-----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, MMr4OdhD1IM/djZC3V5EIw+74DkpV0vBKq5xP5N5B1LhPXT0GH9dQWwKSTazVVNH d9IwGtzr1FHlgK1s6IzIfQ== 0000950137-99-002947.txt : 19990813 0000950137-99-002947.hdr.sgml : 19990813 ACCESSION NUMBER: 0000950137-99-002947 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 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-Q SEC ACT: SEC FILE NUMBER: 001-10328 FILM NUMBER: 99684973 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-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 1999 or ___ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____to_____ 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. Identification No.) 40 Skokie Blvd., Northbrook, Illinois 60062 (Address of Registrant's Principal Executive Offices) Registrant's telephone number, including area code; (847) 272-9800 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 (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each class of Common Stock as of June 30, 1999: Shares of Common Stock, $.01 par value: 24,057,300 shares outstanding. 2 BRADLEY REAL ESTATE, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) (UNAUDITED)
June 30, December 31, 1999 1998 --------- ------------ ASSETS: Real estate investments - at cost $ 970,710 $ 936,465 Accumulated depreciation and amortization (69,713) (59,196) --------- --------- Net real estate investments 900,997 877,269 Real estate investments held for sale 30,116 46,492 Other assets: Cash and cash equivalents 108 - Rents and other receivables, net of allowance for doubtful accounts of $4,884 for 1999 and $4,078 for 1998 17,423 14,994 Investment in partnership - 13,249 Deferred charges, net and other assets 16,095 16,676 --------- --------- Total assets $ 964,739 $ 968,680 ========= ========= LIABILITIES AND SHARE OWNERS' EQUITY: Mortgage loans $ 102,000 $ 103,333 Unsecured notes payable 199,573 199,542 Line of credit 120,900 169,500 Accounts payable, accrued expenses and other liabilities 28,068 29,415 --------- --------- Total liabilities 450,541 501,790 --------- --------- Exchangeable limited partnership units 20,542 21,573 Series B preferred units 49,100 - --------- --------- Total minority interest 69,642 21,573 --------- --------- 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; issued and outstanding 3,478,471 and 3,478,493 shares of Series A Convertible Preferred Stock at June 30, 1999 and December 31, 1998, respectively 86,809 86,809 Shares of common stock and paid-in capital, par value $.01 per share: Authorized 80,000,000 shares; issued and outstanding 24,057,300 and 23,958,662 shares at June 30, 1999 and December 31, 1998, respectively 350,653 349,254 Shares of excess stock, par value $.01 per share: Authorized 50,000,000 shares; 0 shares issued and outstanding - - Retained earnings 7,094 9,254 --------- --------- Total share owners' equity 444,556 445,317 --------- --------- Total liabilities and share owners' equity $ 964,739 $ 968,680 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 2 3 BRADLEY REAL ESTATE, INC. CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data) (Unaudited)
Three months ended Six months ended June 30, June 30, --------------------- -------------------- 1999 1998 1999 1998 -------- -------- -------- -------- REVENUE: Rental income $ 36,872 $ 30,601 $ 75,582 $ 59,337 Other income 686 440 1,329 1,059 -------- -------- -------- -------- 37,558 31,041 76,911 60,396 -------- -------- -------- -------- EXPENSES: Operations, maintenance and management 5,405 4,443 12,083 8,776 Real estate taxes 5,556 5,295 11,671 10,776 Mortgage and other interest 7,182 6,585 14,869 12,143 General and administrative 1,866 1,717 4,067 3,120 Depreciation and amortization 6,484 5,631 12,941 10,594 -------- -------- -------- -------- 26,493 23,671 55,631 45,409 -------- -------- -------- -------- Income before equity in earnings of partnership and provision for loss on real estate investment 11,065 7,370 21,280 14,987 Equity in earnings of partnership 153 - 500 - Provision for loss on real estate investment - - - (875) -------- -------- -------- -------- Income before allocation to minority interest 11,218 7,370 21,780 14,112 Income allocated to exchangeable limited partnership units (452) (406) (921) (797) Income allocated to Series B preferred units (1,109) - (1,565) - -------- -------- -------- -------- Net income 9,657 6,964 19,294 13,315 Preferred share distributions (1,826) - (3,652) - -------- -------- -------- -------- Net income attributable to common share owners $ 7,831 $ 6,964 $ 15,642 $ 13,315 ======== ======== ======== ======== Earnings per share: Basic $ 0.33 $ 0.29 $ 0.65 $ 0.57 ======== ======== ======== ======== Diluted $ 0.33 $ 0.29 $ 0.65 $ 0.57 ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 3 4 BRADLEY REAL ESTATE, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHARE OWNERS' EQUITY (Dollars in thousands, except per share data) (Unaudited)
Preferred Common shares shares and and Retained paid-in capital paid-in capital earnings Total --------------- --------------- --------- --------- Balance at December 31, 1998 $ 86,809 $ 349,254 $ 9,254 $ 445,317 Net income - - 9,637 9,637 Distributions on common stock ($0.37 per share) - - (8,900) (8,900) Distributions on preferred stock ($0.525 per share) - - (1,826) (1,826) Exercise of stock options - 123 - 123 Dividend reinvestment and stock purchase plan participation - 1,522 - 1,522 Reallocation of minority interest - (154) - (154) Shares issued in exchange for limited partnership units - 6 - 6 --------- --------- --------- --------- Balance at March 31, 1999 86,809 350,751 8,165 445,725 Net income - - 9,657 9,657 Distributions on common stock ($0.37 per share) - - (8,902) (8,902) Distributions on preferred stock ($0.525 per share) - - (1,826) (1,826) Dividend reinvestment and stock purchase plan participation - (40) - (40) Reallocation of minority interest - (58) - (58) --------- --------- --------- --------- Balance at June 30, 1999 $ 86,809 $ 350,653 $ 7,094 $ 444,556 ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 4 5 BRADLEY REAL ESTATE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
Six months ended June 30, ---------------------- 1999 1998 --------- --------- Cash flows from operating activities: Net income $ 19,294 $ 13,315 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 12,941 10,594 Equity in earnings of partnership (500) - Amortization of debt premiums, net of discounts (479) - Provision for loss on real estate investment - 875 Income allocated to minority interest 2,486 797 Change in operating assets and liabilities: (Increase) decrease in rents and other receivables 860 (1,325) Increase (decrease) in accounts payable, accrued expenses and other liabilities (1,748) 6,978 Increase in deferred charges (1,064) (2,037) --------- --------- Net cash provided by operating activities 31,790 29,197 --------- --------- Cash flows from investing activities: Expenditures for real estate investments (21,636) (108,512) Expenditures for capital improvements (6,934) (5,309) Net proceeds from sale of properties 16,899 1,869 Cash distributions from partnership 3,943 - --------- --------- Net cash used in investing activities (7,728) (111,952) --------- --------- Cash flows from financing activities: Borrowings from line of credit 46,900 118,050 Payments under line of credit (95,500) (123,550) Proceeds from issuance of unsecured notes payable - 99,051 Expenditures for financing costs (59) (5,979) Principal payments on mortgage loans (823) (534) Distributions paid to common share owners (17,802) (16,571) Distributions paid to limited partnership unit holders (1,044) (967) Distributions paid to preferred unit holders (1,565) - Distributions paid to preferred share owners (3,652) - Net proceeds from stock offerings - 7,489 Proceeds from exercise of stock options 123 4 Net proceeds from dividend reinvestment and stock purchase plan 1,482 2,710 Net proceeds from issuance of Series B preferred units 49,100 - Payments to redeem limited partnership units (1,114) - --------- --------- Net cash provided by (used in) financing activities (23,954) 79,703 --------- --------- Net increase (decrease) in cash and cash equivalents 108 (3,052) Cash and cash equivalents: Beginning of period - 4,747 --------- --------- End of period $ 108 $ 1,695 ========= ========= Supplemental cash flow information: Interest paid, net of amount capitalized $ 15,499 $ 8,358 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 5 6 BRADLEY REAL ESTATE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 (Unaudited) NOTE 1 - BASIS OF PRESENTATION The accompanying interim financial statements have been prepared by the Company, without audit, and in the opinion of management reflect all normal recurring adjustments necessary for a fair presentation of results for the unaudited interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto for the fiscal year ended December 31, 1998. NOTE 2 - EARNINGS PER SHARE Basic earnings per share ("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 is computed by reflecting 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 Company. 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:
Three months ended Six months ended June 30, June 30, ------------------------- ------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- NUMERATOR: - ---------- Basic Net income attributable to common share owners $ 7,831,000 $ 6,964,000 $15,642,000 $13,315,000 =========== =========== =========== =========== Diluted Net income attributable to common share owners $ 7,831,000 $ 6,964,000 $15,642,000 $13,315,000 Income allocated to exchangeable limited partnership units 452,000 406,000 921,000 797,000 ----------- ----------- ----------- ----------- Adjusted net income $ 8,283,000 $ 7,370,000 $16,563,000 $14,112,000 =========== =========== =========== =========== DENOMINATOR: - ------------ Basic Weighted average common shares 24,056,671 23,702,522 24,026,988 23,503,183 =========== =========== =========== =========== Diluted Weighted average common shares 24,056,671 23,702,522 24,026,988 23,503,183 Effect of dilutive securities: Stock options 40,101 50,014 34,823 49,450 Exchangeable limited partnership units 1,387,823 1,381,352 1,414,264 1,408,182 ----------- ----------- ----------- ----------- Weighted average shares and assumed conversions 25,484,595 25,133,888 25,476,075 24,960,815 =========== =========== =========== =========== Basic earnings per share $ 0.33 $ 0.29 $ 0.65 $ 0.57 =========== =========== =========== =========== Diluted earnings per share $ 0.33 $ 0.29 $ 0.65 $ 0.57 =========== =========== =========== ===========
For the six months ended June 30, 1999 and 1998, options to purchase 609,250 shares of common stock at prices ranging from $19.90 to $21.35 and 153,500 shares of common stock at prices ranging from $21.25 to $21.35 were outstanding during each of the respective periods 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 during those periods. For the six months ended June 30, 1999, preferred stock distributions of $3,652,000 and the effect on the denominator of the conversion of the convertible preferred stock outstanding during the quarter into 3,550,912 shares of common stock were not included in the computation of diluted EPS because the impact on basic EPS was anti-dilutive. 