIP Code) Registrant's telephone number, including area code (847) 272-9800 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X , No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of 23,685,841 shares of Common Stock believed to be held by non-affiliates of the registrant based upon the $19 3/16 closing price for such Shares on March 1, 1999, on the New York Stock Exchange: $454,472,074 Number of Common Shares outstanding as of March 1, 1999: 24,055,930 DOCUMENTS INCORPORATED BY REFERENCE Registrant expects to file no later than April 1, 1999, its definitive Proxy Statement for the 1999 Annual Meeting of Stockholders and hereby incorporates by reference into Part III hereof the portions thereof described in Items 10, 11, 12 and 13 hereof. 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, AS AMENDED. FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS "ANTICIPATES," "BELIEVES," "EXPECTS," "INTENDS," "FUTURE," AND WORDS OF SIMILAR IMPORT WHICH EXPRESS OUR BELIEF, EXPECTATIONS OR INTENTIONS REGARDING OUR ABILITY TO OBTAIN DEBT OR EQUITY FINANCING, OUR QUALIFICATION AS A REIT, POTENTIAL ACQUISITIONS OR DISPOSITIONS OF PROPERTIES, PORTFOLIOS OR OTHER ENTITIES, OUR CAPITAL RESOURCES AND LIQUIDITY, DEVELOPMENT ACTIVITIES AND OTHER TRENDS OR EVENTS AFFECTING OUR FINANCIAL CONDITION OR RESULTS OF OPERATIONS. WE CAUTION YOU THAT, WHILE FORWARD-LOOKING STATEMENTS REFLECT OUR GOOD FAITH BELIEFS, THEY ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES WHICH MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANTICIPATED FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF FACTORS OUTSIDE OF OUR CONTROL. IN ADDITION, WE DISCLAIM ANY OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENT, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. CERTAIN FACTORS THAT MIGHT CAUSE SUCH DIFFERENCES ARE DISCUSSED IN THE SECTION ENTITLED "RISK FACTORS" ON PAGE 15 OF THIS REPORT. PART I ITEM 1. BUSINESS Bradley Real Estate, Inc., Bradley Operating Limited Partnership and their subsidiaries and affiliated partnerships are separate legal entities. For ease of reference, the terms "we," "us," and "ours" refer to the business and properties of all these entities, unless the context indicates otherwise. Similarly, references to Bradley or Bradley Operating Limited Partnership (commonly referred to as "the Operating Partnership") in discussions of Bradley's business also refer to Bradley's predecessors, subsidiaries and affiliated entities, unless the context indicates otherwise. General Bradley is a real estate investment trust with internal property management, leasing and development capabilities that owns and operates, develops and redevelops community and neighborhood shopping centers in the Midwest region of the United States. Such centers are typically anchored by grocery stores which are complemented with other tenants providing a wide range of other goods and services to shoppers. As a result, the centers are used by members of the surrounding community for their day-to-day living needs. Our mission is to provide superior total returns to our shareowners by creating sustainable growth in per share cash flow through the ownership, operation, development and redevelopment of grocery-anchored retail properties in the Midwest region of the United States. Based on our past experience, we believe this type of shopping center offers strong and predictable daily consumer traffic and is less susceptible to downturns in the general economy than shopping centers whose principal tenants are department stores or stores primarily selling apparel or leisure items. As of December 31, 1998, we owned 98 properties in 16 states, aggregating approximately 15.8 million square feet of gross leasable area. Title to such properties is held by or for the benefit of Bradley Operating Limited Partnership. Bradley conducts substantially all of its business through the Operating Partnership. Bradley is currently the sole general partner and owner of approximately 87% of the economic interests in the Operating Partnership. Our portfolio of shopping centers consists of a diverse tenant base, comprising over 2,000 leases with no one tenant accounting for as much as 4% of annualized base rent. Over the past several years we have further diversified our income stream across many Midwest markets in order to insulate the Company from economic trends affecting any particular market. As part of our ongoing business, we regularly evaluate, and engage in discussions with public and private entities regarding possible portfolio or asset acquisitions or business combinations. In evaluating potential acquisitions, we focus principally on community and neighborhood shopping centers in our Midwest target market that are anchored by strong national, regional and independent grocery store chains. During 1997, we acquired 25 shopping centers aggregating over 3.1 million square feet of gross leasable area for an aggregate acquisition price of approximately $189.3 million. On August 6, 1998, we completed the merger acquisition of Mid-America Realty Investments, Inc., a REIT owning interests in 25 properties aggregating approximately 3.3 million square feet primarily located in the Midwest region of the United States. In addition to the properties acquired in connection with the merger acquisition of Mid- 2 3 America, during 1998 we acquired 22 properties, aggregating 3.0 million square feet of gross leasable area for an aggregate acquisition price of approximately $202.8 million. Our finance, accounting, research and administrative functions are handled by a central office staff located in our Northbrook, Illinois headquarters. We maintain regional property management and leasing offices at properties located in Chicago, Peoria, Minneapolis, St. Louis, Indianapolis, Kansas City, Louisville, Milwaukee, Nashville, and Omaha in order that as many properties as practicable have professionals located within a one to two hour drive. At December 31, 1998, we had 206 employees. 1998 Highlights During 1998, we continued to focus on three main strategic objectives: maximizing the cash flows from our existing properties, continuing to grow through opportunistic acquisitions, and positioning our capital structure for future growth. Management and Leasing Activity Our management and leasing activities focus on maximizing current cash flows from our properties while enhancing long-term value. Primary attention during 1998 was focused on the retenanting of several major vacancies at certain of our properties while continuing to improve overall occupancy rates, seeking new tenants and renewing current tenants at favorable rates. - - The properties at December 31, 1998 had an aggregate occupancy rate of 93%. - - During 1998, we signed 142 new leases totaling 663,000 square feet at an average rent for comparable space of $10.91 per square foot, representing an increase of 11.9% over the prior average rental rate. - - During 1998, we renewed 170 leases totaling 658,000 square feet at an average rate of $10.07 per square foot, representing an increase per square foot of 6.2% over the prior average rental rate. - - Significant leases completed during 1998 included the following: - 30,000 square-foot lease with Toys 'R Us at Commons of Crystal Lake for half the space formerly occupied by Jewel/Osco, which signed a lease for a newly expanded 71,000 square-foot space at this center - 71,000 square-foot space for Regal Cinema at Rollins Crossing - 62,000 square-foot lease with Carson Pirie Scott at Heritage Square to replace approximately one half the space previously occupied by Montgomery Ward & Co., Incorporated, which declared bankruptcy in July 1997 and vacated in early 1998 - 36,000 square-foot lease with Babies 'R Us at High Point Centre - 28,000 square-foot lease with Marshalls at Commons of Crystal Lake - 26,000 square-foot lease with Bally's Total Fitness at Sun Ray Shopping Center - 24,000 square-foot lease with Dunham's Athleisure at Burning Tree Plaza - 22,000 square-foot lease with Pep Boys at Brookdale Square - - Leasing challenges for 1999 include the remaining space previously occupied by Montgomery Ward & Co., Incorporated, at Heritage Square and a 54,000 square-foot vacancy at Har Mar Mall previously occupied by HomePlace, which declared bankruptcy in January 1998 and vacated in August. Leases for both spaces are currently under negotiation, although there can be no assurance that any such lease will be completed. Additional challenges for 1999 include leasing small shop space on favorable terms. However, with an increased presence in our Midwest market, we believe we are well positioned to take advantage of our relationships with both national and regional tenants who have stores located throughout the Midwest. Acquisitions The goal for 1998 acquisition activity was to complete $200 million of new investments which met our investment criteria, thus furthering our franchise in grocery-anchored retail centers located within our Midwest markets. Our investment criteria is focused upon demographic trends, anchor strength and lease term, stability among non-anchor tenants, and minimum acceptable initial yields, which we believe can be increased through our operating and leasing experience and in certain instances through strategic capital improvements in order to generate returns in excess of our weighted cost of capital. - - In connection with the merger acquisition of Mid-America, we acquired 25 properties aggregating approximately 3.3 million square feet primarily located in the Midwest region of the United States. The transaction was completed through the issuance of approximately 3.5 million shares of Series A Convertible Preferred Stock, the payment of certain transaction costs and the assumption of all of Mid-America's liabilities, making the aggregate purchase price approximately $159 million. - - In addition to the properties acquired in connection with the merger acquisition of Mid-America, we acquired 22 shopping centers and two outlots adjacent to one of our existing shopping centers, aggregating 3.0 million square feet of gross leasable area for an aggregate acquisition price of approximately $202.8 million. 3 4 - - 1998 acquisitions included ten shopping centers in Nebraska, seven in Wisconsin, six in Indiana, four in Kentucky, four in Missouri, three in Michigan, three in Illinois, two in Minnesota, two in Ohio, and one each in Arkansas, Georgia, Iowa, Kansas, South Dakota, and Tennessee. - - We funded the acquisitions through a combination of cash provided by the line of credit, the assumption of secured mortgage indebtedness, the issuance of convertible preferred stock, and the issuance of limited partnership units in the Operating Partnership which are redeemable in exchange for common stock. - - Due to a current difficult capital markets environment for REITs, we expect our acquisition pace to slow meaningfully in 1999. However, as discussed above, in the event capital markets improve significantly, we are poised to take advantage of favorable opportunities, and will align the level of investment activity to match capital flows accordingly. Acquisition challenges for 1999 are to replace certain non-core assets which are currently held for sale with the acquisition of additional shopping centers in our target market that are more in keeping with our grocery-anchored community shopping center focus. Dispositions One of our primary goals for 1998 was the disposition of One North State Street, a 640,000 square-foot mixed-use building located in the "loop" area of downtown Chicago, as well as to continue to identify for disposition certain shopping center properties not in keeping with our current strategic property focus or market strategy. The challenge was to dispose such properties on economically favorable terms such that the proceeds could be redeployed into shopping centers with higher growth potential, requiring lower property management intensity or with a tenant base more consistent with our current strategy. - - On July 31, 1998, we completed the sale of One North State for a net sales price of $82.1 million, generating a gain on sale of $30.6 million for financial reporting purposes. Six days later, a substantial portion of the net proceeds were used for the merger acquisition of Mid-America, with the remaining proceeds redeployed within a month for the acquisition of additional shopping centers within our target market and that are more in keeping with our grocery-anchored community shopping center focus. - - Because One North State Street had historically generated more than 10% of our revenues, its sale immediately diversified our income stream across several properties so that no one property currently generates as much as 5% of total revenues, and no tenant accounts for as much as 4% of total base rent. - - In May 1998, we completed the sale of Holiday Plaza, a 46,000 square-foot property located in Iowa for a net sales price of $1.9 million, resulting in a loss of $0.9 million for financial reporting purposes. We acquired the property in connection with a portfolio acquisition in 1997 and considered it to be a non-core property. - - As of December 31, 1998, we were holding for sale six non-core properties, consisting of four enclosed malls and two community shopping centers, all acquired in connection with the merger acquisition of Mid-America. Since the merger acquisition, the net book value of these properties, $46.5 million, has been classified on the consolidated balance sheet as "Real estate investments held for sale." The four enclosed malls are not aligned with our strategic property focus. The remaining two shopping center properties are located in the Southeast region of the United States, and are not aligned with our strategic market focus. Our challenge for 1999 will be to complete a sale or sales that minimize the spread between the yield generated by such properties and the immediate and ultimate redeployment of the sales proceeds, which may be dilutive to earnings in the near term. Even with near term dilution, however, we believe the proceeds can be better invested in properties with higher growth potential and risk adjusted returns. We expect to use the net proceeds from such sale or sales to reduce outstanding indebtedness under the line of credit with the expectation that the increased borrowing capacity under the line of credit would be used to acquire or develop additional shopping centers within our target market and that are more in keeping with our grocery-anchored community shopping center focus. Development Although we have developed or redeveloped several of our existing shopping centers, we have not historically been an active developer of properties. However, we view an active development program as a natural extension of our core business, and during 1999 we plan to invest the resources necessary to begin to establish Bradley as a leading developer in grocery-anchored retail shopping centers within our Midwest markets. With over 200 professionals operating out of 10 regional offices, a portfolio consisting of 16 million square feet of retail space, access to investment grade debt and equity markets and strong relations with the region's dominant grocery store operators, we believe we are uniquely positioned to pursue an aggressive focused development strategy. We began this activity during 1998 as we entered into a co-development program with an affiliate of Oppidan, Inc., a developer of Midwest grocery-anchored shopping centers, based in Minneapolis. Under terms of the agreement, Bradley and Oppidan work together on all aspects of the development process and share in the value created from the new developments, with Bradley purchasing the properties upon completion. We believe this arrangement allows us to acquire quality grocery-anchored properties at favorable yields. We currently have three properties under the agreement in varying stages of development, which are 4 5 expected to be completed in 1999 and early 2000. Upon completion, these properties are expected to have a value of approximately $40 million. Our challenge for 1999 is to expand our development focus, complementing our co-developments with increased internal development capabilities to develop community and neighborhood shopping centers in selected Midwest markets, where we believe that value can be created more effectively than from acquisitions of existing shopping center properties. Capital Structure Activity We established specific goals for 1998 in enhancing the flexibility of our capital structure. We focused our efforts on strengthening our financial position, increasing capital raising alternatives while lowering our overall blended cost of capital, all toward positioning ourselves to take advantage of favorable opportunities for growth. We believe we were largely successful in pursuit of these goals through the following capital market activities: Equity Activity - - In February 1998, we raised $7.6 million of net proceeds from a public offering of 392,638 shares of common stock to a unit investment trust. - - In August 1998, we issued 3.5 million shares of a newly created 8.4% Series A Convertible Preferred Stock valued at $87 million in connection with the merger acquisition of Mid-America. - - In November 1998, we adopted a new Dividend Reinvestment and Stock Purchase Plan to provide both new and existing owners of our common stock, Series A Convertible Preferred Stock and other classes of equity securities outstanding from time to time, as well as existing owners of limited partnership units of the Operating Partnership, with an economical and convenient method of increasing their investment in the Company. Under the plan, participants may purchase additional shares of common stock at a discount (ranging from 0% to 3% as we determine in our sole discretion from time to time) and without brokerage fees or other transaction costs by: - reinvesting all or a portion of their cash dividends, - purchasing shares of common stock directly from us as frequently as once per month by making optional cash payments of a minimum of $100 to a maximum of $10,000 per quarter, or - with our prior approval, purchasing shares of common stock directly from us by making optional cash payments in excess of $10,000. - - During 1998, we raised $6.0 million of net proceeds under the Dividend Reinvestment and Stock Purchase Plan, an increase from $0.8 million in the prior year. Debt Activity - - In January 1998, we completed an offering of $100 million of 7.2% ten-year unsecured Notes maturing in January 2008 from a $300 million "shelf" registration statement which was filed and declared effective in November 1997. The effective interest rate on the Notes is 7.611%. The issue was rated "BBB-" by Standard & Poor's Investment Services and "Baa3" by Moody's Investors Service. - - In May 1998, we filed a "shelf" registration under which the Operating Partnership may issue up to $400 million in unsecured non-convertible investment grade debt securities, giving us the flexibility to issue such debt securities from time to time when we determine that market conditions and the opportunity to utilize the proceeds from the issuance of such securities are favorable. - - In September 1998, we implemented a Medium-Term Note Program providing the Operating Partnership with the added flexibility of issuing Medium-Term Notes due nine months or more from the date of issue in small amounts in an aggregate principal amount of up to $150 million from time to time using the debt "shelf" registration in an efficient and expeditious manner. - - In November 1998, we amended our $200 million unsecured revolving line of credit, increasing the maximum capacity to $250 million. Positioned for Future Growth - - At December 31, 1998, we had $201.4 million available under an equity "shelf" registration, and $400 million available under the debt "shelf" registration. - - Our total market capitalization stood at $1.1 billion at December 31, 1998. - - Our debt service coverage ratio was 2.9x for 1998. 5 6 - - Subsequent to year-end, we issued $50 million of 8.875% Series B Cumulative Redeemable Preferred Units of the Operating Partnership in a private placement to two institutional investors, utilizing the net proceeds of approximately $49 million to pay-down the outstanding balance on the line of credit, increasing the available borrowing capacity on the line of credit to approximately $130 million. - - Although the current capital market environment for REITs is difficult and expected to remain challenging during 1999, with no debt maturing until February 2000 and ample capacity under our line of credit, we believe we are positioned to take advantage of favorable acquisition, development and redevelopment opportunities from both prospective acquisitions in our target market and from shopping centers in our core portfolio. Our Properties The following table and notes describe our properties and rental information for leases in effect as of December 31, 1998: 6 7
Rentable Occupancy at Year Square December 31, Annualized SHOPPING CENTERS Acquired Feet 1998 1997 Based Rent ---------------- -------- ---- ---- ---- ---------- ARKANSAS Town West Center (2) 1998 142,753 97% N/A $431,961 Paragould, AR - --------------------------------------------------------------------------------------------------- GEORGIA Shenandoah Plaza 1998 141,072 98% N/A 685,100 Newman, GA - --------------------------------------------------------------------------------------------------- ILLINOIS Bartonville Square 1998 55,348 100% N/A 277,059 Peoria, IL - --------------------------------------------------------------------------------------------------- Butterfield Square 1998 106,824 100% N/A 1,190,446 Libertyville, IL - --------------------------------------------------------------------------------------------------- Commons of Chicago Ridge/Annex 1996 308,560 84% 89% 2,365,388 Chicago Ridge, IL - --------------------------------------------------------------------------------------------------- Commons of Crystal Lake 1996 274,634 75% 69% 2,294,593 Crystal Lake, IL - --------------------------------------------------------------------------------------------------- Crossroads Centre 1992 242,320 98% 98% 1,441,313 Fairview Heights, IL - --------------------------------------------------------------------------------------------------- Fairhills Shopping Center 1997 107,529 82% 90% 541,808 Springfield, IL - --------------------------------------------------------------------------------------------------- Heritage Square 1996 212,253 45% 100% 1,418,289 Naperville, IL - --------------------------------------------------------------------------------------------------- High Point Centre 1996 240,254 82% 99% 1,927,979 Lombard, IL - --------------------------------------------------------------------------------------------------- Parkway Pointe 1997 38,587 100% 100% 467,511 Springfield, IL - --------------------------------------------------------------------------------------------------- Rivercrest 1994 482,552 100% 100% 3,905,107 Crestwood, IL - --------------------------------------------------------------------------------------------------- Rollins Crossing 1996 148,643 95% 82% 846,518 Round Lake Beach, IL - --------------------------------------------------------------------------------------------------- Sangamon Center North 1997 139,757 100% 97% $1,040,612 Springfield, IL - ---------------------------------------------------------------------------------------------------
Annualized Base Based Rent Lease Per Square Expiration SHOPPING CENTERS Leased SF Major Tenants (1) Feet Date ---------------- --------- ----------------- ---- ---- ARKANSAS Town West Center (2) $3.12 Country Mart 36,000 2007 Paragould, AR Wal-Mart 85,513 2006 - ----------------------------------------------------------------------------------------------------------------- GEORGIA Shenandoah Plaza 4.96 Ingles Market 32,000 2008 Newman, GA Wal-Mart 81,922 2007 - ----------------------------------------------------------------------------------------------------------------- ILLINOIS Bartonville Square 5.01 Kroger 41,824 2000 Peoria, IL - ----------------------------------------------------------------------------------------------------------------- Butterfield Square 11.15 Sunset Foods 51,677 2012 Libertyville, IL - ----------------------------------------------------------------------------------------------------------------- Commons of Chicago Ridge/Annex 9.17 Office Depot 27,680 2002 Chicago Ridge, IL J.C. Penney Home Store 55,000 2007 Marshalls 27,000 2004 Cineplex Odeon 25,000 2008 Michaels 17,550 2004 Pep Boys 22,354 2015 - ----------------------------------------------------------------------------------------------------------------- Commons of Crystal Lake 11.16 Jewel/Osco 70,790 2018 Crystal Lake, IL - ----------------------------------------------------------------------------------------------------------------- Crossroads Centre 6.06 Walgreen 18,402 2005 Fairview Heights, IL K-Mart (Ground Lease) 96,268 2001 T.J. Maxx 33,200 2006 - ----------------------------------------------------------------------------------------------------------------- Fairhills Shopping Center 6.11 Jewel Food Stores 49,330 2003 Springfield, IL - ----------------------------------------------------------------------------------------------------------------- Heritage Square 14.74 Strouds 26,703 2003 Naperville, IL Circuit City 28,351 2009 - ----------------------------------------------------------------------------------------------------------------- High Point Centre 9.81 Cub Foods 62,000 2008 Lombard, IL Office Depot 25,612 2006 Mac Frugals 17,040 2006 - ----------------------------------------------------------------------------------------------------------------- Parkway Pointe 12.12 Shoe Carnival 10,186 2004 Springfield, IL - ----------------------------------------------------------------------------------------------------------------- Rivercrest 8.11 Dominick's 87,937 2011 Crestwood, IL K-Mart 79,903 2011 Office Max 24,000 2007 Sears 55,000 2001 T.J. Maxx 34,425 2004 PetsMart 31,639 2010 Best Buy 25,000 2008 Hollywood Park 15,000 2000 - ----------------------------------------------------------------------------------------------------------------- Rollins Crossing 5.97 Regal Cinema 71,000 2018 Round Lake Beach, IL Sears Paint and Hardware 21,083 2005 - ----------------------------------------------------------------------------------------------------------------- Sangamon Center North $7.45 Schnuck's Market 63,257 2016 Springfield, IL U.S. Postal Service 16,000 2005 - -----------------------------------------------------------------------------------------------------------------
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Rentable Occupancy at Year Square December 31, Annualized SHOPPING CENTERS Acquired Feet 1998 1997 Based Rent ---------------- -------- ---- ---- ---- ---------- Sheridan Village 1996 296,292 99% 100% 2,260,690 Peoria, IL - --------------------------------------------------------------------------------------------------- Sterling Bazaar 1997/1998 82,837 94% 94% 761,857 Peoria, IL - --------------------------------------------------------------------------------------------------- Twin Oaks Centre 1998 94,702 79% N/A 543,131 Silvis, IL - --------------------------------------------------------------------------------------------------- Wardcliffe Shopping Center 1997 67,497 92% 92% 319,813 Peoria, IL - --------------------------------------------------------------------------------------------------- Westview Center 1993 322,520 94% 93% 2,440,468 Hanover Park, IL - --------------------------------------------------------------------------------------------------- INDIANA County Line Mall 1997 260,785 99% 95% 1,721,996 Indianapolis, IN - --------------------------------------------------------------------------------------------------- Double Tree Plaza 1998 98,179 99% N/A 787,890 Winfield, IN - --------------------------------------------------------------------------------------------------- Germantown 1998 230,580 92% N/A 967,998 Jasper, IN - --------------------------------------------------------------------------------------------------- King's Plaza 1998 105,752 75% N/A 358,806 Richmond, IN - --------------------------------------------------------------------------------------------------- Lincoln Plaza 1998 95,624 98% N/A 595,816 New Haven, IN - --------------------------------------------------------------------------------------------------- Martin's Bittersweet Plaza 1997 78,245 97% 98% 556,926 Mishawaka, IN - --------------------------------------------------------------------------------------------------- Rivergate Shopping Center 1998 133,086 100% N/A 565,212 Shelbyville, IN - --------------------------------------------------------------------------------------------------- Sagamore Park Centre 1998 102,553 95% N/A 912,204 West Lafayette, IN - --------------------------------------------------------------------------------------------------- Speedway SuperCenter & Outlots 1996 541,219 97% 97% 4,022,388 Speedway, IN - --------------------------------------------------------------------------------------------------- The Village 1996 346,214 89% 85% 1,632,901 Gary, IN - ---------------------------------------------------------------------------------------------------
Annualized Base Based Rent Lease Per Square Expiration SHOPPING CENTERS Leased SF Major Tenants (1) Feet Date ---------------- --------- ----------------- ---- ---- Sheridan Village 7.73 Bergners 160,809 2006 Peoria, IL Cohen Furniture 16,600 2009 - ----------------------------------------------------------------------------------------------------------------- Sterling Bazaar 9.76 Kroger 52,337 2011 Peoria, IL - ----------------------------------------------------------------------------------------------------------------- Twin Oaks Centre 7.22 Hy-Vee 59,682 2012 Silvis, IL - ----------------------------------------------------------------------------------------------------------------- Wardcliffe Shopping Center 5.15 Big Lots 26,741 2001 Peoria, IL CVS 16,160 2003 - ----------------------------------------------------------------------------------------------------------------- Westview Center 8.04 Cub Foods 67,163 2009 Hanover Park, IL Waccamaw 60,000 2017 Marshalls 34,302 2004 - ----------------------------------------------------------------------------------------------------------------- INDIANA County Line Mall 6.70 Kroger 52,337 2011 Indianapolis, IN Target 99,321 2002 Office Max/Furniture Max 32,208 2004 - ----------------------------------------------------------------------------------------------------------------- Double Tree Plaza 8.14 Wilco Foods 45,000 2017 Winfield, IN - ----------------------------------------------------------------------------------------------------------------- Germantown 4.55 Buehler's 27,225 2005 Jasper, IN Watson's 32,680 2005 Wal-Mart 109,725 2005 - ----------------------------------------------------------------------------------------------------------------- King's Plaza 4.51 County Market 48,249 2002 Richmond, IN - ----------------------------------------------------------------------------------------------------------------- Lincoln Plaza 6.33 Kroger 39,104 2007 New Haven, IN - ----------------------------------------------------------------------------------------------------------------- Martin's Bittersweet Plaza 7.34 Martin's Supermarket 45,079 2012 Mishawaka, IN Osco Drug 16,000 2012 - ----------------------------------------------------------------------------------------------------------------- Rivergate Shopping Center 4.25 Super Foods 17,420 2006 Shelbyville, IN Wal-Mart 90,666 2006 - ----------------------------------------------------------------------------------------------------------------- Sagamore Park Centre 9.39 Payless Supermarket 43,784 2007 West Lafayette, IN - ----------------------------------------------------------------------------------------------------------------- Speedway SuperCenter & Outlots 7.63 Kroger 59,515 2013 Speedway, IN PetsMart 21,781 2002 Sears 30,825 2004 Factory Card Outlet (3) 16,675 2003 Old Navy 15,000 2005 Lindo Super Spa 16,859 2000 Kittles 25,320 2000 Kohl's 90,027 2004 - ----------------------------------------------------------------------------------------------------------------- The Village 5.30 Goldblatt Brothers 55,000 2000 Gary, IN U.S. Factory Outlets 52,000 2009 American Publishing 19,246 1999 IN Dept. of Workforce 18,050 2000 - -----------------------------------------------------------------------------------------------------------------
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Rentable Occupancy at Year Square December 31, Annualized SHOPPING CENTERS Acquired Feet 1998 1997 Based Rent ---------------- -------- ---- ---- ---- ---------- Washington Lawndale Commons 1996 332,877 100% 99% $1,742,491 Evansville, IN - --------------------------------------------------------------------------------------------------- IOWA Burlington Plaza West 1997 88,070 98% 100% 609,838 Burlington, IA - --------------------------------------------------------------------------------------------------- Davenport Retail Center 1997 62,588 100% 100% 604,355 Davenport, IA - --------------------------------------------------------------------------------------------------- Kimberly West 1998 113,559 87% N/A 578,380 Davenport, IA - --------------------------------------------------------------------------------------------------- Parkwood Plaza 1997 124,617 88% 92% 855,400 Urbandale, IA - --------------------------------------------------------------------------------------------------- Southgate Shopping Center 1997 162,672 90% 90% 454,513 Des Moines, IA - --------------------------------------------------------------------------------------------------- Spring Village 1997 91,213 100% 100% 565,789 Davenport, IA - --------------------------------------------------------------------------------------------------- Warren Plaza 1997 90,102 100% 100% 670,915 Dubuque, IA - --------------------------------------------------------------------------------------------------- KANSAS Mid-State Plaza 1997 286,650 89% 85% 868,923 Salina, KS - --------------------------------------------------------------------------------------------------- Santa Fe Square 1996 133,738 98% 100% 1,069,229 Olathe, KS - --------------------------------------------------------------------------------------------------- Shawnee Parkway Plaza 1998 92,213 98% N/A 678,000 Shawnee, KS - --------------------------------------------------------------------------------------------------- Westchester Square 1997 164,865 92% 94% 1,345,282 Lenexa, KS - --------------------------------------------------------------------------------------------------- KENTUCKY Camelot Shopping Center 1998 150,621 92% N/A 835,602 Louisville, KY - --------------------------------------------------------------------------------------------------- Dixie Plaza 1998 47,954 100% N/A 376,552 Louisville, KY - --------------------------------------------------------------------------------------------------- Midtown Mall 1998 153,566 100% N/A 795,777 Ashland, KY - --------------------------------------------------------------------------------------------------- Plainview Village 1998 145,546 100% N/A 1,214,386 Louisville, KY - ---------------------------------------------------------------------------------------------------
