<PAGE>   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 September 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
September 30, 1999:


     Shares of Common Stock, $.01 par value: 24,060,057 shares outstanding.



<PAGE>   2
                            BRADLEY REAL ESTATE, INC.
                           CONSOLIDATED BALANCE SHEETS
                    (Dollars in thousands, except share data)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                     September 30,  December 31,
                                                                                         1999           1998
                                                                                     ------------   ------------
<S>                                                                                  <C>            <C>
ASSETS:

Real estate investments - at cost                                                      $ 977,930    $ 936,465
Accumulated depreciation and amortization                                                (75,395)     (59,196)
                                                                                       ---------    ---------

Net real estate investments                                                              902,535      877,269

Real estate investments held for sale                                                     30,138       46,492

Other assets:
    Rents and other receivables, net of allowance for doubtful accounts
      of $4,648 for 1999 and $4,078 for 1998                                              17,672       14,994
    Investment in partnership                                                               --         13,249
    Deferred charges, net and other assets                                                17,014       16,676
                                                                                       ---------    ---------

Total assets                                                                           $ 967,359    $ 968,680
                                                                                       =========    =========

LIABILITIES AND SHARE OWNERS' EQUITY:

Mortgage loans                                                                         $ 101,353    $ 103,333
Unsecured notes payable                                                                  199,589      199,542
Line of credit                                                                            97,500      169,500
Accounts payable, accrued expenses and other liabilities                                  32,883       29,415
                                                                                       ---------    ---------

Total liabilities                                                                        431,325      501,790
                                                                                       ---------    ---------

Exchangeable limited partnership units                                                    19,667       21,573
Series B preferred units                                                                  49,100         --
Series C preferred units                                                                  24,344         --
                                                                                       ---------    ---------

Total minority interest                                                                   93,111       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 3,478,219 and
         3,478,493 shares of Series A Convertible Preferred Stock at
         September 30, 1999 and December 31, 1998, respectively                           86,802       86,809
    Shares of common stock and paid-in capital, par value $.01 per share:
      Authorized 80,000,000 shares; issued and outstanding 24,060,057 and
        23,958,662 shares at September 30, 1999 and December 31, 1998, respectively      350,464      349,254
    Shares of excess stock, par value $.01 per share:
      Authorized 50,000,000 shares; 0 shares issued and outstanding                         --           --
    Retained earnings                                                                      5,657        9,254
                                                                                       ---------    ---------

Total share owners' equity                                                               442,923      445,317
                                                                                       ---------    ---------

Total liabilities and share owners' equity                                             $ 967,359    $ 968,680
                                                                                       =========    =========
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       2
<PAGE>   3


                            BRADLEY REAL ESTATE, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                  (Dollars in thousands, except per share data)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                           Three months ended        Nine months ended
                                                                               September 30,            September 30,
                                                                          ----------------------    ----------------------
                                                                            1999         1998         1999         1998
                                                                          ---------    ---------    ---------    ---------
<S>                                                                       <C>          <C>          <C>          <C>
REVENUE:
         Rental income                                                    $  37,833    $  33,305    $ 113,415    $  92,642
         Other income                                                           582          634        1,911        1,693
                                                                          ---------    ---------    ---------    ---------
                                                                             38,415       33,939      115,326       94,335
                                                                          ---------    ---------    ---------    ---------
EXPENSES:
         Operations, maintenance and management                               5,715        4,510       17,798       13,286
         Real estate taxes                                                    5,567        5,665       17,238       16,441
         Mortgage and other interest                                          7,129        7,424       21,998       19,567
         General and administrative                                           2,185        2,107        6,252        5,227
         Depreciation and amortization                                        6,849        5,752       19,790       16,346
                                                                          ---------    ---------    ---------    ---------
                                                                             27,445       25,458       83,076       70,867
                                                                          ---------    ---------    ---------    ---------