6 7 For the three months ended June 30, 1999 and 1998, options to purchase 158,750 shares of common stock at prices ranging from $20.25 to $21.35 and 153,500 shares of common stock at prices ranging from $21.25 to $21.35 were outstanding during each of the respective periods 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 during those periods. For the three months ended June 30, 1999, preferred stock distributions of $1,826,000 and the effect on the denominator of the conversion of the convertible preferred stock outstanding during the quarter into 3,550,910 shares of common stock were not included in the computation of diluted EPS because the impact on basic EPS was anti-dilutive. Income allocated to the minority interest reflects weighted average limited partnership units ("LP Units") of interest in Bradley Operating Limited Partnership (the "Operating Partnership") outstanding of 1,414,264 and 1,408,182 for the six months ended June 30, 1999 and 1998, respectively, and 1,387,823 and 1,381,352 for the three months ended June 30, 1999 and 1998, respectively. As of June 30, 1999 and 1998, there were 1,381,353 and 1,381,742 LP Units outstanding. The Operating Partnership is a limited partnership of which the Company currently owns an 88% economic interest. NOTE 3 - SUPPLEMENTAL CASH FLOW DISCLOSURE During the first quarter of 1999, 411 shares of common stock were issued in exchange for an equivalent number of LP Units held by the minority interest. During the second quarter of 1999, the acquisition of the Company's non-owned portion of a joint venture resulted in a non-cash reclassification of investment in partnership to real estate investments of $6,556,000 and a non-cash transfer of a $3,100,000 note receivable. NOTE 4 - ACQUISITION AND DISPOSITION ACTIVITY At June 30, 1999, the Company was holding for sale three enclosed malls, all acquired in connection with the merger acquisition of Mid-America Realty Investments, Inc. ("Mid-America"). During the second quarter, the Company completed the sales of an additional three properties, for an aggregate gross sales price of $17,325,000. These three properties, all acquired in connection with the merger acquisition of Mid-America, had been held for sale since the merger acquisition. Two of these properties, Macon County Plaza and Town West Shopping Center, are shopping centers located in the Southeast region of the United States and are not aligned with the Company's strategic market focus. The third property, Monument Mall, is an enclosed mall and, like the three properties currently held for sale, is not aligned with the Company's strategic property focus. The dispositions of the three properties held for sale are expected to be completed during 1999, although there can be no assurance that any such dispositions will occur. In connection with the merger acquisition of Mid-America, the Company acquired a 50% interest in a joint venture that owned two neighborhood shopping centers and one enclosed mall. During the second quarter, the joint venture sold Imperial Mall, the enclosed mall located in Hastings, Nebraska, to the same buyer of Monument Mall for $12,100,000 including the issuance of a $3,100,000 note at 9.0%, secured by a second deed of trust. Subsequently, the Company acquired the 50% non-owned portion of the joint venture for a purchase price equal to $7,750,000 subject to customary closing costs and pro-rations. As a result, the two neighborhood shopping centers previously owned by the joint venture are now wholly-owned by the Company and are consolidated for financial reporting purposes. During the second quarter of 1999, the Company also completed the acquisitions of two shopping centers located in Michigan and Ohio, aggregating approximately 264,000 square feet for a total purchase price of $13,853,000. Both of these shopping centers are expected to be substantially redeveloped, bringing the number of active redevelopment projects being undertaken by the Company to four. The estimated total incremental capital investment for these four projects is approximately $32 million. NOTE 5 - SEGMENT REPORTING As of June 30, 1999, the Company owned 96 shopping centers located primarily in the Midwest region of the United 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 the first half of 1998, the Company also owned a mixed-use office property located in downtown Chicago, Illinois, which was sold in July 1998. 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 96 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 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. The revenue and net operating income for the reportable segments and for the Company, the computation of FFO for the Company, and a reconciliation to net income attributable to common share owners, are as follows for each of the three and six month periods ended June 30, 1999 and 1998 (dollars in thousands): 7 8
Three months ended Six months ended June 30, June 30, -------------------- -------------------- 1999 1998 1999 1998 -------- -------- -------- -------- TOTAL PROPERTY REVENUE: Mixed-use office property $ - $ 3,570 $ - $ 7,273 Shopping center properties 37,345 27,379 76,410 52,929 -------- -------- -------- -------- 37,345 30,949 76,410 60,202 -------- -------- -------- -------- TOTAL PROPERTY OPERATING EXPENSES: Mixed-use office property - 1,279 - 2,831 Shopping center properties 10,961 8,459 23,754 16,721 -------- -------- -------- -------- 10,961 9,738 23,754 19,552 -------- -------- -------- -------- Net operating income 26,384 21,211 52,656 40,650 -------- -------- -------- -------- NON-PROPERTY (INCOME) EXPENSES: Other non-property income (213) (92) (501) (194) Equity in earnings of partnership, excluding depreciation and amortization (210) - (600) - Mortgage and other interest 7,182 6,585 14,869 12,143 General and administrative 1,866 1,717 4,067 3,120 Amortization of deferred finance and non-real estate related costs 280 226 559 467 Preferred share distributions 1,826 - 3,652 - Income allocated to Series B preferred units 1,109 - 1,565 - -------- -------- -------- -------- 11,840 8,436 23,611 15,536 -------- -------- -------- -------- Funds from Operations $ 14,544 $ 12,775 $ 29,045 $ 25,114 ======== ======== ======== ======== RECONCILIATION TO NET INCOME ATTRIBUTABLE TO COMMON SHARE OWNERS: Funds from Operations $ 14,544 $ 12,775 $ 29,045 $ 25,114 Depreciation of real estate assets and amortization of tenant improvements (5,553) (4,315) (11,002) (8,246) Amortization of deferred leasing commissions (353) (791) (784) (1,284) Other amortization (298) (299) (596) (597) Depreciation and amortization included in equity in earnings of partnership (57) - (100) - Income allocated to exchangeable limited partnership units (452) (406) (921) (797) Provision for loss on real estate investment - - - (875) -------- -------- -------- -------- Net income attributable to common share owners $ 7,831 $ 6,964 $ 15,642 $ 13,315 ======== ======== ======== ========
8 9 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Throughout 1998, we acquired 44 shopping centers and a 50% interest in a joint venture that owned two neighborhood shopping centers and one enclosed mall for an aggregate cost of approximately $362 million. Of these acquisitions, we acquired 22 of the shopping centers and the joint venture interest in connection with the merger acquisition of Mid-America in August 1998. During the second and third quarters of 1998, we also completed the sales of two properties that did not meet our strategic focus for an aggregate net sales price of $84 million, resulting in a net gain of $29.7 million. This gain is net of a provision for loss on real estate investment of $875,000 reflected in the first quarter of 1998. During the second quarter of 1999, we completed the acquisitions of two shopping centers for an aggregate purchase price of $13.9 million, and sold three properties for an aggregate gross sales price of $17.3 million. During the second quarter of 1999, we also acquired the 50% non-owned portion of the two shopping centers held by the joint venture acquired in connection with the merger acquisition of Mid-America. As a result, these two shopping centers are consolidated for financial reporting purposes. Differences in results of operations for the six and three-month periods ended June 30, 1999 compared with the same periods in 1998 were driven in large part from the acquisition activity. Including the provision for loss on real estate investment in 1998, net income attributable to common share owners increased $2,327,000, or 17%, from $13,315,000 in the first half of 1998 to $15,642,000 in the first half of 1999. Basic and diluted net income per share increased $0.08 per share, or 14%, from $0.57 per share in the first half of 1998 to $0.65 per share in the first half of 1999. For the quarter ended June 30, 1999, net income attributable to common share owners increased $867,000, or 12%, from $6,964,000 in the quarter ended June 30, 1998 to $7,831,000 in the quarter ended June 30, 1999. Basic and diluted net income per share increased $0.04 per share, or 14%, from $0.29 per share in the quarter ended June 30, 1998 to $0.33 per share in the quarter ended June 30, 1999. Our results of operations for the first half of 1998 and 1999 reflect 51 properties that were held both six-month periods and 50 properties that we purchased or sold between the two periods. Our results of operations for the second quarter of 1998 and 1999 reflect 56 properties that were held both quarters and 45 properties that we purchased or sold between the two periods. Property Specific Revenues And Expenses (in thousands of dollars):
Six months ended June 30, Properties ------------------ Acquisitions/ Held Both 1999 1998 Difference Dispositions Periods ------- ------- ---------- ------------ ---------- Rental income $75,582 $59,337 $16,245 $14,862 $ 1,383 Operations, maintenance and management 12,083 8,776 3,307 2,636 671 Real estate taxes 11,671 10,776 895 752 143 Depreciation and amortization 12,941 10,594 2,347 2,402 (55)
Three months ended June 30, Properties ------------------ Acquisitions/ Held Both 1999 1998 Difference Dispositions Periods ------- ------- ---------- ------------ ---------- Rental income $36,872 $30,601 $ 6,271 $ 6,065 $ 206 Operations, maintenance and management 5,405 4,443 962 966 (4) Real estate taxes 5,556 5,295 261 410 (149) Depreciation and amortization 6,484 5,631 853 1,132 (279)
Results attributable to acquisition and disposition activities: Rental income increased from $59,337,000 in the first half of 1998 to $75,582,000 in the first half of 1999 and from $30,601,000 in the second quarter of 1998 to $36,872,000 in the second quarter of 1999. Approximately $14,862,000 of the increase during the six-month period was attributable to acquisition activities, including $10,205,000 for properties acquired in connection with the merger acquisition of Mid-America, partially offset by $6,208,000 attributable to disposition activities, primarily One North State. Approximately $6,065,000 of the increase during the three-month period was attributable to acquisition activities, including $4,987,000 for properties acquired in connection with the merger acquisition of Mid-America, partially offset by $3,180,000 attributable to disposition activities, primarily One North State. 9 10 Operations, maintenance and management expense increased from $8,776,000 in the first half of 1998 to $12,083,000 in the first half of 1999 and from $4,443,000 in the second quarter of 1998 to $5,405,000 in the second quarter of 1999. Approximately $2,636,000 of the increase during the six-month period was attributable to acquisition and disposition activities, including an increase of $1,830,000 for properties acquired in connection with the merger acquisition of Mid-America. For the three-month period, approximately $966,000 of the increase was attributable to acquisition and disposition activities, including an increase of $849,000 for properties acquired in connection with the merger acquisition of Mid-America. Real estate taxes increased from $10,776,000 in the first half of 1998 to $11,671,000 in the first half of 1999 and from $5,295,000 in the second quarter of 1998 to $5,556,000 in the second quarter of 1999. Approximately $752,000 of the increase during the six-month period was attributable to acquisition and disposition activities, including an increase of $1,285,000 for properties acquired in connection with the merger acquisition of Mid-America, partially offset by a decrease of $1,655,000 for properties sold, primarily One North State. For the three-month period, approximately $410,000 of the increase was attributable to acquisition and disposition activities, including an increase of $634,000 for properties acquired in connection with the merger acquisition of Mid-America, partially offset by a decrease of $682,000 for properties sold, primarily One North State. Depreciation and amortization increased from $10,594,000 in the first half of 1998 to $12,941,000 in the first half of 1999 and from $5,631,000 in the second quarter of 1998 to $6,484,000 in the second quarter of 1999. Approximately $2,402,000 of the increase during the six-month period was attributable to acquisition and disposition activities, including an increase of $949,000 for properties acquired in connection with the merger acquisition of Mid-America. For the three-month period, approximately $1,132,000 of the increase was attributable to acquisition and disposition activities, including an increase of $498,000 for properties acquired in connection with the merger acquisition of Mid-America. Results for properties fully operating throughout both periods: Several factors affected the comparability of