Annualized Base Based Rent Lease Per Square Expiration SHOPPING CENTERS Leased SF Major Tenants (1) Feet Date ---------------- --------- ----------------- ---- ---- Washington Lawndale Commons $5.26 Target 83,110 2005 Evansville, IN Sears Homelife 34,527 2003 Dunham's Athleisure 20,285 2002 Stein Mart 40,500 2007 Jo-Ann Fabrics 15,262 2003 Books-A-Million 20,515 2002 - ----------------------------------------------------------------------------------------------------------------- IOWA Burlington Plaza West 7.09 Festival Foods 52,468 2009 Burlington, IA - ----------------------------------------------------------------------------------------------------------------- Davenport Retail Center 9.66 PetsMart 26,280 2011 Davenport, IA Staples 24,153 2011 - ----------------------------------------------------------------------------------------------------------------- Kimberly West 5.83 Hy-Vee 76,896 2008 Davenport, IA - ----------------------------------------------------------------------------------------------------------------- Parkwood Plaza 7.78 Albertson's 63,075 2008 Urbandale, IA - ----------------------------------------------------------------------------------------------------------------- Southgate Shopping Center 3.10 Hy-Vee 78,388 2014 Des Moines, IA Walgreens 22,000 2002 Big Lots 23,677 2001 - ----------------------------------------------------------------------------------------------------------------- Spring Village 6.20 Eagle Foods 45,763 2005 Davenport, IA - ----------------------------------------------------------------------------------------------------------------- Warren Plaza 7.45 Hy-Vee 51,492 2013 Dubuque, IA - ----------------------------------------------------------------------------------------------------------------- KANSAS Mid-State Plaza 3.41 Food 4 Less 32,579 2004 Salina, KS Hobby Lobby 39,958 2006 Carroll's Books 27,596 2008 Sutherlands 80,155 2002 - ----------------------------------------------------------------------------------------------------------------- Santa Fe Square 8.20 Hy-Vee 55,820 2007 Olathe, KS - ----------------------------------------------------------------------------------------------------------------- Shawnee Parkway Plaza 7.49 Price Chopper 59,128 2013 Shawnee, KS - ----------------------------------------------------------------------------------------------------------------- Westchester Square 8.82 Hy-Vee 63,000 2006 Lenexa, KS - ----------------------------------------------------------------------------------------------------------------- KENTUCKY Camelot Shopping Center 6.03 Winn Dixie 37,500 2004 Louisville, KY Mr. Gatti's 24,000 2007 - ----------------------------------------------------------------------------------------------------------------- Dixie Plaza 7.85 Winn Dixie 44,000 2007 Louisville, KY - ----------------------------------------------------------------------------------------------------------------- Midtown Mall 5.18 Kroger 51,600 2013 Ashland, KY Odd Lots/Big Lots 27,071 1999 Old America 26,586 2003 - ----------------------------------------------------------------------------------------------------------------- Plainview Village 8.34 Kroger 30,975 2002 Louisville, KY - -----------------------------------------------------------------------------------------------------------------
9 10
Rentable Occupancy at Year Square December 31, Annualized SHOPPING CENTERS Acquired Feet 1998 1997 Based Rent ---------------- -------- ---- ---- ---- ---------- Stony Brook 1996 136,395 100% 97% $1,433,070 Louisville, KY - --------------------------------------------------------------------------------------------------- MICHIGAN The Courtyard 1998 126,063 88% N/A 847,670 Burton, MI - --------------------------------------------------------------------------------------------------- Delta Plaza (2) 1998 187,697 94% N/A 1,028,661 Escanaba, MI - --------------------------------------------------------------------------------------------------- Redford Plaza 1998 284,929 92% N/A 2,020,301 Redford, MI - --------------------------------------------------------------------------------------------------- MINNESOTA Brookdale Square 1996 185,346 81% 86% 1,262,429 Brooklyn Center, MN - --------------------------------------------------------------------------------------------------- Burning Tree Plaza 1993 174,141 96% 93% 1,510,159 Duluth, MN - --------------------------------------------------------------------------------------------------- Central Valu Center 1997 123,350 95% 93% 857,579 Columbia Heights, MN - --------------------------------------------------------------------------------------------------- Elk Park Center 1997 155,205 98% 98% 1,326,748 Elk River, MN - --------------------------------------------------------------------------------------------------- Har Mar Mall 1992 429,610 83% 92% 3,467,106 Roseville, MN - --------------------------------------------------------------------------------------------------- Hub West 1991 78,302 100% 100% 853,720 Richfield, MN - --------------------------------------------------------------------------------------------------- Richfield Hub 1988 138,907 99% 99% 1,281,911 Richfield, MN - --------------------------------------------------------------------------------------------------- Roseville Center 1997 74,547 92% 93% 701,844 Roseville, MN - --------------------------------------------------------------------------------------------------- Southport Centre 1998 125,172 100% N/A 1,600,627 Apple Valley, MN - ---------------------------------------------------------------------------------------------------
Annualized Base Based Rent Lease Per Square Expiration SHOPPING CENTERS Leased SF Major Tenants (1) Feet Date ---------------- --------- ----------------- ---- ---- Stony Brook $10.47 Kroger 79,625 2021 Louisville, KY - ----------------------------------------------------------------------------------------------------------------- MICHIGAN The Courtyard 7.64 V.G Food Center 43,384 2010 Burton, MI Dunham's Athleisure 18,395 2002 Office Max 25,987 2005 - ----------------------------------------------------------------------------------------------------------------- Delta Plaza (2) 5.85 J.C. Penney 31,757 2001 Escanaba, MI Menards 59,872 2001 - ----------------------------------------------------------------------------------------------------------------- Redford Plaza 7.73 Kroger 60,276 2016 Redford, MI The Resource Network 15,000 2002 Bally's Total Fitness 28,000 2008 Burlington Coat Factory 47,008 2004 Aco Hardware 16,130 2000 - ----------------------------------------------------------------------------------------------------------------- MINNESOTA Brookdale Square 8.36 Circuit City 36,391 2014 Brooklyn Center, MN Drug Emporium 25,782 2000 Office Depot 30,395 2004 United Artists 24,534 2002 Pep Boys 23,000 2018 - ----------------------------------------------------------------------------------------------------------------- Burning Tree Plaza 9.00 Dunham's Athleisure 23,679 2009 Duluth, MN Hancock Fabrics 17,682 1999 Best Buy 46,355 2013 T.J. Maxx 30,000 2004 - ----------------------------------------------------------------------------------------------------------------- Central Valu Center 7.28 Rainbow Foods 66,314 1999 Columbia Heights, MN Slumberland Clearance 24,632 1999 - ----------------------------------------------------------------------------------------------------------------- Elk Park Center 8.69 Cub Foods 60,066 2016 Elk River, MN - ----------------------------------------------------------------------------------------------------------------- Har Mar Mall 9.74 Marshalls 34,858 2003 Roseville, MN Petters Warehouse 17,386 2006 T.J. Maxx 25,025 2002 General Cinema 22,252 2001 General Cinema 19,950 2000 Barnes and Noble 44,856 2010 Michaels 17,907 2003 - ----------------------------------------------------------------------------------------------------------------- Hub West 10.90 Rainbow Foods 50,817 2012 Richfield, MN Bally Total Fitness 26,185 2001 - ----------------------------------------------------------------------------------------------------------------- Richfield Hub 9.34 Michaels 24,235 2004 Richfield, MN Marshalls 26,785 2003 - ----------------------------------------------------------------------------------------------------------------- Roseville Center 10.29 Minnesota Fabrics 12,000 2004 Roseville, MN - ----------------------------------------------------------------------------------------------------------------- Southport Centre 12.82 Frank's Nursery 18,804 2012 Apple Valley, MN Best Buy 36,714 2009 - -----------------------------------------------------------------------------------------------------------------
10 11
Rentable Occupancy at Year Square December 31, Annualized SHOPPING CENTERS Acquired Feet 1998 1997 Based Rent ---------------- -------- ---- ---- ---- ---------- Sun Ray Shopping Center 1961 258,267 84% 83% $1,722,761 St. Paul, MN - --------------------------------------------------------------------------------------------------- Terrace Mall 1993 136,785 94% 94% 936,893 Robbinsdale, MN - --------------------------------------------------------------------------------------------------- Thunderbird Mall (2) 1998 256,344 95% N/A 1,380,197 Virginia, MN - --------------------------------------------------------------------------------------------------- Westview Valu Center 1997 163,162 98% 93% 1,029,157 West St. Paul, MN - --------------------------------------------------------------------------------------------------- Westwind Plaza 1994 87,936 99% 90% 944,587 Minnetonka, MN - --------------------------------------------------------------------------------------------------- White Bear Hills 1993 73,095 100% 100% 594,137 White Bear Lake, MN - --------------------------------------------------------------------------------------------------- MISSOURI Ellisville Square 1998 146,052 100% N/A 1,288,368 Ellisville, MO - --------------------------------------------------------------------------------------------------- Grandview Plaza 1971 294,560 94% 88% 2,482,423 Florissant, MO - --------------------------------------------------------------------------------------------------- Liberty Corners 1997 121,382 100% 100% 873,270 Liberty, MO - --------------------------------------------------------------------------------------------------- Maplewood Square 1998 71,630 87% N/A 401,071 Maplewood, MO - --------------------------------------------------------------------------------------------------- Prospect Plaza 1998 176,094 58% N/A 323,510 Gladstone, MO - --------------------------------------------------------------------------------------------------- Watts Mill Plaza 1998 161,717 96% N/A 1,422,593 Kansas City, MO - --------------------------------------------------------------------------------------------------- NEBRASKA Bishop Heights 1998 30,163 86% N/A 171,288 Lincoln, NE - --------------------------------------------------------------------------------------------------- Cornhusker Plaza 1998 63,016 96% N/A 465,493 South Sioux City, NE - --------------------------------------------------------------------------------------------------- Eastville Plaza 1998 68,546 91% N/A 477,443 Fremont, NE - --------------------------------------------------------------------------------------------------- Edgewood Plaza 1998 172,429 97% N/A 1,331,547 Lincoln, NE - --------------------------------------------------------------------------------------------------- Ile de Grand 1998 82,248 100% N/A 593,554 Grand Island, NE - ---------------------------------------------------------------------------------------------------
Annualized Base Based Rent Lease Per Square Expiration SHOPPING CENTERS Leased SF Major Tenants (1) Feet Date ---------------- --------- ----------------- ---- ---- Sun Ray Shopping Center $7.96 Michaels 18,127 2004 St. Paul, MN Petters Warehouse 20,000 2007 J.C. Penney 36,752 1999 T.J. Maxx 31,955 2007 - ---------------------------------------------------------------------------------------------------------------- Terrace Mall 7.27 Rainbow Foods 59,232 2013 Robbinsdale, MN North Memorial Medical 32,000 2004 - ---------------------------------------------------------------------------------------------------------------- Thunderbird Mall (2) 5.66 Herberger's 66,582 2010 Virginia, MN J.C. Penney 23,671 2006 K-Mart 90,990 2002 - ---------------------------------------------------------------------------------------------------------------- Westview Valu Center 6.41 Cub Foods 92,646 1999 West St. Paul, MN Burlington Coat Factory 41,248 2004 - ---------------------------------------------------------------------------------------------------------------- Westwind Plaza 10.90 Northern Hydraulics 18,165 2002 Minnetonka, MN - ---------------------------------------------------------------------------------------------------------------- White Bear Hills 8.13 Festival Foods 45,679 2011 White Bear Lake, MN - ---------------------------------------------------------------------------------------------------------------- MISSOURI Ellisville Square 8.82 K-Mart 86,479 2015 Ellisville, MO Hockey Direct 19,693 2002 - ---------------------------------------------------------------------------------------------------------------- Grandview Plaza 8.95 Schnuck's Market 68,025 2011 Florissant, MO Home Quarters 84,611 2013 Office Max 30,183 2012 Walgreens 15,984 2008 - ---------------------------------------------------------------------------------------------------------------- Liberty Corners 7.19 Price Chopper 56,000 2007 Liberty, MO - ---------------------------------------------------------------------------------------------------------------- Maplewood Square 6.42 Shop'n Save 57,575 2017 Maplewood, MO - ---------------------------------------------------------------------------------------------------------------- Prospect Plaza 3.17 Hobby Lobby 54,630 1999 Gladstone, MO Westlake Hardware 22,950 2001 - ---------------------------------------------------------------------------------------------------------------- Watts Mill Plaza 9.14 Price Chopper 66,947 2006 Kansas City, MO Drug Emporium 25,042 2008 - ---------------------------------------------------------------------------------------------------------------- NEBRASKA Bishop Heights 6.58 Russ's IGA 16,992 2001 Lincoln, NE - ---------------------------------------------------------------------------------------------------------------- Cornhusker Plaza 7.72 Hy-Vee 34,726 2010 South Sioux City, NE - ---------------------------------------------------------------------------------------------------------------- Eastville Plaza 7.67 Hy-Vee 34,156 2006 Fremont, NE - ---------------------------------------------------------------------------------------------------------------- Edgewood Plaza 7.99 Super Saver 73,696 2011 Lincoln, NE Osco Drug 16,324 2000 - ---------------------------------------------------------------------------------------------------------------- Ile de Grand 7.22 Factory Card Outlet (3) 12,000 2005 Grand Island, NE - ----------------------------------------------------------------------------------------------------------------
11 12
Rentable Occupancy at Year Square December 31, Annualized SHOPPING CENTERS Acquired Feet 1998 1997 Based Rent ---------------- -------- ---- ---- ---- ---------- Imperial Mall (2) (4) 1998 324,284 93% N/A $1,739,761 Hastings, NE - --------------------------------------------------------------------------------------------------- The Meadows 1998 67,840 91% N/A 448,902 Lincoln, NE - --------------------------------------------------------------------------------------------------- Miracle Hills Park 1998 69,488 88% N/A 837,241 Omaha, NE - --------------------------------------------------------------------------------------------------- Monument Mall (2) 1998 204,527 97% N/A 1,396,339 Scottsbluff, NE - --------------------------------------------------------------------------------------------------- Stockyards Plaza (4) 1998 129,309 96% N/A 936,184 Omaha, NE - --------------------------------------------------------------------------------------------------- NEW MEXICO St. Francis Plaza 1995 35,800 100% 100% 357,004 Santa Fe, NM - --------------------------------------------------------------------------------------------------- OHIO Clock Tower Plaza 1998 237,975 96% N/A 1,372,542 Lima, OH - --------------------------------------------------------------------------------------------------- Salem Consumer Square 1998 276,536 99% N/A 2,460,877 Trotwood, OH - --------------------------------------------------------------------------------------------------- SOUTH DAKOTA Baken Park 1997 184,191 94% 94% 1,022,311 Rapid City, SD - --------------------------------------------------------------------------------------------------- Lakewood Mall (2) 1998 238,804 89% N/A 1,627,044 Aberdeen, SD - --------------------------------------------------------------------------------------------------- TENNESSEE Macon County Plaza (2) 1998 86,929 96% N/A 319,128 Lafayette, TN - --------------------------------------------------------------------------------------------------- Williamson Square (5) 1996 334,839 98% 90% 2,283,457 Franklin, TN - --------------------------------------------------------------------------------------------------- WISCONSIN Fairacres Shopping Center 1998 74,291 100% N/A 673,744 Oshkosh, WI - --------------------------------------------------------------------------------------------------- Fitchburg Ridge 1998 49,846 100% N/A 317,938 Fitchburg, WI - ---------------------------------------------------------------------------------------------------
Annualized Base Based Rent Lease Per Square Expiration SHOPPING CENTERS Leased SF Major Tenants (1) Feet Date ---------------- --------- ----------------- ---- ---- Imperial Mall (2) (4) $5.76 Sunmart 30,000 2003 Hastings, NE K-Mart 91,266 2018 Herberger's 52,950 2002 Imperial Theater 15,600 2000 - ----------------------------------------------------------------------------------------------------------------- The Meadows 7.25 Russ's IGA 50,000 2008 Lincoln, NE - ----------------------------------------------------------------------------------------------------------------- Miracle Hills Park 12.45 Jo-Ann Fabrics 12,000 2003 Omaha, NE - ----------------------------------------------------------------------------------------------------------------- Monument Mall (2) 7.06 Herberger's 72,699 2013 Scottsbluff, NE J.C. Penney 22,556 2002 - ----------------------------------------------------------------------------------------------------------------- Stockyards Plaza (4) 7.51 Hy-Vee 59,839 2008 Omaha, NE Movies 8 25,810 2015 - ----------------------------------------------------------------------------------------------------------------- NEW MEXICO St. Francis Plaza 9.97 Wild Oats 20,850 2006 Santa Fe, NM - ----------------------------------------------------------------------------------------------------------------- OHIO Clock Tower Plaza 6.02 Clyde Evans Market 61,720 2014 Lima, OH Wal-Mart 110,580 2009 - ----------------------------------------------------------------------------------------------------------------- Salem Consumer Square 8.96 Cub Foods 62,400 2013 Trotwood, OH Drug Emporium 25,025 2003 Office Depot 26,725 2000 Michigan Sporting Goods 17,500 2004 - ----------------------------------------------------------------------------------------------------------------- SOUTH DAKOTA Baken Park 5.89 Nash Finch 48,684 2017 Rapid City, SD Ben Franklin 27,155 2003 Boyd's Drug Mart 19,200 2004 - ----------------------------------------------------------------------------------------------------------------- Lakewood Mall (2) 7.64 Midco 5 23,600 2002 Aberdeen, SD Herberger's 79,646 2016 J.C. Penney 33,796 2010 - ----------------------------------------------------------------------------------------------------------------- TENNESSEE Macon County Plaza (2) 3.84 Wal-Mart 34,875 2005 Lafayette, TN Houchen's 23,124 2006 - ----------------------------------------------------------------------------------------------------------------- Williamson Square (5) 6.97 Kroger 63,986 2008 Franklin, TN Fitness Nation 16,829 2002 Wal-Mart 117,493 2008 Carmike Cinemas 29,000 2008 - ----------------------------------------------------------------------------------------------------------------- WISCONSIN Fairacres Shopping Center 9.07 Pick'n Save 48,000 2012 Oshkosh, WI - ----------------------------------------------------------------------------------------------------------------- Fitchburg Ridge 6.38 Roundy's 16,589 2000 Fitchburg, WI - -----------------------------------------------------------------------------------------------------------------
12 13
Rentable Occupancy at Year Square December 31, Annualized SHOPPING CENTERS Acquired Feet 1998 1997 Based Rent ---------------- -------- ---- ---- ---- ---------- Fox River Plaza 1998 166,416 99% N/A $728,465 Burlington, WI - --------------------------------------------------------------------------------------------------- Garden Plaza 1998 80,069 96% N/A 508,452 Franklin, WI - --------------------------------------------------------------------------------------------------- Madison Plaza 1997 128,739 100% 100% 999,606 Madison, WI - --------------------------------------------------------------------------------------------------- Mequon Pavilions 1996 212,065 99% 99% 2,368,203 Mequon, WI - --------------------------------------------------------------------------------------------------- Moorland Square 1998 98,288 100% N/A 766,914 New Berlin, WI - --------------------------------------------------------------------------------------------------- Oak Creek Centre 1998 91,405 95% N/A 609,129 Oak Creek, WI - --------------------------------------------------------------------------------------------------- Park Plaza 1997 108,123 99% 100% 605,339 Manitowoc, WI - --------------------------------------------------------------------------------------------------- Spring Mall (6) 1997 180,188 92% 100% 1,018,137 Greenfield, WI - --------------------------------------------------------------------------------------------------- Taylor Heights (4) 1998 85,072 100% N/A 820,056 Sheboygan, WI - ---------------------------------------------------------------------------------------------------
Annualized Base Based Rent Lease Per Square Expiration SHOPPING CENTERS Leased SF Major Tenants (1) Feet Date ---------------- --------- ----------------- ---- ---- Fox River Plaza $4.43 Pick'n Save 50,094 2006 Burlington, WI K-Mart 83,552 2011 - ----------------------------------------------------------------------------------------------------------------- Garden Plaza 6.64 Pick'n Save 49,564 2010 Franklin, WI - ----------------------------------------------------------------------------------------------------------------- Madison Plaza 7.76 Supersaver Foods 73,309 2008 Madison, WI - ----------------------------------------------------------------------------------------------------------------- Mequon Pavilions 11.30 Kohl's Food Store 45,697 2010 Mequon, WI Furniture Clearance Center 19,900 1999 - ----------------------------------------------------------------------------------------------------------------- Moorland Square 7.80 Pick'n Save 59,674 2010 New Berlin, WI - ----------------------------------------------------------------------------------------------------------------- Oak Creek Centre 7.02 Sentry Food Store 50,000 2003 Oak Creek, WI - ----------------------------------------------------------------------------------------------------------------- Park Plaza 5.68 Sentry Foods 45,000 2006 Manitowoc, WI Big Lots 29,063 2004 - ----------------------------------------------------------------------------------------------------------------- Spring Mall (6) 6.14 Pick'n Save 77,150 2013 Greenfield, WI T.J. Maxx 32,658 2003 United Artists 16,000 2004 Walgreens 17,600 2007 - ----------------------------------------------------------------------------------------------------------------- Taylor Heights (4) 9.64 Piggly Wiggly 35,540 2009 Sheboygan, WI - -----------------------------------------------------------------------------------------------------------------
13 14 1) Major tenants are defined as tenants leasing 15,000 square feet or more of the rentable square footage with the exception of Ile de Grand, Miracle Hills Park, Parkway Pointe, and Roseville Center. In some cases, the named tenant occupies the premises as a sublessee. We view "anchor" tenants as a subset of the major tenants at each property, generally consisting of those tenants which also represent more than 15% of the property's rentable square footage. 2) This property is held for sale at December 31, 1998. 3) Factory Card Outlet has sought protection under Chapter 11 of the U.S. Bankruptcy Code. 4) This property is owned by Bradley Bethal Limited Partnership, a joint venture of which we own a 50% interest. 5) This property is owned by Williamson Square Associates L.P., a joint venture of which we own a 60% interest. 6) This property is owned by a bankruptcy remote special purpose entity that is an indirect subsidiary of Bradley. The assets of the special purpose entity, including the property, are owned by the special purpose entity alone and are not available to satisfy claims that any creditor may have against us, our affiliates, or any other person or entity. The special purpose entity has not agreed to pay, or make its assets available to pay, any claim any creditor may have against us, our affiliates, or any other person or entity. No affiliate of the special purpose entity has agreed to pay or make its assets available to pay creditors of the special purpose entity. Tenant Mix and Leases As evidenced by the foregoing table, our tenant mix is diverse and well represented by supermarkets, drugstores and other consumer necessity or value-oriented retailers. Based on our past experience, we believe that such tenants tend to be stable performers in both good and bad economic times. As of December 31, 1998, 77 of our 98 shopping centers were anchored by supermarkets, most of which are leading grocery chains in their respective markets. Grocery stores comprise approximately 21% of our annualized base rent and 26% of our gross leasable area. No tenant included in the portfolio of properties on December 31, 1998, accounted for as much as 4% of total rental income in 1998. In addition to the tenants listed in the preceding table, our properties include a variety of smaller shop leases of various tenant types, including restaurants, home life styles, women's ready-to-wear, cards, books, and electronics. The terms of the outstanding retail leases vary from tenancies at will to 50 years. Anchor tenant leases are typically for 10 to 25 years, with one or more extension options available to the lessee upon expiration of the initial lease. By contrast, smaller shop leases are typically negotiated for three to five year terms. The longer term of the major tenant leases serves to protect us against significant vacancies and to assure the presence of strong tenants who draw consumers to our centers. The shorter term of the smaller shop leases allows us to adjust rental rates for non-major store space on a regular basis and upgrade the overall tenant mix. Leases to anchor tenants tend to provide lower minimum rents per square foot than smaller shop leases. Anchor tenant leases for properties included in the portfolio at December 31, 1998, provided an average annual minimum rent of $5.57 per square foot, compared with non-anchor tenant leases which provided an average annual minimum rent of $9.88. In general, we believe that minimum rental rates for anchor tenant leases entered into several years ago are at or below current market rates, while recent anchor tenant leases and most non-anchor leases provide for minimum rental rates that more closely reflect current market rates. The payment by tenants of minimum rents that are below current market rates is offset in part by payment of percentage rents. Annual minimum future rentals to be received under non-cancelable operating leases in effect at December 31, 1998, for the properties included in the portfolio at December 31, 1998, and the number of leases that will expire, the square feet covered by such leases and the minimum annual rent in the year of expiration under such expiring leases for the next ten years are as follows:
Leases Expiring ----------------------------------------------- Year Ending Minimum Number Minimum December 31 Future Rents of Leases Square Feet Future Rents ----------- ------------ --------- ----------- ------------ 1999 $102,379,000 323 1,062,780 $9,603,000 2000 92,582,000 350 1,312,718 11,871,000 2001 82,268,000 302 1,162,893 9,634,000 2002 72,055,000 257 1,485,991 11,109,000 2003 61,397,000 230 1,170,037 10,438,000 2004 52,220,000 88 673,447 6,497,000 2005 47,813,000 70 754,304 5,000,000 2006 41,762,000 67 1,026,334 6,188,000 2007 36,285,000 45 726,313 5,121,000 2008 30,053,000 39 926,017 6,636,000