Income before equity in earnings of partnership and net gain on sale of
  properties                                                                 10,970        8,481       32,250       23,468
Equity in earnings of partnership                                              --            247          500          247
Net gain on sale of properties                                                 --         30,555         --         29,680
                                                                          ---------    ---------    ---------    ---------

Income before allocation to minority interest                                10,970       39,283       32,750       53,395
Income allocated to exchangeable limited partnership units                     (422)      (2,095)      (1,343)      (2,892)
Income allocated to Series B and C preferred units                           (1,257)        --         (2,822)        --
                                                                          ---------    ---------    ---------    ---------

Net income                                                                    9,291       37,188       28,585       50,503

Preferred share distributions                                                (1,826)      (1,096)      (5,478)      (1,096)
                                                                          ---------    ---------    ---------    ---------

Net income attributable to common share owners                            $   7,465    $  36,092    $  23,107    $  49,407
                                                                          =========    =========    =========    =========

Earnings per share:
         Basic                                                            $    0.31    $    1.52    $    0.96    $    2.09
                                                                          =========    =========    =========    =========
         Diluted                                                          $    0.31    $    1.44    $    0.96    $    2.07
                                                                          =========    =========    =========    =========
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.



                                       3
<PAGE>   4
                            BRADLEY REAL ESTATE, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN SHARE OWNERS' EQUITY
                  (Dollars in thousands, except per share data)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                    Preferred
                                                                     shares         Common shares
                                                                       and               and              Retained
                                                                  paid-in capital   paid-in capital       earnings          Total
                                                                  ---------------   ---------------      ----------       ----------
<S>                                                               <C>               <C>                  <C>              <C>
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

     Net income                                                         --                --                 9,291            9,291
     Distributions on common stock ($0.37 per share)                    --                --                (8,902)          (8,902)
     Distributions on preferred stock ($0.525 per share)                --                --                (1,826)          (1,826)
     Exercise of stock options                                          --                  48                --                 48
     Dividend reinvestment and stock purchase plan participation        --                 (11)               --                (11)
     Conversion of Series A preferred shares to common shares             (7)                7                --               --
     Reallocation of minority interest                                  --                (233)               --               (233)
                                                                   ---------         ---------           ---------        ---------

Balance at September 30, 1999                                      $  86,802         $ 350,464           $   5,657        $ 442,923
                                                                   =========         =========           =========        =========
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       4
<PAGE>   5
                            BRADLEY REAL ESTATE, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                         Nine months ended
                                                                           September 30,
                                                                       ----------------------
                                                                         1999         1998
                                                                       ---------    ---------
<S>                                                                    <C>          <C>
Cash flows from operating activities:
     Net income                                                        $  28,585    $  50,503
     Adjustments to reconcile net income to net cash
       provided by operating activities:
         Depreciation and amortization                                    19,790       16,346
         Equity in earnings of partnership                                  (500)        (247)
         Amortization of debt premiums, net of discounts                    (709)        (176)
         Net gain on sale of properties                                     --        (29,680)
         Income allocated to minority interest                             4,165        2,892
     Change in operating assets and liabilities,
       net of the effect of the Mid-America Acquisition in 1998:
         (Increase) decrease in rents and other receivables                  611       (1,878)
         Increase in accounts payable, accrued expenses
           and other liabilities                                           2,008        6,660
         Increase in deferred charges                                     (2,934)      (1,022)
                                                                       ---------    ---------
              Net cash provided by operating activities                   51,016       43,398
                                                                       ---------    ---------

Cash flows from investing activities:
     Expenditures for real estate investments                            (21,971)    (160,639)
     Cash used for purchase of Mid-America                                  --        (28,578)
     Expenditures for capital improvements                               (14,177)      (7,110)
     Net proceeds from sale of properties                                 16,899       83,959
     Cash distributions from partnership                                   3,943          350
                                                                       ---------    ---------
              Net cash used in investing activities                      (15,306)    (112,018)
                                                                       ---------    ---------