results for properties fully operating throughout both six and three-month periods ended June 30, 1999 and 1998. Winter storms in the Midwest occurring during the first quarter of 1999 resulted in an increase in the level of snow removal expenses of approximately $564,000 during the first half of 1999 compared with the first half of 1998. This increase in operations, maintenance and management expense was mitigated by the recoverability of such expenses through operating expense reimbursements, which were $512,000 higher during the first half of 1999 compared with the first half of 1998. Additionally, two large tenants, Montgomery Ward at Heritage Square, and HomePlace at Har Mar Mall, vacated their respective stores during 1998 after declaring bankruptcy in July 1997 and January 1998, respectively. Rental income decreased from the first half of 1998 at these two shopping centers by $624,000 and $412,000, respectively, and by $302,000 and $303,000 respectively, during the second quarter of 1999 from the second quarter of 1998. A 62,000 square-foot lease with Carson Pirie Scott commenced July 14, 1999, which replaces approximately one half the space previously occupied by Montgomery Ward. We are currently negotiating leases to replace the remaining space previously occupied by Montgomery Ward and the space vacated by HomePlace. Finally, our company, as well as most other real estate companies, was affected by a consensus reached by the Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board regarding the accounting for percentage rents. On May 22, 1998, the EITF 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. Because the majority of our retail tenant leases have sales years ending in December or January, a substantial portion of percentage rental income from such leases is now recognized in the first quarter, once it is determined that specified sales targets have been achieved. Previously, we recognized percentage rental income each period based on reasonable estimates of tenant sales. Largely due to the implementation of EITF 98-9, therefore, percentage rental income for properties held throughout both quarters ended June 30, 1999 and 1998 decreased by $331,000. Percentage rental income for properties held throughout both six-month periods ended June 30, 1999 and 1998 decreased by only $165,000 due to the increase in percentage rents during the first quarter of 1999 from the first quarter of 1998. In addition to the changes in rental income described above, during the first half of 1999 compared with the first half of 1998, rental income increased $271,000 at Rollins Crossing and $179,000 at Burning Tree Plaza, due to a 71,000 square-foot lease with Regal Cinema at Rollins Crossing and a 24,000 square-foot lease with Dunham's Athleisure at Burning Tree Plaza, both commencing in the fourth quarter of 1998. For the second quarter of 1999 rental income for these shopping centers increased $120,000 and $95,000, respectively from the second quarter of 1998. Additionally, rental income increased $171,000 at Sun Ray Shopping Center for the six-month period of 1999 due to an increase in tax reimbursements primarily resulting from a tax abatement received in the first quarter of 1998, contributing to an increase in real estate taxes of $171,000 from the six-month period in the prior year. Rental income increased $96,000 at Brookdale Square for the six-month period of 1999 primarily due to the receipt of a termination fee from Brookdale Cinema in the first quarter of 1999 and the commencement of a 22,000 square-foot lease with Pep Boys. Rental income increased at Speedway Super Center by $670,000 and $476,000 for the six and three-month periods respectively, ended June 30, 1999 from the same periods in the prior year due to the receipt of a termination fee from PetsMart in the second quarter of 1999 and due to the commencement of several new leases. 10 11 Non-Property Specific Revenues and Expenses: Other income increased from $1,059,000 during the first half of 1998 to $1,329,000 during the first half of 1999, and from $440,000 for the second quarter of 1998 to $686,000 for the second quarter of 1999. Other income contains both property specific and non-property specific income; however, the increase is primarily attributable to property specific sources. The increase in other income resulted from an increase in other property income generated from properties acquired during 1998, primarily from four enclosed malls acquired in connection with the merger acquisition of Mid-America, partially offset by a reduction in other income of $159,000 at Grandview Plaza for the six-month period for insurance proceeds in excess of the net book value of assets destroyed and costs incurred for a fire at Grandview Plaza in 1997 received and recognized in the first quarter of 1998. Mortgage and other interest expense increased from $12,143,000 during the first half of 1998 to $14,869,000 during the first half of 1999, and from $6,585,000 for the second quarter of 1998 to $7,182,000 for the second quarter of 1999. Mortgage debt of $37,933,000 assumed in connection with the merger acquisition of Mid-America, as well as $25,753,000 in mortgage indebtedness assumed upon the acquisitions of three additional shopping centers during 1998, partially offset by the repayment in the third quarter of 1998 of mortgage notes secured by Richfield Hub and Hub West aggregating $10 million, contributed to an increase in interest expense of $1,686,000 for the six-month period and $817,000 for the second quarter. A higher weighted average balance outstanding on the line of credit during the first half of 1999 compared with the first half of 1998, partially offset by a lower weighted average interest rate in 1999, resulted in an increase in interest expense of $502,000. A slightly lower weighted average balance outstanding on the line of credit during the second quarter of 1999 compared with the second quarter of 1998 resulting from the pay-down of approximately $49,100,000 with net proceeds from the issuance on February 23, 1999 of Series B Preferred Units, combined with a slightly lower weighted average interest rate, resulted in a decrease in interest expense of $256,000 for the second quarter of 1999 compared with the second quarter of 1998. On January 28, 1998, the Operating Partnership issued $100 million, 7.2% ten-year unsecured Notes maturing January 15, 2008. Proceeds from the offering were used to reduce outstanding borrowings under the line of credit, which had been increased throughout 1997 primarily to fund acquisition activity. Interest incurred on these unsecured Notes in the first half of 1998 amounted to $6,829,000 compared with $7,403,000 for the full six months in 1999, an increase of $574,000. Our total weighted average interest rate decreased to 7.05% for the second quarter of 1999 from 7.20% for the second quarter of 1998. General and administrative expense increased from $3,120,000 during the first half of 1998 to $4,067,000 during the first half of 1999, and from $1,717,000 for the quarter ended June 30, 1998 to $1,866,000 for the quarter ended June 30, 1999. The increase primarily resulted from the growth of the Company, including increases in salaries for additional personnel, investor relations for a larger share owner base, and franchise taxes and related fees for a larger equity base and expanded geographic market. While the capital markets for REITs have remained challenging, during February 1999, we took advantage of an opportunity to replace $50 million of short term floating rate debt under the line of credit with the issuance of 8.875% Series B Cumulative Redeemable Perpetual Preferred Units (the "Series B Preferred Units"). Although the spread between the interest rate currently available under the line of credit facility and the rate associated with the Series B Preferred Units is dilutive in the short-term, the infusion of such permanent capital reduced the amount of outstanding indebtedness and increased the capacity under the line of credit, providing us with additional flexibility to take advantage of the favorable acquisition, development, and redevelopment opportunities we continue to identify from both prospective acquisitions in our target markets and from shopping centers in our core portfolio. Distributions on the Series B Preferred Units were $1,565,000 during the first half of 1999, and $1,109,000 during the quarter ended June 30, 1999, the first full quarterly period that the Series B Preferred Units have been outstanding. Distributions on the Series A Convertible Preferred Stock issued in connection with the merger acquisition of Mid-America in August 1998 were $3,652,000 for the first half of 1999, and $1,826,000 during the second quarter of 1999. LIQUIDITY AND CAPITAL RESOURCES General We fund operating expenses and distributions primarily from operating cash flows, although we may also use our bank line of credit for these purposes. We fund acquisitions and capital expenditures primarily from the line of credit and, to a lesser extent, operating cash flows, as well as through the issuance of securities. We may also acquire properties through the direct issuance of debt and equity securities of the Company, or through the issuance of limited partnership units in the Operating Partnership to the seller or contributor of the acquired properties. Additionally, we 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 our strategic focus. In addition, we may acquire partial interests in real estate assets through participation in joint venture transactions. We focus our investment activities on community and neighborhood shopping centers, primarily located in the midwestern United States, anchored by regional and national grocery store chains. We 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 we can utilize our 11 12 extensive experience in shopping center renovation, expansion, re-leasing and re-merchandising to achieve long-term cash flow growth and favorable investment returns. Additionally, we expect to continue to 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 we anticipate that value can be created from new developments more effectively than from acquisitions of existing shopping center properties. We would also consider investment opportunities in markets beyond the Midwest in the event such opportunities were on a scale that enabled us to actively manage, lease, develop and redevelop shopping centers consistent with our focus that create favorable investment returns and increase value to our share owners. We consider our liquidity and ability to generate cash from operating and from financing activities to be sufficient to meet our operating expense, development costs, debt service and distribution requirements for at least a year. Despite a current difficult capital markets environment for REITs, we also believe we have 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 June 30, 1999, our financial liquidity was provided by $108,000 in cash and cash equivalents and by the unused balance on our bank line of credit of $129.1 million. As of June 30, 1999, we were holding for sale three properties with an aggregate book value of $30.1 million. We expect to complete the sales of these properties during the second half of 1999, although we can give no assurance that any such sales will occur. Proceeds received from a sale of any of such properties would provide us with additional liquidity. In addition, we have 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 with the flexibility to issue additional equity or 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. The Operating Partnership has also 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 varying 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. Mortgage debt outstanding at June 30, 1999 consisted of fixed-rate notes totaling $102.0 million with a weighted average interest rate of 7.51% maturing at various dates through 2016. Short-term liquidity requirements include debt service payments due within one year. Scheduled principal payments of mortgage debt totaled $823,000 during the six-month period ended June 30, 1999, with another $1.2 million of scheduled principal amortization due for the remainder of the year. We have no maturing debt until February 2000, when $6.0 million in mortgage debt becomes due, and December 2000, when the line of credit expires. While we currently expect to fund short-term and 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 we will be able to repay or refinance indebtedness on commercially reasonable or any other terms. Operating Activities Net cash flows provided by operating activities increased to $31,790,000 during the first half of 1999, from $29,197,000 during the same period in 1998. This increase occurred despite an increase of $7,141,000 in interest paid, net of amount capitalized, from $8,358,000 during the first half of 1998 to $15,499,000 during the first half of 1999, while interest expense increased during these same periods by only $2,726,000. The increase in interest payments primarily resulted from a $3,600,000 semi-annual interest payment due January 1999 on $100 million of 7.2% ten-year bonds, accrued in the prior year. Excluding the semi-annual interest payment, cash provided by operating activities increased $6,193,000. This increase is primarily due to the growth of our portfolio, from 53 properties at January 1, 1998 (66 properties at June 30, 1998), to 96 properties at June 30, 1999. For the six months ended June 30, 1999, funds from operations ("FFO") increased $3,931,000, or 16%, from $25,114,000 to $29,045,000. For the three months ended June 30, 1999, FFO increased $1,769,000, or 14%, from $12,775,000 to $14,544,000. 