14 15 Risk Factors General As in every business, we face risk factors that affect our business and operations. By setting forth below some of the factors that could cause the actual results of our operations or plans to differ materially from our expectations as set forth in statements in this Report or elsewhere that may be considered to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, we seek to avail ourself of the "safe harbor" provided in the Private Securities Litigation Reform Act of 1995. Our use of third party indebtedness exposes us to the risks that may adversely affect the amount of cash we have available for distributions. We could become too highly leveraged because our organizational documents contain no limitation on debt and thereby may adversely affect our ability to make expected distributions to share owners. Our obligations for borrowed money aggregated $472.4 million at December 31, 1998, as compared to $302.7 million at December 31, 1997. This increase in debt could increase the risk of default. Failure to pay debt obligations when due could result in Bradley losing its interest in the properties collateralizing such obligations. Subsequent to year-end, we issued $50 million of 8.875% Series B Cumulative Redeemable Preferred Units of the Operating Partnership in a private placement, utilizing the net proceeds of approximately $49 million to pay-down the outstanding balance on the line of credit. Seventeen properties as of December 31, 1998 secure an aggregate of approximately $103.3 million of mortgage debt, with balloon maturities of approximately $6.0 million due in 2000, $2.7 million in 2001, $29.0 million in 2002, $6.4 million in 2003, and $35.6 million in subsequent years. The line of credit, with a balance of $169.5 million as of December 31, 1998, matures in 2000. Additionally, $100 million of 7% unsecured Notes payable at December 31, 1998 matures in 2004, and $100 million of 7.2% unsecured Notes payable at December 31, 1998 matures in 2008. We have historically been able to refinance debt when it has become due on terms which we believe to be commercially reasonable. There can be no assurance that we will continue to be able to repay or refinance indebtedness on commercially reasonable or any other terms. Our organizational documents do not limit the amount of indebtedness that we or the Operating Partnership may incur. Although we attempt to maintain a balance between total outstanding indebtedness and the value of the portfolio, we could alter this balance at any time. We try to maintain a ratio of 50% or less of debt and preferred stock to annualized net operating income divided by 9.75%. If we become more highly leveraged, then the resulting increase in debt service could adversely affect our ability to make payments on our outstanding indebtedness and expected distributions to our shareowners. Because parts of our borrowings have floating rates, a general increase in interest rates will adversely affect our net income and cash available for distribution to share owners. The unsecured line of credit bears interest at a variable rate. The balance outstanding under the line of credit at December 31, 1998, was $169.5 million; and we may increase outstanding borrowings to $250 million. To the extent our exposure to increases in interest rates is not eliminated through interest rate protection or cap agreements, we will need to use more of our revenue to pay the interest on our indebtedness. Any such increase in debt service requirements would leave us with less net income, funds from operations ("FFO") and cash available for distribution and may affect the amount of distributions we can make to our share owners. An adverse market reaction to increased indebtedness could restrict our ability to raise capital for future growth. The foregoing risks associated with our debt obligations may also adversely affect the market price of our common stock. A decrease in the market price of our common stock may inhibit our ability to raise capital and issue equity in both the public and private markets and thereby adversely affect plans for future growth. 15 16 Failures in achieving our objectives for growth could adversely affect our operating results and financial condition. We have grown aggressively over the past few years and continue to experience growth. The failure to achieve our objectives in this growth could have a material adverse effect on our operating results and financial condition. Our objectives in pursuing growth through property acquisitions include: - - Achieving economies of scale for property operations through the management of several properties from a strategically located management office; - - Bulk purchasing insurance and contracted services in order to reduce the level of property expenses overall; - - Maximizing the benefits from our relationships with tenants who have stores located throughout the Midwest; - - Reducing general and administrative expenses by eliminating duplicate corporate level expenses in the case of growing the portfolio through corporate merger acquisitions; and - - Lowering our overall cost of equity and debt capital, enabling us to acquire additional properties on more favorable terms. As an important part of our business strategy, we continually seek prospective acquisitions of additional shopping centers and portfolios of shopping centers which we believe can be purchased at attractive initial yields and/or which demonstrate the potential for revenue and cash flow growth through implementation of renovation, expansion, re-tenanting and re-leasing programs similar to those undertaken with respect to properties in the existing portfolio. Notwithstanding our adherence to our criteria for evaluation and due diligence regarding potential acquisitions, we cannot guarantee that any acquisition that is consummated will meet our expectations. In executing our growth strategy, we may fail to achieve our objectives with respect to any one property or with respect to our portfolio as a whole. For example, the actual cost savings from an acquisition may not match the level estimated at the time of acquisition, the overall cost of equity and debt capital may not be reduced to expected levels, or the benefits of reducing the cost of capital may be offset by an increase in prices of real estate due to changing market conditions. Even after careful evaluation, we risk that our investment will fail to generate expected returns or that our desired improvement programs will cost more than expected. In addition, we cannot guarantee that we will ultimately make any potential acquisition that we may evaluate. The evaluation process involves non-recoverable costs in the case of acquisitions which are not consummated. Although to date, we have largely been able to achieve our overall objectives in growing through acquisitions, we cannot guarantee that we will be able to continue to do so. The consistent failure to achieve our objectives could have a material adverse effect on our operating results and financial condition, and could adversely affect any plans for future growth. Although these non-recoverable costs have historically been at or below 0.1% of the total costs of acquisitions that were consummated, we cannot guarantee that we will be able to maintain that level in the future. Our charter and bylaws contain provisions that may discourage acquisition proposals. Some provisions contained in our charter and bylaws may discourage third parties from making acquisition proposals for the Company, even if some of our stockholders might consider the proposal to be in their best interest. These provisions include the following: - - Our charter provides for three classes of Directors, with the term of office of one class expiring each year, commonly referred to as a "staggered board." By preventing stockholders from voting on the election of more than one class of directors at any annual meeting of stockholders, this provision may have the effect of keeping the current members of our Board of Directors in control for a longer period of time than stockholders may desire. - - Our bylaws provide that the holders of not less than 25% of the outstanding shares of common stock may call a special meeting of our stockholders. This provision could make it more difficult for a stockholder to call a meeting for the purposes of approving a change of control without the support of the Board of Directors. - - Our charter authorizes the Board of Directors to issue up to 20 million shares of preferred stock without stockholder approval and to reclassify any unissued shares of stock as a different class or series in the Board of Directors' discretion. Our Board of Directors' ability to issue preferred stock without stockholder approval, and to establish the preferences and rights of any class or series issued, could allow the Board of Directors to issue one or more classes or series of preferred stock that would discourage or delay a tender offer or change in control. - - Our charter generally limits any holder from acquiring more than 9.8% of the value or number of our outstanding common stock. While this provision is intended to assure our ability to remain a qualified REIT for income tax purposes, the ownership limits may also limit the opportunity for stockholders to receive a premium for their shares of common stock that might otherwise exist if an investor were attempting to assemble a block of shares in excess of 9.8% of the outstanding shares of common stock or otherwise effect a change in control. 16 17 The factors affecting real estate investments and our ability to manage these investments may adversely affect an investment in our common stock. As a real estate company, our ability to generate revenues is significantly affected by the risks of owning real property investments. We derive substantially all of our revenue from investments in real property. Real property investments are subject to varying types and degrees of risk that may adversely affect the value of our assets and our ability to generate revenues. The factors that may adversely affect our revenues, net income and cash available for distributions to share owners include the following: - - Local conditions, such as oversupply of space or a reduction in demand for real estate in an area; - - Competition from other available space; - - The ability of the owner to provide adequate maintenance; - - Insurance and variable operating costs; - - Government regulations; - - Changes in interest rate levels; - - The availability of financing; - - Potential liability due to changes in environmental and other laws; and - - Changes in the general economic climate. The illiquidity of real estate as an investment limits our ability to sell properties quickly in response to market conditions. Real estate investments are relatively illiquid and therefore cannot be purchased or sold rapidly in response to changes in economic or other conditions. In addition, the Internal Revenue Code limits our ability as a REIT to make sales of properties held for fewer than four years, which may affect our ability to sell properties in response to market conditions without adversely affecting returns to share owners. Our strategic focus on Midwest retail properties means that economic trends in the Midwest and/or the retail industry may specifically affect our net income and cash available for distribution to share owners. Substantially all of our properties are located in the Midwestern region of the United States. Adverse economic developments in this area could adversely impact the operations of our properties and therefore our profitability. The concentration of properties in one region may expose us to risks of adverse economic developments which are greater than if our portfolio were more geographically diverse. Our properties consist predominantly of community and neighborhood shopping centers catering to retail tenants. Our performance therefore is linked to economic conditions in the market for retail space generally. The market for retail space has been or could be adversely affected by: - - ongoing consolidation among retailing companies; - - weak financial condition of certain major retailers; - - excess amount of retail space in some markets; and - - increasing consumer purchases through catalogues or the internet. To the extent that these conditions impact the market rents for retail space, we could experience a reduction of net income, FFO and cash available for distributions. In addition, to the extent that the investing public has a negative perception of the retail sector, the value of shares of our common stock may be negatively impacted, thereby resulting in such shares trading at a discount below the underlying value of our assets as a whole. Tenants in or facing bankruptcy may not make timely rental payments. Since substantially all of our income has been, and will continue to be, derived from rental income from retail shopping centers, our net income, FFO and cash available for distribution would be adversely affected if a significant number of tenants were unable to meet their obligations to us or if we were unable to lease, on economically favorable terms, a significant amount of space in our shopping centers. In addition, in the event of default by a tenant, we may experience delays and incur substantial costs in enforcing our rights as landlord. 17 18 At any time, a tenant of our properties may seek the protection of the bankruptcy laws, which could result in the rejection and termination of the tenant lease. Such an event could cause a reduction of net income, FFO and cash available for distribution and thus affect the amount of distributions we can make to our share owners. In March 1999, Factory Card Outlet, a tenant at nine of our shopping centers which currently generates approximately 1% of our total revenues, filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Although we expect the tenant to affirm its leases at eight of the nine shopping centers, there can be no assurance that such tenant will affirm any of its leases with us. No assurance can be given that any present tenant which has filed for bankruptcy protection will continue making payments under its lease or that other tenants will not file for bankruptcy protection in the future or, if any tenants file, that they will continue to make rental payments in a timely manner. In addition, a tenant may, from time to time, experience a downturn in its business, which may weaken its financial condition and result in a reduction or failure to make rental payments when due. If a lessee or sublessee defaults in its obligations to the Company, we may experience delays in enforcing our right as lessor or sublessor and may incur substantial costs and experience significant delays associated with protecting our investment, including costs incurred in renovating and releasing the property. Vacancies and lease renewals may also reduce rental income, net income, FFO, and cash available for distribution. We are continually faced with expiring tenant leases at our properties. Some lease expirations provide us with the opportunity to increase rentals or to hold the space available for a stronger long-term tenancy. In other cases, the space may not generate strong demand for tenancy. As a result, the space may remain vacant for a longer period than anticipated or may be re-leased only at less favorable rents. In such situations, we may be subject to competitive and economic conditions over which we have no control. Accordingly, there is no assurance that the effects of possible vacancies or lease renewals at such properties may not reduce the rental income, net income, FFO and cash available for distributions below anticipated levels. In addition, vacancies relating to anchor tenant space are frequently more difficult to re-lease and can have an adverse effect on the other stores in a shopping center. If we develop new properties or acquire newly developed properties, our ability to generate revenues will be affected by further risks. To the extent that we enter into agreements to acquire newly developed shopping centers when they are completed, or acquire newly developed shopping centers, we will be subject to risks inherent in acquiring newly constructed centers, which could carry a higher level of risk than the acquisition of existing properties with a proven performance record. The most significant risks include: - - the risk that funds will be expended and management time will be devoted to projects which may not come to fruition; - - the risk that occupancy rates and rents at a completed project will be less than anticipated; and - - the risk that expenses at a completed development will be higher than anticipated. These risks may adversely affect our net income, FFO and cash available for distribution to share owners. Possible environmental liabilities at our properties and related costs of remediation may reduce cash available for distributions or reduce value of that property. Under federal, state and local laws, ordinances and regulations, current or former owners of real estate are liable for the costs of removal or remediation of hazardous or toxic substances on or in such property. Such laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The costs of investigation and cleanup of hazardous or toxic substances on, in or from property can be substantial. The presence of such substances or the failure to properly remediate such substances, or even if remediated, the history of such substances having existed may adversely affect our ability to sell or rent such property or to use such property as collateral in our borrowings. The presence of hazardous or toxic substances on a property could result in a claim by a private party for personal injury or a claim by a neighboring property owner for property damage. Such costs or liabilities could exceed the value of the affected real estate. Other federal, state and local laws govern the removal or encapsulation of asbestos-containing material when such material is in poor condition or in the event of building or remodeling, renovation or demolition. Still other federal, state and local laws may require the removal or upgrading of underground storage tanks that are out of service or out of compliance. Non-compliance with environmental or health and safety requirements may also result in the need to cease or alter operations at a property, which could affect the financial health of a tenant and its ability to make lease payments. Furthermore, if there is a violation of such requirement in connection with a tenant's operations, it is possible that we, as the owner of the property, could be held accountable by governmental authorities for such violation and could be required to correct the violation. All of our properties have been subjected to Phase I and/or Phase II environmental assessments by independent environmental consultant and engineering firms. Phase I assessments do not involve subsurface testing, whereas Phase II assessments involve some degree of soil and/or groundwater testing. These environmental assessments have not revealed any environmental conditions that we believe will have a material adverse effect on our business, assets or results of operations. We have no assurance, however, that 18 19 existing environmental studies with respect to our properties revealed all environmental liabilities or that a prior owner, operator or current occupant of any such property did not create any material environmental condition not known to us. Moreover, no assurances can be given that future laws, ordinances or regulations will not impose any material environmental liability or the current environmental condition of the properties will not be affected by tenants and occupants of the properties, by the condition of land or operations in the vicinity of the properties, or by third parties unrelated to us. Limitations on our insurance could possibly have adverse consequences on the amount of our cash available for distribution to our share owners. It is possible that we may experience losses which exceed the limits of our insurance coverage or for which we may be uninsured. We carry comprehensive general liability coverage and umbrella liability coverage on all of our properties. Our insurance has limits of liability which we believe are customary for similar properties and adequate to insure against liability claims and provide for cost of defense. Similarly, we are insured against the risk of direct physical damage in amounts we estimate to be adequate to reimburse the Company on a replacement cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the reconstruction period. Currently, we also insure the properties for loss caused by earthquake or flood in the aggregate amount of $25 million per annum. Because of the high cost of this type of insurance coverage and the wide fluctuations in price and availability, we have determined that the risk of loss due to earthquake and flood does not justify the cost to increase coverage limits any further under current market conditions. Competition All of our properties are located in developed areas. There are numerous other retail properties and real estate companies within the market area of each such property which we compete with for tenants and development and acquisition opportunities. The number of competitive retail properties and real estate companies in such areas could have a material effect on our ability to rent space at the properties and the amount of rents charged and development and acquisition opportunities. We compete for tenants and acquisitions with others who have greater resources than we have. Year 2000 Issues Many existing computer software programs and operating systems were designed such that the year 1999 is the maximum date that they will be able to process accurately. The failure of our computer software programs and operating systems to process the change in calendar year from 1999 to 2000 may result in system malfunctions or failures. In the conduct of our operations, we rely on equipment manufacturers and commercial computer software primarily provided by independent software vendors, and we have undertaken an assessment of our vulnerability to the so-called "Year 2000 issue" with respect to our equipment and computer systems. We have undertaken a five-step program in order to achieve Year 2000 readiness including: - - Awareness - Education involving all levels of Bradley personnel regarding Year 2000 implications. - - Inventory - Creating a checklist and conducting surveys to identify Year 2000 compliance issues in all systems, including both mechanical and information systems. The surveys were also designed to identify critical outside parties such as banks, tenants, suppliers and other parties with whom we do a significant amount of business, for purposes of determining potential exposure in the event such parties are not Year 2000 compliant. - - Assessment - Based upon the results of the inventory and surveys, assessing the nature of identified Year 2000 issues and developing strategies to bring our systems into substantial compliance with respect to Year 2000. - - Correction and Testing - Implementing the strategy developed during the assessment phase. - - Implementation - Incorporating repaired or replaced systems into our systems environment. The program, which is ongoing, has yielded the following conclusions: With respect to our potential exposure to information technology systems, including our accounting and lease management systems, we believe that such commercial software is Year 2000 compliant. This assessment is based upon installation and testing of upgraded software provided by software vendors, as well as formal and informal communications with software vendors and literature supplied with certain software. We have incurred minimal costs associated with bringing our information technology systems to be Year 2000 compliant. 19 20 In the operation of our properties, we have acquired equipment with embedded technology such as microcontrollers which operate heating, ventilation and air conditioning systems ("HVAC"), fire alarms, security systems, telephones and other equipment utilizing time-sensitive technology. We have substantially completed our evaluation of the potential exposure to such non-information technology systems and do not expect to incur more than $50,000 to become Year 2000 compliant. This assessment is based upon formal and informal communications with software vendors, literature supplied with the software, literature supplied in connection with maintenance contracts, and test evaluations of the software. The failure of our tenants' or suppliers' computer software programs and operating systems to process the change in calendar year from 1999 to 2000 may also result in system malfunctions or failures. Such an occurrence would potentially affect the ability of the affected tenant or supplier to operate its business and thereby raise adequate revenue to meet its contractual obligations to the Company. As a result, we may not receive revenue or services we had otherwise expected to receive pursuant to existing leases and contracts. We have completed an inventory of the tenants, suppliers and other parties with whom we do a significant amount of business and are in the process of surveying such parties to identify the potential exposure in the event they are not Year 2000 compliant in a timely manner. We expect to have responses from such parties by May 1999. However, at this time, we are not aware of any party that is anticipating a material Year 2000 compliance issue. Although the investigations and assessments of possible Year 2000 issues are still in a preliminary stage, we do not anticipate a material impact on our business, operations or financial condition even if one or more parties is not Year 2000 compliant in a timely manner, because the number and nature of our tenant base are diverse, and because we do not rely on a concentration of suppliers and other parties to conduct our business. Although we are aware that we may not, in fact, be Year 2000 compliant upon the year 2000, at this time we have not adopted a contingency plan for the conduct of our own operations because we expect to be Year 2000 compliant in advance of 2000. However, we will continue to monitor our progress and state of readiness, and will be prepared to adopt a contingency plan with respect to areas in which evidence arises that we may not become Year 2000 compliant in sufficient time. It is possible that an aggregation of tenants, suppliers, and other parties who experience Year 2000 related system malfunctions or failures may have a material impact on our business, operations, and financial condition. Although we believe that we will be able to adopt appropriate contingency plans to deal with any Year 2000 compliance issue that any other party, excluding public utilities, with whom we have significant relationships may experience as we continue our Year 2000 assessment and testing, we cannot be certain at this time that such contingency plans will be effective in limiting the harm caused by such third parties' system malfunctions and failures. The reasonably likely worst case scenario that could affect our operations would be a widespread prolonged power failure affecting a substantial portion of the Midwestern states in which our shopping centers are located. In the event of such a widespread prolonged power failure, a significant number of tenants may not be able to operate their stores and, as a result, their ability to pay rent could be substantially impaired. We are not aware of an economically feasible contingency plan which could be implemented to prevent such a power failure from having a material adverse effect on our operations. We would experience adverse consequences if we failed to qualify as a REIT. Our failure to qualify as a REIT would have serious adverse financial consequences. We believe that we have operated in a manner that permits us to qualify as a REIT under the Internal Revenue Code for each taxable year since our formation in 1961. Qualification as a REIT, however, involves the application of highly technical and complex Internal Revenue Code provisions for which there are only limited judicial or administrative interpretations. In addition, REIT qualification involves the determination of factual matters and circumstances not entirely within our control. For example, in order to qualify as a REIT, at least 95% of our gross income in any year must be derived from qualifying sources and we must make distributions to share owners aggregating annually at 95% of our REIT taxable income, excluding net capital gains. As a result, although we believe that we are organized and operating in a manner that permits us to remain qualified as a REIT, we cannot guarantee that we will be able to continue to operate in such a manner. In addition, if we are ever audited by the Internal Revenue Service with respect to any past year, the IRS may challenge our qualification as a REIT for such year. Similarly, no assurance can be given that new legislation, new regulations, administrative interpretations or court decisions will not change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification. We are not aware, however, of any currently pending tax legislation that would adversely affect our ability to continue to operate as a REIT. If we fail to qualify as a REIT, we will be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. In addition, unless entitled to relief under certain statutory provisions, we will also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost. This treatment would reduce our net earnings available for investment or distribution to share owners because of the additional tax liability for the year or years involved. If we do not qualify as a REIT, we would no longer be required to make distributions to share owners. To the extent that distributions to share owners would have been made in anticipation of qualifying as a REIT, we might be required to borrow funds or to liquidate certain of our investments to pay the applicable tax. The failure to qualify as a REIT would also constitute a default under our primary debt obligations and could significantly reduce the market value of our common stock. 20 21 We may need to borrow money to qualify as a REIT. Our ability to make distributions to share owners could be adversely affected by increased debt service obligations if we need to borrow money in order to maintain our REIT qualification. For example, differences in timing between when we receive income and when we have to pay expenses could require us to borrow money to meet the requirement that we distribute to our share owners at least 95% of our net taxable income each year excluding net capital gains. The incurrence of large expenses also could cause us to need to borrow money to meet this requirement. We might need to borrow money for these purposes even it we believe that market conditions are not favorable for such borrowings and therefore we may borrow money on unfavorable terms. We are subject to some taxes even if we qualify as a REIT. Even if we qualify as a REIT, we are subject to some federal, state, and local taxes on our income and property. For example, we pay tax on certain income we do not distribute. Also, our income derived from properties located in some states are subject to local taxes and, if we were to enter into transactions which the Internal Revenue Code labels as prohibited transactions, our net income from such transactions would be subject to a 100% tax. ITEM 2. PROPERTIES The properties we owned at December 31, 1998 are described under Item 1 and in Note 4 of the Notes to Financial Statements contained in this Report. Our principal office is located at 40 Skokie Boulevard in Northbrook, Illinois, where we lease approximately 10,000 square feet of space from an unrelated landlord. We maintain regional property management and leasing offices at certain of our properties located in Chicago, Peoria, Minneapolis, St. Louis, Indianapolis, Kansas City, Louisville, Milwaukee, Nashville, and Omaha. ITEM 3. LEGAL PROCEEDINGS Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS Not applicable. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT Our bylaws provide for a President, a Treasurer, a Secretary and such other officers as are elected or appointed by the Directors. Each officer holds office at the discretion of the Directors. The Directors have determined that the following officers are executive officers of Bradley within the meaning of Rule 3b-7 under the Securities Exchange Act: President, Chairman, and Chief Executive Officer - Thomas P. D'Arcy, age 39, has held this position since February 1996, having served as Executive Vice President since September 1995, Senior Vice President since 1992 and Vice President since 1989. Prior to joining the Company, Mr. D'Arcy was employed by R.M. Bradley & Co., Inc. as a member of its property management and real estate brokerage departments for over eight years. Executive Vice President - Richard L. Heuer, age 46, has held this position since late 1994. Prior to joining the Company, Mr. Heuer was employed by the Welsh Companies from September 1993, and Towle Real Estate Company from 1988, which companies were the independent property management companies that managed our Minnesota properties. Executive Vice President of Asset Management - E. Paul Dunn, age 52, has held this position since March 1996. Prior to joining the Company, Mr. Dunn was Executive Vice President of the Welsh Companies in Minneapolis, Minnesota since 1983. Executive Vice President, Chief Financial Officer and Treasurer - Irving E. Lingo, Jr., age 47, has held this position with the Company since September 1995. Prior to joining the Company, Mr. Lingo served as Chief Financial Officer of Lingerfelt Industrial Properties, a division of The Liberty Property Trust, from June 1993 to September 1995. Prior to June 1993, Mr. Lingo was Vice President-Finance of CSX Realty, a subsidiary of CSX Corporation, from 1991-1992. Executive Vice President of Leasing - Steven St. Peter, age 47, has held this position since August 1996. Prior to joining the Company, Mr. St. Peter served as National Director of Real Estate for Bally's Total Fitness from 1995 to 1996, Midwest Manager of Real Estate for TJX Corporation from 1993 to 1995 and Director of Leasing for H.S.S. Development from 1990 to 1993. Senior Vice President - Marianne Dunn, age 39, was named Senior Vice President of Bradley in September 1995, having served as Vice President of Bradley since 1993 and as Investment Manager since 1990. 21 22 Vice President of Construction - Frank J. Comber, age 58, has held this position since August 1996. Prior to joining the Company, Mr. Comber served as Vice President of Construction Services for Merchandise Mart Properties from 1989 to 1996 and First Vice President for Homart Development Company from 1973 to 1988. None of our officers or Directors is related to any other officer or Director. No description is required with respect to any of the foregoing persons of any type of event referred to in Item 401(f) of Regulation S-K. PART II ITEM 5. MARKET FOR THE REGISTRANT'S SHARES AND RELATED STOCKHOLDER MATTERS Our common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "BTR." Our 8.4% Series A Convertible Preferred Stock, issued August 6, 1998, is also traded on the NYSE under the symbol "BTRPrA." The ranges of high and low prices reported on the NYSE during 1998 and 1997 for the period outstanding were: Common Stock:
1998 1997 ------------------------------------- -------------------------------- Quarter Ended High Low Quarter Ended High Low ------------- ---- --- ------------- ---- --- March 31 $21-3/4 $19-13/16 March 31 $20-3/4 $17-3/8 June 30 21-7/8 20-1/8 June 30 20-3/8 17-1/2 September 30 22-3/4 18-3/8 September 30 21-1/4 18 December 31 21-13/16 18-3/4 December 31 21-7/16 18
Series A Convertible Preferred Stock:
1998 ------------------------------ Quarter Ended High Low ------------- ---- --- September 30 $24-1/2 $21-3/8 December 31 24-1/2 22
The closing sale prices of the common stock and preferred stock on the NYSE on March 1, 1999, were $19-3/16 and $22-3/8, respectively. At December 31, 1998, there were approximately 690 holders of record of our common stock, and 1,249 holders of record of our Series A preferred stock. We have paid dividends during the past two full years as follows:
1998 1997 ----------------------------------------------- ---------------------------- Per Common Per Preferred Per Common Payment Share Share Payment Share ------------ ---------- ------------- ------------ ---------- March 31 $ .35 - March 31 $ .33 June 30 .35 - June 30 .33 September 30 .35 .525 September 30 .33 December 31 .37 .525 December 31 .35
We have determined that approximately 28% of the distributions paid in 1997 were non-taxable returns of capital to share owners, approximately 81% and 57% of the distributions paid in 1998 and 1997, respectively, were ordinary dividends and 19% and 15% of the distributions paid in 1998 and 1997, respectively, were capital gains. Recent Issue of Unregistered Securities On November 19, 1998, Bradley Operating Limited Partnership issued 62,436 limited partner units that may be exchanged after December 31, 1999, for an equal number of shares of our common stock, as a part of the consideration paid for the acquisition of Maplewood Square. At the date of the transaction, the value of a share of common stock for which each limited partnership unit may be exchanged was $20.79. No registration statement was required in connection with the issuance because the transaction did not involve a public offering and was exempt under Section 4(2) of the Securities Act. 22 23 ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31, (Thousands of dollars, except per share data) 1998 1997 1996 1995 1994 --------- --------- --------- --------- --------- Total income $ 131,037 $ 97,552 $ 78,839 $ 36,572 $ 32,987 Total expenses 98,466 74,116 60,711 28,141 25,343 --------- --------- --------- --------- --------- Income before equity in earnings of partnership, net gain on sale of properties and extraordinary item 32,571 23,436 18,128 8,431 7,644 Equity in earnings of partnership 586 -- -- -- -- Net gain on sale of properties 29,680 7,438 9,379 -- 983 --------- --------- --------- --------- --------- Income before extraordinary item and allocation to minority interest 62,837 30,874 27,507 8,431 8,627 Income allocated to minority interest (3,317) (1,116) (285) -- -- --------- --------- --------- --------- --------- Income before extraordinary item 59,520 29,758 27,222 8,431 8,627 Extraordinary loss, net of minority interest -- (4,631) -- -- -- --------- --------- --------- --------- --------- Net income 59,520 25,127 27,222 8,431 8,627 Preferred share distributions (2,922) -- -- -- -- --------- --------- --------- --------- --------- Net income attributable to common share owners $ 56,598 $ 25,127 $ 27,222 $ 8,431 $ 8,627 ========= ========= ========= ========= ========= Basic earnings per common share: Income before extraordinary item $ 2.39 $ 1.36 $ 1.54 $ 0.85 $ 1.05 Extraordinary loss, net of minority interest -- (0.21) -- -- -- --------- --------- --------- --------- --------- Net income $ 2.39 $ 1.15 $ 1.54 $ 0.85 $ 1.05 ========= ========= ========= ========= ========= Diluted earnings per common share: Income before extraordinary item $ 2.37 $ 1.36 $ 1.54 $ 0.85 $ 1.05 Extraordinary loss, net of minority interest -- (0.21) -- -- -- --------- --------- --------- --------- --------- Net income $ 2.37 $ 1.15 $ 1.54 $ 0.85 $ 1.05 ========= ========= ========= ========= ========= Distributions per common share $ 1.42 $ 1.34 $ 1.32 $ 1.32 $ 1.29 Net cash provided by (used in): Operating activities $ 51,586 $ 44,827 $ 31,633 $ 12,733 $ 10,877 Investing activities $(131,820) $(122,649) $ (16,715) $ (9,953) $ (33,653) Financing activities $ 75,487 $ 75,107 $ (8,153) $ (2,276) $ 22,019 Funds from operations* $ 52,316 $ 42,710 $ 30,630 $ 15,249 $ 12,382 Total assets at end of year $ 968,680 $ 668,791 $ 502,284 $ 180,545 $ 166,579 Total debt at end of year $ 472,375 $ 302,710 $ 188,894 $ 39,394 $ 66,748