Cash flows from financing activities:
     Borrowings from line of credit                                       61,900      216,750
     Payments under line of credit                                      (133,900)    (215,050)
     Proceeds from issuance of unsecured notes payable                      --         99,051
     Expenditures for financing costs                                       (200)      (6,222)
     Principal payments on mortgage loans                                 (1,224)        (762)
     Distributions paid to common share owners                           (26,704)     (24,895)
     Distributions paid to limited partnership unit holders               (1,536)      (1,449)
     Distributions paid to preferred unit holders                         (2,822)        --
     Distributions paid to preferred share owners                         (5,478)      (1,751)
     Net proceeds from stock offerings                                      --          7,489
     Proceeds from exercise of stock options                                 171            4
     Net proceeds from dividend reinvestment and stock purchase plan       1,471        4,022
     Net proceeds from issuance of Series B and C preferred units         73,444         --
     Payments to redeem limited partnership units                         (2,152)        --
     Pay-off of secured mortgage loans                                      --        (10,031)
     Cash disbursed but not presented to bank                              1,320         --
                                                                       ---------    ---------
              Net cash provided by (used in) financing activities        (35,710)      67,156
                                                                       ---------    ---------

Net decrease in cash and cash equivalents                                   --         (1,464)

Cash and cash equivalents:
     Beginning of period                                                    --          4,747
                                                                       ---------    ---------
     End of period                                                     $    --      $   3,283
                                                                       =========    =========

Supplemental cash flow information:
     Interest paid, net of amount capitalized                          $  22,672    $  15,663
                                                                       =========    =========
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                        5
<PAGE>   6


                            BRADLEY REAL ESTATE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 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 net income attributable
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:


<TABLE>
<CAPTION>
                                                                     Three months ended          Nine months ended
                                                                        September 30,              September 30,
                                                                  -------------------------   -------------------------
                                                                     1999           1998         1999          1998
                                                                  -----------   -----------   -----------   -----------
<S>                                                               <C>           <C>           <C>           <C>
NUMERATOR:
----------

Basic
     Net income attributable to common share owners               $ 7,465,000   $36,092,000   $23,107,000   $49,407,000
                                                                  ===========   ===========   ===========   ===========
Diluted
     Net income attributable to common share owners               $ 7,465,000   $36,092,000   $23,107,000   $49,407,000
     Income allocated to exchangeable limited partnership units       422,000     2,095,000     1,343,000     2,892,000
     Convertible preferred share distributions                           --       1,096,000          --       1,096,000
                                                                  -----------   -----------   -----------   -----------
     Adjusted net income                                          $ 7,887,000   $39,283,000   $24,450,000   $53,395,000
                                                                  ===========   ===========   ===========   ===========

DENOMINATOR:
------------

Basic
     Weighted average common shares                                24,059,660    23,782,221    24,038,841    23,597,218
                                                                  ===========   ===========   ===========   ===========
Diluted
     Weighted average common shares                                24,059,660    23,782,221    24,038,841    23,597,218
     Effect of dilutive securities:
         Stock options                                                 32,599        46,466        34,111        48,338
         Exchangeable limited partnership units                     1,361,038     1,380,609     1,396,327     1,398,890
         Convertible preferred stock                                     --       2,162,504          --         728,756
                                                                  -----------   -----------   -----------   -----------
     Weighted average shares and assumed conversions               25,453,297    27,371,800    25,469,279    25,773,202
                                                                  ===========   ===========   ===========   ===========

Basic earnings per share                                          $      0.31   $      1.52   $      0.96   $      2.09
                                                                  ===========   ===========   ===========   ===========
Diluted earnings per share                                        $      0.31   $      1.44   $      0.96   $      2.07
                                                                  ===========   ===========   ===========   ===========
</TABLE>



For the nine months ended September 30, 1999 and 1998, options to purchase
603,500 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 nine months ended September 30, 1999, preferred stock distributions of
$5,478,000 and the effect on the denominator of the conversion of the
convertible preferred stock outstanding during the period into 3,550,894 shares
of common stock were not included in the computation of diluted EPS because the
impact on basic EPS was anti-dilutive.