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. We compute 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. 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. 12 13 Investing Activities Net cash flows from investing activities increased to a use of cash of $7,728,000 during the first half of 1999, from a use of cash of $111,952,000 during the same period in 1998. During the first half of 1999, we completed the acquisitions of two shopping centers located in Michigan and Ohio aggregating 264,000 square feet for an aggregate purchase price of approximately $13,853,000, and sold three properties aggregating 434,000 square feet for an aggregate net sales price of $16,899,000. During this period, we also acquired the 50% non-owned portion of two shopping centers held by our joint venture acquired in connection with the merger acquisition of Mid-America, for a purchase price of approximately $7,750,000. The acquisition of the 50% non-owned portion of the joint venture was completed after the joint venture sold an enclosed mall to a third party for $12,100,000, including the assumption of a $3,100,000 note receivable. Cash distributions received from the joint venture during the first half of 1999 amounted to $3,943,000. During the first half of 1998, we completed the acquisitions of fourteen shopping centers located in Illinois, Indiana, Kentucky, Michigan and Wisconsin aggregating 1.7 million square feet for an aggregate purchase price of approximately $111,783,000, and completed the sale of one shopping center for a net sales price of $1,869,000. Financing Activities Net cash flows from financing activities decreased to a use of cash of $23,954,000 during the first half of 1999 from a source of cash of $79,703,000 during the same period in 1998. Distributions to common and preferred share owners, as well as to the minority interest, were $24,063,000 in the first half of 1999, and $17,538,000 in the first half of 1998. The two shopping centers acquired during the first half of 1999 were acquired with cash provided by our line of credit. Of the fourteen shopping centers acquired during the first half of 1998, thirteen were acquired with cash provided by our line of credit, and one was acquired with a combination of cash provided by the line of credit and the assumption of $5,173,000 in non-recourse mortgage indebtedness. On February 23, 1999, we issued two million 8.875% Series B Cumulative Redeemable Perpetual Preferred Units to two institutional investors at a price of $25.00 per unit. Net proceeds from the issuance of approximately $49.1 million were used to reduce outstanding borrowings under the line of credit, strengthening our capital structure, replacing floating rate debt with permanent capital, and thereby adding liquidity, flexibility and additional capital to fund our acquisition and development activities. In the prior year period, we issued $100 million, 7.2% ten-year unsecured Notes maturing January 15, 2008, and issued 392,638 shares of common stock to a unit investment trust, raising net proceeds of $7,489,000. Proceeds from the offerings were used to reduce outstanding borrowings under the line of credit. Capital Strategy We continue to identify favorable acquisition, development, and redevelopment opportunities from both prospective acquisitions in our target markets and from shopping centers in our core portfolio. We have expanded our internal development capabilities to take advantage of such higher yielding investment opportunities, which we expect to result in part from our existing relations with the dominant grocery store operators in our Midwest markets. During the second quarter of 1999, we continued the redevelopment of Prospect Plaza, located in Gladstone, Missouri, and acquired two additional redevelopment projects, Cherry Hill Marketplace located in Westland, Michigan, and 30th Street Plaza located in Canton, Ohio. The redevelopment of Prospect Plaza is expected to be complete in early 2000, with the redevelopments of Cherry Hill Marketplace and 30th Street Plaza expected to be completed later in 2000. During the first quarter of 1999, we finalized the necessary leasing transactions to commence our planned redevelopment of the Commons of Chicago Ridge, a shopping center in our core portfolio located in metropolitan Chicago. These projects are the types of redevelopment investment opportunities upon which we will continue to focus. The redevelopments will represent an incremental investment of approximately $32 million, and are expected to generate high returns on invested capital while adding substantial long-term value to the centers. We also continue to establish a pipeline of development opportunities and potential acquisitions of shopping centers where our redevelopment experience can create similar enhanced returns. We expect to finance these acquisition, development, and redevelopment opportunities with a combination of proceeds from the sale of non-core assets, retained cash, external capital and possible joint ventures. 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: 13 14 - - 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 ready. 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. 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 evaluated the potential exposure to such non-information technology systems and believe that such equipment is Year 2000 ready. 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 and equipment. We have incurred less than $50,000 to bring our information technology systems and equipment with embedded time-sensitive technology Year 2000 ready, and do not expect to incur more the $10,000 to continue to monitor our Year 2000 readiness. 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 us. 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 have conducted surveys of such parties to identify the potential exposure in the event they are not Year 2000 ready in a timely manner. Based on the responses received, we are not aware of any party that is anticipating a material Year 2000 readiness issue. Although the investigations and assessments of possible Year 2000 issues are still ongoing, we do not anticipate a material impact on our business, operations or financial condition even if one or more parties is not Year 2000 ready 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 ready 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 ready 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 ready 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 readiness 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. 14 15 FORWARD LOOKING STATEMENTS Statements made or incorporated in this Form 10-Q include "forward-looking" statements. 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 future performance or future events or trends. 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, uncertainties and other factors, which may cause actual results, performance or achievements 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. Certain factors that might cause such a difference include, but are not limited to, the following: Real estate investment considerations, such as the effect of economic and other conditions in general and in the midwestern United States in particular; the financial viability of our tenants; the continuing availability of retail center acquisitions and development opportunities in the Midwest on favorable terms; the availability of equity and debt capital in the public markets; the fact that returns from development and acquisition activity may not be at expected levels; the need to renew leases or relet space upon the expiration of current leases; and the financial flexibility to refinance debt obligations when due. The statements made under the caption "Risk Factors" included in the Company's Form 10-K for 1998 are incorporated herein by reference. 15 16 PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS Not applicable Item 2. CHANGES IN SECURITIES Not applicable Item 3. DEFAULTS UPON SENIOR SECURITIES Not applicable Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's Annual Meeting of Stockholders held May 13, 1999, shares were voted on the following matter (number of shares rounded to nearest full share): Election of Directors: Nominee For Withheld ------- --- -------- Thomas P. D'Arcy 23,274,748 105,386 Joseph E. Hakim 23,259,913 120,221 William L. Brown 23,256,339 123,795 Item 5. OTHER INFORMATION Not applicable Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit No. Description ----------- ----------- 10.3 Amendment to 1993 Stock Option and Incentive Plan, dated May 13, 1999. 10.4 Form of Severance Benefit Agreement entered into with each of Thomas P. D'Arcy, President and Chief Executive Officer; Richard L. Heuer, Executive Vice President; Irving E. Lingo, Jr., Executive Vice President and Chief Financial Officer; E. Paul Dunn, Executive Vice President of Asset Management; Steven St. Peter, Executive Vice President of Leasing; Marianne Dunn, Senior Vice President; Frank J. Comber, Vice President of Construction; and David M. Garfinkle, Vice President and Controller. 27 Financial Data Schedule (b) Reports on Form 8-K ------------------- Not applicable 16 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. Date: August 12, 1999 Bradley Real Estate, Inc. Registrant By: /s/ Thomas P. D'Arcy ------------------------------- Thomas P. D'Arcy President and CEO By: /s/ Irving E. Lingo, Jr. ------------------------------- Irving E. Lingo, Jr. Chief Financial Officer 17 EX-10.3 2 AMENDED 1993 STOCK OPTION AND INCENTIVE PLAN 1 Exhibit 10.3 Page 1 of 8 BRADLEY REAL ESTATE, INC. 1993 Stock Option and Incentive Plan As Amended and Restated on September 9, 1996 And Amended through May 13, 1999 1. PURPOSE; DEFINED TERMS (a) This 1993 Stock Option and Incentive Plan (the "Plan") is intended as a performance incentive for officers, Directors, employees and consultants of Bradley Real Estate, Inc. (the "Company") and its Subsidiaries (as hereinafter defined) to enable the persons to whom Options or other Awards are granted (the "Optionees" or "Grantees") to acquire or increase a proprietary interest in the success of the Company. The Company intends that this purpose will be effected by the granting of "incentive stock options" ("Incentive Options") as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified stock options ("Nonqualified Options"), and rights to receive restricted stock ("Restricted Stock Awards"), unrestricted stock ("Unrestricted Stock Awards"), performance shares ("Performance Share Awards"), stock appreciation rights ("Stock Appreciation Rights") and dividend equivalent rights ("Dividend Equivalent Rights"). (b) The undifferentiated terms "Option" and "Options" include both Incentive Options and Nonqualified Options. The terms "Award" and "Awards" include Options, Restricted Stock Awards, Unrestricted Stock Awards, Performance Share Awards, Stock Appreciation Rights and Dividend Equivalent Rights. The term "Subsidiaries" includes any corporation, partnership or other organization in which the Company owns at the time of the grant of the Award fifty percent or more of the economic interest in the equity of such organization. 