*We compute funds from operations ("FFO") in accordance with the March 1995 "White Paper" on FFO published by the National Association of Real Estate Investment Trusts ("NAREIT"), as income before allocation to minority interest (computed in accordance with generally accepted accounting principles), excluding gains or losses from debt restructuring and sales of property, plus depreciation and amortization, and after preferred stock distributions and adjustments for unconsolidated partnerships. Adjustments for unconsolidated partnerships are computed to reflect FFO on the same basis. In computing FFO, we do not add back to net income the amortization of costs incurred in connection with our financing activities or depreciation of non-real estate assets, but do add back to net income significant non-recurring events that materially distort the comparative measurement of company performance over time. Reference is made to "Management's Discussion and Analysis" (Item 7) for a discussion of various factors or events which materially affect the comparability of the information set forth above. 23 24 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES General Unless otherwise required by the context, references to the "Company" below include references to Bradley Operating Limited Partnership (the "Operating Partnership") through which the Company owns its properties and conducts its business. The Company funds operating expenses and distributions primarily from operating cash flows, although its bank line of credit may also be used for these purposes. The Company funds acquisitions, developments and other capital expenditures primarily from the line of credit and, to a lesser extent, operating cash flows, as well as through the issuance of debt and equity securities. The Company may also acquire properties through the direct issuance of debt and equity securities of the Company, or through the issuance of Limited Partner Units ("LP Units") of the Operating Partnership to the seller or contributor of the acquired properties. Additionally, the Company may dispose of certain non-core properties, reinvesting the proceeds from such dispositions into properties with better growth potential and that are more consistent with the Company's strategic focus. In addition, the Company may acquire partial interests in real estate assets through participation in joint venture transactions. The Company focuses its investment activities on community and neighborhood shopping centers, primarily located in the midwestern United States, anchored by regional and national grocery store chains. The Company will continue to seek acquisition opportunities of individual properties and property portfolios and of private and public real estate entities in both primary and secondary Midwest markets where management can utilize its extensive experience in shopping center renovation, expansion, re-leasing and re-merchandising to achieve long-term cash flow growth and favorable investment returns. Additionally, the Company may engage in development activities, either directly or through contractual relationships with independent development companies, to develop community and neighborhood shopping centers in selected Midwest markets where management anticipates that value can be created from new developments more effectively than from acquisitions of existing shopping center properties. The Company considers its liquidity and ability to generate cash from operating and from financing activities to be sufficient, and expects them to continue to be sufficient, to meet its operating expense, debt service and distribution requirements for at least a year. Despite a current difficult capital markets environment for REITs, the Company also believes it has sufficient liquidity and flexibility to be able to continue to take advantage of favorable acquisition and development opportunities. However, the utilization of available liquidity for such opportunities will be carefully calibrated to changing market conditions. As of December 31, 1998, financial liquidity was provided by the Company's unused balance on the line of credit of $80.5 million. In addition, the Company has an effective "shelf" registration statement under which the Company may issue up to $201.4 million in equity securities and an additional "shelf" registration statement under which the Operating Partnership may issue up to $400 million in unsecured, non-convertible investment grade debt securities. The "shelf" registration statements provide the Company and its Operating Partnership the flexibility to issue additional equity or debt securities from time to time when management determines that market conditions and the opportunity to utilize the proceeds from the issuance of such securities are favorable. During the third quarter of 1998, the Operating Partnership implemented a Medium-Term Note program providing it with the added flexibility of issuing Medium-Term Notes due nine months or more from date of issue in small amounts in an aggregate principal amount of up to $150 million from time to time using the debt "shelf" registration in an efficient and expeditious manner. As of December 31, 1998, the Company was also holding for sale six properties with an aggregate book value of $46.5 million. Proceeds received from a sale of any of such properties would provide additional liquidity to the Company. On February 23, 1999, the Operating Partnership issued $50 million of 8.875% Series B Cumulative Redeemable Preferred Units in a private placement. The net proceeds of approximately $49 million were used to pay-down the line of credit with the expectation that the increased borrowing capacity under the line of credit will be used to develop or acquire additional shopping centers. Mortgage debt outstanding at December 31, 1998 consisted of fixed-rate notes totaling $103.3 million with a weighted average interest rate of 7.51% maturing at various dates through 2016. In September 1998, approximately $10.0 million of mortgage indebtedness, with an interest rate of 9.875%, was paid-off upon maturity with cash provided by the line of credit. Short-term liquidity requirements include debt service payments due within one year. Scheduled principal amortization of mortgage debt totaled $1.1 million during 1998, with another $2.5 million due in 1999. The Company has no maturing debt until February 2000, when $6.0 million in mortgage debt becomes due, and December 2000, when the line of credit expires. The Company has historically been able to refinance debt when it has become due on terms which it believes to be commercially reasonable. While the Company currently expects to fund long-term liquidity requirements primarily through a combination of issuing additional investment grade unsecured debt securities and equity securities and with borrowings under the bank line of credit, there can be no assurance that the Company will be able to repay or refinance its indebtedness on commercially reasonable or any other terms. 24 25 Operating Activities Net cash flows provided by operating activities increased to $51,586,000 during 1998, from $44,827,000 during 1997 and $31,633,000 in 1996. These increases were due primarily to the growth of the Company's portfolio. Funds from operations ("FFO") increased $9,606,000 or 22% during 1998, from $42,710,000 in 1997 to $52,316,000 in 1998. FFO increased by $12,080,000 or 39% during 1997 from $30,630,000 in 1996. The Company generally considers FFO to be a relevant and meaningful supplemental measure of the performance of an equity REIT because it is predicated on a cash flow analysis, contrasted with net income, a measure predicated on generally accepted accounting principles which gives effect to non-cash items such as depreciation. In response to the recently issued Statement of Financial Accounting Standards No. 128, Earnings Per Share ("Statement No. 128"), the Company has modified its presentation of the calculation of FFO to reflect the potential dilution of the weighted average shares outstanding that could occur if LP Units were converted into common stock on a one-for-one basis as provided in the Operating Partnership Agreement. The effect on the calculation of FFO assuming the conversion of LP Units into common stock results in the addition to net income of the income allocated to minority interest since, for the Company, such allocation represents the income allocated to the LP Unit holders. Therefore, FFO, computed in accordance with the March 1995 "White Paper" on FFO published by the National Association of Real Estate Investment Trusts ("NAREIT"), as modified by the effects of Statement No. 128, and as followed by the Company, represents income before allocation to minority interest (computed in accordance with generally accepted accounting principles), excluding gains or losses from debt restructuring and sales of property, plus depreciation and amortization, and after preferred stock distributions and adjustments for unconsolidated partnerships. Adjustments for unconsolidated partnerships are computed to reflect FFO on the same basis. In computing FFO, the Company does not add back to net income the amortization of costs incurred in connection with the Company's financing activities or depreciation of non-real estate assets, but does add back to net income significant non-recurring events that materially distort the comparative measurement of company performance over time. In 1997, in computing FFO the Company added back to net income $3,415,000 of non-recurring stock-based compensation. The effect of applying Statement No. 128 to weighted average shares results in the addition of the weighted average LP Units outstanding during the reporting period to the weighted average shares outstanding used in the basic EPS computation, resulting in no effect on FFO per share compared with the previous method of presentation. The Company intends to restate all comparative prior periods in future financial reports to reflect the modification to the presentation of the FFO calculation. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and should not be considered as an alternative to cash flow as a measure of liquidity. Since the NAREIT White Paper provides guidelines only for computing FFO, the computation of FFO may vary from one REIT to another. FFO is not necessarily indicative of cash available to fund cash needs. Investing Activities Net cash flows from investing activities decreased to a net use of cash of $131,820,000 during 1998, from a net use of cash of $122,649,000 in 1997 and a net use of cash of $16,715,000 in 1996. On August 6, 1998, the Company completed the merger acquisition of Mid-America Realty Investments, Inc. ("Mid-America") after approval by the stockholders of Mid-America (the "Merger"). The Merger was completed through the issuance of 3.5 million shares of a newly created 8.4% Series A Convertible Preferred Stock, the payment of certain transaction costs and the assumption of all of Mid-America's liabilities, making the purchase price approximately $159 million. The Merger was structured as a tax-free transaction, and was accounted for using the purchase method of accounting. Upon completion of the Merger, the Company acquired Mid-America's 22 retail properties aggregating approximately 2.7 million square feet located primarily in the Midwest, and succeeded to Mid-America's 50% general partner interest in a joint venture which owns two neighborhood shopping centers and one enclosed mall. During 1998, in addition to the properties acquired in connection with the Merger, the Company completed the acquisitions of 22 shopping centers located in Illinois, Indiana, Kansas, Kentucky, Michigan, Missouri, Ohio and Wisconsin aggregating 3.0 million square feet for a total purchase price of approximately $202.8 million. Also, during 1998, the Company completed the sales of a 640,000 square-foot mixed-use property located in the "loop" area of downtown Chicago for a net sales price of approximately $82.1 million, and a 46,000 square-foot shopping center located in Iowa for a net sales price of approximately $1.9 million. During 1997, the Company acquired 25 shopping centers aggregating 3.1 million square feet at an aggregate cost of approximately $189.3 million. Shopping center acquisitions during 1998 and 1997 were funded through a combination of cash provided by the line of credit, the assumption of secured mortgage indebtedness, and the issuance of LP Units which are redeemable in exchange for common stock. During 1997, the Company completed the sales of three properties located in New England for an aggregate net sales price of $19.4 million. These properties were held for sale at December 31, 1996 because such properties were not aligned with the Company's strategic market focus. Additionally, the Company completed the sale of Meadows Town Mall during 1997 for a net sales price of 25 26 $5.9 million redeploying the proceeds from the sale toward the acquisitions of additional shopping centers. This property was acquired in the merger acquisition of Tucker Properties Corporation ("Tucker") in March 1996 (the "Tucker Acquisition") and was considered by management to be a non-core property. Financing Activities Net cash flows provided by financing activities increased to $75,487,000 in 1998 from $75,107,000 during 1997 and from a net use of cash of $8,153,000 during 1996. Distributions to common and preferred share owners as well as to the minority interest (treated as a reduction in cash flows from financing activities in the Company's financial statements) were $39,354,000 in 1998, $30,504,000 in 1997, and $23,477,000 in 1996. In November 1997, the Operating Partnership issued $100 million, 7% seven-year unsecured Notes maturing November 15, 2004, which were rated "BBB-" by Standard & Poor's Investment Services ("Standard & Poor's") and "Baa3" by Moody's Investors Service ("Moody's"). The debt securities were issued from a "shelf" registration filed in September 1997 under which the Operating Partnership could issue up to $300 million in unsecured non-convertible investment grade debt securities. The Company utilized the proceeds to prepay a $100 million, 7.23% mortgage note that had been issued to a trust qualifying as a real estate mortgage investment conduit for federal income tax purposes (the "REMIC Note"). The REMIC Note was secured by six properties and was originally scheduled to expire in September 2000. Prepayment of the REMIC Note resulted in an extraordinary loss on prepayment of debt of $4,054,000 (net of the minority interest portion), consisting primarily of a prepayment yield maintenance fee. However, issuance of such unsecured debt extended the Company's weighted average debt maturity and resulted in a slightly lower effective interest rate on $100 million of debt, while the prepayment of the REMIC Note resulted in the discharge from the mortgage securing the REMIC Note of properties having an aggregate gross book value of $181.2 million. The outstanding balance of the unsecured Notes at December 31, 1998, net of the unamortized discount, was $99,814,000. The effective interest rate on the unsecured Notes is approximately 7.194%. In January 1998, the Operating Partnership issued $100 million, 7.2% ten-year unsecured Notes maturing January 15, 2008 from the aforementioned "shelf" registration. The issue was rated "BBB-" by Standard & Poors and "Baa3" by Moody's. Proceeds from the offering were used to pay amounts outstanding under the bank line of credit which had been increased throughout 1997 primarily for the acquisitions of additional shopping centers. The outstanding balance of the unsecured Notes at December 31, 1998, net of the unamortized discount, was $99,728,000. The effective interest rate on the unsecured Notes is approximately 7.611%. In May 1998, the Company filed a "shelf" registration under which the Operating Partnership may issue up to $400 million in unsecured, non-convertible investment grade debt securities. The "shelf" registration gives the Operating Partnership the flexibility to issue additional debt securities from time to time when management determines that market conditions and the opportunity to utilize the proceeds from the issuance of such securities are favorable. During September 1998, the Operating Partnership implemented a Medium-Term Note Program providing it with the added flexibility of issuing Medium-Term Notes due nine months or more from the date of issue in small amounts in an aggregate principal amount of up to $150 million from time to time using the debt "shelf" registration in an efficient and expeditious manner. In December 1997, the Operating Partnership entered into a new $200 million unsecured line of credit facility with a syndicate of banks, lead by First Chicago NBD and BankBoston, replacing the previous $150 million unsecured line of credit facility. In November 1998, the Operating Partnership amended the line of credit facility, increasing the maximum capacity to $250 million. The line of credit bears interest at a rate equal to the lowest of (i) the lead bank's base rate, (ii) a spread over LIBOR ranging from 0.70% to 1.25% depending on the credit rating assigned by national credit rating agencies, or (iii) for amounts outstanding up to $150 million, a competitive bid rate solicited from the syndicate of banks. Based on the Operating Partnership's current credit rating assigned by Standard & Poor's and Moody's, the spread over LIBOR is 1.00%. Additionally, there is a facility fee currently equal to $375,000 per annum. In the event the current credit ratings were downgraded by either Standard & Poor's or Moody's, the facility fee would increase to $625,000 per annum, and the spread over the base rate would increase by 0.25% and the spread over LIBOR would increase to 1.25%. The line of credit is guaranteed by the Company and matures in December 2000. The line of credit is available for the acquisition, development, renovation and expansion of new and existing properties, working capital and general business purposes. In 1997, the Company incurred an extraordinary loss on the prepayment of debt of $577,000 (net of the minority interest portion) in connection with replacing the previous line of credit. At December 31, 1998, the weighted average interest rate on the line of credit was 6.65%. In 1997, the Company filed a "shelf" registration statement, under which it could issue up to $234.4 million of equity securities through underwriters or in privately negotiated transactions from time to time. On December 1, 1997, the Company completed an offering of 990,000 shares of its common stock from the "shelf" registration at a price to the public of $20.375 per share. Net proceeds from the offering of $19.2 million were used to reduce outstanding indebtedness under the line of credit. The shares were sold under a program entered into with PaineWebber Incorporated ("PaineWebber") on October 21, 1997, pursuant to which the Company had the right, but not the obligation, until April 21, 1998, to sell shares of its common stock at the market price on the day following 26 27 notification to PaineWebber of its intent to sell common stock to PaineWebber, acting as underwriter, with an aggregate value up to $60 million, in amounts ranging from $5 million to $20 million per transaction. The Agreement provided the Company with the ability to match its capital expenditure needs for pending and future acquisitions with contemporaneous capital raising transactions whenever the Company was in a position to utilize the proceeds from an equity offering, without being forced to dilute earnings because of an obligation to issue equity prior to such time. No further shares were sold under the program, which expired April 21, 1998. The Company completed an additional offering of 300,000 shares of its common stock on December 10, 1997 at a price to the public of $20.50 per share. Net proceeds from the offering of $5.7 million were used to reduce outstanding indebtedness under the line of credit. In February 1998, the Company issued 392,638 shares of common stock from the "shelf" registration at a price based upon the then market value of $20.375 per share. Net proceeds from the offering of approximately $7.6 million were used to reduce outstanding borrowings under the line of credit. During 1996, the Company completed a public offering of 2,875,000 shares of common stock at a price of $16.50 per share. Net proceeds from the offering of approximately $44.9 million were used to reduce outstanding borrowings under the line of credit. The Company revised its Dividend Reinvestment and Stock Purchase Plan during the fourth quarter of 1998, increasing the amount raised under such plan to $6 million during 1998 from $770,000 and $196,000 respectively during 1997 and 1996. Capital Strategy As of December 31, 1998, the Company was holding for sale six non-core properties, consisting of four enclosed malls and two community shopping centers, all acquired in connection with the Merger acquisition of Mid-America. The net book value of these properties, $46.5 million, has been classified on the consolidated balance sheet as "Real estate investments held for sale." The four enclosed malls are not aligned with the Company's strategic property focus. The remaining two shopping center properties are located in the Southeast region of the United States, and are not aligned with the Company's strategic market focus. Although the spread between the yield generated by the four enclosed malls and the immediate and ultimate redeployment of the sales proceeds may be dilutive to earnings in the near term, management believes the proceeds can be better invested in properties with higher growth potential and risk adjusted returns. The Company expects to use the net proceeds from such sale or sales to reduce outstanding indebtedness under the line of credit with the expectation that the increased borrowing capacity under the line of credit would be used to acquire or develop additional shopping centers within its target markets that are more in keeping with the Company's grocery-anchored community shopping center focus. There can be no assurance that any sales will be completed or that, if a sale is completed, the net proceeds will be redeployed into investments with favorable economic conditions. Management believes that the Company's continued growth and operating performance have enhanced the Company's ability to further raise both equity and debt capital in the public markets at such time as management determines that market conditions and the opportunity to utilize the proceeds from the issuance of securities are favorable. As indicated above, the Company has positioned itself to take advantage of favorable opportunities by increasing the maximum capacity under the line of credit facility, increasing the dollar amount of debt securities that it may issue pursuant to a "shelf" registration statement and by implementing a Medium-Term Note Program. However, a softening in the equity capital markets and general reduction in liquidity in the debt capital markets have limited the Company's ability to raise new capital from external sources. Despite demanding higher returns on tighter investment capital, the Company continues to identify favorable acquisition, development, and redevelopment opportunities from both prospective acquisitions in its target markets and from shopping centers in its core portfolio. The Company is exploring alternative sources of investment capital including joint venture alternatives in order to conserve liquidity while taking advantage of favorable investment opportunities. To the extent that external capital remains constrained or prohibitively expensive, the level of new investment will be aligned to match capital flows accordingly. Attractive investment opportunities may be financed with the line of credit, proceeds from the sale of non-core assets, internally generated retained cash, and possible joint ventures. The Company will continue to judiciously use its flexibility in evaluating investment opportunities in order to maximize value to its share owners. Year 2000 Issues The statements under this caption include "Year 2000 readiness disclosure" within the meaning of the Year 2000 Information and Readiness Disclosure Act. Many existing computer software programs and operating systems were designed such that the year 1999 is the maximum date that they will be able to process accurately. The failure of the Company's computer software programs and operating systems to process the change in calendar year from 1999 to 2000 may result in system malfunctions or failures. In the conduct of its own operations, the Company relies on equipment manufacturers and commercial computer software primarily provided by independent software vendors, and has undertaken an assessment of its vulnerability to the so-called "Year 2000 issue" with respect to its equipment and computer systems. 27 28 The Company has undertaken a five-step program in order to achieve Year 2000 readiness including: - - Awareness - Education involving all levels of Bradley personnel regarding Year 2000 implications. - - Inventory - Creating a checklist and conducting surveys to identify Year 2000 compliance issues in all systems, including both mechanical and information systems. The surveys were also designed to identify critical outside parties such as banks, tenants, suppliers and other parties with whom the Company does a significant amount of business, for purposes of determining potential exposure in the event such parties are not Year 2000 compliant. - - Assessment - Based upon the results of the inventory and surveys, assessing the nature of identified Year 2000 issues and developing strategies to bring the Company's systems into substantial compliance with respect to Year 2000. - - Correction and Testing - Implementing the strategy developed during the assessment phase. - - Implementation - Incorporating repaired or replaced systems into the Company's systems environment. The program, which is ongoing, has yielded the following conclusions: With respect to its potential exposure to information technology systems, including the Company's accounting and lease management systems, the Company believes that such commercial software is Year 2000 compliant. This assessment is based upon installation and testing of upgraded software provided by software vendors, as well as formal and informal communications with software vendors and literature supplied with certain software. The Company has incurred minimal costs associated with bringing its information technology systems to be Year 2000 compliant. In the operation of its properties, the Company has acquired equipment with embedded technology such as microcontrollers which operate heating, ventilation and air conditioning systems ("HVAC"), fire alarms, security systems, telephones and other equipment utilizing time-sensitive technology. The Company has substantially completed its evaluation of the potential exposure to such non-information technology systems and does not expect to incur more than $50,000 to become Year 2000 compliant. This assessment is based upon formal and informal communications with software vendors, literature supplied with the software, literature supplied in connection with maintenance contracts, and test evaluations of the software. The failure of the Company's tenants' or suppliers' computer software programs and operating systems to process the change in calendar year from 1999 to 2000 may also result in system malfunctions or failures. Such an occurrence would potentially affect the ability of the affected tenant or supplier to operate its business and thereby raise adequate revenue to meet its contractual obligations to the Company. As a result, the Company may not receive revenue or services it had otherwise expected to receive pursuant to existing leases and contracts. The Company has completed an inventory of the tenants, suppliers and other parties with whom the Company does a significant amount of business and is in the process of surveying such parties to identify the potential exposure in the event they are not Year 2000 compliant in a timely manner. The Company expects to have responses from such parties by May 1999. However, at this time, the Company is not aware of any party that is anticipating a material Year 2000 compliance issue. Although the investigations and assessments of possible Year 2000 issues are still in a preliminary stage, the Company does not anticipate a material impact on its business, operations or financial condition even if one or more parties is not Year 2000 compliant in a timely manner, because the number and nature of the Company's tenant base are diverse, and because the Company does not rely on a concentration of suppliers and other parties to conduct its business. Although the Company is aware that it may not, in fact, be Year 2000 compliant upon the year 2000, at this time the Company has not adopted a contingency plan for the conduct of its own operations because the Company expects to be Year 2000 compliant in advance of 2000. However, the Company will continue to monitor its progress and state of readiness, and will be prepared to adopt a contingency plan with respect to areas in which evidence arises that it may not become Year 2000 compliant in sufficient time. It is possible that an aggregation of tenants, suppliers, and other parties who experience Year 2000 related system malfunctions or failures may have a material impact on the Company's business, operations, and financial condition. Although the Company believes that it will be able to adopt appropriate contingency plans to deal with any Year 2000 compliance issue that any other party, excluding public utilities, with whom the Company has significant relationships may experience as it continues its Year 2000 assessment and testing, it cannot be certain at this time that such contingency plans will be effective in limiting the harm caused by such third parties' system malfunctions and failures. The reasonably likely worst case scenario that could affect the Company's operations would be a widespread prolonged power failure affecting a substantial portion of the Midwestern states in which the Company's shopping centers are located. In the event of such a widespread prolonged power failure, a significant number of tenants may not be able to operate their stores and, as a result, their ability to pay rent could be substantially impaired. The Company is not aware of an economically feasible contingency plan which could be implemented to prevent such a power failure from having a material adverse effect on the Company's operations. 28 29 RESULTS OF OPERATIONS 1998 Compared to 1997 Net income attributable to common share owners for 1998 totaled $56,598,000 compared with $25,127,000 for the prior year. Net income for 1998 included a net gain of $29,680,000 on the sale of two of the Company's non-core properties. Net income for 1997 included a net gain of $7,438,000 on the sale of four non-core properties over the course of the year, a non-recurring charge of $3,415,000 for certain stock-based compensation, and an extraordinary charge of $4,631,000 for costs incurred in connection with the prepayment of the REMIC Note and the write-off of costs associated with the Company's former line of credit. Income before the net gain on sale of properties, extraordinary item and before income allocated to minority interest increased from $23,436,000 to $33,157,000, or 41%. Distributions on the newly created Series A Preferred Stock issued in connection with the Merger acquisition of Mid-America, amounted to $2,922,000 for the period August 6, 1998 through December 31, 1998. Basic net income per common share increased from $1.15 per share in 1997 to $2.39 per share in 1998. The computation of diluted net income per share resulted in a $0.02 per share reduction in the Company's basic net income per share from $2.39 to $2.37 for 1998, but had no effect on the Company's basic net income per share for 1997. Upon completion of the Merger acquisition of Mid-America on August 6, 1998, the Company acquired Mid-America's 22 retail properties located primarily in the Midwest, and succeeded to Mid-America's 50% general partner interest in Mid-America Bethal Limited Partnership (renamed Bradley Bethal Limited Partnership), a joint venture which owns two neighborhood shopping centers and one enclosed mall. Under the purchase method of accounting, the results of operations of Mid-America have been included in the Company's consolidated financial statements from the date of acquisition. During 1998, in addition to the properties acquired in connection with the Merger, the Company acquired 22 shopping centers for a total purchase price of approximately $202.8 million, and sold two non-core properties. During 1997, the Company acquired 25 shopping centers at an aggregate cost of approximately $189.3 million and sold four non-core properties. Results of operations for properties consolidated for financial reporting purposes and held throughout both 1998 and 1997 included 29 properties. Results of operations for properties consolidated for financial reporting purposes and purchased or sold subsequent to January 1, 1997 through December 31, 1998 included 72 properties. As of December 31, 1998, the Company owned 95 shopping centers consolidated for financial reporting purposes. Property Specific Revenues and Expenses (in thousands of dollars)