                                       6
<PAGE>   7
For the three months ended September 30, 1999 and 1998, options to purchase
651,800 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 September 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 3,550,860 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 1,396,327 and 1,398,890
for the nine months ended September 30, 1999 and 1998, respectively, and
1,361,038 and 1,380,609 for the three months ended September 30, 1999 and 1998,
respectively. As of September 30, 1999 and 1998, there were 1,328,705 and
1,379,242 LP Units outstanding. The Operating Partnership is a limited
partnership of which the Company currently owns an 84% 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 September 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"). These dispositions are expected to be
completed during the fourth quarter of 1999, although there can be no assurance
that any such dispositions will occur. 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.

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 completed the acquisitions of two
shopping centers, Cherry Hill Marketplace and 30th Street Plaza, located in
Michigan and Ohio, respectively, aggregating approximately 264,000 square feet
for a total purchase price of approximately $13,853,000. The Company acquired
these shopping centers with the intention of redeveloping them. The Company
expects to incur an additional $27 million for the redevelopment of these two
shopping centers, as well as for two other shopping centers in the portfolio
under redevelopment, Prospect Plaza and Commons of Chicago Ridge. All of these
redevelopment projects are expected to be substantially completed during the
first half of 2000.

On October 1, 1999, the Company acquired two newly developed shopping centers
located in Minnesota aggregating approximately 220,000 square feet, for an
aggregate purchase price of approximately $23,006,000. These shopping centers
were acquired under a co-development agreement with Oppidan Center Development,
LLC, whereby the Company and Oppidan worked together on all aspects of the
development process and shared in the value created from the new developments.
The co-development agreement was terminated, by mutual agreement, upon the
completion of these acquisitions, as the Company is pursuing its own development
initiatives.

NOTE 5 - ISSUANCE OF SERIES C PREFERRED UNITS

On September 7, 1999, the Operating Partnership completed a private placement of
1,000,000 units of its 8.875% Series C Cumulative Redeemable Perpetual Preferred
Units (the "Series C Preferred Units") to an institutional investor at a price
of $25.00 per unit. The units are callable by the Operating Partnership after
five years at a redemption price equal to the redeemed holder's capital account
(initially $25.00 per unit), plus an amount equal to all accumulated, accrued
and unpaid distributions or dividends thereon to the date of redemption. In lieu
of cash, the Operating Partnership may elect to deliver shares of 8.875% Series
C Cumulative Redeemable Perpetual Preferred Stock (the "Series C Preferred
Shares") of the Company on a one-for-one basis, plus an amount equal to all
accumulated, accrued and unpaid distributions or dividends thereon to the date
of redemption. The Series C Preferred Units do not have a stated

                                       7
<PAGE>   8
maturity and do not include any mandatory redemption or sinking fund provisions.
The net proceeds from the issuance of approximately $24.3 million were used to
reduce outstanding borrowings under the line of credit facility.

Holders of the Series C Preferred Units have the right to exchange Series C
Preferred Units for shares of Series C Preferred Shares on a one-for-one basis.
The exchange right is exercisable, in minimum amounts of 500,000 units, at the
option of holders of the Series C Preferred Units (i) at any time on or after
September 7, 2009, (ii) at any time if full quarterly distributions shall not
have been made for six quarters, whether or not consecutive, or (iii) upon the
occurrence of certain specified events related to the treatment of the Operating
Partnership or the Series C Preferred Units for federal income tax purposes.