2. AWARDS TO BE GRANTED AND ADMINISTRATION (a) Options granted under the Plan may be either Incentive Options or Nonqualified Options, and shall be designated as such at the time of grant. To the extent that any Option intended to be an Incentive Option shall fail to qualify as an "incentive stock option" under the Code, such Option shall be deemed to be a Nonqualified Option; and, subject to the preceding part of this sentence, any Option not designated as either an Incentive Option or a Nonqualified Option shall be presumed to be intended to be an Incentive Option unless clear by its terms that it is not eligible to qualify as an Incentive Option. (b) The Plan shall be administered by a committee (the "Committee") of not less than two Directors of the Company appointed by the Board of Directors of the Company (the "Board of Directors"). It is the intention of the Company that each member of the Committee shall be a "non-employee director" as that term is defined and interpreted pursuant to Rule 16b-3(b)(3) or any successor rule thereto promulgated under the Securities Exchange Act of 1934, as amended (the "Act"), and an "outside director" within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder. Unless otherwise determined by the Board of Directors, the members of the Compensation Committee of the Board of Directors shall serve as the Committee under the Plan to the extent such members of the Compensation Committee are "non-employee directors" and "outside directors." Action by the Committee shall require the affirmative vote of a majority of all its members. (c) Subject to the terms and conditions of the Plan, the Committee shall have the power: (i) To determine from time to time the Awards to be granted to eligible persons under the Plan and to prescribe the terms and provisions (which need not be identical) of Awards granted under the Plan to such persons; (ii) To construe and interpret the Plan and grants thereunder and to establish, amend, and revoke rules and regulations for administration of the Plan. In this connection, the Committee may correct any defect or supply any omission, or reconcile any inconsistency in the Plan, in any Award agreement, or in any related agreements, in the manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. All decisions and determinations by the Committee in the exercise of this power shall be final and binding upon the Company and the Optionee and Grantees; (iii) To amend any outstanding Award, subject to Section 17 hereof, and to accelerate or extend the vesting or exercisability of any Award and to waive conditions or restrictions on any Awards, to the extent it shall deem appropriate; and (iv) Generally, to exercise such powers and to perform such acts as are deemed necessary or expedient to promote the best interests of the Company with respect to the Plan. 18 2 Exhibit 10.3 Page 2 of 8 3. AUTHORIZED SHARES (a) Awards may be granted under the Plan for up to an aggregate of 2,282,348 Shares (which number is subject to adjustment as provided in Section 13) shares of Common Stock, par value $.01 per share, of the Company ("Shares") (including 512,350 Shares previously issued or issuable pursuant to outstanding Awards under the Plan as of March 18, 1998); provided, however, that the maximum number of Shares for which Incentive Options may be granted under the Plan shall not exceed 500,000 Shares (which number is subject to adjustment as provided in Section 13). Subject to such overall limitations, Shares may be issued pursuant to any type or types of Award; provided, however, that Options or Stock Appreciation Rights with respect to not more than 250,000 Shares (which number is subject to adjustment as provided in Section 13) may be granted to any one individual during any one calendar year period. (b) Whenever any outstanding Option under the Plan expires, is cancelled or is otherwise terminated (other than by exercise in the case of Incentive Options), the Shares allocable to the unexercised portion of such Option may again be the subject of Awards under the Plan. The Shares underlying any other Awards which are forfeited, canceled, reacquired by the Company, satisfied without the issuance of Shares or otherwise terminated (other than by exercise) shall also be added back to the Shares available for issuance under the Plan. 4. ELIGIBILITY (a) Incentive Options may be granted only to officers or other employees of the Company or its Subsidiaries, including members of the Board of Directors who are also officers or employees of the Company or any of its Subsidiaries. All other Awards may be granted to officers or other employees of the Company or any of its Subsidiaries and to consultants (which term includes persons who provide services to the Company or its Subsidiaries). Nonqualified Options may be granted to non-employee members of the Board of Directors pursuant to Section 7. (b) No person shall be eligible to receive any Incentive Option under the Plan if, at the date of grant, such person beneficially owns stock representing in excess of 9.8 percent of the voting power of all outstanding capital stock of the Company. (c) Notwithstanding any other provision of the Plan, the aggregate fair market value (determined as of the time the Incentive Option is granted) of the Shares with respect to which Incentive Options are exercisable for the first time by any individual during any calendar year (under all plans of the Company and its parent and Subsidiaries, if any) shall not exceed $100,000. 5. TERMS OF THE OPTION AGREEMENTS Subject to the terms and conditions of the Plan, each option agreement shall contain such provisions as the Committee shall from time to time deem appropriate. Option agreements need not be identical, but each option agreement by appropriate language shall include the substance of all of the following provisions, and any such provisions may be included in the option agreement by reference to the Plan: (a) Expiration; Termination of Employment. Each Option shall expire on the date specified in the option agreement, which date shall not be later than the tenth anniversary of the date on which the Option was granted ("grant date") in the case of an Incentive Option and not later than one week following the tenth anniversary of the grant date in the case of a Nonqualified Option. If an Optionee's employment with the Company or any of its Subsidiaries terminates for any reason, the Committee may in its discretion provide, at any time, that any outstanding Option granted to such Optionee under the Plan shall be exercisable for such period following termination of employment as may be specified by the Committee, subject to the expiration date of such Option. (b) Minimum Shares Exercisable. The minimum number of shares with respect to which an Option may be exercised at any one time shall be one hundred (100) shares, or such lesser number as is subject to exercise under the Option at the time. (c) Exercise. Each Option shall be exercisable in such installments (which need not be equal) and at such times as may be designated by the Committee. To the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date the Option expires. (d) Purchase Price. The purchase price per Share subject to each Option shall be determined by the Committee; provided, however, that the purchase price per Share subject to each Incentive Option shall be not less than the fair market value of the Shares on the date such Option is granted, which unless otherwise determined by the Committee in any particular case shall be deemed to be the average closing price of the Shares as reported on the principal stock exchange on which the Shares are listed on each of the ten business days immediately preceding the date of the grant of the Option. 19 3 Exhibit 10.3 Page 3 of 8 (e) Rights of Optionee. No Optionee shall be deemed for any purpose to be the owner of any Shares subject to any Option unless and until (i) the Option shall have been exercised pursuant to the terms thereof, (ii) all requirements under applicable law and regulations shall have been complied with to the satisfaction of the Company, (iii) the Company shall have issued and delivered the Shares to the Optionee, and (iv) the Optionee's name shall have been entered as a stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such Shares. (f) Transfer. No Option granted hereunder shall be transferable by the Optionee other than by will or by the laws of descent and distribution, and such Option may be exercised during the Optionee's lifetime only by the Optionee, or his or her guardian or legal representative. Notwithstanding the foregoing, the Committee may provide in an option agreement that the optionee may transfer, without consideration for the transfer, his Nonqualified Option to members of his immediate family, to trusts for the benefit of such family members, to partnerships in which such family members are the only partners and to charities. 6. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE (a) Any Option granted under the Plan may be exercised by the Optionee in whole or, subject to Section 5 (b) hereof, in part by delivering to the Company on any business day a written notice specifying the number of Shares the Optionee then desires to purchase (the "Notice"). (b) Payment for the Shares purchased pursuant to the exercise of any Option shall be made either: (i) in cash or by check for good funds or other payment acceptable to the Company equal to the Option exercise price for the number of shares specified in the Notice (the "Total Option Price"); (ii) if authorized by the applicable option agreement and if permitted by law, by delivery of Shares that the Optionee may freely transfer having a fair market value, determined by reference to the provisions of Section 5(d) hereof, equal to or less than the Total Option Price, plus cash in an amount equal to the excess, if any, of the Total Option Price over the fair market value of such Shares; (iii) by the Optionee delivering the Notice to the Company together with irrevocable instructions to a broker to promptly deliver the Total Option Price to the Company in cash or by other method of payment acceptable to the Company, provided, however, that the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity or other agreements as the Company shall prescribe as a condition of payment under this clause (iii); (iv) if the Directors have authorized the loan of funds to the Optionee for the purpose of enabling or assisting the Optionee to effect the exercise of the Option, with the proceeds of such loan; or (v) any combination of the foregoing which in the aggregate equals the Total Option Price. (c) The delivery of certificates representing Shares to be purchased pursuant to the exercise of an Option will be contingent upon the Company's receipt of the Total Option Price and of any written representations from the Optionee required by the Committee, and the fulfillment of any other requirements contained in the option agreement or applicable provisions of law. 7. OPTIONS GRANTED TO INDEPENDENT DIRECTORS (a) Each Director who is not also an employee of the Company or any of its Subsidiaries (an "Independent Director") shall automatically be granted on the days he or she first becomes a Director a Nonqualified Option to acquire 5,000 Shares and each Independent Director who is serving as Director of the Company on the next business day after the adjournment of each annual meeting of stockholders, after the 1998 annual meeting, shall automatically be granted on such day a Nonqualified Option to acquire 3,500 Shares. The exercise price per share for the Shares covered by an Option granted under this Section 7 shall be equal to the fair market value of the Shares, determined by reference to the formula stated in Section 5(d), on the date the Option is granted. (b) An Option granted under this Section 7 shall be exercisable in full as of the grant date and for a term of ten years thereafter provided that if the Optionee ceases to be a Director for any reason, such Option shall thereafter be exercisable by the Optionee, or by his or her legal representative, for a period of two years from the date of termination, or until the expiration of the stated term of the Option if earlier. Options granted under this Section 7 may be exercised only by written notice to the Company specifying the number of shares to be purchased. Payment of the full purchase price of the shares to be purchased may be made by one or more of the methods specified in Section 6(b) (i), (ii) or (iii). An Optionee shall have the rights of a stockholder only as to