Properties Acquisitions/ held both 1998 1997 Difference dispositions years -------- ------- ---------- ----------- --------- Rental income $128,444 $ 96,115 $ 32,329 $ 33,088 $ (759) Other property income $ 2,051 $ 701 $ 1,350 $ 985 $ 365 Operations, maintenance and management $ 18,915 $ 14,012 $ 4,903 $ 4,376 $ 527 Real estate taxes $ 21,713 $ 18,398 $ 3,315 $ 3,411 $ (96) Depreciation and amortization $ 22,974 $ 16,606 $ 6,368 $ 4,249 $ 2,119
Results attributable to acquisition and disposition activities Rental income increased from $96,115,000 in 1997 to $128,444,000 in 1998, an increase of $32,329,000. Approximately $42,294,000 of the increase was attributable to the Company's acquisition activities, including $9,597,000 for properties acquired in the Merger acquisition of Mid-America partially offset by $9,206,000 attributable to disposition activities, primarily One North State. Other property income increased from $701,000 in 1997 to $2,051,000 in 1998, an increase of $1,350,000. Since almost no other property income was generated from properties that were sold, substantially all of the $985,000 increase for acquisitions and dispositions was attributable to the Company's acquisition activities. Approximately $413,000 of other property income was generated from properties acquired in the Merger, most of which is attributable to other property income at four enclosed malls. Approximately $365,000 of the increase in other property income was attributable to properties held both years. Operations, maintenance and management expense increased from $14,012,000 in 1997 to $18,915,000 in 1998, an increase of $4,903,000. Approximately $4,376,000 of the net increase was attributable to the Company's acquisition and disposition activities, including $1,699,000 for properties acquired in the Merger. Real estate taxes increased from $18,398,000 in 1997 to $21,713,000 in 1998, an increase of $3,315,000. Real estate taxes incurred for properties acquired during both years, net of real estate taxes eliminated for properties sold, of approximately $3,411,000 accounted for substantially all of the increase. 29 30 Depreciation and amortization increased from $16,606,000 in 1997 to $22,974,000 in 1998, an increase of $6,368,000. Approximately $4,249,000 of the net increase was attributable to the Company's acquisition and disposition activities, while approximately $2,119,000 was attributable to properties held both years. Results for properties fully operating throughout both years On May 22, 1998, the Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board reached a consensus under Issue No. 98-9, Accounting for Contingent Rent in Interim Financial Periods, that despite the fact that the achievement of a future specified sales target of a lessee may be considered as probable and reasonably estimable at some earlier point in the year, a lessor should defer recognition of contingent rental income until such specified targets are met. The pronouncement was effective May 23, 1998. Previously, the Company recognized percentage rental income each period based on reasonable estimates of tenant sales. Largely due to the implementation of EITF No. 98-9, percentage rental income for properties held throughout both years decreased by $595,000. Including the reduction for percentage rental income of $595,000, total rental income for properties held throughout both years decreased $759,000, or approximately 1%. Decreases in rental income of $755,000 at Heritage Square, $543,000 at Sun Ray Shopping Center, $386,000 at High Point Centre, and $226,000 at Har Mar Mall were partially offset by increases of $485,000 at Westview Center and $359,000 at Grandview Plaza. The decrease at Heritage Square was caused by an expected vacancy of Montgomery Ward in the first quarter of 1998, following the tenant's declaration of bankruptcy in 1997. A 62,000 square-foot lease with Carson Pirie Scott has been signed, expected to commence in the second half of 1999, to replace approximately one half the space previously occupied by Montgomery Ward. The decrease at Sun Ray Shopping Center was primarily due to a $172,500 termination payment received in the second quarter of 1997 combined with a reduction in real estate tax recoveries of $358,000 resulting from the negotiation of real estate tax reductions of $450,000 for the prior year. The decrease in rental income at High Point Centre was due to the termination of a lease with T.J. Maxx in the second quarter of 1998, resulting from the consolidation of T.J. Maxx and Marshalls stores. The reduction in rental income at Har Mar Mall primarily resulted from the vacancy of HomePlace in the third quarter of 1998, after this tenant declared bankruptcy in January 1998. Although the Company is in negotiations to replace the tenant, a reduction in rental income at this property is expected in future quarters. Except for the significant vacancy of HomePlace, however, leasing activity was strong at this property. Increases in real estate tax recoveries at Westview Center resulted from an increase in real estate taxes of $318,000 due to the negotiation of tax reductions at this center in the prior year. The increase in rental income at Westview Center is also attributable to a 60,000 square-foot lease with Waccamaw Pottery commencing in the fourth quarter of 1997. The increase in rental income at Grandview Plaza was primarily due to the commencement of a 30,000 square-foot lease with OfficeMax in the fourth quarter of 1997. Despite the competitive retail climate that contributed to the vacancies described above, in addition to the lease with Carson Pirie Scott at Heritage Square, several significant new leases were signed during 1998 that are expected to contribute to increases in rental income at such properties in future quarters. A 30,000 square-foot lease at Commons of Crystal Lake was signed with Toys 'R Us in the third quarter of 1998, commencing in the first quarter of 1999 for half of the space formerly occupied by Jewel, which opened its newly expanded 71,000 square-foot space at this center in the third quarter of 1998. A 28,000 square-foot lease was also signed with Marshalls at Commons of Crystal Lake, expected to commence in the second quarter of 1999. Rental income is expected to increase at Rollins Crossing due to a 71,000 square-foot lease with Regal Cinema commencing in October 1998, and at Sun Ray Shopping Center due to a newly signed lease for 26,000 square feet with Bally's Total Fitness, expected to commence in the first half of 1999. Rental income is also expected to increase at High Point Centre due to a new 36,000 square-foot lease with Babies 'R Us. Additional leases commencing late in the fourth quarter of 1998 expected to contribute to increases in rental income include a 24,000 square-foot lease with Dunham's Athleisure at Burning Tree Plaza and a 22,000 square-foot lease with Pep Boys at Brookdale Square. The remaining $527,000 increase in operations, maintenance and management expense during 1998 was primarily attributable to an increase in bad debt expense, mostly to reserve a deferred rent receivable balance for HomePlace in the first quarter. The remaining $96,000 decrease in real estate taxes during 1998 was primarily attributable to the aforementioned reduction at Sun Ray Shopping Center, as well as a reduction of approximately $521,000 at Village Shopping Center due to negotiated abatements, partially offset by the aforementioned increase at Westview Center as well as an increase of approximately $540,000 at Commons of Chicago Ridge. The remaining $2,119,000 increase in depreciation and amortization during 1998 was attributable to new construction and leasing at Westview Center, Burning Tree Plaza, Village Shopping Center, and Sun Ray Shopping Center as well as new tenancies at various other locations, combined with the write-off of costs for HomePlace at Har Mar Mall and Montgomery Ward at Heritage Square due to their vacancies. 30 31 Non-Property Specific Expenses Mortgage and other interest increased $11,119,000 from $16,562,000 in 1997 to $27,681,000 in 1998. Interest expense on the line of credit, net of amounts capitalized, increased from $6,605,000 to $7,897,000. The increase in interest expense on the line of credit was due to a higher average outstanding balance primarily as a result of borrowings for acquisitions during 1998, partially offset by lower borrowing rates. The weighted average interest rate on outstanding borrowings under the line of credit decreased to 6.70% in 1998 from 7.48% during 1997. Mortgage interest expense decreased from $9,221,000 in 1997 to $5,481,000 in 1998, primarily due to the prepayment of the REMIC Note in November 1997 with proceeds from the issuance of unsecured Notes, partially offset by interest incurred on the assumption of $25,753,000 in mortgage indebtedness in connection with the acquisition of three shopping centers in 1998, and $37,933,000 in connection with the Merger, as well as a full year's interest incurred on mortgages assumed in connection with the acquisition of four shopping centers in 1997. Interest on the REMIC Note in 1997 amounted to $6,631,000. The weighted average interest rate on mortgage debt outstanding at December 31, 1998 was 7.51%. Interest on the $100 million, 7% unsecured Notes issued in November 1997 and used to prepay the REMIC Note amounted to $736,000 in 1997 compared with $7,175,000 in 1998. Interest on the $100 million, 7.2% unsecured Notes issued in January 1998 amounted to $7,057,000. General and administrative expense increased from $5,123,000 in 1997 to $7,183,000 in 1998. The increase is primarily a result of the growth of the Company, including increases in salaries for additional personnel, investor relations for a larger shareholder base, and franchise taxes and related fees for a larger equity base and expanded geographic market. Further, the increased focus on acquisition activity involves costs incurred in the evaluation process which are non-recoverable and charged to general and administrative expense in the case of acquisitions that are not consummated. During 1998, several potential property acquisitions were abandoned as a result of a softening in the equity capital markets and general decrease in liquidity in the debt capital markets, as the Company decided to reevaluate the utilization of capital resources and protect its liquidity, resulting in a charge to general and administrative expense of approximately $300,000. Additionally, the Company had historically capitalized portions of salaries of certain internal personnel dedicated to the acquisition of properties on a successful efforts basis allocated to completed acquisitions. On March 19, 1998, the EITF reached a consensus under Issue No. 97-11, Accounting for Internal Costs Relating to Real Estate Property Acquisitions, that internal costs of identifying and acquiring operating properties should be expensed as incurred. The pronouncement was effective March 19, 1998. During 1997, the Company incurred an extraordinary loss on the prepayment of debt of $577,000 (net of the minority interest portion) in connection with replacing the previous line of credit, and incurred an extraordinary loss on the prepayment of debt of $4,054,000 (net of the minority interest portion), consisting primarily of a prepayment yield maintenance fee, in connection with the prepayment of the REMIC Note. During 1997, after working with an independent compensation consultant, the Board of Directors terminated the Company's Superior Performance Incentive Plan and substituted an award of approximately 115,000 shares of the Company's common stock to certain senior executives, plus a cash amount to reimburse the executives for taxes resulting from such award. As a result, a non-recurring charge of $3,415,000 was included in the Company's 1997 financial statements. 1997 Compared to 1996 Net income for 1997 totaled $25,127,000, or $1.15 per share, compared with $27,222,000, or $1.54 per share, for the prior year. Net income for 1996 included a gain of $9,379,000 on the sale of the Company's ground lease in Minneapolis. Net income for 1997 included a net gain of $7,438,000 on the sale of four non-core properties over the course of the year, a non-recurring charge of $3,415,000 for certain stock-based compensation, and an extraordinary charge of $4,631,000 for costs incurred in connection with the prepayment of the REMIC Note in late November and the write-off of costs associated with the Company's former line of credit. Weighted average common shares outstanding were 21,776,146 for 1997 compared with 17,619,546 for the prior year. The increased shares primarily reflect the full year effect of a 2,875,000 share public offering completed in November 1996 and the public offerings of 1,290,000 shares completed in December 1997. During 1997, the Company acquired 25 shopping centers and sold four shopping centers. During 1996, the Company acquired sixteen properties, including fourteen properties in connection with the Tucker Acquisition in March 1996, and sold its interest in a ground lease. Property Specific Revenues and Expenses (in thousands of dollars)
Properties Acquisitions/ held both 1997 1996 Difference dispositions years ------ ------- ------- ------- --------- Rental income $96,115 $77,512 $18,603 $17,722 $ 881 Operations, maintenance and management $14,012 $12,949 $ 1,063 $ 2,171 $ (1,108) Real estate taxes $18,398 $16,787 $ 1,611 $ 2,129 $ (518) Depreciation and amortization $16,606 $13,286 $ 3,320 $ 2,769 $ 551
31 32 Results attributable to acquisition and disposition activities Rental income increased from $77,512,000 in 1996 to $96,115,000 in 1997, an increase of $18,603,000. Approximately $17,722,000 of the net increase was attributable to the Company's acquisition and disposition activities, of which $8,933,000 primarily related to the full year effect of the Tucker Acquisition in 1996. Operations, maintenance and management expense increased from $12,949,000 in 1996 to $14,012,000 in 1997, an increase of $1,063,000. Approximately $2,171,000 of the net increase was attributable to the Company's acquisition and disposition activities, of which $1,108,000 primarily related to the full year effect of the properties acquired in the Tucker Acquisition, partially offset by a $1,108,000 decrease for properties held both years. Real estate taxes increased from $16,787,000 in 1996 to $18,398,000 in 1997, an increase of $1,611,000. Approximately $2,129,000 of the net increase was attributable to the Company's acquisition and disposition activities, of which $866,000 primarily related to the full year effect of the Tucker Acquisition, partially offset by a $518,000 decrease for properties held both years. Depreciation and amortization increased from $13,286,000 in 1996 to $16,606,000 in 1997, an increase of $3,320,000. Approximately $2,769,000 of the net increase was attributable to the Company's acquisition and disposition activities, of which $1,575,000 primarily related to the full year effect of the Tucker Acquisition. Results for properties fully operating throughout both years The remaining increase in rental income of $881,000 was primarily attributable to increases at Har Mar Mall, Burning Tree Plaza and Crossroads Center aggregating $1,006,000, partially offset by a decrease at Westview Center of approximately $382,000. During the second half of 1996, the Company signed leases at Har Mar Mall for approximately 26,000 square feet, or 6% of the Center, contributing to an increase in 1997, since such leases were in place for the full year. Additionally, higher sales for certain tenants at Har Mar Mall contributed to an increase in percentage rents. The Best Buy store at Burning Tree Plaza was expanded by approximately 18,000 square feet in March 1997, contributing to the increased rental income at this property. The rental income increase at Crossroads Centre was primarily due to an increase in occupancy. Westview Center continued to suffer from the vacancy of Burlington Coat Factory in 1994. Management actions with respect to the property included negotiating reductions in the assessed value of the property, resulting in a $438,000 reduction in the real estate tax expense in 1997, more than offsetting the reduction in rental income. Further, during 1997, the Company signed a 60,000 square-foot lease with Waccamaw Pottery, which commenced in October 1997. A new lease of 55,000 square feet was signed with JC Penney at Commons of Chicago Ridge which commenced in June 1997. A 30,000 square-foot lease was signed with OfficeMax at Grandview Plaza which commenced in December 1997. The remaining decrease in operations, maintenance and management expense of $1,108,000 was primarily attributable to decreases at Rivercrest Center, Har Mar Mall, Westview Center and Crossroads Centre, aggregating approximately $947,000. The overall decreases were attributable to reductions in bad debt expense, as well as snow removal due to a harsh winter in 1996. The remaining decrease in real estate taxes of $518,000 was primarily attributable to the aforementioned reduction at Westview Center as well as a decrease of approximately $150,000 at Rivercrest Center. The remaining increase in depreciation and amortization of $551,000 was attributable to new construction and leasing at Burning Tree Plaza and Sun Ray Shopping Center as well as new tenancies at various other locations. Non-Property Specific Expenses Mortgage and other interest increased from $13,404,000 in 1996 to $16,562,000 in 1997. Interest expense on the line of credit, net of amounts capitalized, increased from $5,666,000 to $6,605,000. The increase in interest expense on the line of credit was due to a higher average outstanding balance primarily as a result of drawing approximately $138 million for acquisitions during 1997, partially offset by lower borrowing rates negotiated through the amendment and subsequent replacement of the previous $150 million line of credit with a new $200 million line of credit. The weighted average interest rate on outstanding borrowings under the line of credit decreased to 7.48% in 1997 from 7.84% during 1996. Mortgage interest expense increased from $7,738,000 in 1996 to $9,221,000 in 1997, primarily due to a longer interest period in 1997 on the REMIC Note assumed in the Tucker Acquisition in 1996, but also due to the assumption of $26,677,000 in mortgage indebtedness in connection with the acquisition of four shopping centers during 1997. The weighted average interest rate on mortgage debt outstanding at December 31, 1997 was 8.18%. Mortgage and other interest in 1997 also included $736,000 on $100 million of 7% unsecured Notes issued in November 1997. The proceeds from the issuance were used to prepay the 7.23% REMIC Note. 32 33 The Company incurred an extraordinary loss on the prepayment of debt of $577,000 (net of the minority interest portion) in connection with replacing the previous line of credit, and incurred an extraordinary loss on the prepayment of debt of $4,054,000 (net of the minority interest portion), consisting primarily of a prepayment yield maintenance fee, in connection with the prepayment of the REMIC Note. General and administrative expense increased from $3,532,000 in 1996 to $5,123,000 in 1997 primarily resulting from increased personnel following 1996 and 1997 acquisition activity. In connection with the Company's moving its headquarters from Boston, Massachusetts (where the Company was founded in 1961) to Northbrook, Illinois, the Company incurred a one-time relocation charge of $409,000 during 1996. During 1997, after working with an independent compensation consultant, the Board of Directors terminated the Company's Superior Performance Incentive Plan and substituted an award of approximately 115,000 shares of the Company's common stock to certain senior executives, plus a cash amount to reimburse the executives for taxes resulting from such award. As a result, a non-recurring charge of $3,415,000 was included in the Company's 1997 financial statements. During 1996, the Company incurred a charge of $344,000, consisting of deferred financing costs related to the Company's former bank line of credit and certain deferred acquisition costs related to acquisitions which the Company chose not to pursue due to the efforts required to finalize the Tucker Acquisition. New Accounting Pronouncement Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities becomes effective for all fiscal quarters for fiscal years beginning after June 15, 1999 and is not expected to have a material impact on the Company's financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to interest rate changes primarily as a result of its line of credit used to maintain liquidity and fund capital expenditures and expansion of the Company's real estate investment portfolio. The Company's interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives the Company borrows primarily at fixed rates and may enter into derivative financial instruments such as interest rate swaps, caps and treasury locks in order to mitigate its interest rate risk on a related financial instrument. The Company does not enter into derivative or interest rate transactions for speculative purposes. The Company's interest rate risk is monitored using a variety of techniques. As of December 31, 1998, the Company's long-term debt consisted of fixed-rate secured mortgage indebtedness, fixed-rate unsecured Notes, and a variable rate line of credit facility. The average interest rate on the $103.3 million of secured mortgage indebtedness outstanding at December 31, 1998 was 7.51%, with maturities at various dates through 2016. The unsecured Notes with an outstanding balance of $199.5 million at December 31, 1998, consist of $100 million, 7% seven-year unsecured Notes maturing November 15, 2004 with an effective rate of 7.19%, and $100 million, 7.2% ten-year unsecured Notes maturing January 15, 2008 with an effective rate of 7.61%. The weighted average interest rate on the line of credit at December 31, 1998 was 6.65%. The line of credit, with an outstanding balance at December 31, 1998 of $169.5 million, matures December 2000. The carrying value of the line of credit at December 31, 1998 approximates its fair value. The aggregate scheduled principal amortization of all debt consists of the following at December 31, 1998: 1999 $ 2,547,000 2000 178,053,000 2001 5,437,000 2002 31,147,000 2003 8,192,000 Thereafter 246,999,000 ------------- $ 472,375,000 ============= As the table incorporates only those exposures that exist as of December 31, 1998, it does not consider those exposures or positions that could arise after that date. Moreover, because future commitments are not presented in the table above, the information presented has limited predictive value. As a result, the Company's ultimate economic impact with respect to interest rate fluctuations will depend on the exposures that arise during the period, the Company's hedging strategies at that time, and interest rates. 33 34 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Index to Financial Statements and Schedule later in this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item 10 is hereby incorporated by reference to the text appearing under Part I, Item 4A. under the caption "Executive Officers of the Registrant" in this Report, and by reference to the information under the headings "Information Regarding Nominees and Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in our definitive Proxy Statement for the 1999 Annual Meeting of Stockholders. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item 11 is hereby incorporated by reference to the information under the headings "Compensation of Directors and Executive Officers," "Report of the Compensation Committee," "Compensation Committee Interlocks and Insider Participation," "Employment Agreements" and "Share Performance Graph" in our definitive Proxy Statement for the 1999 Annual Meeting of Stockholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item 12 is hereby incorporated by reference to the information under the heading "Beneficial Ownership of Shares" in our definitive Proxy Statement for the 1999 Annual Meeting of Stockholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item 13 is hereby incorporated by reference to the information under the heading "Certain Relationships and Related Party Transactions" in our definitive Proxy Statement for the 1999 Annual Meeting of Stockholders. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: (1) and (2) The Financial Statements and Schedules required by Item 8 are listed in the Index to Financial Statements and Schedules following the signatures to this Report. (3) The following exhibits (listed according to the exhibit index set forth in the instructions to Item 601 of Regulation S-K), are a part of this Report. Exhibit No. Description Page ----------- ----------- ---- 3.1 Articles of Amendment and Restatement of Bradley Real N/A Estate, Inc., incorporated by reference to Exhibit 3.1 of the Company's Current Report on Form 8-K dated October 17, 1994. 3.2 Articles of Merger between Bradley Real Estate Trust and N/A Bradley Real Estate, Inc., incorporated by reference to Exhibit 3.2 of the Company's Current Report on Form 8-K dated October 17, 1994. 3.3 Articles of Merger between Tucker Properties Corporation N/A and Bradley Real Estate, Inc., incorporated by reference to Exhibit 3.3 of the Company's Annual Report on Form 10-K dated March 25, 1996. 34 35 Exhibit No. Description Page -------------------------------------------------------- 3.4 Articles of Merger between Mid-America Realty N/A Investments, Inc. and Bradley Real Estate, Inc., incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K dated August 7, 1998. 3.5 Articles Supplementary Establishing and Fixing the Rights N/A and Preferences of a Series of Shares of Preferred Stock for the 8.4% Series A Convertible Preferred Stock of Bradley Real Estate, Inc. attached as Annex B to the Proxy Statement/Prospectus included in Part I to the Registration Statement on Form S-4 (File No. 333-57123) and incorporated herein by reference. 3.6 Articles Supplementary Establishing and Fixing the Rights N/A and Preferences of a Series of Shares of Preferred Stock for the 8.875% Series B Cumulative Redeemable Preferred Stock of Bradley Real Estate, Inc. incorporated by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K dated March 3, 1999. 3.7 By-laws of Bradley Real Estate, Inc., incorporated by N/A reference to Exhibit 3.3 of the Company's Current Report on Form 8-K dated October 17, 1994. 4.1.1 Text of Indenture dated as of November 24, 1997 by and N/A between Bradley Operating Limited Partnership and LaSalle National Bank relating to the Senior Debt Securities of Bradley Operating Limited Partnership, incorporated by reference to Exhibit 4.1 to Bradley Operating Limited Partnership's Registration Statement on Form S-3 (File No. 333-36577) dated September 26, 1997. 4.1.2 Definitive Supplemental Indenture No. 1 dated as of N/A November 24, 1997 between Bradley Operating Limited Partnership and LaSalle National Bank, incorporated by reference to Exhibit 4.1 of Bradley Operating Limited Partnership's Current Report on Form 8-K dated November 24, 1997. 4.1.3 Definitive Supplemental Indenture No. 2 dated as of N/A January 28, 1998 between Bradley Operating Limited Partnership and LaSalle National Bank, incorporated by reference to Exhibit 4.1 of Bradley Operating Limited Partnership's Current Report on Form 8-K dated January 28, 1998. 10.1 Second Amended and Restated Agreement of Limited N/A Partnership of Bradley Operating Limited Partnership dated as of September 2, 1997, incorporated by reference to Exhibit 3.1 of Bradley Operating Limited Partnership's Registration Statement on Form 10 dated September 8, 1997. 10.1.2* Amendment, dated July 31, 1998, to Second Restated 38 Agreement of Limited Partnership of Bradley Operating Limited Partnership. 10.1.3 Amendment, dated August 6, 1998, to Second Restated N/A Agreement of Limited Partnership of Bradley Operating Limited Partnership, designating the 8.4% Series A Convertible Preferred Units, incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K dated August 7, 1998. 10.1.4 Amendment, dated February 23, 1999, to Second Restated N/A Agreement of Limited Partnership of Bradley Operating Limited Partnership, designating the 8.875% Series B Cumulative Redeemable Perpetual Preferred Units, incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K dated March 3, 1999. 10.2.1 Unsecured Revolving Credit Agreement dated as of December N/A 23, 1997 among Bradley Operating Limited Partnership, as Borrower and The First National Bank of Chicago, BankBoston, N.A. and certain other banks, as Lenders, and The First National Bank of Chicago, as Administrative Agent and BankBoston, N.A., as Documentation Agent and Bank of America National Trust & Savings Association and Fleet National Bank as Co-Agents, incorporated by reference to Exhibit 99.1 of the Company's Current Report on Form 8-K dated December 19, 1997. 35 36 Exhibit No. Description Page ----------- ----------- ---- 10.2.2 Form of Guaranty made as of December 23, 1997 by Bradley N/A Financing Partnership and Bradley Real Estate, Inc. for the benefit of The First National Bank of Chicago, incorporated by reference to Exhibit 99.4 of the Company's Current Report on Form 8-K dated December 19, 1997. 10.2.3* Third Amendment to Unsecured Revolving Credit Agreement 40 dated as of November 23, 1998 among Bradley Operating Limited Partnership, as Borrower and The First National Bank of Chicago and other certain banks, as Lenders, and The First National Bank of Chicago, as Administrative Agent and BankBoston, N.A., as Documentation Agent and Bank of America National Trust & Savings Association and Fleet National Bank as Co-Agents. 10.3 1993 Stock Option and Incentive Plan, as amended and N/A restated on September 9, 1996, incorporated by reference to Exhibit 10.4 of the Company's Annual Report on Form 10-K405 dated March 19, 1997. 21.1* Subsidiaries of the Company. 56 23.1* Consent of KPMG LLP (regarding Form S-3 and Form S-8 57 Registration Statements). 27.1* Financial Data Schedule __ *Filed herewith. (b) Reports on Form 8-K The following Form 8-K was filed during the period October 1, 1998 through December 31, 1998: Form 8-K filed December 16, 1998 (earliest event February 13, 1998), reporting in Item 5. and Item 7. a combined financial statement, consistent with Regulation S-X, Rule 3.14, for properties accounting for over 50% of the aggregate acquisition cost of a series of properties acquired (or whose acquisition the Company considers probable) during the period January 1, 1998 through December 14, 1998, in the aggregate exceeding 10% of the total assets of the Company and its subsidiaries consolidated at December 31, 1997. The following Form 8-K and Form 8-K/A were filed subsequent to December 31, 1998: (1) Form 8-K/A filed February 4, 1999 amending Item 7. of Form 8-K filed September 24, 1998 (earliest event February 13, 1998), a combined financial statement, consistent with Regulation S-X, Rule 3.14, for properties accounting for over 50% of the aggregate acquisition cost of a series of properties acquired (or whose acquisition the Company considers probable) during the period January 1, 1998 through September 23, 1998, in the aggregate exceeding 10% of the total assets of the Company and its subsidiaries consolidated at December 31, 1997. (2) Form 8-K filed March 3, 1999 (earliest event February 23, 1999), reporting in Item 5. the issuance by Bradley Operating Limited Partnership of 2,000,000 units of 8.875% Series B Cumulative Redeemable Perpetual Preferred Units to two institutional investors at a price of $25.00 per unit. 36 37 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized this 26th day of March 1999. BRADLEY REAL ESTATE, INC. by: /s/ Thomas P. D'Arcy --------------------------- Thomas P. D'Arcy, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Thomas P. D'Arcy March 26, 1999 - ------------------------------------------------------------- -------------------------------------- Thomas P. D'Arcy, President, Chairman and CEO /s/ Irving E. Lingo, Jr. March 26, 1999 - ------------------------------------------------------------- -------------------------------------- Irving E. Lingo, Jr., Chief Financial Officer and Treasurer /s/ David M. Garfinkle March 26, 1999 - ------------------------------------------------------------- -------------------------------------- David M. Garfinkle, Controller /s/ Stephen G. Kasnet March 26, 1999 - ------------------------------------------------------------- -------------------------------------- Stephen G. Kasnet, Director /s/ W. Nicholas Thorndike March 26, 1999 - ------------------------------------------------------------- -------------------------------------- W. Nicholas Thorndike, Director /s/ William L. Brown March 26, 1999 - ------------------------------------------------------------- -------------------------------------- William L. Brown, Director /s/ Paul G. Kirk, Jr. March 26, 1999 - ------------------------------------------------------------- -------------------------------------- Paul G. Kirk, Jr., Director /s/ Joseph E. Hakim March 26, 1999 - ------------------------------------------------------------- -------------------------------------- Joseph E. Hakim, Director /s/ A. Robert Towbin March 26, 1999 - ------------------------------------------------------------- -------------------------------------- A. Robert Towbin, Director
37 38 INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
PAGE Financial Statements Consolidated Balance Sheets - December 31, 1998 and 1997 F2 For the years ended December 31, 1998, 1997 and 1996: Consolidated Statements of Income F3 Consolidated Statements of Changes in Share Owners' Equity F4 Consolidated Statements of Cash Flows F5 Notes to Consolidated Financial Statements F6 Schedule Schedule III - Real Estate and Accumulated Depreciation F19 Report of Independent Auditors for the years ended December 31, 1998, 1997 and 1996 F24
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 39 BRADLEY REAL ESTATE, INC. CONSOLIDATED BALANCE SHEETS