NOTE 6 - SEGMENT REPORTING

As of September 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 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 nine month periods ended September 30, 1999 and 1998 (dollars in thousands):


<TABLE>
<CAPTION>
                                                        Three months ended        Nine months ended
                                                            September 30,           September 30,
                                                       ----------------------    ----------------------
                                                         1999         1998          1999         1998
                                                       ---------    ---------    ---------    ---------
<S>                                                    <C>          <C>          <C>          <C>
TOTAL PROPERTY REVENUE:
Mixed-use office property                              $    --      $   1,033    $    --      $   8,306
Shopping center properties                                38,241       32,738      114,651       85,667
                                                       ---------    ---------    ---------    ---------
                                                          38,241       33,771      114,651       93,973
                                                       ---------    ---------    ---------    ---------

TOTAL PROPERTY OPERATING EXPENSES:
Mixed-use office property                                   --            279         --          3,110
Shopping center properties                                11,282        9,896       35,036       26,617
                                                       ---------    ---------    ---------    ---------
                                                          11,282       10,175       35,036       29,727
                                                       ---------    ---------    ---------    ---------
Net operating income                                      26,959       23,596       79,615       64,246
                                                       ---------    ---------    ---------    ---------

NON-PROPERTY (INCOME) EXPENSES:
Other non-property income                                   (174)        (168)        (675)        (362)
Equity in earnings of partnership, excluding
  depreciation and amortization                             --           (274)        (600)        (274)
Mortgage and other interest                                7,129        7,424       21,998       19,567
General and administrative                                 2,185        2,107        6,252        5,227
Amortization of deferred finance and non-real estate
  related costs                                              283          225          842          692
Preferred share distributions                              1,826        1,096        5,478        1,096
Income allocated to Series B and C preferred units         1,257         --          2,822         --
                                                       ---------    ---------    ---------    ---------
                                                          12,506       10,410       36,117       25,946
                                                       ---------    ---------    ---------    ---------

Funds from Operations                                  $  14,453    $  13,186    $  43,498    $  38,300
                                                       =========    =========    =========    =========
</TABLE>


                                       8
<PAGE>   9
<TABLE>
<CAPTION>
                                                          Three months ended      Nine months ended
                                                             September 30,          September 30,
                                                         --------------------    ---------------------
                                                           1999        1998        1999        1998
                                                         --------    --------    --------    --------
<S>                                                      <C>         <C>         <C>         <C>
RECONCILIATION TO NET INCOME ATTRIBUTABLE TO COMMON
SHARE OWNERS:
Funds from Operations                                    $ 14,453    $ 13,186    $ 43,498    $ 38,300
Depreciation of real estate assets and amortization of
  tenant improvements                                      (5,683)     (4,939)    (16,685)    (13,185)
Amortization of deferred leasing commissions                 (684)       (290)     (1,468)     (1,574)
Other amortization                                           (199)       (298)       (795)       (895)
Depreciation and amortization included in equity in
  earnings of partnership                                    --           (27)       (100)        (27)
Income allocated to exchangeable limited partnership
  units                                                      (422)     (2,095)     (1,343)     (2,892)
Net gain on sale of properties                               --        30,555        --        29,680
                                                         --------    --------    --------    --------

Net income attributable to common share owners           $  7,465    $ 36,092    $ 23,107    $ 49,407
                                                         ========    ========    ========    ========
</TABLE>