Shares acquired upon the exercise of an Option and not as to unexercised Options. (c) The provisions of this Section 7 shall govern the rights and obligations of the Company and Independent Directors respecting Options granted or to be granted to Independent Directors pursuant to this Section 7, notwithstanding any other provision of the Plan. 20 4 Exhibit 10.3 Page 4 of 8 8. RESTRICTED STOCK AWARDS (a) A Restricted Stock Award is an Award entitling the recipient to acquire Shares, at par value or such other purchase price determined by the Committee, subject to such restrictions and conditions as the Committee may determine at the time of grant ("Restricted Stock"). Conditions may be based on continuing employment (or other business relationship) and/or achievement of pre-established performance goals and objectives. (b) Upon execution of a written instrument setting forth the Restricted Stock Award and paying any applicable purchase price, a Grantee shall have the rights of a stockholder with respect to the voting of the Restricted Stock, subject to such conditions contained in the written instrument evidencing the Restricted Stock Award. Unless the Committee shall otherwise determine, certificates, evidencing the Restricted Stock shall remain in the possession of the Company until such Restricted Stock is vested as provided in Section 8(d) below. (c) Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the written instrument evidencing the Restricted Stock Award. If a Grantee's employment (or other business relationship) with the Company and its Subsidiaries terminates for any reason, the Company shall have the right to repurchase all shares of Restricted Stock with respect to which conditions have not lapsed at their purchase price, from the Grantee or the Grantee's legal representative. (d) The Committee at the time of grant shall specify the date or dates and/or the attainment of preestablished performance goals, objectives and other conditions on which the non-transferability of the Restricted Stock and the Company's right of repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or the attainment of such pre-established performance goals, objectives and other conditions, the shares on which all restrictions have lapsed shall no longer be Restricted Stock and shall be deemed "vested." Except as may otherwise be provided by the Committee at any time, a Grantee's rights in any shares of Restricted Stock that have not vested shall automatically terminate upon the Grantee's termination of employment (or other business relationship) with the Company and its Subsidiaries and such shares shall either be forfeited or subject to the Company's right of repurchase as provided in this Section 8. (e) The written instrument evidencing the Restricted Stock Award may require or permit the immediate payment, waiver, deferral or investment of dividends paid on the Restricted Stock. 9. UNRESTRICTED STOCK AWARDS (a) The Committee may, in its sole discretion, grant (or sell at a purchase price determined by the Committee) an Unrestricted Stock Award, pursuant to which the Grantee may receive Shares free of any restrictions under the Plan. Unrestricted Stock Awards may be granted or sold as described in the preceding sentence in respect of past services or other valid consideration, or in lieu of any cash compensation due to such Grantee. (b) The Committee may permit the Grantee of any Unrestricted Stock Award to elect in advance to defer receipt of such Award in accordance with such rules and procedures as may be established by the Committee for that purpose. The Grantee of any deferred Unrestricted Stock Award shall be entitled to receive Dividend Equivalent Rights on the deferred Shares unless otherwise specified by the Committee. (c) The right to receive Shares on a deferred basis may not be sold, assigned, transferred, pledged or otherwise encumbered, other than by will or the laws of descent and distribution. 10. PERFORMANCE SHARE AWARDS (a) Nature of Performance Share Awards. A Performance Share Award is an Award entitling the recipient to acquire Shares upon the attainment of specified performance goals. The Committee may make Performance Share Awards independent of or in connection with the granting of any other Award under the Plan. The Committee in its sole discretion shall determine whether and to whom Performance Share Awards shall be made, the performance goals applicable under each such Award, the periods during which performance is to be measured, and all other limitations and conditions applicable to the Performance Share Awards. (b) Restrictions on Transfer. Performance Share Awards and all rights with respect to such Awards may not be sold, assigned, transferred, pledged or otherwise encumbered, other than by will or the laws of descent and distribution. 21 5 Exhibit 10.3 Page 5 of 8 (c) Rights as a Shareholder. A participant receiving a Performance Share Award shall have the rights of a shareholder only as to Shares actually received by the participant under the Plan and not with respect to Shares subject to the Award but not actually received by the participant. A participant shall be entitled to receive a stock certificate evidencing the acquisition of Shares under a Performance Share Award only upon satisfaction of all conditions specified in the written instrument evidencing the Performance Share Award (or in a performance plan adopted by the Committee). (d) Termination. Except as may otherwise be provided by the Committee at any time prior to termination of employment (or other business relationship), a participant's rights in all Performance Share Awards shall automatically terminate upon the participant's termination of employment (or business relationship) with the Company and its Subsidiaries for any reason. (e) Acceleration, Waiver, Etc. At any time prior to the participant's termination of employment (or other business relationship), the Committee may in its sole discretion accelerate, waive or, subject to Section 17 hereof, amend any or all of the goals, restrictions or conditions imposed under any Performance Share Award. 11. STOCK APPRECIATION RIGHTS (a) Nature of Stock Appreciation Rights. A Stock Appreciation Right is an Award entitling the recipient to receive an amount in cash or Shares or a combination thereof having a value equal to the excess of the fair market value of a Share, determined by reference to Section 5(d) hereof, on the date of exercise over the exercise price per Stock Appreciation Right set by the Committee at the time of grant, which price shall not be less than 85% of the fair market value of the Shares on the grant date (or over the option exercise price per share, if the Stock Appreciation Right was granted in tandem with an Option) multiplied by the number of Shares with respect to which the Stock Appreciation Right shall have been exercised, with the Committee having the right to determine the form of payment. (b) Grant of Stock Appreciation Rights. A Stock Appreciation Right may be granted by the Committee in tandem with, or independently of, any Option granted pursuant to the Plan (other than Options granted pursuant to Section 7). In the case of a Stock Appreciation Right granted in tandem with a Nonqualified Option, such Stock Appreciation Right may be granted either at or after the time of the grant of such Option. In the case of a Stock Appreciation Right granted in tandem with an Incentive Stock Option, such Stock Appreciation Right may be granted only at the time of the grant of the Option. (c) Terms and Conditions of Stock Appreciation Rights. Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined from time to time by the Committee, subject to the following: (i) Stock Appreciation Rights granted in tandem with an Option shall be exercisable at such time or times and to the extent that the related Option shall be exercisable. (ii) A Stock Appreciation Right or applicable portion thereof granted in tandem with an Option shall terminate and no longer be exercisable upon the termination or exercise of the related Option. Upon exercise of a Stock Appreciation Right, the applicable portion of any related Option shall be surrendered. (iii) Stock Appreciation Rights granted in tandem with an Option shall be transferable only when and to the extent that the underlying Option would be transferable. Stock Appreciation Rights not granted in tandem with a Option shall not be transferable otherwise than by will or the laws of descent or distribution. All Stock Appreciation Rights shall be exercisable during the participant's lifetime only by the participant or the participant's legal representative. 12. DIVIDEND EQUIVALENT RIGHTS (a) Dividend Equivalent Rights. A Dividend Equivalent Right is an Award entitling the recipient to receive credits based on cash dividends that would be paid on the Shares specified in the Dividend Equivalent Right (or other Award to which it relates) if such Shares were held by the recipient. A Dividend Equivalent Right may be granted hereunder as a component of another Award or as a freestanding Award. The terms and conditions of Dividend Equivalent Rights shall be specified in the grant. Dividend equivalents credited to the holder of a Dividend Equivalent Right may be paid currently or may be deemed to be reinvested in additional Shares, which may thereafter accrue additional equivalents. Any such reinvestment shall be at fair market value of the Shares, determined by reference to Section 5(d) hereof, on the date of reinvestment or, at the discretion of the Company, at such other price as may then apply under any dividend reinvestment plan sponsored by the Company. Dividend Equivalent Rights may be settled in cash or Shares or a combination thereof, in a single installment or installments, at the discretion of the Company. A Dividend Equivalent Right granted as a component of another Award may provide that such Dividend Equivalent Right shall be settled upon exercise, settlement, or payment of, 22 6 Exhibit 10.3 Page 6 of 8 or lapse of restrictions on, such other Award, and that such Dividend Equivalent Right shall expire or be forfeited or annulled under the same conditions as such other Award. A Dividend Equivalent Right granted as a component of another Award may also contain terms and conditions different from such other Award. (b) Interest Equivalents. Any Award under the Plan that is settled in whole or in part in cash on a deferred basis may provide in the grant for interest equivalents to be credited with respect to such cash payment. Interest equivalents may be compounded and shall be paid upon such terms and conditions as may be specified by the grant. 13. ADJUSTMENT UPON CHANGES IN CAPITALIZATION (a) If the Shares as a whole are increased, decreased, changed into or exchanged for a different number or kind of shares or securities of the Company, whether through merger, consolidation, reorganization, recapitalization, reclassification, stock dividend, stock split, combination of shares, exchange of shares, change in corporate structure or the like, an appropriate and proportionate adjustment shall be made in the number and kind of shares subject to the Plan, and in the number, kind, and per share exercise price of shares subject to outstanding unexercised Options or other Awards or portions thereof granted prior to any such change; but no such adjustments shall be made with respect to outstanding unexercised Options or other Awards solely as a result of the Company's issuance of additional Shares or purchase of outstanding Shares in either case for fair consideration as determined by the Board of Directors. In the event of any such adjustment in an outstanding Award, the Optionee or Grantee thereafter shall have the right to purchase the number of Shares under such Award at the per share price, as so adjusted, which the Optionee or Grantee could purchase at the total purchase price applicable to the Award immediately prior to such adjustment. (b) Adjustments under this Section 13 shall be determined by the Committee and such determinations shall be conclusive. The Committee shall have the discretion and power in any such event to determine and to make effective provision for acceleration of the time or times at which any Option or portion thereof shall become exercisable. No fractional Shares shall be issued under the Plan on account of any adjustment specified above. 