December 31, 1998 1997 ------------- ------------- ASSETS: Real estate investments - at cost $ 936,465,000 $ 626,247,000 Accumulated depreciation and amortization (59,196,000) (40,574,000) ------------- ------------- Net real estate investments 877,269,000 585,673,000 Real estate investments held for sale 46,492,000 52,692,000 Other assets: Cash and cash equivalents -- 4,747,000 Rents and other receivables, net of allowance for doubtful accounts of $4,078,000 for 1998 and $2,438,000 for 1997 14,994,000 13,038,000 Investment in partnership 13,249,000 -- Deferred charges, net and other assets 16,676,000 12,641,000 ------------- ------------- Total assets $ 968,680,000 $ 668,791,000 ============= ============= LIABILITIES AND SHARE OWNERS' EQUITY: Mortgage loans $ 103,333,000 $ 51,227,000 Unsecured notes payable 199,542,000 99,783,000 Line of credit 169,500,000 151,700,000 Accounts payable, accrued expenses and other liabilities 29,415,000 25,086,000 ------------- ------------- Total liabilities 501,790,000 327,796,000 ------------- ------------- Minority interest 21,573,000 21,170,000 ------------- ------------- Share Owners' equity: Shares of preferred stock and paid-in capital, par value $.01 per share; liquidation preference $25.00 per share: Authorized 20,000,000 shares; 3,478,493 shares of Series A Convertible Preferred Stock issued and outstanding 86,809,000 -- Shares of common stock and paid-in capital, par value $.01 per share: Authorized 80,000,000 shares; issued and outstanding 23,958,662 and 22,999,120 shares at December 31, 1998 and 1997, respectively 349,254,000 333,452,000 Shares of excess stock, par value $.01 per share: Authorized 50,000,000 shares; 0 shares issued and outstanding -- -- Retained earnings (distributions in excess of accumulated earnings) 9,254,000 (13,627,000) ------------- ------------- Total share owners' equity 445,317,000 319,825,000 ------------- ------------- Total liabilities and share owners' equity $ 968,680,000 $ 668,791,000 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. F2 40 BRADLEY REAL ESTATE, INC. CONSOLIDATED STATEMENTS OF INCOME
REVENUE: Years Ended December 31, ------------------------------------------------------- 1998 1997 1996 ------------- ------------- ------------- Rental income $ 128,444,000 $ 96,115,000 $ 77,512,000 Other income 2,593,000 1,437,000 1,327,000 ------------- ------------- ------------- 131,037,000 97,552,000 78,839,000 ------------- ------------- ------------- EXPENSES: Operations, maintenance and management 18,915,000 14,012,000 12,949,000 Real estate taxes 21,713,000 18,398,000 16,787,000 Mortgage and other interest 27,681,000 16,562,000 13,404,000 General and administrative 7,183,000 5,123,000 3,532,000 Non-recurring stock-based compensation -- 3,415,000 -- Corporate office relocation -- -- 409,000 Write-off of deferred financing and acquisition costs -- -- 344,000 Depreciation and amortization 22,974,000 16,606,000 13,286,000 ------------- ------------- ------------- 98,466,000 74,116,000 60,711,000 ------------- ------------- ------------- Income before equity in earnings of partnership, net gain on sale of properties and extraordinary item 32,571,000 23,436,000 18,128,000 Equity in earnings of partnership 586,000 -- -- Net gain on sale of properties 29,680,000 7,438,000 9,379,000 ------------- ------------- ------------- Income before extraordinary item and allocation to minority interest 62,837,000 30,874,000 27,507,000 Income allocated to minority interest (3,317,000) (1,116,000) (285,000) ------------- ------------- ------------- Income before extraordinary item 59,520,000 29,758,000 27,222,000 Extraordinary loss on prepayment of debt, net of minority interest -- (4,631,000) -- ------------- ------------- ------------- Net income 59,520,000 25,127,000 27,222,000 Preferred share distributions (2,922,000) -- -- ------------- ------------- ------------- Net income attributable to common share owners $ 56,598,000 $ 25,127,000 $ 27,222,000 ============= ============= ============= Basic earnings per common share: Income before extraordinary item $ 2.39 $ 1.36 $ 1.54 Extraordinary loss on prepayment of debt, net of minority interest -- (0.21) -- ------------- ------------- ------------- Net income $ 2.39 $ 1.15 $ 1.54 ============= ============= ============= Diluted earnings per common share: Income before extraordinary item $ 2.37 $ 1.36 $ 1.54 Extraordinary loss on prepayment of debt, net of minority interest -- (0.21) -- ------------- ------------- ------------- Net income $ 2.37 $ 1.15 $ 1.54 ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements. F3 41 BRADLEY REAL ESTATE, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHARE OWNERS' EQUITY
Retained earnings (distributions Preferred Common in excess of shares and shares and accumulated paid-in capital paid-in capital earnings) Total --------------- --------------- --------- ----- Balance at December 31, 1995 $ -- $ 148,519,000 $ (13,421,000) $ 135,098,000 Net income -- -- 27,222,000 27,222,000 Distributions on common stock ($1.32 per share) -- -- (23,168,000) (23,168,000) Common shares issued to acquire Tucker Properties Corporation, net -- 103,698,000 -- 103,698,000 Issuance of stock, net of offering costs of $2,618,000 -- 44,851,000 -- 44,851,000 Dividend reinvestment participation -- 196,000 -- 196,000 Exercise of stock options -- 1,618,000 -- 1,618,000 Reallocation of minority interest -- 158,000 -- 158,000 Shares issued in exchange for Limited Partnership units -- 52,000 -- 52,000 ------------- ------------- ------------- ------------- Balance at December 31, 1996 -- 299,092,000 (9,367,000) 289,725,000 Net income -- -- 25,127,000 25,127,000 Distributions on common stock ($1.34 per share) -- -- (29,387,000) (29,387,000) Issuance of stock, net of offering costs of $449,000 -- 24,892,000 -- 24,892,000 Dividend reinvestment participation -- 770,000 -- 770,000 Exercise of stock options -- 173,000 -- 173,000 Reallocation of minority interest -- 6,093,000 -- 6,093,000 Shares issued in exchange for Limited Partnership units -- 17,000 -- 17,000 Non-recurring stock-based compensation -- 2,415,000 -- 2,415,000 ------------- ------------- ------------- ------------- Balance at December 31, 1997 -- 333,452,000 (13,627,000) 319,825,000 Net income -- -- 59,520,000 59,520,000 Distributions on common stock ($1.42 per share) -- -- (33,717,000) (33,717,000) Distributions on preferred stock ($1.05 per share) -- -- (2,922,000) (2,922,000) Issuance of common stock, net of offering costs of $112,000 -- 7,489,000 -- 7,489,000 Preferred shares issued to acquire Mid-America Realty Investments, Inc., net 86,839,000 -- -- 86,839,000 Preferred shares converted to common stock (30,000) 30,000 -- -- Dividend reinvestment and stock purchase plan participation -- 6,049,000 -- 6,049,000 Exercise of stock options -- 4,000 -- 4,000 Reallocation of minority interest -- (390,000) -- (390,000) Shares issued in exchange for Limited Partnership units -- 2,620,000 -- 2,620,000 ------------- ------------- ------------- ------------- Balance at December 31, 1998 $ 86,809,000 $ 349,254,000 $ 9,254,000 $ 445,317,000 ============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements. F4 42 BRADLEY REAL ESTATE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, ------------------------------------------------- Cash flows from operating activities: 1998 1997 1996 ------------- ------------- ------------- Net income $ 59,520,000 $ 25,127,000 $ 27,222,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 22,974,000 16,606,000 13,286,000 Equity in earnings of partnership (586,000) -- -- Amortization of debt premiums, net of discounts (368,000) -- -- Extraordinary loss on prepayment of debt, net of minority interest -- 4,631,000 -- Non-recurring stock-based compensation -- 3,415,000 -- Net gain on sale of properties (29,680,000) (7,438,000) (9,379,000) Write-off of deferred financing and acquisition costs -- -- 344,000 Income allocated to minority interest 3,317,000 1,116,000 285,000 Change in operating assets and liabilities, net of the effect of the Mid-America and Tucker acquisitions in 1998 and 1996, respectively: (Increase) decrease in rents and other receivables (3,523,000) (3,629,000) 1,659,000 Increase in accounts payable, accrued expenses and other liabilities 1,283,000 3,639,000 512,000 (Increase) decrease in deferred charges (1,351,000) 1,360,000 (2,296,000) ------------- ------------- ------------- Net cash provided by operating activities 51,586,000 44,827,000 31,633,000 ------------- ------------- ------------- Cash flows from investing activities: Expenditures for real estate investments (175,927,000) (137,945,000) (9,088,000) Cash used for merger acquisitions, net of cash acquired (28,578,000) -- (2,130,000) Expenditures for capital improvements (11,974,000) (9,985,000) (9,642,000) Net proceeds from sale of properties 83,959,000 25,281,000 -- Excess proceeds from like-kind exchange of properties -- -- 4,145,000 Cash distributions from partnership 700,000 -- -- ------------- ------------- ------------- Net cash used in investing activities (131,820,000) (122,649,000) (16,715,000) ------------- ------------- ------------- Cash flows from financing activities: Borrowings from line of credit 246,950,000 148,600,000 132,500,000 Payments under line of credit (229,150,000) (60,400,000) (129,708,000) Proceeds from issuance of unsecured notes payable 99,051,000 99,780,000 -- Expenditures for financing costs (6,500,000) (3,104,000) (1,468,000) Repayment of mortgage loans (10,031,000) (100,000,000) (32,234,000) Payments associated with prepayment of debt -- (4,444,000) -- Principal payments on mortgage loans (1,123,000) (656,000) (431,000) Distributions paid to common share owners (33,717,000) (29,387,000) (23,168,000) Distributions paid to minority interest holders (1,984,000) (1,117,000) (309,000) Distributions paid to preferred share owners (3,653,000) -- -- Net proceeds from stock offerings 7,489,000 24,892,000 44,851,000 Proceeds from exercise of stock options 4,000 173,000 1,618,000 Net proceeds from dividend reinvestment and stock purchase plan 6,049,000 770,000 196,000 Cash disbursed but not presented to bank 2,102,000 -- -- ------------- ------------- ------------- Net cash provided by (used in) financing activities 75,487,000 75,107,000 (8,153,000) ------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents (4,747,000) (2,715,000) 6,765,000 Cash and cash equivalents: Beginning of year 4,747,000 7,462,000 697,000 ------------- ------------- ------------- End of year $ -- $ 4,747,000 $ 7,462,000 ============= ============= ============= Supplemental cash flow information: Interest paid, net of amount capitalized $ 23,440,000 $ 15,623,000 $ 13,366,000 ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements. F5 43 BRADLEY REAL ESTATE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION Bradley Real Estate, Inc. ("Bradley" or the "Company") is the nation's oldest continuously qualified real estate investment trust ("REIT"). Organized in 1961, the Company, which has property management, leasing, development and acquisition capabilities, focuses on the ownership and operation of community and neighborhood shopping centers primarily located in the midwestern United States. As of December 31, 1998, the Company had ownership interests in 98 shopping centers in 16 states, aggregating 15.8 million square feet of rentable space, substantially all of which are located in Midwest markets making the Company one of the leading owners of community and neighborhood shopping centers in this region. The Company's shopping centers have a diverse tenant mix dominated by supermarkets, drug stores, and other consumer necessity or value-oriented retailers. Bradley Operating Limited Partnership (the "Operating Partnership") is the entity through which the Company conducts substantially all of its business and owns (either directly or through subsidiaries) substantially all of its assets. As of December 31, 1998, Bradley owned an approximate 95% economic interest in and is the sole general partner of the Operating Partnership. This structure is commonly referred to as an umbrella partnership REIT or "UPREIT." Economic interests in the Operating Partnership are evidenced by units of partnership interest ("Units") with the interest of the general partner evidenced by general partner common and preferred units ("GP Units"). The interests of persons who have contributed direct or indirect interests in certain properties to the Operating Partnership are evidenced by limited partner units ("LP Units"). Each preferred or common LP Unit is designed to provide distributions to the holder that are equal to the distributions paid on each share of Bradley preferred or common stock; and each common LP Unit is redeemable (subject to certain limitations) by the holder for the cash equivalent at the time of redemption of one share of Bradley common stock or, at Bradley's option, for one share of Bradley common stock. Under the Partnership Agreement, whenever Bradley issues any shares of common or preferred stock, it contributes the proceeds to the Operating Partnership, and concurrently the number of GP Units held by Bradley is increased by the number of newly issued shares, such that the number of GP Units is at all times equal to the number of outstanding shares of common or preferred Bradley stock. As used herein, the "Company" refers to Bradley Real Estate, Inc. and its subsidiaries on a consolidated basis, including the Operating Partnership or, where the context so requires, Bradley Real Estate, Inc. only. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The financial statements are prepared on the accrual basis in accordance with generally accepted accounting principles ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. The consolidated financial statements of the Company include the accounts and operations of the Company, the Operating Partnership, Bradley Financing Partnership (a general partnership of which the Operating Partnership owns 99% and a wholly-owned corporate subsidiary owns the remaining 1%), and the general partnership interest in the joint venture that owns Williamson Square Shopping Center which is held through the Operating Partnership. Due to the Company's ability as general partner to directly or indirectly control each of these subsidiaries, each is consolidated for financial reporting purposes. As of December 31, 1998, the Company's 50% general partner interest in Bradley Bethal Limited Partnership, a joint venture which owns two neighborhood shopping centers and one enclosed mall, was accounted for using the equity method. Under the equity method of accounting, the Company's investment is reflected on the consolidated balance sheet as an investment in partnership, and the Company's portion of the net income from such partnership is reflected on the consolidated statement of income as equity in earnings of partnership. The ownership interests in the Operating Partnership evidenced by LP Unit holders represent the minority interest in the Company. Income is allocated to the minority interest based on the weighted average number of common LP Units outstanding during the period, amounting to 1,401,464, 799,938, and 249,888 during 1998, 1997, and 1996, respectively. As of December 31, 1998 and 1997, there were 1,441,678 and 1,522,393 common LP Units outstanding, respectively. F6 44 Rents and Other Receivables Management has determined that all of the Company's leases with its various tenants are operating leases. Revenues for such leases are recognized using the straight-line method over the term of the leases. Real Estate Investments Real estate investments are carried at cost less accumulated depreciation. The provision for depreciation and amortization has been calculated using the straight-line method based upon the following estimated useful lives of assets: Buildings 31.5 - 39 years Improvements and alterations 1 - 39 years Expenditures for maintenance, repairs, and betterments that do not materially prolong the normal useful life of an asset are charged to operations as incurred and amounted to $3,470,000, $2,604,000, and $2,056,000 for 1998, 1997, and 1996, respectively. Additions and betterments that substantially extend the useful lives of the properties are capitalized. Upon sale or other disposition of assets, the cost and related accumulated depreciation and amortization are removed from the accounts and the resulting gain or loss, if any, is reflected in net income. Real estate investments include capitalized interest and other costs on significant construction in progress. Capitalized costs are included in the cost of the related asset and charged to operations through depreciation over the asset's estimated useful life. Interest capitalized amounted to $32,000, $30,000, and $150,000 in 1998, 1997, and 1996, respectively. The Company applies Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ("Statement No. 121") for the recognition and measurement of impairment of long-lived assets, certain identifiable intangibles and goodwill related both to assets to be held and used and assets to be disposed of. Management reviews each property for impairment whenever events or changes in circumstances indicate that the carrying value of a property may not be recoverable. The review of recoverability is based on an estimate of undiscounted future cash flows expected to result from its use and eventual disposition. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value of the property exceeds its estimated fair value. Real Estate Investments Held for Sale Real estate investments held for sale are carried at the lower of cost or fair value less cost to sell. Depreciation and amortization are suspended during the period held for sale. Cash Equivalents Cash and cash equivalents consist of cash in banks and short-term investments with original maturities of less than ninety days. Deferred Charges Deferred charges consist of leasing commissions incurred in leasing the Company's properties. Such charges are amortized using the straight-line method over the term of the related lease. In addition, deferred charges include costs incurred in connection with securing long-term debt, including the costs of entering into interest rate protection agreements. Such costs are amortized over the term of the related agreement. Derivative Financial Instruments The Company may enter into derivative financial instrument transactions in order to mitigate its interest rate risk on a related financial instrument. The Company has designated these derivative financial instruments as hedges and applies deferral accounting, as the instrument to be hedged exposes the Company to interest rate risk, and the derivative financial instrument reduces that exposure. Gains and losses related to the derivative financial instrument are deferred and amortized over the terms of the hedged instrument. If a derivative terminates or is sold, the gain or loss is deferred and amortized over the remaining life of the derivative. Derivatives that do not satisfy the criteria above are carried at market value, and any changes in market value are recognized in other income. The Company has only entered into derivative transactions that satisfy the aforementioned criteria. The fair value of interest rate protection agreements is estimated using option-pricing models that value the potential for interest rate protection F7 45 agreements to become in-the-money through changes in interest rates during the remaining terms of the agreements. A negative fair value represents the estimated amount the Company would have to pay to cancel the contract or transfer it to other parties. Earnings Per Share In accordance with Statement of Financial Accounting Standards No. 128, Earnings Per Share ("Statement No. 128"), basic EPS is computed by dividing income available to common share owners by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. A reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation is as follows:
Years Ended December 31, 1998 1997 1996 ---------------------------- ---------------------------- ---------------------------- Per- Per- Per- Income Shares share Income Shares share Income Shares share ------ ------ ----- ------ ------ ----- ------ ------ ----- Basic EPS: Income before extraordinary item and after preferred share distributions $56,598,000 23,660,542 $2.39 $29,758,000 21,776,146 $1.36 $27,222,000 17,619,546 $1.54 Effect of dilutive securities: Dilutive options exercised - 47,452 - 42,451 - 16,352 Convertible preferred stock 2,922,000 1,440,286 - - - - Stock-based compensation - - - 315 - - Conversion of LP Units 3,317,000 1,401,464 1,116,000 799,938 285,000 249,888 ----------- ---------- ----------- ---------- ----------- ---------- Diluted EPS: Income before extraordinary item $62,837,000 26,549,744 $2.37 $30,874,000 22,618,850 $1.36 $27,507,000 17,885,786 $1.54 =========== ========== ===== =========== ========== ===== =========== ========== =====
For the years ended December 31, 1998, 1997, and 1996, options to purchase 153,500, 5,500, and 40,000 shares of common stock, respectively, at prices ranging from $17.00 to $22.00 were outstanding during 1998, 1997, and 1996, respectively, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market prices of the common shares. Stock Option Plans Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("Statement No. 123") establishes financial accounting and reporting standards for stock-based employee compensation plans, including all arrangements by which employees receive shares of stock or other equity instruments of the employer or the employer incurs liabilities to employees in amounts based on the price of the employer's stock. Statement No. 123 defines a fair value based method of accounting for an employee stock option or similar equity instrument and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, it also allows an entity to continue to measure compensation cost using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("Opinion No. 25"). The Company has elected to continue using Opinion No. 25 and make pro forma disclosures of net income and earnings per share as if the fair value method of accounting defined in Statement No. 123 had been applied. See Note 9 for the required disclosures. NOTE 3 - SUPPLEMENTAL CASH FLOW DISCLOSURE During 1998 and 1997, shopping center acquisitions included the assumption of $25,753,000 and $26,677,000 of non-recourse mortgage indebtedness and the issuance of 62,436 and 1,212,630 LP Units valued at $1,300,000 and $23,350,000, respectively. F8 46 The merger acquisitions of Mid-America Realty Investments, Inc. ("Mid-America") on August 6, 1998 (see Note 12), and of Tucker Properties Corporation on March 15, 1996 resulted in the following non-cash effects on the Company's balance sheets for the respective years:
Mid-America Tucker ----------- ------ Assets acquired $ (159,433,000) $ (310,443,000) Liabilities assumed 43,973,000 204,615,000 Capital stock and paid-in capital issued, net of costs - 103,698,000 Preferred stock and paid-in capital issued, net of costs 86,882,000 - --------------- --------------- Cash used for merger acquisitions $ (28,578,000) $ (2,130,000) =============== ===============
The like-kind exchange of Nicollet Avenue for Brookdale Square during 1996 resulted in a decrease in other net operating assets of $1,649,000 and the Company assuming net operating liabilities of $173,000. During 1998, 1997, and 1996, 143,151, 1,238, and 3,738 shares of common stock, respectively, were issued in exchange for an equivalent number of common LP Units held by the minority interest. NOTE 4 - REAL ESTATE INVESTMENTS The following is a summary of the Company's real estate held for investment at December 31:
1998 1997 ------------- ------------- Land $ 201,849,000 $ 124,890,000 Buildings 659,286,000 436,389,000 Improvements and alterations 72,957,000 64,124,000 Construction in progress 2,373,000 844,000 ------------- ------------- 936,465,000 626,247,000 Accumulated depreciation and amortization (59,196,000) (40,574,000) ------------- ------------- $ 877,269,000 $ 585,673,000 ============= =============
In July 1998, the Company completed the sale of One North State, a 640,000 square-foot mixed-use property located in the "loop" area of downtown Chicago, Illinois for a net sales price of approximately $82,100,000, resulting in a gain on sale of approximately $30,600,000 for financial reporting purposes. One North State did not fit with the Company's strategic property focus, and was classified as held for sale on the consolidated balance sheet as of December 31, 1997. The net gain on sale of properties in 1998 includes an $875,000 provision for loss on sale of Holiday Plaza, which the Company completed in May 1998. The loss on Holiday Plaza, a 46,000 square-foot property located in Iowa, represents the difference between the sales price, net of closing costs, and the carrying value of the property. During 1997, the Company completed the sales of its Meadows Town Mall, Augusta Plaza, Hood Commons, and 585 Boylston Street properties because such properties were not aligned with the Company's strategic property and market focus. The net gains on the sales of Augusta Plaza, Hood Commons, and 585 Boylston Street were $826,000, $3,073,000, and $4,839,000, respectively. The net gain on sale of properties in 1997 includes a provision for the loss on the sale of Meadows Town Mall of $1,300,000, which represents the difference between the sales price, net of closing costs, and the carrying value of the property. During 1996, the Company sold its interest in a ground lease in a like-kind exchange for a shopping center. The Company recognized a net gain on sale of the ground lease of $9,379,000 for financial reporting purposes. At December 31, 1998, the Company was holding for sale six properties, all acquired in connection with the Mid-America merger acquisition. Four of these properties are enclosed malls and are not aligned with the Company's strategic property focus. The remaining two shopping center properties are located in the Southeast region of the United States and are not aligned with the Company's strategic market focus. The dispositions of these properties are expected to be completed during 1999, although there can be no assurance that any such dispositions will occur. The results of operations included in the accompanying financial statements for properties classified as held for sale as of December 31, 1998 and 1997, or that were sold during 1998, 1997, and 1996, were $7,568,000, $8,689,000, and $8,745,000, respectively. F9 47 NOTE 5 - MORTGAGE LOANS, UNSECURED NOTES PAYABLE AND LINE OF CREDIT Mortgage loans outstanding consist of the following:
December 31, Effective -------------------------------- Property interest rate Maturity 1998 1997 - ----------------------------- ------------- ------------- -------------- -------------- Watts Mill Plaza 7.25% February 2000 $ 6,262,000 $ - Eastville Plaza 7.09% April 2001 2,858,000 - Rivergate Shopping Center 7.25% January 2002 3,249,000 - Shenandoah Plaza 7.25% January 2002 4,383,000 - Fox River Plaza 7.76% April 2002 5,128,000 - Southport Centre 7.25% April 2002 8,442,000 - Edgewood Plaza 7.25% June 2002 6,852,000 - Moorland Square 7.348% November 2002 3,655,000 - Kimberly West 7.25% January 2003 4,030,000 - Martin's Bittersweet Plaza 8.875% June 2003 3,562,000 3,679,000 Miracle Hills Park 7.25% August 2004 4,108,000 - Williamson Square 8.00% August 2005 12,501,000 12,709,000 Spring Mall 7.25% October 2006 9,707,000 9,904,000 Southgate Shopping Center 7.25% October 2007 3,076,000 3,159,000 Salem Consumer Square 7.50% September 2008 14,161,000 - St. Francis Plaza 8.125% December 2008 1,737,000 1,845,000 Elk Park 7.64% August 2016 9,622,000 9,796,000 Richfield Hub 9.875% September 1998 - 5,270,000 Hub West 9.875% September 1998 - 4,865,000 -------------- -------------- $ 103,333,000 $ 51,227,000 ============== ==============
The net book value of real estate pledged as collateral for loans was approximately $168,795,000. The mortgage loans collateralized by Rivergate Shopping Center and Shenandoah Plaza are cross-collateralized. In November 1997, the Operating Partnership issued $100 million, 7% seven-year unsecured Notes maturing November 15, 2004, which were rated "BBB-" by Standard & Poor's Investment Services ("Standard & Poor's") and "Baa3" by Moody's Investors Service ("Moody's"). The debt securities were issued from a "shelf" registration filed in September 1997 under which the Operating Partnership could issue up to $300 million in unsecured non-convertible investment grade debt securities. The Company utilized the proceeds to prepay a $100 million, 7.23% mortgage note that had been issued to a trust qualifying as a real estate mortgage investment conduit for federal income tax purposes (the "REMIC Note"). The REMIC Note was secured by six properties and was originally scheduled to expire in September 2000. Prepayment of the REMIC Note resulted in an extraordinary loss on prepayment of debt of $4,054,000 (net of the minority interest portion), consisting primarily of a prepayment yield maintenance fee. However, issuance of such unsecured debt extended the Company's weighted average debt maturity and resulted in a slightly lower effective interest rate on $100 million of debt, while the prepayment of the REMIC Note resulted in the discharge from the mortgage securing the REMIC Note of properties having an aggregate gross book value of $181.2 million. The outstanding balance of the unsecured Notes at December 31, 1998, net of the unamortized discount, was $99,814,000. The effective interest rate on the unsecured Notes is approximately 7.194%. In January 1998, the Operating Partnership issued $100 million, 7.2% ten-year unsecured Notes maturing January 15, 2008 from the aforementioned "shelf" registration. The issue was rated "BBB-" by Standard & Poors and "Baa3" by Moody's. Proceeds from the offering were used to pay amounts outstanding under the bank line of credit which had been increased throughout 1997 primarily for the acquisitions of additional shopping centers. The outstanding balance of the unsecured Notes at December 31, 1998, net of the unamortized discount, was $99,728,000. The effective interest rate on the unsecured Notes is approximately 7.611%. In May 1998, the Company filed a "shelf" registration under which the Operating Partnership may issue up to $400 million in unsecured, non-convertible investment grade debt securities. The "shelf" registration gives the Operating Partnership the flexibility to issue additional debt securities from time to time when management determines that market conditions and the opportunity to utilize the proceeds from the issuance of such securities are favorable. During September 1998, the Operating Partnership implemented a Medium-Term Note Program providing it with the added flexibility of issuing Medium-Term Notes due nine months or more from the date of issue in small amounts in an aggregate principal amount of up to $150 million from time to time using the debt "shelf" registration in an efficient and expeditious manner. F10 48 In December 1997, the Operating Partnership entered into a new $200 million unsecured line of credit facility with a syndicate of banks, lead by First Chicago NBD and BankBoston, replacing a previous $150 million unsecured line of credit facility. In November 1998, the Operating Partnership amended the line of credit facility, increasing the maximum capacity to $250 million. The line of credit bears interest at a rate equal to the lowest of (i) the lead bank's base rate, (ii) a spread over LIBOR ranging from 0.70% to 1.25% depending on the credit rating assigned by national credit rating agencies, or (iii) for amounts outstanding up to $150 million, a competitive bid rate solicited from the syndicate of banks. Based on the Operating Partnership's current credit rating assigned by Standard & Poor's and Moody's, the spread over LIBOR is 1.00%. Additionally, there is a facility fee currently equal to $375,000 per annum. In the event the current credit ratings were downgraded below "BBB-" or "Baa3" by either Standard & Poor's or Moody's, respectively, the facility fee would increase to $625,000 per annum, and the spread over the base rate would increase by 0.25% and the spread over LIBOR would increase to 1.25%. The line of credit is guaranteed by the Company and matures in December 2000. The line of credit is available for the acquisition, development, renovation and expansion of new and existing properties, working capital and general business purposes. The Company incurred an extraordinary loss on the prepayment of debt of $577,000 (net of the minority interest portion) in connection with replacing the previous line of credit in 1997. At December 31, 1998, the weighted average interest rate on the line of credit was 6.65%. The line of credit contains certain financial and operational covenants that, among other provisions, limit the amount of secured and unsecured indebtedness the Company may have outstanding at any time, and provide for the maintenance of certain financial tests including minimum net worth and debt service coverage requirements. The Company believes it was in compliance with such covenants during 1998 and that such covenants will not adversely affect the Company's business or the operation of its properties. From time to time the Company uses Treasury Note purchase agreements and interest rate caps and swaps to limit its exposure to increases in interest rates on its floating rate debt and to hedge interest rates in anticipation of issuing unsecured debt at a time when management believes interest rates are favorable, or at least desirable given the consequences of not hedging an interest rate while the Company is exposed to increases in interest rates. The Company does not use derivative financial instruments for trading or speculative purposes. During 1998, the Company was party to interest rate cap agreements which entitled the Company to receive on a quarterly basis, the amount, if any, by which the applicable three-month LIBOR Rate (as defined in the interest rate protection agreement) for the protected amount exceeded the applicable cap rate for the protected amount. During 1998, the Company was also party to a swap agreement whereby the Company received or made quarterly payments based on the differential between the three-month LIBOR Rate (as defined in the interest rate protection agreement) for the protected amount and the applicable fixed swap rate for the protected amount. The following summarizes the interest rate protection agreements outstanding during 1998:
Effect on Notional Maximum Type of interest amount rate contract Maturity expense ------------ ------- -------- -------------- ---------- $ 43,000,000 6.00% Swap April 14, 1998 $38,000 40,000,000 7.50% Cap March 18, 1998 - 17,000,000 7.50% Cap April 11, 1998 - ------------ ------- $100,000,000 $38,000 ============ =======