                                       9
<PAGE>   10
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 $0.9 million 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 nine and three-month periods ended
September 30, 1999 compared with the same periods in 1998 were driven largely by
the acquisition activity. Differences in financial results for the nine and
three-month periods between 1999 and 1998 were also significantly affected by
the $30.6 million net gain on sale of properties during the third quarter of
1998. Income before the net gain on sale, and before income allocated to
minority interest, increased $9,035,000, or 38%, from $23,715,000 for the nine
months ended September 30, 1998 to $32,750,000 for the nine months ended
September 30, 1999. Income before the net gain on sale, and before income
allocated to minority interest, increased $2,242,000, or 26%, from $8,728,000
for the third quarter of 1998 to $10,970,000 for the third quarter of 1999.
Including the net gain on sale of properties in 1998, net income attributable to
common share owners decreased $26,300,000 from $49,407,000 in the first nine
months of 1998 to $23,107,000 in the first nine months of 1999. Basic net income
per share decreased $1.13 per share from $2.09 per share in the first nine
months of 1998 to $0.96 per share in the first nine months of 1999. For the
quarter ended September 30, 1999, net income attributable to common share owners
decreased $28,627,000 from $36,092,000 in the quarter ended September 30, 1998
to $7,465,000 in the quarter ended September 30, 1999. Basic net income per
share decreased $1.21 per share from $1.52 per share in the quarter ended
September 30, 1998 to $0.31 per share in the quarter ended September 30, 1999.
The computation of diluted net income per share resulted in a $0.02 reduction in
basic net income per share for the nine months ended September 30, 1998, from
$2.09 per share to $2.07 per share, and resulted in a $0.08 reduction in our
basic net income per share for the three months ended September 30, 1998, from
$1.52 per share to $1.44 per share. The computation of diluted net income per
share had no effect on basic net income per share for either the nine month or
three month period in 1999. Our results of operations for the first nine months
of 1998 and 1999 reflect 51 properties that were held both nine-month periods
and 50 properties that we purchased or sold between the two periods. Our results
of operations for the third quarter of 1998 and 1999 reflect 65 properties that
were held both quarters and 36 properties that we purchased or sold between the
two periods.

Property Specific Revenues And Expenses (in thousands of dollars):


<TABLE>
<CAPTION>
                                          Nine months ended
                                            September 30,                                            Properties
                                         -------------------                   Acquisitions/         Held Both
                                           1999       1998      Difference      Dispositions           Periods
                                         --------   --------    ----------     -------------        -----------
<S>                                      <C>        <C>         <C>            <C>                  <C>
Rental income                            $113,415   $ 92,642    $ 20,773        $ 17,800             $  2,973
Operations, maintenance and management     17,798     13,286       4,512           3,316                1,196
Real estate taxes                          17,238     16,441         797             831                  (34)
Depreciation and amortization              19,790     16,346       3,444           3,009                  435
</TABLE>


<TABLE>
<CAPTION>
                                          Three months ended
                                            September 30,                                       Properties
                                          ------------------                   Acquisitions/    Held Both
                                           1999       1998      Difference      Dispositions      Periods
                                         --------   --------    ----------      -------------   -----------
<S>                                      <C>        <C>         <C>             <C>             <C>
Rental income                            $37,833     $33,305     $ 4,528          $ 2,909       $ 1,619
Operations, maintenance and management     5,715       4,510       1,205              688           517
Real estate taxes                          5,567       5,665         (98)              67          (165)
Depreciation and amortization              6,849       5,752       1,097              519           578
</TABLE>


                                       10
<PAGE>   11
Results attributable to acquisition and disposition activities:

Rental income increased from $92,642,000 in the first nine months of 1998 to
$113,415,000 in the first nine months of 1999 and from $33,305,000 in the third
quarter of 1998 to $37,833,000 in the third quarter of 1999. Approximately
$25,673,000 of the increase during the nine-month period was attributable to
acquisition activities, including $11,910,000 for properties acquired in
connection with the merger acquisition of Mid-America, partially offset by
$7,873,000 attributable to disposition activities, primarily One North State.
Approximately $4,575,000 of the increase during the three-month period was
attributable to acquisition activities, partially offset by $1,666,000
attributable to disposition activities, primarily One North State.

Operations, maintenance and management expense increased from $13,286,000 in the
first nine months of 1998 to $17,798,000 in the first nine months of 1999 and
from $4,510,000 in the third quarter of 1998 to $5,715,000 in the third quarter
of 1999. Approximately $3,316,000 of the increase during the nine-month period
was attributable to acquisition and disposition activities, including an
increase of $2,226,000 for properties acquired in connection with the merger
acquisition of Mid-America. For the three-month period, approximately $688,000
of the increase was attributable to acquisition and disposition activities.