14. EFFECT OF CERTAIN TRANSACTIONS In the case of (i) the dissolution or liquidation of the Company, (ii) a reorganization, merger, consolidation or other business combination in which the Company is acquired by another entity or in which the Company is not the surviving entity, or (iii) the sale of all or substantially all of the assets of the Company to another entity, the Plan and the Awards issued hereunder shall terminate upon the effectiveness of any such transaction or event, unless provision is made in connection with such transaction for the assumption of Awards theretofore granted, or the substitution for such Awards of new awards, by the successor entity or parent thereof, with appropriate adjustment as to the number and kind of shares and the per share exercise prices, as provided in Section 13. In the event of such termination, all outstanding Options and Stock Appreciation Rights shall be exercisable in full for at least fifteen days prior to the date of such termination whether or not otherwise exercisable during such period. 15. TAX WITHHOLDING (a) Each Grantee (which term shall be deemed to include an Optionee) shall, no later than the date as of which the value of any Award granted hereunder or of any Shares or other amounts received thereunder first becomes includable in the gross income of the Grantee for federal income tax purposes (the "Tax Date"), pay to the Company, or make arrangements satisfactory to the Company regarding payment of, any federal, state, or local taxes of any kind required by law to be withheld with respect to such income. (b) With the consent of the Committee, a Grantee may elect to have such tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from Shares to be issued pursuant to an Award a number of Shares with an aggregate fair market value (determined in accordance with Section 5(d) as of the date the withholding is effected) that would satisfy the withholding amount due, or (ii) transferring to the Company Shares owned by the Grantee with an aggregate fair market value (determined in accordance with Section 5(d) as of the date the withholding is effected) that would satisfy the withholding amount due. 16. CHANGE OF CONTROL PROVISIONS Upon the occurrence of a Change of Control as defined in this Section 16: (a) Each outstanding Option and Stock Appreciation Right shall automatically become fully exercisable. 23 7 Exhibit 10.3 Page 7 of 8 (b) All restrictions and conditions on each Restricted Stock Award, Performance Share Award and Dividend Equivalent Right shall automatically lapse and all Awards under the Plan shall be deemed fully vested. (c) "Change of Control" shall mean the occurrence of any one of the following events: (i) any "person," as such term is used in Sections 13(d) and 14(d) of the Act (other than the Company, any of its Subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its Subsidiaries), together with all "affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 50% or more of either (A) the combined voting power of the Company's then outstanding securities having the right to vote in an election of the Board of Directors ("voting securities") or (B) the then outstanding Shares (in either such case other than as a result of an acquisition of securities directly from the Company); or (ii) persons who, as of the effective date of the amendment and restatement of the Plan, constitute the Company's Board of Directors (the "Incumbent Directors") cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a Director of the Company subsequent to the Effective Date whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors shall, for purposes of this Plan, be considered an Incumbent Director; or (iii) the stockholders of the Company shall approve (A) any consolidation or merger of the Company or any Subsidiary where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate more than 50% of the voting securities of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or (C) any plan or proposal for the liquidation or dissolution of the Company. 17. AMENDMENT OF THE PLAN The Board of Directors may discontinue the Plan or amend the Plan at any time, and from time to time, subject to any required regulatory approval, the limitation set forth in Section 7(c) and the limitation that, except as provided in Sections 5, 13 and 14 hereof, no amendment shall be effective unless approved by the stockholders of the Company in accordance with applicable law and regulations at an annual or special meeting held within twelve months before or after the date of adoption of such amendment, where such amendment will: (a) increase the number of Shares as to which Awards may be granted under the Plan. (b) change in substance Section 4 hereof relating to eligibility to participate in the Plan; (c) change in substance Section 5(d) relating to the requirement that the purchase price per Share subject to each Incentive Option be not less than the fair market value of the Shares on the date such Incentive Option is granted; (d) increase the maximum term of Options provided for herein; or (e) otherwise materially increase the benefits accruing to participants under the Plan. Except as provided in Section 5, 13 and 14 hereof, rights and obligations under any Award granted before any amendment of the Plan shall not be altered or impaired by such amendment, except with the consent of the Grantee. 18. NONEXCLUSIVITY OF THE PLAN Neither the adoption of the Plan by the Board of Directors nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board of Directors to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of Shares or stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. Neither the Plan nor any Award granted hereunder shall be deemed to confer upon any employee any right to continued employment with the Company or its Subsidiaries. 24 8 Exhibit 10.3 Page 8 of 8 19. GOVERNMENT AND OTHER REGULATIONS; GOVERNING LAW (a) The obligation of the Company to sell and deliver Shares with respect to Awards granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee. (b) The Plan shall be governed by Maryland law, except to the extent that such law is preempted by federal law. 20. EFFECTIVE DATE OF PLAN; STOCKHOLDER APPROVAL The Plan first became effective on March 4, 1993, the date that it was approved by the Board of Trustees of the Company's predecessor, Bradley Real Estate Trust; the Plan was approved by the shareholders of said Trust in accordance with applicable laws and regulations at the annual meeting held on May 20, 1993. The Plan was amended and restated by the Board of Directors on March 13, 1996; such amendment and restatement was approved by the stockholders of the Company in accordance with applicable laws and regulations at the annual meeting held on May 9, 1996. Following amendment by the Securities and Exchange Commission of Rule 16b-3 under the Act effective August 15, 1996, the Plan was further amended and restated by the Board of Directors on September 9, 1996. On May 14, 1998, the stockholders approved an amendment dated March 18, 1998 that increased the number of shares for which Awards may be granted under Section 3(a) and changes in the number of options granted to Directors under Section 7(a); and on May 13, 1998, the Board of Directors amended Section 16 of the Plan. No Awards may be granted under the Plan after March 18, 2008 the tenth anniversary of the original effective date of the Plan. 25 EX-10.4 3 FORM OF SEVERANCE BENEFIT AGREEMENT 1 Exhibit 10.4 Page 1 of 4 SEVERANCE BENEFITS AGREEMENT AGREEMENT, dated as of May 13, 1999, by and among BRADLEY OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership, ("BOLP"), BRADLEY REAL ESTATE, INC., a Maryland corporation ("Bradley"), and ______________________, ("Executive"). WHEREAS, Bradley, BOLP and/or their subsidiaries and affiliates, including entities in which Bradley or BOLP own a majority of any non-voting stock (collectively, the "Company"), have employed, or may employ in the future, the Executive as an employee of the Company to perform certain services to the Company upon terms and conditions upon which the Company and the Executive have previously agreed, or may in the future agree (the "Services"); WHEREAS, the Company recognizes that the Executive's contributions to the past and future growth of the Company have been and will be substantial; and WHEREAS, to induce the Executive to remain in the employ of the Company, the parties hereto desire to set forth certain severance benefits which BOLP will pay to the Executive in the event of a termination of the employment of the Executive under certain circumstances following a Change in Control of Bradley (as defined in Section 2 hereof). IT IS AGREED: 1. TERM. This Agreement shall commence on the date hereof and shall terminate upon the earliest of (a) the date on which BOLP and Bradley have satisfied all of their obligations hereunder, or (b) subject to the Employee's rights under Section 4(e) hereof, the date on which the Executive is no longer an employee of the Company for any reason whatsoever including, without limitation, termination without cause or (c) the date which is 12 months after the date of a Change in Control of Bradley. Notwithstanding the termination of this Agreement subsequent to a Change in Control of Bradley, in the event that the Executive is an employee of the Company at the moment immediately prior to a Change in Control of Bradley, the Executive shall be entitled to receive all benefits described hereunder as a result of a Termination Event described in Section 3 and the provisions hereof related thereto shall survive such termination. 2. CHANGE IN CONTROL OF BRADLEY. For purposes of this Agreement, a "Change in Control of Bradley" shall be deemed to occur if: (a) There shall have occurred a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the date hereof, whether or not Bradley is then subject to such reporting requirement, provided, however, that there shall not be deemed to be a Change in Control of Bradley if immediately prior to the occurrence of what would otherwise be a Change in Control of Bradley (i) the Executive is the other party to the transaction (a "Control of Bradley Event") that would otherwise result in a Change in Control of Bradley or (ii) the Executive is an Executive officer, trustee, or director or more than 5% equity holder of the other party to a Control of Bradley Event or of any entity, directly or indirectly, controlling such other party; (b) Bradley merges or consolidates with, or sells all or substantially all of its assets to, another company, corporation or other entity (each, a "Transaction"), provided, however, that a Transaction shall not be deemed to result in a Change in Control of Bradley if (i) immediately prior thereto the circumstances in (a) (i) or (a) (ii) above exist, or (ii) (A) the stockholders of Bradley, immediately before such Transaction own, directly or indirectly, immediately following such Transaction in excess of fifty percent (50%) of the combined voting power of the outstanding voting securities of the company or other entity resulting from such Transaction (the "Surviving Corporation") in substantially the same proportion as their ownership of the voting securities of Bradley immediately before such Transaction and (B) the individuals who were members of Bradley's Board of Directors immediately prior to the execution of the agreement providing for such Transaction constitute at least a majority of the members of the board of directors or the board of trustees, as the case may be, of the Surviving Corporation, or of a company or other entity beneficially directly or indirectly owning a majority of the outstanding voting securities of the Surviving Corporation; or (c) Bradley acquires assets of another company or entity or a subsidiary of Bradley merges or consolidates with another company or entity (each, an "Other Transaction") and (i) the stockholders of Bradley, immediately before such Other Transaction own, directly or indirectly, immediately following such Other Transaction 50% or less of the combined voting power of the outstanding voting securities of the company or other entity resulting from such Other Transaction (the "Other Surviving Corporation") in substantially the same proportion as their ownership of the voting securities of Bradley immediately before such Other Transaction or (ii) the individuals who were members of Bradley's Board of Directors immediately prior to the execution of the agreement providing for such Other 26 2 Exhibit 10.4 Page 2 of 4 Transaction constitute less than a majority of the members of the board of directors or the board of trustees, as the case may be, of the Other Surviving Corporation, or of a company or other entity beneficially directly or indirectly owning a majority of the outstanding voting securities of the Other Surviving Corporation, provided, however, that an Other Transaction shall not be deemed to result in a Change in Control of Bradley if immediately prior thereto the circumstances in (a) (i) or (a) (ii) above exist. 