Additionally, in anticipation of issuing unsecured debt in the first quarter of 1998, during 1997 the Company entered into two Treasury Note purchase agreements with notional amounts of $37 million each, expiring March 2, 1998. The contracts were terminated at a cost of $3,798,000 as of January 23, 1998, the date upon which the Company priced the aforementioned $100 million issuance of ten-year unsecured Notes. The Company has treated the Treasury Note purchase agreements as hedges and, accordingly, the loss recognized upon termination of the Treasury Note purchase agreements was deferred and is amortized over the term of the underlying debt security as an adjustment to interest expense. The Company had no interest rate protection agreements outstanding at December 31, 1998. Scheduled principal amortization of debt outstanding at December 31, 1998 is as follows: 1999 $ 2,547,000 2000 178,053,000 2001 5,437,000 2002 31,147,000 2003 8,192,000 Thereafter 246,999,000 -------------- $ 472,375,000 ==============
F11 49 NOTE 6 - RENTALS UNDER OPERATING LEASES Annual minimum future rentals to be received under non-cancelable operating leases in effect at December 31, 1998 are as follows: 1999 $ 102,379,000 2000 92,582,000 2001 82,268,000 2002 72,055,000 2003 61,397,000 Thereafter 333,717,000 -------------- $ 744,398,000 ==============
Total minimum future rentals do not include contingent rentals under certain leases based upon lessees' sales volume. On May 22, 1998, the Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board reached a consensus under Issue No. 98-9, Accounting for Contingent Rent in Interim Financial Periods, that despite the fact that the achievement of a future specified sales target of a lessee may be considered as probable and reasonably estimable at some earlier point in the year, a lessor should defer recognition of contingent rental income until such specified targets are met. The pronouncement was effective May 23, 1998. Previously, the Company recognized percentage rental income each period based on reasonable estimates of tenant sales. Contingent rentals earned amounted to approximately $1,897,000, $1,864,000, and $1,397,000 in 1998, 1997, and 1996, respectively. Certain leases also require lessees to pay all or a portion of real estate taxes and operating costs, amounting to $31,615,000, $25,253,000, and $21,748,000, in 1998, 1997, and 1996, respectively. No tenant accounted for as much as 10% of rental income in 1998, 1997, or 1996. No property accounted for as much as 10% of the Company's rental income during 1998. One North State accounted for greater than 10% of the Company's rental income during 1997 and 1996. NOTE 7 - INCOME TAXES The Company has elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code (the "Code"). Under the Code, a qualifying REIT that distributes at least 95% of its ordinary taxable income to its share owners is entitled to a tax deduction in the amount of the distribution. In addition, qualifying REITs are permitted to deduct capital gain distributions in the determination of the tax on capital gains. The Company paid distributions to common share owners aggregating $33,717,000, $29,387,000, and $23,168,000 in 1998, 1997, and 1996, respectively. During 1998, the Company paid $3,653,000 of distributions to preferred share owners on the newly issued Series A Preferred Stock. The following table summarizes the tax status of distributions paid to common and preferred share owners during 1998, 1997, and 1996:
1998 1997 1996 ---- ---- ---- Ordinary income 81% 57% 69% Capital gain 19% 15% 17% Return of capital -- 28% 14% --- --- --- Total 100% 100% 100% === === ===
On January 29, 1999, the Board of Directors declared a regular quarterly dividend on its common stock of $0.37 per share and a regular quarterly dividend on its Series A Preferred Stock of $0.525 per share payable March 31, 1999 to share owners of record on March 10, 1999. NOTE 8 - SHARE OWNERS' EQUITY In November 1996, the Company completed a public offering of 2,875,000 shares of common stock (including shares issued pursuant to the exercise of the underwriter's over-allotment option) at a price of $16.50 per share. Net proceeds from the offering of approximately $44,851,000 were used to reduce outstanding indebtedness incurred under the line of credit. In May 1997, the Company filed a "shelf" registration with the Securities and Exchange Commission to register $234,460,000 of equity securities that the Company may issue through underwriters or in privately negotiated transactions for cash from time to time. F12 50 On December 1, 1997, the Company completed an offering of 990,000 shares of its common stock from the "shelf" registration at a price to the public of $20.375 per share. Net proceeds from the offering of $19,166,000 were used to reduce outstanding indebtedness under the line of credit. The shares were sold under a program entered into with PaineWebber Incorporated ("PaineWebber") on October 21, 1997, pursuant to which the Company had the right, but not the obligation, until April 21, 1998, to sell shares of its common stock at the market price on the day following notification to PaineWebber of its intent to sell common stock to PaineWebber, acting as underwriter, with an aggregate value up to $60 million, in amounts ranging from $5 million to $20 million per transaction. No additional shares were sold under the program, which expired April 21, 1998. The Company completed an additional offering of 300,000 shares of its common stock on December 10, 1997 through C.E. Unterberg, Towbin at a price to the public of $20.50 per share. Net proceeds from the offering of $5,726,000 were used to reduce outstanding indebtedness under the line of credit. A. Robert Towbin, a director of the Company, serves as Managing Director of C.E. Unterberg, Towbin. In February 1998, the Company issued 392,638 shares of common stock from the "shelf" registration at a price based upon the then market value of $20.375 per share, leaving $201,412,000 available under the "shelf" registration. Net proceeds from the offering of approximately $7,601,000 were used to reduce outstanding borrowings under the line of credit. During 1998, the Company implemented a new Dividend Reinvestment and Stock Purchase Plan (the "Plan"), replacing the Company's 1993 Dividend Reinvestment and Share Purchase Plan, to provide both new and existing owners of the Company's common stock, Series A Convertible Preferred Stock and other classes of equity securities outstanding from time to time, as well as existing owners of LP Units of the Operating Partnership, with an economical and convenient method of increasing their investment in the Company. Under the Plan, participants may purchase additional shares of common stock at a discount (ranging from 0% to 3% as determined by the Company in its sole discretion from time to time) and without brokerage fees or other transaction costs by, (i) reinvesting all or a portion of their cash dividends, (ii) purchasing shares of common stock directly from the Company as frequently as once per month by making optional cash payments of a minimum of $100 to a maximum of $10,000 per quarter, or (iii) with prior approval by the Company, purchasing shares of common stock directly from the Company by making optional cash payments in excess of $10,000. During 1998, 1997, and 1996, the Company issued 308,016, 38,592, and 13,082 shares under this and the prior plan, raising $6,049,000, $770,000, and $196,000, respectively. NOTE 9 - STOCK OPTION PLANS AND STOCK-BASED COMPENSATION The Company's Stock Option and Incentive Plan authorizes options and other stock-based awards to be granted for up to 5% of the Company's shares outstanding. During 1998, 1997 and 1996, options for 148,000, 94,500, and 17,500 shares, respectively, were granted under this Plan. At December 31, 1998 and 1997, options for 372,550 and 252,000 shares, respectively, were outstanding. A committee of the Board of Directors administers the Plan and is responsible for selecting persons eligible for awards and for determining the term and duration of any award. In 1997, the Company's share owners approved a Superior Performance Incentive Plan, originally intended to provide an award pool to be divided among senior executives and directors of the Company in an amount based upon the amount (if any) by which total returns to share owners of the Company exceeded total returns to stockholders of other REITs included in an industry index, over a three-year period. Because of administrative complexities that made the implementation of such Plan impractical, at year-end 1997, after working with an independent compensation consultant, the Board of Directors terminated the Plan and substituted a non-recurring award of approximately 115,000 shares of the Company's common stock to certain senior executives, plus a cash amount to reimburse the executives for taxes resulting from such award. As a result, a non-recurring charge of $3,415,000 was included in the Company's 1997 financial statements. The Company has estimated the fair value of stock options granted on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1998, 1997, and 1996, respectively: dividend yield of 7.50%, 7.13% and 8.96%; expected volatility of 22%, 16%, and 23%; risk-free interest rates of 4.8%, 5.5%, and 6.1%; and expected lives of five years for all three years. The Company applies Opinion No. 25 and related Interpretations in accounting for awards under the Plan. Accordingly, no compensation cost relating to the Stock Option Plans has been recognized in the accompanying financial statements. Had compensation cost for the Company's Plan been determined consistent with Statement No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: F13 51
1998 1997 1996 ---------------- --------------- ---------------- Net income to common share owners As Reported $56,598,000 $25,127,000 $27,222,000 Pro Forma $56,409,000 $25,069,000 $27,202,000 Net income per common share As Reported, basic $2.39 $1.15 $1.54 As Reported, diluted $2.37 $1.15 $1.54 Pro Forma, basic $2.38 $1.15 $1.54 Pro Forma, diluted $2.36 $1.15 $1.54
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, 1995 295,251 $11.50 - $22.00 Granted 17,500 $14.74 Expired (24,251) $14.75 - $22.00 Exercised (108,500) $11.50 - $17.00 ----------- Outstanding at December 31, 1996 180,000 $11.50 - $21.25 Granted 94,500 $18.16 - $19.35 Expired (12,000) $19.35 - $21.25 Exercised (10,500) $14.74 - $17.00 ----------- Outstanding at December 31, 1997 252,000 $11.50 - $21.25 Granted 148,000 $21.35 Expired (27,250) $14.88 - $19.35 Exercised (200) $19.35 ----------- Outstanding at December 31, 1998 372,550 $11.50 - $21.25 ===========
One third of 92,750 options granted to employees during 1998 and still outstanding vest on each of the first, second, and third anniversary of the grant date over a three-year period, and have a duration of ten years from the grant date, subject to earlier termination in certain circumstances. One half of 56,800 options granted to employees during 1997 and still outstanding vest on each of the first and second anniversary of the grant date over a two-year period, and have a duration of ten years from the date of grant, subject to earlier termination in certain circumstances. All other options outstanding at December 31, 1998 are fully vested and exercisable. The weighted average exercise price per share and the weighted average contractual life of options outstanding at December 31, 1998 were $18.39 and 7.66 years, respectively. The weighted average fair value of options granted during 1998, 1997, and 1996 were $1.82, $1.36, and $1.21, respectively. NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, Disclosures about Fair Value of Financial Instruments, requires the Company to disclose fair value information of all financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. The Company's financial instruments, other than debt are generally short-term in nature and contain minimal credit risk. These instruments consist of cash and cash equivalents, rents and other receivables, and accounts payable. The carrying amount of these assets and liabilities in the consolidated balance sheets are assumed to be at fair value. The Company's mortgage loans are at fixed rates, and when compared with borrowing rates currently available to the Company with similar terms and average maturities, approximate fair value. The fair values of the fixed rate unsecured Notes, calculated based on the Company's estimated interest rate spread over the applicable treasury rate with a similar remaining maturity, are at or slightly below their carrying values. The Company's line of credit is at a variable rate, which results in a carrying value that approximates its fair value. F14 52 NOTE 11 - COMMITMENTS AND CONTINGENCIES Retirement Savings Plan The Company provides its employees with a retirement savings plan which is qualified under Section 401(k) of the Internal Revenue Code. The provisions of the plan provide for an employer discretionary matching contribution currently equal to 35% of the employee's contributions up to 5% of the employee's compensation. The employer matching contribution is determined annually by the Board of Directors, and amounted to $72,000, $43,000, and $13,000 in 1998, 1997, and 1996, respectively. Employer contributions and any earnings thereon are vested in accordance with the following schedule: Years of Service Percentage ---------------- ---------- 1 20% 2 40% 3 60% 4 80% 5 100% Legal Actions The Company is a party to several legal actions which arose in the normal course of business. In the opinion of management, there will be no adverse consequences from these actions which would be material to the Company's financial position or results of operations. NOTE 12 - MID-AMERICA MERGER AND ISSUANCE OF PREFERRED STOCK On August 6, 1998, pursuant to an Agreement and Plan of Merger dated May 30, 1998, the Company completed the merger acquisition (the "Merger") of Mid-America. The Merger and the merger agreement were approved by the stockholders of Mid-America at its special meeting of stockholders held on August 5, 1998. Upon completion of the Merger, the Company acquired Mid-America's 22 retail properties located primarily in the Midwest, and succeeded to Mid-America's 50% general partner interest in Mid-America Bethal Limited Partnership (renamed Bradley Bethal Limited Partnership), a joint venture which owns two neighborhood shopping centers and one enclosed mall. Pursuant to the terms of the merger agreement each of the approximately 8,286,000 outstanding shares of Mid-America common stock were exchanged for 0.42 shares of a newly created 8.4% Series A Convertible Preferred Stock ("Series A Preferred Stock"). The Series A Preferred Stock pays an annual dividend equal to 8.4% of the $25.00 liquidation preference and is convertible into shares of Bradley's common stock at a conversion price of $24.49 per share, subject to certain adjustments. At any time after five years, the Series A Preferred Stock is redeemable at Bradley's option for $25.00 per share so long as the Bradley common stock is trading at or above the conversion price. In connection with the Merger, Bradley assumed all of Mid-America's outstanding liabilities and paid certain transaction costs, making the total purchase price approximately $159 million. The merger was structured as a tax-free transaction and was treated as a purchase for accounting purposes. Accordingly, the purchase price was allocated to the assets purchased and the liabilities assumed based upon the fair value at the date of acquisition. The results of operations of Mid-America have been included in the Company's consolidated financial statements from August 6, 1998. The following table sets forth certain summary unaudited pro forma operating data for the Company as if the Merger had occurred as of January 1, 1998 and 1997 (dollars in thousands, except per share data):
Years Ended December 31 --------------------------------------------------------- Historical Pro Forma Historical Pro Forma 1998 1998 1997 1997 -------- -------- ------- -------- Total revenue $131,037 $144,458 $97,552 $120,817 Income before extraordinary items $59,520 $65,003 $29,758 $39,199 Net income to common share owners $56,598 $57,737 $25,127 $27,261 Basic net income per common share $2.39 $2.44 $1.15 $1.25 Diluted net income per common share $2.37 $2.39 $1.15 $1.25
F15 53 The unaudited pro forma operating data is presented for comparative purposes only and is not necessarily indicative of what the actual results of operations would have been for the years ended December 31, 1998 and 1997, nor does such data purport to represent the results to be achieved in future periods. NOTE 13 - SEGMENT REPORTING The Company, which has internal property management, leasing, and development capabilities, owns and seeks to acquire open-air community and neighborhood shopping centers in the Midwest, generally consisting of the states of Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Tennessee, and Wisconsin. Ninety-five of the Company's 98 shopping centers are located in these states. Such shopping centers are typically anchored by grocery and drug stores complemented with stores providing a wide range of other goods and services to shoppers. During 1998, 1997, and 1996, the Company also owned a mixed-use office property located in downtown Chicago, Illinois, which was sold in July 1998 (see Note 4). Because this property required a different operating strategy and management expertise than all other properties in the portfolio, it was considered a separate reportable segment. The Company assesses and measures operating results on an individual property basis for each of its 98 shopping centers without differentiation, based on net operating income, and then converts such amounts in the aggregate to a performance measure referred to as Funds From Operations ("FFO"). Since all of the Company's shopping centers exhibit highly similar economic characteristics, cater to the day-to-day living needs of their respective surrounding communities, and offer similar degrees of risk and opportunities for growth, the shopping centers have been aggregated and reported as one operating segment. FFO, computed in accordance with the March 1995 "White Paper" on FFO published by the National Association of Real Estate Investment Trusts and as followed by the Company, represents income before allocation to minority interest (computed in accordance with GAAP), excluding gains or losses from debt restructuring and sales of property, plus depreciation and amortization, and after preferred stock distributions and adjustments for unconsolidated partnerships. Adjustments for unconsolidated partnerships are computed to reflect FFO on the same basis. In computing FFO, the Company does not add back to net income the amortization of costs incurred in connection with the Company's financing activities or depreciation of non-real estate assets, but does add back to net income significant non-recurring events that materially distort the comparative measurement of company performance over time. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered an alternative to cash flow as a measure of liquidity. Since the NAREIT White Paper provides guidelines only for computing FFO, the computation of FFO may vary from one REIT to another. FFO is not necessarily indicative of cash available to fund cash needs. The accounting policies of the segments are the same as those described in Note 2. The revenues, net operating income, and assets for each of the reportable segments are summarized in the following tables as of December 31, 1998 and 1997, and for each of the years in the three-year period then ended. Non-segment assets to reconcile to total assets include the investment in partnership, cash and cash equivalents, accounts receivable, and deferred financing and other costs. The computation of FFO for the reportable segments and for the Company, and a reconciliation to income before extraordinary item are as follows: F16 54
Years Ended December 31, --------------------------------------------- 1998 1997 1996 ------------- ------------ ------------ TOTAL PROPERTY REVENUE: Mixed-use office property $ 8,321,000 $ 14,469,000 $ 11,490,000 Shopping center properties 122,174,000 82,347,000 66,805,000 ------------- ------------ ------------ 130,495,000 96,816,000 78,295,000 ------------- ------------ ------------ TOTAL PROPERTY DIRECT OPERATING EXPENSES: Mixed-use office property 3,117,000 6,120,000 4,942,000 Shopping center properties 37,511,000 26,290,000 24,794,000 ------------- ------------ ------------ 40,628,000 32,410,000 29,736,000 ------------- ------------ ------------ Net operating income 89,867,000 64,406,000 48,559,000 ------------- ------------ ------------ NON-PROPERTY (INCOME) EXPENSES: Other non-property income (542,000) (736,000) (544,000) Equity in earnings of partnership, excluding depreciation and amortization (655,000) -- -- Mortgage and other interest 27,681,000 16,562,000 13,404,000 General and administrative 7,183,000 5,123,000 4,034,000 Amortization of deferred finance and non-real estate related costs 962,000 747,000 1,035,000 Preferred share distributions 2,922,000 -- -- ------------- ------------ ------------ 37,551,000 21,696,000 17,929,000 ------------- ------------ ------------ Funds from Operations $ 52,316,000 $ 42,710,000 $ 30,630,000 ============= ============ ============ RECONCILIATION TO INCOME BEFORE EXTRAORDINARY ITEM: Funds from Operations $ 52,316,000 $ 42,710,000 $ 30,630,000 Depreciation of real estate assets and amortization of tenant improvements (18,635,000) (13,407,000) (10,289,000) Amortization of deferred leasing commissions (2,184,000) (1,259,000) (966,000) Other amortization (1,193,000) (1,193,000) (1,247,000) Depreciation and amortization included in equity in earnings of partnership (69,000) -- -- Non-recurring stock-based compensation -- (3,415,000) -- Net gain on sale of properties 29,680,000 7,438,000 9,379,000 ------------- ------------ ------------ Income before allocation to minority interest and after preferred share distributions 59,915,000 30,874,000 27,507,000 Income allocated to minority interest (3,317,000) (1,116,000) (285,000) Preferred share distributions 2,922,000 -- -- ------------- ------------ ------------ Income before extraordinary item $ 59,520,000 $ 29,758,000 $ 27,222,000 ============= ============ ============
As of December 31, ------------------------------- 1998 1997 ------------ ------------ TOTAL ASSETS: Mixed-use office property $ -- $ 54,860,000 Shopping center properties 946,489,000 605,539,000 ------------ ------------ 946,489,000 660,399,000 Non-segment assets 22,191,000 8,392,000 ------------ ------------ $968,680,000 $668,791,000 ============ ============
F17 55 NOTE 14 - SUBSEQUENT EVENT On February 23, 1999, the Operating Partnership issued $50 million of 8.875% Series B Cumulative Redeemable Preferred Units in a private placement. The net proceeds of approximately $49 million were used to pay-down the line of credit with the expectation that the increased borrowing capacity under the line of credit will be used to develop or acquire additional shopping centers. NOTE 15 - SUPPLEMENTARY QUARTERLY DATA (UNAUDITED)
1998 ------------------------------------------------------- March 31, June 30, Sept. 30, Dec. 31, --------- --------- --------- -------- (Dollars in thousands, except per share data) Rental income $ 28,736 $ 30,601 $ 33,305 $ 35,802 Net gain (loss) on sale of properties $ (875) -- $ 30,555 -- Net income to common share owners $ 6,351 $ 6,964 $ 36,092 $ 7,191 Basic net income per common share $ 0.27 $ 0.29 $ 1.52 $ 0.30 Diluted net income per common share $ 0.27 $ 0.29 $ 1.44 $ 0.30
1997 ------------------------------------------------------- March 31, June 30, Sept. 30, Dec. 31, --------- --------- --------- -------- (Dollars in thousands, except per share data) Rental income $ 22,855 $ 23,034 $ 24,033 $ 26,193 Net gain (loss) on sale of properties $ 3,073 $ (1,300) -- $ 5,665 Extraordinary loss on prepayment of debt, net of minority interest -- -- -- $ (4,631) Net income to common share owners $ 8,924 $ 5,028 $ 6,561 $ 4,614 Basic net income per common share $ 0.41 $ 0.23 $ 0.30 $ 0.21 Diluted net income per common share $ 0.41 $ 0.23 $ 0.30 $ 0.21
F18 56 SCHEDULE III BRADLEY REAL ESTATE, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION The following table sets forth detail with respect to the properties owned by the Company at December 31, 1998 (dollars in thousands). The aggregate cost of those properties for federal income tax purposes was approximately $952,773,000.
Initial cost to the Gross amount carried at December 31, 1998 Company Capitalized Buildings Subsequent Buildings and to and Accumulated SHOPPING CENTERS Land Improvements Acquisition Land Improvements Total Depreciation GEORGIA Shenandoah Plaza $ 1,333 $ 3,110 $ -- $ 1,333 $ 3,110 $ 4,443 $ 48 Newman, GA ILLINOIS Bartonville Square 471 1,130 116 523 1,194 1,717 20 Peoria, IL Butterfield Square 3,902 9,106 -- 3,902 9,106 13,008 155 Libertyville, IL Commons of Chicago Ridge & 5,087 15,113 1,096 5,879 15,417 21,296 1,106 Annex Chicago Ridge, IL Commons of Crystal Lake 3,546 20,093 542 3,546 20,635 24,181 1,459 Crystal Lake, IL Crossroads Centre 2,846 8,538 1,048 2,878 9,554 12,432 1,953 Fairview Heights, IL Fairhills Shopping Center 2,031 4,982 36 2,031 5,018 7,049 194 Springfield, IL Heritage Square 8,047 17,099 128 8,047 17,227 25,274 1,222 Naperville, IL High Point Centre 2,969 16,822 137 2,969 16,959 19,928 1,201 Lombard, IL Parkway Pointe 799 3,197 -- 799 3,197 3,996 123 Springfield, IL Rivercrest 7,349 17,147 2,701 7,353 19,844 27,197 2,729 Crestwood, IL Rollins Crossing 1,996 8,509 1,348 2,257 9,596 11,853 652 Round Lake Beach, IL Sangamon Center North 1,952 7,809 (88) 1,939 7,734 9,673 302 Springfield, IL Sheridan Village 2,841 19,010 307 2,882 19,276 22,158 1,412 Peoria, IL Sterling Bazaar 2,120 4,480 583 2,292 4,891 7,183 142 Peoria, IL Twin Oaks Centre 1,687 6,062 -- 1,687 6,062 7,749 65 Silvis, IL Wardcliffe Shopping Center 478 1,841 112 542 1,889 2,431 56 Peoria, IL Westview Center 6,417 14,973 3,638 6,161 18,867 25,028 2,891 Hanover Park, IL INDIANA County Line Mall 5,244 11,066 105 5,255 11,160 16,415 404 Indianapolis, IN Double Tree Plaza 2,370 5,529 -- 2,370 5,529 7,899 47 Winfield, IN
Lives on Date Which Acquired by Depreciation SHOPPING CENTERS Company is Computed GEORGIA Shenandoah Plaza 1998 39 Newman, GA ILLINOIS Bartonville Square 1998 3 - 39 Peoria, IL Butterfield Square 1998 39 Libertyville, IL Commons of Chicago Ridge & 1996 2 - 39 Annex Chicago Ridge, IL Commons of Crystal Lake 1996 1 - 39 Crystal Lake, IL Crossroads Centre 1992 1 - 39 Fairview Heights, IL Fairhills Shopping Center 1997 1 - 39 Springfield, IL Heritage Square 1996 1 - 39 Naperville, IL High Point Centre 1996 2 - 39 Lombard, IL Parkway Pointe 1997 39 Springfield, IL Rivercrest 1994 2 - 39 Crestwood, IL Rollins Crossing 1996 5 - 39 Round Lake Beach, IL Sangamon Center North 1997 1 - 39 Springfield, IL Sheridan Village 1996 2 - 39 Peoria, IL Sterling Bazaar 1997/98 3 - 39 Peoria, IL Twin Oaks Centre 1998 39 Silvis, IL Wardcliffe Shopping Center 1997 1 - 39 Peoria, IL Westview Center 1993 1 - 39 Hanover Park, IL INDIANA County Line Mall 1997 5 - 39 Indianapolis, IN Double Tree Plaza 1998 39 Winfield, IN
F19 57
Initial cost to the Gross amount carried at December 31, 1998 Company Capitalized Buildings Subsequent Buildings and to and Accumulated SHOPPING CENTERS Land Improvements Acquisition Land Improvements Total Depreciation Germantown 2,497 5,735 113 2,497 5,848 8,345 97 Jasper, IN Kings Plaza 625 3,046 5 625 3,051 3,676 71 Richmond, IN Lincoln Plaza 1,015 4,060 -- 1,015 4,060 5,075 61 New Haven, IN Martin's Bittersweet Plaza 993 3,969 57 993 4,026 5,019 209 Mishawaka, IN Rivergate Shopping Center 174 4,645 -- 174 4,645 4,819 50 Shelbyville, IN Sagamore Park Centre 2,209 5,567 326 2,434 5,668 8,102 118 West Lafayette, IN Speedway SuperCenter & Outlots 6,098 34,555 2,646 6,410 36,889 43,299 2,568 Speedway, IN The Village 1,152 6,530 1,690 1,152 8,220 9,372 587 Gary, IN Washington Lawndale Commons 2,488 13,062 831 2,488 13,893 16,381 1,129 Evansville, IN IOWA Burlington Plaza West 838 4,458 84 853 4,527 5,380 185 Burlington, IA Davenport Retail Center 1,125 4,500 108 1,233 4,500 5,733 173 Davenport, IA Kimberly West 990 2,718 18 990 2,736 3,726 29 Davenport, IA Parkwood Plaza 1,530 7,062 212 1,530 7,274 8,804 289 Urbandale, IA Southgate Shopping Center 721 4,441 17 721 4,458 5,179 123 Des Moines, IA Spring Village 925 3,636 99 975 3,685 4,660 160 Davenport, IA Warren Plaza 1,103 4,892 59 1,108 4,946 6,054 259 Dubuque, IA KANSAS Mid-State Plaza 1,435 3,349 843 1,452 4,175 5,627 145 Salina, KS Santa Fe Square 1,999 7,089 261 1,999 7,350 9,349 376 Olathe, KS Shawnee Parkway Plaza 1,838 4,290 -- 1,838 4,290 6,128 44 Shawnee, KS Westchester Square 3,279 9,837 103 3,281 9,938 13,219 303 Lenexa, KS KENTUCKY Camelot Shopping Center 2,595 6,052 -- 2,595 6,052 8,647 104 Louisville, KY Dixie Plaza 1,116 2,567 -- 1,116 2,567 3,683 44 Louisville, KY Midtown Mall 1,490 5,953 -- 1,490 5,953 7,443 127 Ashland, KY
Lives on Date Which Acquired by Depreciation SHOPPING CENTERS Company is Computed Germantown 1998 2 - 39 Jasper, IN Kings Plaza 1998 39 Richmond, IN Lincoln Plaza 1998 39 New Haven, IN Martin's Bittersweet Plaza 1997 4 - 39 Mishawaka, IN Rivergate Shopping Center 1998 39 Shelbyville, IN Sagamore Park Centre 1998 1 - 39 West Lafayette, IN Speedway SuperCenter & Outlots 1996 2 - 39 Speedway, IN The Village 1996 1 - 39 Gary, IN Washington Lawndale Commons 1996 3 - 39 Evansville, IN IOWA Burlington Plaza West 1997 3 - 39 Burlington, IA Davenport Retail Center 1997 39 Davenport, IA Kimberly West 1998 4 - 39 Davenport, IA Parkwood Plaza 1997 10 - 39 Urbandale, IA Southgate Shopping Center 1997 39 Des Moines, IA Spring Village 1997 2 - 39 Davenport, IA Warren Plaza 1997 4 - 39 Dubuque, IA KANSAS Mid-State Plaza 1997 2 - 39 Salina, KS Santa Fe Square 1996 2 - 39 Olathe, KS Shawnee Parkway Plaza 1998 39 Shawnee, KS Westchester Square 1997 1 - 39 Lenexa, KS KENTUCKY Camelot Shopping Center 1998 39 Louisville, KY Dixie Plaza 1998 39 Louisville, KY Midtown Mall 1998 39 Ashland, KY
F20 58
Initial cost to the Gross amount carried at December 31, 1998 Company Capitalized Buildings Subsequent Buildings and to and Accumulated SHOPPING CENTERS Land Improvements Acquisition Land Improvements Total Depreciation Plainview Village 3,630 8,470 16 3,630 8,486 12,116 145 Louisville, KY Stony Brook 3,106 9,319 188 3,121 9,492 12,613 705 Louisville, KY MICHIGAN Courtyard (The) 2,427 7,283 1 2,427 7,284 9,711 156 Burton, MI Redford Plaza 5,235 15,460 -- 5,235 15,460 20,695 297 Redford, MI MINNESOTA Brookdale Square 2,230 6,694 33 2,230 6,727 8,957 480 Brooklyn Center, MN Burning Tree Plaza 609 3,744 7,216 609 10,960 11,569 1,914 Duluth, MN Central Valu Center 1,445 7,097 193 1,448 7,287 8,735 198 Columbia Heights, MN Elk Park 5,486 10,466 8 5,494 10,466 15,960 291 Elk River, MN Har Mar Mall 6,551 15,263 10,007 6,786 25,035 31,821 5,110 Roseville, MN Hub West 757 345 4,191 773 4,520 5,293 973 Richfield, MN Richfield Hub 3,000 5,390 5,358 3,024 10,724 13,748 3,642 Richfield, MN Roseville Center 1,405 4,040 376 1,405 4,416 5,821 223 Roseville, MN Southport Centre 4,239 10,700 92 4,239 10,792 15,031 117 Apple Valley, MN Sun Ray Shopping Center 82 2,945 12,803 111 15,719 15,830 8,693 St. Paul, MN Terrace Mall 630 1,706 2,411 630 4,117 4,747 857 Robbinsdale, MN Westview Valu Center 2,629 6,133 5 2,634 6,133 8,767 170 West St. Paul, MN Westwind Plaza 1,949 5,547 318 1,949 5,865 7,814 636 Minnetonka, MN White Bear Hills 750 3,762 514 755 4,271 5,026 611 White Bear Lake, MN MISSOURI Ellisville Square 3,291 7,679 4 3,291 7,683 10,974 82 Ellisville, MO Grandview Plaza 414 2,205 15,353 437 17,535 17,972 5,699 Florissant, MO Liberty Corners 1,050 6,057 -- 1,050 6,057 7,107 208 Liberty, MO Maplewood Square 1,554 3,626 -- 1,554 3,626 5,180 15 Maplewood, MO Prospect Plaza 893 3,006 423 893 3,429 4,322 6 Gladstone, MO
Lives on Date Which Acquired by Depreciation SHOPPING CENTERS Company is Computed Plainview Village 1998 3 - 39 Louisville, KY Stony Brook 1996 3 - 39 Louisville, KY MICHIGAN Courtyard (The) 1998 1 - 39 Burton, MI Redford Plaza 1998 39 Refdord, MI MINNESOTA Brookdale Square 1996 5 - 39 Brooklyn Center, MN Burning Tree Plaza 1993 3 - 39 Duluth, MN Central Valu Center 1997 5 - 39 Columbia Heights, MN Elk Park 1997 15 - 39 Elk River, MN Har Mar Mall 1992 2 - 39 Roseville, MN Hub West 1991 7 - 39 Richfield, MN Richfield Hub 1988 2 - 39 Richfield, MN Roseville Center 1997 3 - 39 Roseville, MN Southport Centre 1998 3 - 39 Apple Valley, MN Sun Ray Shopping Center 1961 1 - 39 St. Paul, MN Terrace Mall 1993 1 - 39 Robbinsdale, MN Westview Valu Center 1997 39 West St. Paul, MN Westwind Plaza 1994 2 - 39 Minnetonka, MN White Bear Hills 1993 3 - 39 White Bear Lake, MN MISSOURI Ellisville Square 1998 5 - 39 Ellisville, MO Grandview Plaza 1971 2 - 39 Florissant, MO Liberty Corners 1997 39 Liberty, MO Maplewood Square 1998 39 Maplewood, MO Prospect Plaza 1998 39 Gladstone, MO
F21 59
Initial cost to the Gross amount carried at December 31, 1998 Company Capitalized Buildings Subsequent Buildings and to and Accumulated SHOPPING CENTERS Land Improvements Acquisition Land Improvements Total Depreciation Watts Mill Plaza 4,429 10,335 -- 4,429 10,335 14,764 44 Kansas City, MO NEBRASKA Bishop Heights 593 734 -- 593 734 1,327 8 Lincoln, NE Cornhusker Plaza 1,123 3,038 -- 1,123 3,038 4,161 32 South Sioux City, NE Eastville Plaza 542 3,333 -- 542 3,333 3,875 36 Fremont, NE Edgewood Plaza 1,900 10,764 -- 1,900 10,764 12,664 115 Lincoln, NE Ile de Grand 735 4,204 -- 735 4,204 4,939 45 Grand Island, NE Meadows (The) 1,359 3,701 -- 1,359 3,701 5,060 40 Lincoln, NE Miracle Hills Park 2,179 5,340 29 2,179 5,369 7,548 58 Omaha, NE NEW MEXICO St. Francis Plaza 1,578 3,683 -- 1,578 3,683 5,261 346 Santa Fe, NM OHIO Clock Tower Plaza 2,870 11,909 -- 2,870 11,909 14,779 102 Lima, OH Salem Consumer Square 5,974 21,380 -- 5,974 21,380 27,354 182 Trotwood, OH SOUTH DAKOTA Baken Park 2,388 7,002 191 2,408 7,173 9,581 195 Rapid City, SD TENNESSEE Williamson Square 2,570 14,561 465 2,570 15,026 17,596 1,170 Franklin, TN WISCONSIN Fairacres Shopping Center 1,549 3,806 5 1,549 3,811 5,360 41 Oshkosh, WI Fitchburg Ridge 764 1,783 -- 764 1,783 2,547 23 Fitchburg, WI Fox River Plaza 1,548 6,106 28 1,548 6,134 7,682 92 Burlington, WI Garden Plaza 1,384 3,962 25 1,384 3,987 5,371 59 Franklin, WI Madison Plaza 2,014 6,121 149 2,055 6,229 8,284 217 Madison, WI Mequon Pavilions 2,761 15,647 213 2,761 15,860 18,621 1,142 Mequon, WI Moorland Square 1,919 5,119 -- 1,919 5,119 7,038 55 New Berlin, WI Oak Creek Centre 1,478 3,448 151 1,478 3,599 5,077 76 Oak Creek, WI