3. TERMINATION EVENT. The Executive shall be entitled to receive compensation from BOLP in the amount determined pursuant to the following Section 4 if the employment of the Executive by the Company is terminated within the 12 months following the date of the Change in Control of Bradley for any of the following reasons (a "Termination Event"): (a) Termination by the Company other than for cause ("cause" being defined as (i) conduct by the Executive constituting a material act of willful misconduct in connection with the performance of his duties, including without limitation misappropriation of funds or property or opportunities of the Company other than the occasional, customary and de minimus use of Company property for personal purposes, (ii) conviction of the Executive for a felony or misdemeanor involving moral turpitude, or (iii) continued, deliberate non-performance by the Executive of the duties incident to his position (other than by reason of Executive's physical or mental illness, incapacity or disability) and such non-performance has continued for more than thirty (30) days following written notice of such non-performance from the chief executive officer of the Company or other officer to whom the Executive usually reports); or (b) Termination by the Executive following either (i) the Company's notification to the Executive of a reduction in the annual base compensation below that in effect with respect to the calendar year immediately prior to the year in which the Change in Control of Bradley occurs (the "Prior Year") and failure to assure the Executive that his bonus, when added to his base compensation for each of the calendar years in which the Change in Control of Bradley occurs and for the following calendar year, will be at least the amount of his Annual Compensation for the Prior Year, or (ii) the Company's reassignment of the Executive to either (A) a location more than 50 miles from the place of work of the Executive or (B) a position that does not have the same or greater authority and responsibility as the position held by the Executive immediately prior to the Change in Control of Bradley. 4. COMPENSATION UPON TERMINATION EVENT. Upon the occurrence of a Termination Event, the Executive shall be entitled to receive the compensation and benefits set forth below: (a) BOLP shall pay to the Executive, not later than the date of any Termination Event, unless otherwise agreed to in writing, a lump sum severance payment (the "Severance Payment") equal to two times the Base Amount (as defined below). For purposes of this Section 4(a), the Base Amount shall mean the Executive's Annual Compensation during the Prior Year preceding the calendar year in which the Change in Control of Bradley occurs. For purposes of determining Annual Compensation in the preceding sentence, there shall be included (i) all base salary and cash bonuses paid or payable to the Executive by the Company with respect to the Prior Year and (ii) the fair market value of any stock issued to the Executive under Bradley's Stock Option and Incentive Plan with respect to such Prior Year provided, however, that there shall not be included in Annual Compensation for any year any value attributable to stock options granted to the Executive in that year or any value attributable to stock issued pursuant to the exercise of any stock option granted in any prior year, and provided, further, that there shall not be included in Annual Compensation for the calendar year 1998 any amount paid in 1998 that was a part of the "Management Adjustment Award" with respect to 1996 or 1997 described on page 6 of Bradley's Proxy Statement for its 1999 Annual meeting of Stockholders. (b) Bradley and BOLP shall cause the Company to maintain in full force and effect for the Executive's continued benefit, for a period of 12 months following the Termination Event, all life, accident, medical and dental insurance benefit plans and programs or arrangements in which the Executive was entitled to participate immediately prior to the date of the Change in Control of Bradley; provided that the Executive's continued participation is possible under the general terms and provisions of such plans and programs; and provided, further, that in the event that the Executive becomes employed on a full-time basis by any other employer during such period, then upon the date of such employment the Executive shall no longer be entitled to any of the accident, medical or dental insurance benefits described in the preceding clause. Subject to the preceding sentence, in the event that the Executive's participation in any such plan or program is barred, Bradley and BOLP shall arrange to cause the Company to provide the Executive with benefits substantially similar to those which the Executive was entitled to receive under such plans and programs. Subject to the first sentence of this subsection, at the end of the period of coverage, the Executive shall have the option to have assigned to him at no cost to the Executive and with no apportionment of prepaid premiums, any assignable insurance policy owned by the Company and relating specifically to the Executive. (c) All options to purchase Shares now or hereafter granted to the Executive shall vest on the day immediately prior to the date of the Termination Event and become fully exercisable in accordance with their terms. 27 3 Exhibit 10.4 Page 3 of 4 (d) The Executive shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by him as the result of employment by another employer or by retirement benefits after the date of termination, or otherwise, except as specifically provided in this Section 4. 5. GROSS UP PAYMENT. Regardless of whether Section 4 hereof is applicable, if, in the opinion of tax counsel selected by the Executive and reasonably acceptable to the Company, the Executive has or will receive any compensation or recognize any income (whether or not pursuant to this Agreement or any plan or other arrangement of the Company which constitutes an "excess parachute payment" within the meaning of Section 280G(b) (1) of the Internal Revenue Code of 1986, as amended (the "Code") (or for which a tax is otherwise payable under Section 4999 of the Code), BOLP shall pay the Executive an additional amount (the "Gross Up Payment") equal to the sum of (a) all taxes payable by the Executive under Section 4999 of the Code with respect to all such excess parachute payments (or otherwise), including without limitation the Gross Up Payment, plus (b) all federal, state and local income taxes payable by Executive with respect to the Gross Up Payment. The amounts payable pursuant to this Section 5 shall be paid by BOLP to the Executive not later than the date of the Termination Event or as soon thereafter as the same is calculated, but at such time or times as to eliminate the need for the Executive to pay any such taxes or installment thereof from funds not paid or advanced by BOLP, unless otherwise agreed to in writing. 6. EXPENSES. BOLP shall pay or reimburse the Executive, as the case may be, for all properly documented, reasonable legal fees and related expenses (including the costs of experts, evidence and counsel) paid by the Executive as a result of (a) the Executive seeking to obtain or enforce any right or benefit provided by this Agreement, or (b) any action taken by the Company against the Executive in enforcing its rights hereunder; provided, however, that BOLP shall reimburse the legal fees and related expenses described in this Section 6 only if and when a final judgment has been rendered in favor of the Executive and all appeals related to any such action have been exhausted. 7. NO EMPLOYMENT RIGHTS OR OBLIGATIONS. Nothing contained herein shall confer upon the Executive the right to continue in the employment or service of the Company or affect any right that the Company may have to terminate the employment or service of the Executive at any time for any reason. 8. BRADLEY GUARANTY. Bradley guarantees the satisfaction of all obligations of, and the full and prompt payment of all amounts payable by, BOLP hereunder. In addition, Bradley guarantees the satisfaction of all obligations of the Company hereunder. 9. ARBITRATION; OTHER DISPUTES. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Chicago, Illinois, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Notwithstanding the above, should a dispute occur concerning the Executive's mental or physical capacity as described in Subsection 3(a), a doctor selected by the Executive and a doctor selected by the Company shall be entitled to examine the Executive. If the opinion of the Company's doctor and the Executive's doctor conflict, the Company's doctor and the Executive's doctor shall together agree upon a third doctor, whose opinion shall be binding. 10. LITIGATION AND REGULATORY COOPERATION. During and after the period of employment by the Company, the Executive shall reasonably cooperate with the Company in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company which relate to events or occurrences that transpired while the Executive was employed by the Company; provided, however, that such cooperation shall not materially and adversely affect the Executive or expose the Executive to an increased probability of civil or criminal litigation. The Executive's cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. During and after the Executive's employment, the Executive also shall cooperate fully with the Company in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while Executive was employed by the Company. The Company shall also provide the Executive with compensation on an hourly basis calculated at his final base compensation rate for requested litigation and regulatory cooperation that occurs after his termination of employment, and reimburse the Executive for all costs and expenses incurred in connection with his performance under this Paragraph 10, including, but not limited to, properly documented and reasonable attorneys' fees and costs. 11. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties and is intended to supersede all prior negotiations, understandings and agreements with respect to the subject matter hereof. No provision of this Agreement may be waived or changed, except by a writing signed by the party to be charged with such waiver or change. 28 4 Exhibit 10.4 Page 4 of 4 12. SUCCESSORS; BINDING AGREEMENT. This Agreement shall inure to the benefit of, be binding upon and be enforceable by Bradley and BOLP, their successors and assigns and the Executive, and the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 13. NOTICES. All notices provided for in this Agreement shall be in writing, and shall be deemed to have been duly given when delivered personally to the party to receive the same, when given by telex, telegram or mailgram, or when mailed first class postage prepaid, by registered or certified mail, return receipt requested, addressed to the party to receive the same at his or its address above set forth, or such other address as the party to receive the same shall have specified by written notice given in the manner provided for in this Section 12. All notices shall be deemed to have been given as of the date of personal delivery, transmittal or mailing thereof. 14. SEVERABILITY. If any provision of this Agreement is determined to be invalid, it shall not affect the validity or enforceability of any of the other remaining provisions hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. BRADLEY REAL ESTATE, INC. By:___________________________________ BRADLEY OPERATING LIMITED PARTNERSHIP By: Bradley Real Estate, Inc. Its: General Partner By:___________________________________ ______________________________________ Executive 29 EX-27 4 FINANCIAL DATA SCHEDULE
5 0000013777 BRADLEY REAL ESTATE, INC. 1,000 US DOLLARS 3-MOS DEC-31-1999 APR-01-1999 JUN-30-1999 1 108 0 22,307 4,884 0 33,626 1,000,826 69,713 964,739 28,068 422,473 0 86,809 350,653 76,736 964,739 36,872 37,558 0 10,961 8,350 0 7,182 7,831 0 0 0 0 0 7,831 0.33 0.33
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