Lives on Date Which Acquired by Depreciation SHOPPING CENTERS Company is Computed Watts Mill Plaza 1998 39 Kansas City, MO NEBRASKA Bishop Heights 1998 39 Lincoln, NE Cornhusker Plaza 1998 39 South Sioux City, NE Eastville Plaza 1998 39 Fremont, NE Edgewood Plaza 1998 39 Lincoln, NE Ile de Grand 1998 39 Grand Island, NE Meadows (The) 1998 39 Lincoln, NE Miracle Hills Park 1998 4 - 39 Omaha, NE NEW MEXICO St. Francis Plaza 1995 39 Santa Fe, NM OHIO Clock Tower Plaza 1998 39 Lima, OH Salem Consumer Square 1998 39 Trotwood, OH SOUTH DAKOTA Baken Park 1997 1 - 39 Rapid City, SD TENNESSEE Williamson Square 1996 1 - 39 Franklin, TN WISCONSIN Fairacres Shopping Center 1998 2 - 39 Oshkosh, WI Fitchburg Ridge 1998 39 Fitchburg, WI Fox River Plaza 1998 4 - 39 Burlington, WI Garden Plaza 1998 3 - 39 Franklin, WI Madison Plaza 1997 3 - 39 Madison, WI Mequon Pavilions 1996 1 - 39 Mequon, WI Moorland Square 1998 39 New Berlin, WI Oak Creek Centre 1998 3 - 39 Oak Creek, WI
F22 60
Initial cost to the Gross amount carried at December 31, 1998 Company Capitalized Buildings Subsequent Buildings and to and Accumulated SHOPPING CENTERS Land Improvements Acquisition Land Improvements Total Depreciation Park Plaza 970 4,020 -- 970 4,020 4,990 112 Manitowoc, WI Spring Mall Greenfield, WI 1,790 12,317 40 1,822 12,325 14,147 346 -------- -------- -------- -------- -------- -------- -------- SUBTOTAL $199,499 $656,879 $ 80,087 $201,849 $734,616 $936,465 $ 59,196 -------- -------- -------- -------- -------- -------- -------- Real estate held for sale 13,947 32,383 162 13,947 32,545 46,492 -- -------- -------- -------- -------- -------- -------- -------- GRAND TOTAL $213,446 $689,262 $ 80,249 $215,796 $767,161 $982,957 $ 59,196 ======== ======== ======== ======== ======== ======== ========
Lives on Date Which Acquired by Depreciation SHOPPING CENTERS Company is Computed Park Plaza 1997 39 Manitowoc, WI Spring Mall Greenfield, WI 1997 15 - 39 SUBTOTAL Real estate held for sale 1998 GRAND TOTAL
COST: December 31, 1998 1997 1996 Balance, beginning of year $ 680,795,000 $ 507,631,000 $ 189,405,000 Acquisitions and other additions 359,507,000 199,301,000 320,053,000 Sale of properties and other deductions (57,345,000) (26,137,000) (1,827,000) ------------- ------------- ------------- Balance, end of year $ 982,957,000 $ 680,795,000 $ 507,631,000 ============= ============= ============= ACCUMULATED DEPRECIATION: Balance, beginning of year $ 42,430,000 $ 37,883,000 $ 27,591,000 Depreciation provided 18,670,000 13,407,000 10,292,000 Sale of properties and other deductions (1,904,000) (8,860,000) -- ------------- ------------- ------------- Balance, end of year $ 59,196,000 $ 42,430,000 $ 37,883,000 ============= ============= =============
F23 61 INDEPENDENT AUDITORS' REPORT The Board of Directors and Share Owners Bradley Real Estate, Inc. and subsidiaries: We have audited the consolidated financial statements of Bradley Real Estate, Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bradley Real Estate, Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. Also in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Chicago, Illinois January 22, 1999, except as to Note 14, which is as of February 23, 1999 F24 EX-10.1.(2) 2 SECOND RESTATED AGREEMENT 1 Exhibit 10.1.2 AMENDMENT TO THE SECOND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF BRADLEY OPERATING LIMITED PARTNERSHIP This Amendment to the Second Restated Agreement of Limited Partnership of Bradley Operating Limited Partnership, dated July 31, 1998 (this "Amendment"), amends the Second Restated Agreement of Limited Partnership, dated September 2, 1997, as amended by and among Bradley Real Estate, Inc. and each of the limited partners executing the signature page thereto (the "Partnership Agreement"). Capitalized terms not otherwise defined in this Amendment shall have the meanings set forth in the Partnership Agreement. WHEREAS, pursuant to Section 17.1 of the Partnership Agreement, the General Partner, without the consent of the Limited Partners, may amend the Partnership Agreement by executing a written instrument setting forth the terms of such amendment; and WHEREAS, the General Partner deems advisable an amendment to Section 19.14 of the Partnership Agreement in order to clarify the requirements for notice of certain transactions. NOW, THEREFORE, the Partnership Agreement is hereby amended by changing Section 19.14 thereof so that, as amended, such section shall read as follows: 19.14 Notice for Certain Transactions. In the event of (a) a dissolution or liquidation of the Partnership or the General Partner, (b) a merger, consolidation or combination of the Partnership or the General Partner with or into another Person in which the General Partner is not the surviving entity or in which a vote of the stockholders of the General Partner is required (including the events set forth in Section 17.2), (c) the sale of all or substantially all of the assets of the Partnership or the General Partner, or (d) the transfer by the General Partner of all or any part of its interest in the Partnership, the General Partner shall give written notice thereof to each Limited Partner at least twenty (20) Trading Days prior to the effective date or, to the extent applicable, record date of such transaction, whichever comes first. [Remainder of Page Intentionally Left Blank.] 2 IN WITNESS WHEREOF this agreement has been executed as of the date first above written. BRADLEY REAL ESTATE, INC. Thomas P. D'Arcy Chairman, President and Chief Executive Officer EX-10.2.(3) 3 UNSECURED REVOLVING CREDIT AGREEMENT 1 Exhibit 10.2.3 THIRD AMENDMENT TO UNSECURED REVOLVING CREDIT AGREEMENT THIS THIRD AMENDMENT TO UNSECURED REVOLVING CREDIT AGREEMENT (the "Amendment") is made as of November 23, 1998 by and among Bradley Operating Limited Partnership, a Delaware limited partnership ("Borrower"), The First National Bank of Chicago, individually and as "Administrative Agent", BankBoston, N.A., individually and as "Co-Agent", Bank of America National Trust & Savings Association, individually and as "Co-Agent", Fleet National Bank, individually and as "Co-Agent", certain other lenders shown on the signature pages of the Credit Agreement described below ("Original Lenders"), and the two (2) additional banks identified on the signature pages of this Amendment ("New Lenders"). RECITALS A. Borrower, Administrative Agent, Documentation Agent and Original Lenders, as described below, entered into an Unsecured Revolving Credit Agreement dated as of December 23, 1997, as amended by (i) a First Amendment dated as of January 31, 1998 and (ii) a Second Amendment dated as of June 30, 1998 (as so amended, the "Credit Agreement"). All capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Credit Agreement. B. Pursuant to the terms of the Credit Agreement, the Original Lenders agreed to provide Borrower with a revolving credit facility in an aggregate principal amount of up to $200,000,000, subject to future increase to $250,000,000. The parties hereto desire to amend the Credit Agreement in order to, among other things, (i) increase the Aggregate Commitment to $250,000,000; (ii) admit each of the New Lenders as a "Lender" under the Credit Agreement; (iii) adjust the respective Percentages of the Lenders; and (iv) make certain other modifications to the Credit Agreement. NOW, THEREFORE, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: AGREEMENTS 1. The foregoing Recitals to this Amendment hereby are incorporated into and made a part of this Amendment. 2. The "Increase Date" shall be the date on which all of the following conditions shall have been fulfilled (or waived by the Original Lenders and New Lenders): (i) no Default or Event of Default then exists; (ii) Borrower shall have executed and delivered to the Administrative Agent for delivery to each New Lender two Notes, one in the form attached hereto as Exhibit B-1 in the amount of such New Lender's Commitment and one in the form attached hereto as Exhibit B-2 with respect to Competitive Bid Loans; (iii) as applicable, Borrower shall have executed and delivered to the Administrative Agent for delivery to the Original Lenders an amended and restated Note in the form attached hereto as Exhibit B-3 in the adjusted amount of such Original Lender's Commitment and a Note in the form attached hereto as Exhibit B-2 with respect to the Competitive Bid Loans. Upon the execution and delivery of the Amended and Restated Notes all corresponding prior Notes will be superseded and returned to Borrower; and (iv) Borrower shall have executed and delivered, or caused to be executed and delivered, to the Administrative Agent (and, upon receipt from Borrower, the Administrative Agent shall deliver to the other Lenders) (A) a certificate dated as of the Increase Date signed by Borrower and Guarantors (i) confirming that no Default or Event of Default exists under the Loan Documents; and (ii) representing and warranting that the Loan Documents are then in full force and effect and that, to the best of their knowledge, Borrower and Guarantors then have no defenses or offsets to, or claims or counterclaims relating to, their obligations under the Loan Documents, and (B) an opinion of counsel regarding the due authorization and enforceability of this Agreement, together with supporting resolutions and other evidence, all satisfactory to the Administrative Agent. From and after the Increase Date, each of the Original Lenders and each New Lender shall be considered a "Lender" under the Credit Agreement and the Loan Documents. Borrower and the Original Lenders hereby consent to the addition of each of the New Lenders as a Lender. Each New Lender's Commitment and Percentage shall be as shown below such New Lender's signature block on this Amendment. The adjusted Commitments and Percentages for the Original Lenders are also shown on the signature pages to this Amendment. 2 If the Increase Date has not occurred by November 24, 1998, either Borrower or Administrative Agent may elect to terminate this Amendment which thereupon shall have no further force or effect and the Credit Agreement shall continue as if this Amendment had not been executed. 3. From and after the Increase Date the Aggregate Commitment shall equal Two Hundred Fifty Million Dollars ($250,000,000). Prior to the Increase Date the Aggregate Commitment shall continue to be Two Hundred Million Dollars ($200,000,000). 4. Section 1.1 of the Credit Agreement is hereby amended by deleting "and BancBoston Securities, Inc., collectively." from the definition of "Arranger." Section 1.1 is further amending by inserting the following definitions: "Majority Lenders" means Lenders in the aggregate having at least 75% of the Aggregate Commitment or, if the Aggregate Commitment has been terminated, Lender's in the aggregate holding at least 75% of the aggregate unpaid principal amount of the outstanding Advances; "Year 2000 Issues" means reasonably anticipated costs, problems and uncertainties associated with the inability of certain computer applications to effectively handle data including dates on and after January 1, 2000, as such inability affects the business, operations and financial condition of the Borrower and its Subsidiaries and of the Borrower's and its Subsidiaries' material customers, suppliers and vendors; and "Year 2000 Program" is defined in Section 6.27. 5. All references to "Arrangers" in the Credit Agreement are hereby changed to "Arranger." 6. Section 2.8 is hereby amended to add the following to the end of that section "including, but not limited to, that letter agreement dated October 12, 1998." 7. The following is hereby added as a new Section 6.27 to the Credit Agreement. 6.27 Year 2000. The Borrower has made a full and complete assessment of the Year 2000 Issues and has a realistic and achievable program for remediating the Year 2000 Issues on a timely basis (the "Year 2000 Program"). Based on such assessment and on the Year 2000 Program, the Borrower does not as of the Increase Date reasonably anticipate that Year 2000 Issues will have a material adverse effect on the business, properties, condition or results of operations of the Consolidated Group taken as a whole. 8. Section 8.3 of the Credit Agreement is hereby amended by deleting the fifth sentence and replacing it in its entirety with the following: The total investment in any one of categories (i), (iii) or (iv) shall not exceed 5% of Capitalization Value, the total investment in category (ii) shall not exceed 10% of Capitalization Value, the total investment in (v) shall not exceed 20% of Capitalization Value and the total investment in all the foregoing investment categories in the aggregate shall be less than or equal to 20% of Capitalization Value. 9. Section 8.13 of the Credit Agreement is hereby deleted and replaced in its entirety with the following: 8.13 Dividends. Provided there is no Monetary Default or Event of Default then existing, Bradley Real Estate, Inc. may make distributions to its shareholders provided that the aggregate amount of distributions in any period of four consecutive fiscal quarters is not in excess of 95% of its Funds From Operations for such period and such distribution would not result in the occurrence of an Event of Default or a breach of Section 9.7 hereof. Notwithstanding the foregoing, unless at the time of distribution there is a Monetary Default or Event of Default then existing, Bradley Real Estate, Inc. shall be permitted at all times to distribute whatever amount is necessary to maintain its tax status as a real estate investment trust. 10. The following is added as a new Section 8.14 to the Credit Agreement. 8.14 Year 2000 Compliance Promptly notify the Administrative Agent in the event Borrower or Guarantors discover or determine that any computer application (including those of its suppliers and vendors) that is material to Borrower's or any of Borrower's Subsidiaries' business and operations will not be Year 2000 compliant on a timely basis, except to the extent that Borrower does not reasonably anticipate that such failure will have a material adverse effect on the business, properties, condition or results of operations of the Consolidated Group taken as a whole. 3 11. Section 14.13(a) of the Credit Agreement is hereby amended by inserting "(x) amends this Section 14.13(a); or" to the end of Section 14.13(a). 12. Section 14.13 is hereby amended by inserting the following after subsection (b) "; or (c) the Majority Lenders, to amend 9.7(c) or 9.7(d) or the definitions referenced therein, or this 14.13(c)." 13. Except as specifically modified hereby, the Credit Agreement is and remains unmodified and in full force and effect and is hereby ratified and confirmed. All references in the Loan Documents to the "Agreement" or the "Revolving Credit Agreement" henceforth shall be deemed to refer to the Credit Agreement as amended by this Amendment. The Guarantors hereby consent to this Amendment and specifically acknowledge and agree that their obligations under the Guaranty continue in full force and effect with respect to all of the "Facility Indebtedness" and all "Obligations" (as defined in the Guaranty) which are now or hereafter due to the Lenders or the Administrative Agent under the Credit Agreement as amended by this Amendment. 14. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Amendment by signing any such counterpart. This Amendment shall be construed in accordance with the internal laws (and not the law of conflicts) of the State of Illinois, but giving effect to federal laws applicable to national banks. This Amendment shall be effective when it has been executed by Borrower, Guarantors, the Co-Agents, the Administrative Agent, the New Lenders and a sufficient number of Original Lenders to constitute Required Lenders and each such party has notified the Administrative Agent by telecopy or telephone that it has taken such action. [NO FURTHER TEXT ON THIS PAGE] 4 IN WITNESS WHEREOF, the undersigned have executed and delivered this Amendment as of the date first above written. BORROWER: BRADLEY OPERATING LIMITED PARTNERSHIP By: BRADLEY REAL ESTATE, INC., its General Partner By: Title: The undersigned, as Guarantors under the Credit Agreement, hereby consent to and join in this Amendment and agree that the Guaranty shall continue in full force and effect. GUARANTORS: BRADLEY FINANCING PARTNERSHIP By: BRADLEY FINANCING CORP., its General Partner By: Title: BRADLEY REAL ESTATE, INC. By: Its: ORIGINAL LENDERS: THE FIRST NATIONAL BANK OF CHICAGO By: Title: Commitment: $30,000,000 Percentage of Aggregate Commitment: 12% Address for Notices: One First National Plaza Chicago, Illinois 60670 Attention: Real Estate Finance Division Telephone: 312/732-2107 Telecopy: 312/732-1117 5 BANKBOSTON, N.A. By: Title: Commitment: $27,000,000 Percentage of Aggregate Commitment: 10.8% Address for Notices: 100 Federal Street Boston, Massachusetts 02110 Attention: Howard N. Blackwell Telephone: 617/434-2291 Telecopy: 617/434-1337 BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION By: Title: Commitment: $30,000,000 Percentage of Aggregate Commitment: 12% Address for Notices: 231 South LaSalle Street Chicago, Illinois 60697-1516 Attention: Richard G. Baer, Jr. Telephone: 312/828-5149 Telecopy: 312/974-4970 6 FLEET NATIONAL BANK By: Title: Commitment: $27,000,000 Percentage of Aggregate Commitment: 10.8% Address for Notices: 75 State Street MS: MABOF11C Boston, Massachusetts 02109 Attention: Thomas Hanold Telephone: 617/346-2881 Telecopy: 617/346-3220 U.S. BANK NATIONAL ASSOCIATION, F/K/A AND D/B/A FIRST BANK NATIONAL ASSOCIATION By: Title: Commitment: $20,000,000 Percentage of Aggregate Commitment: 8% Address for Notices: One Illinois Center 111 E. Wacker Drive, Suite 3000 Chicago, IL 60601 Attention: Jim Benko Telephone: 312/228-9420 Telecopy: 312/228-9402 7 FIRST UNION NATIONAL BANK By: Title: Commitment: $18,000,000 Percentage of Aggregate Commitment: 7.2% Address for Notices: One First Union Center, DC-6 Charlotte, North Carolina 28288-0166 Attention: John A. Schissel Telephone: 704/383-1967 Telecopy: 704/383-6205 KEYBANK NATIONAL ASSOCIATION By: Title: Commitment: $25,000,000 Percentage of Aggregate Commitment: 10% Address for Notices: Commercial Real Estate Division 190 South LaSalle Street, Suite 2840 Chicago, Illinois 60603 Attention: David C. Bluestone Telephone: 312/251-3582 Telecopy: 312/251-0687 8 LASALLE NATIONAL BANK By: Title: Commitment: $25,000,000 Percentage of Aggregate Commitment: 10% Address for Notices: 135 South LaSalle Street, Suite 1225 Chicago, Illinois 60603 Attention: John Hein Telephone: 312/904-8620 Telecopy: 312/904-6467 MELLON BANK, N.A. By: Title: Commitment: $18,000,000 Percentage of Aggregate Commitment: 7.2% Address for Notices: One Mellon Bank Center, Suite 2940 Pittsburgh, Pennsylvania 15258 Attention: Janis Carey Telephone: 412/234-1159 Telecopy: 412/234-8657 NEW LENDERS: AMSOUTH BANK By: Title: Commitment: $15,000,000 Percentage of Aggregate Commitment: 6% Address for Notices: 1900 5th Avenue North, 9th Floor Birmingham, Alabama 35288 Attention: Lawrence Clark Telephone: 205/581-7493 Telecopy: 205/326-4075 9 COMERICA BANK By: Title: Commitment: $15,000,000 Percentage of Aggregate Commitment: 6% Address for Notices: 500 Woodward Avenue Detroit, Michigan 48226-9306 Attention: Leslie Vogel Telephone: 313/222-9290 Telecopy: 313/222-9295 ADMINISTRATIVE AGENT: THE FIRST NATIONAL BANK OF CHICAGO By: Title: Address for Notices: One First National Plaza Chicago, Illinois 60670 Attention: Real Estate Finance Division Telephone: 312/732-2107 Telecopy: 312/732-1117 CO-AGENTS: BANKBOSTON, N.A. By: Title: Address for Notices: 100 Federal Street Boston, Massachusetts 02110 Attention: Howard N. Blackwell Telephone: 617/434-2291 Telecopy: 617/434-1337 10 BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION By: Title: Address for Notices: 231 South LaSalle Street Chicago, Illinois 60697-1516 Attention: Richard G. Baer, Jr. Telephone: 312/828-5149 Telecopy: 312/974-4970 FLEET NATIONAL BANK By: Title: Address for Notices: 75 State Street MS: MABOF11C Boston, Massachusetts 02109 Attention: Thomas Hanold Telephone: 617/346-2881 Telecopy: 617/346-3220 11 EXHIBIT B-1 FORM OF NOTE $_______________ ___________________, 1998 On or before the Maturity Date, as defined in that certain Unsecured Revolving Credit Agreement dated as of December 23, 1997, as amended (the "Agreement") between BRADLEY OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership ("Borrower"), Bradley Financing Partnership, Bradley Real Estate, Inc. and The First National Bank of Chicago, a national bank organized under the laws of the United States of America, individually and as Administrative Agent for the Lenders, BankBoston, N.A., a national bank organized under the laws of the United States of America, individually and as Documentation Agent for the Lenders and certain other lenders party thereto (as such terms are defined in the Agreement), Borrower promises to pay to the order of ______________________ _________________________ (the "Lender"), or its successors and assigns, the principal sum of ____________________ AND NO/100 DOLLARS ($__________) or the aggregate unpaid principal amount of all Loans (other than Competitive Bid Loans) made by the Lender to the Borrower pursuant to Section 2.1 of the Agreement, without set-off or counterclaim in immediately available funds at the office of the Administrative Agent in Chicago, Illinois, together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in the Agreement and all other then due fees or charges as provided herein or in the Agreement. The Borrower shall pay this Note ("Note") in full on or before the Maturity Date in accordance with the terms of the Agreement. The Lender shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of each Advance and the date and amount of each principal payment hereunder. This Note is issued pursuant to, and is entitled to the benefits of, the Agreement and the other Loan Documents, to which Agreement and Loan Documents, as they may be amended from time to time, reference is hereby made for, inter alia, a statement of the terms and conditions under which this Note may be prepaid or its maturity accelerated. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Agreement. If there is an Event of Default or Default under the Agreement or any other Loan Document and Lender exercises its remedies provided under the Agreement and/or any of the Loan Documents, then in addition to all amounts recoverable by the Lender under such documents, Lender shall be entitled to receive reasonable attorneys fees and expenses incurred by Lender in exercising such remedies. Borrower and all endorsers severally waive presentment, protest and demand, notice of protest, demand and of dishonor and nonpayment of this Note (except as otherwise expressly provided for in the Agreement), and any and all lack of diligence or delays in collection or enforcement of this Note, and expressly agree that this Note, or any payment hereunder, may be extended from time to time, and expressly consent to the release of any party liable for the obligation secured by this Note, the release of any of the security of this Note, the acceptance of any other security therefor, or any other indulgence or forbearance whatsoever, all without notice to any party and without affecting the liability of the Borrower and any endorsers hereof. This Note shall be governed and construed under the internal laws of the State of Illinois. BORROWER AND LENDER, BY ITS ACCEPTANCE HEREOF, EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHT UNDER THIS PROMISSORY NOTE OR ANY OTHER LOAN DOCUMENT OR RELATING THERETO OR ARISING FROM THE LENDING RELATIONSHIP WHICH IS THE SUBJECT OF THIS NOTE AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. BRADLEY OPERATING LIMITED PARTNERSHIP By: BRADLEY REAL ESTATE, INC., its general partner By:__________________________________________ Its:_________________________________________ 12 PAYMENTS OF PRINCIPAL Unpaid Principal Notation Date Balance Made by 13 EXHIBIT B-2 FORM OF COMPETITIVE BID NOTE ________________, 1998 On or before the last day of each "Interest Period" applicable to a "Competitive Bid Loan", as defined in that certain Unsecured Revolving Credit Agreement dated as of December 23, 1997, as amended (the "Agreement") between BRADLEY OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership ("Borrower"), Bradley Real Estate, Inc., Bradley Financing Partnership, BankBoston, N.A., individually and as Documentation Agent for the Lenders, individually and as Administrative Agent for the Lenders and certain other lenders party thereto (as such terms are defined in the Agreement), Borrower promises to pay to the order of _________________________ (the "Lender"), or its successors and assigns, the unpaid principal amount of such Competitive Bid Loan made by the Lender to the Borrower pursuant to Section 2.16 of the Agreement, without set-off or counterclaim in immediately available funds at the office of the Administrative Agent in Chicago, Illinois, together with interest on the unpaid principal amount hereof at the rates and on the dates established pursuant to the Agreement. The Borrower shall pay any remaining unpaid principal amount of such Competitive Bid Loans under this Competitive Bid Note ("Note") in full on or before the Maturity Date in accordance with the terms of the Agreement. The Lender shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date, amount and due date of each Competitive Bid Loan and the date and amount of each principal payment hereunder. This Note is issued pursuant to, and is entitled to the security under and benefits of, the Agreement and the other Loan Documents, to which Agreement and Loan Documents, as they may be amended from time to time, reference is hereby made for, inter alia, a statement of the terms and conditions under which this Note may be prepaid or its maturity accelerated. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Agreement. If there is an Event of Default or Default under the Agreement or any other Loan Document and Lender exercises its remedies provided under the Agreement and/or any of the Loan Documents, then in addition to all amounts recoverable by the Lender under such documents, Lender shall be entitled to receive reasonable attorneys fees and expenses incurred by Lender in exercising such remedies. Borrower and all endorsers severally waive presentment, protest and demand, notice of protest, demand and of dishonor and nonpayment of this Note (except as otherwise expressly provided for in the Agreement), and any and all lack of diligence or delays in collection or enforcement of this Note, and expressly agree that this Note, or any payment hereunder, may be extended from time to time, and expressly consent to the release of any party liable for the obligation secured by this Note, the release of any of the security of this Note, the acceptance of any other security therefor, or any other indulgence or forbearance whatsoever, all without notice to any party and without affecting the liability of the Borrower and any endorsers hereof. This Note shall be governed and construed under the internal laws of the State of Illinois. BORROWER AND LENDER, BY ITS ACCEPTANCE HEREOF, EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHT UNDER THIS PROMISSORY NOTE OR ANY OTHER LOAN DOCUMENT OR RELATING THERETO OR ARISING FROM THE LENDING RELATIONSHIP WHICH IS THE SUBJECT OF THIS NOTE AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. BRADLEY OPERATING LIMITED PARTNERSHIP By: Bradley Real Estate, Inc., its general partner By: ________________________________________ Its: ________________________________________ 14 PAYMENTS OF PRINCIPAL Unpaid Principal Notation Date Balance Made by 15 EXHIBIT B-3 FORM OF AMENDED AND RESTATED NOTE $_______________ ___________, 1998 On or before the Maturity Date, as defined in that certain Amended and Restated Unsecured Revolving Credit Agreement dated as of December 23, 1997, as amended (the "Agreement") between BRADLEY OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership ("Borrower"), Bradley Financing Partnership, Bradley Real Estate, Inc. and The First National Bank of Chicago, a national bank organized under the laws of the United States of America, individually and as Administrative Agent for the Lenders, BankBoston, N.A., a national bank organized under the laws of the United States of America, individually and as Documentation Agent for the Lenders and certain other lenders party thereto (as such terms are defined in the Agreement), Borrower promises to pay to the order of _________________________ (the "Lender"), or its successors and assigns, the principal sum of ____________________ AND NO/100 DOLLARS ($__________) or the aggregate unpaid principal amount of all Loans (other than Competitive Bid Loans) made by the Lender to the Borrower pursuant to Section 2.1 of the Agreement, without set-off or counterclaim in immediately available funds at the office of the Administrative Agent in Chicago, Illinois, together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in the Agreement and all other then due fees or charges as provided herein or in the Agreement. The Borrower shall pay this Amended and Restated Note ("Note") in full on or before the Maturity Date in accordance with the terms of the Agreement. The Lender shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of each Advance and the date and amount of each principal payment hereunder. This Note amends, restates and supersedes in its entirety that certain Note dated December 23, 1997 made by Borrower in favor of Lender in the maximum principal amount of . This Note is issued pursuant to, and is entitled to the benefits of, the Agreement and the other Loan Documents, to which Agreement and Loan Documents, as they may be amended from time to time, reference is hereby made for, inter alia, a statement of the terms and conditions under which this Note may be prepaid or its maturity accelerated. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Agreement. If there is an Event of Default or Default under the Agreement or any other Loan Document and Lender exercises its remedies provided under the Agreement and/or any of the Loan Documents, then in addition to all amounts recoverable by the Lender under such documents, Lender shall be entitled to receive reasonable attorneys fees and expenses incurred by Lender in exercising such remedies. Borrower and all endorsers severally waive presentment, protest and demand, notice of protest, demand and of dishonor and nonpayment of this Note (except as otherwise expressly provided for in the Agreement), and any and all lack of diligence or delays in collection or enforcement of this Note, and expressly agree that this Note, or any payment hereunder, may be extended from time to time, and expressly consent to the release of any party liable for the obligation secured by this Note, the release of any of the security of this Note, the acceptance of any other security therefor, or any other indulgence or forbearance whatsoever, all without notice to any party and without affecting the liability of the Borrower and any endorsers hereof. This Note shall be governed and construed under the internal laws of the State of Illinois. BORROWER AND LENDER, BY ITS ACCEPTANCE HEREOF, EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHT UNDER THIS PROMISSORY NOTE OR ANY OTHER LOAN DOCUMENT OR RELATING THERETO OR ARISING FROM THE LENDING RELATIONSHIP WHICH IS THE SUBJECT OF THIS NOTE AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. BRADLEY OPERATING LIMITED PARTNERSHIP By: BRADLEY REAL ESTATE, INC., its general partner By:___________________________________________ Its:__________________________________________ 16 PAYMENTS OF PRINCIPAL Unpaid Principal Notation Date Balance Made by EX-21.1 4 SUBSIDIARIES OF THE COMPANY 1 Exhibit 21.1 SUBSIDIARIES OF BRADLEY REAL ESTATE, INC. Bradley Real Estate Management, Inc., a Massachusetts corporation Bradley Midwest Management, Inc., a Minnesota corporation Bradley Operating Limited Partnership, a Delaware limited partnership Bradley Financing Corp., a Delaware corporation Bradley Financing Partnership, a Delaware partnership Bradley Management Corp., a Delaware corporation Bradley Management Limited Partnership, a Delaware limited partnership Bradley Spring Mall, Inc., a Delaware corporation Bradley Spring Mall Limited Partnership, a Delaware limited partnership BTR Development Corp., a Delaware corporation BTR Development Limited Partnership, a Delaware limited partnership Williamson Square Associates Limited Partnership, a Delaware limited partnership EX-23.1 5 CONSENT OF KPMG LLP 1 Exhibit 23.1 CONSENT OF KPMG LLP The Board of Directors of Bradley Real Estate, Inc.: We consent to incorporation by reference in the registration statements (Nos. 333-63707, 333-42357, 333-28167, 33-87084, 33-62200, 33-64811 and 333-69131) on Form S-3 of Bradley Real Estate, Inc., the registration statements (Nos. 333-30587, 33-34884 and 33-65180) on Form S-8 of Bradley Real Estate, Inc., and the registration statements (Nos. 333-36577 and 333-51675) on Form S-3 of Bradley Operating Limited Partnership of our report dated January 22, 1999, except as to Note 14, which is as of February 23, 1999, relating to the consolidated balance sheets of Bradley Real Estate, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, changes in share owners' equity and cash flows for each of the years in the three-year period ended December 31, 1998 and related schedule, which report appears in the December 31, 1998 Annual Report on Form 10-K of Bradley Real Estate, Inc. KPMG LLP Chicago, Illinois March 26, 1999 EX-27.1 6 FINANCIAL DATA SCHEDULE
5 0000013777 BRADLEY REAL ESTATE INC. 1 US DOLLARS YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 1 0 0 19,072,000 4,078,000 0 31,670,000 982,957,000 59,196,000 968,680,000 29,415,000 472,375,000 0 86,809,000 349,254,000 30,827,000 968,680,000 128,444,000 131,037,000 0 40,628,000 30,157,000 0 27,681,000 56,598,000 0 0 0 0 0 56,598,000 2.39 2.37
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