Real estate taxes increased from $16,441,000 in the first nine months of 1998 to
$17,238,000 in the first nine months of 1999, but decreased from $5,665,000 in
the third quarter of 1998 to $5,567,000 in the third quarter of 1999. Real
estate taxes decreased $34,000 for properties held during both nine month
periods ended September 30, 1999 and 1998, and decreased $165,000 for properties
held during both three month periods ended September 30, 1999 and 1998. Real
estate taxes increased $831,000 for properties purchased, net of reductions for
properties sold, during the nine month periods ended September 30, 1999 and
1998, and increased $67,000 for properties purchased, net of reductions for
properties sold, during the three month periods ended September 30, 1999 and
1998.

Depreciation and amortization increased from $16,346,000 in the first nine
months of 1998 to $19,790,000 in the first nine months of 1999 and from
$5,752,000 in the third quarter of 1998 to $6,849,000 in the third quarter of
1999. Approximately $3,009,000 of the increase during the nine-month period was
attributable to acquisition and disposition activities, including an increase of
$1,097,000 for properties acquired in connection with the merger acquisition of
Mid-America. For the three-month period, approximately $519,000 of the increase
was attributable to acquisition and disposition activities.

Results for properties fully operating throughout both periods:

Several factors affected the comparability of results for properties fully
operating throughout both nine and three-month periods ended September 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 $587,000 during the first nine months of 1999 compared with the
first nine months of 1998. This increase in operations, maintenance and
management expense was mitigated by the recoverability of such expenses through
operating expense reimbursements, which were $653,000 higher during the first
nine months of 1999 compared with the first nine months 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
nine months of 1998 at these two shopping centers by $471,000 and $573,000,
respectively. Rental income decreased $161,000 at Har Mar Mall during the third
quarter of 1999 compared with the third quarter of 1998. We are currently in
negotiations with a grocery anchor to replace the space vacated by HomePlace.
However, we can give no assurance that this lease will come to fruition or, if
so, as to the terms of any such lease. At Heritage Square, a 62,000 square-foot
lease with Carson Pirie Scott commenced in the third quarter of 1999, which
replaces approximately one half the space previously occupied by Montgomery
Ward, resulting in an increase in rental income of $153,000 during the third
quarter of 1999 compared with the third quarter of 1998. During the third
quarter of 1999, we signed a 47,000 square-foot lease with HomeLife to occupy
the remaining vacancy of the former Montgomery Ward space. This lease is
expected to commence during the middle part of 2000, which is expected to
contribute to increases in rental income at this property.

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 September 30, 1999 and 1998 increased by
$348,000, since much of the percentage rent received during the third quarter of
1998 had been recognized in prior quarters. Percentage rental income for
properties held throughout both nine-month periods ended September 30, 1999 and
1998 increased by $162,000 due to the increase in percentage rents during the
first and third quarters of 1999 from the first and third quarters of 1998,
partially offset by a decrease in percentage rents during the second quarter of
1999 compared with the second quarter of 1998.

                                       11
<PAGE>   12
In addition to the changes in rental income described above, during the first
nine months of 1999 compared with the first nine months of 1998, rental income
increased $384,000 at Rollins Crossing and $274,000 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 third quarter of 1999 rental
income for these shopping centers increased $114,000 and $94,000, respectively
from the third quarter of 1998. Rental income increased $142,000 at High Point
Centre during the first nine months of 1999 compared with the first nine months
of 1998, and $54,000 during the third quarter of 1999 compared with the third
quarter of 1998, due to the commencement of a 36,000 square-foot lease with
Babies `R Us during the first quarter of 1999. Rental income increased $245,000
at Commons of Crystal Lake during the first nine months of 1999 compared with
the first nine months of 1998, and $188,000 during the third quarter of 1999
compared with the third quarter of 1998 due to the commencement of a 28,000
square-foot lease with Marshalls commencing in the second quarter of 1999 and a
30,000 square-foot lease with Toys `R Us commencing in the third quarter of
1999. Rental income increased by $379,000 at Village Shopping Center during the
first nine months of 1999 compared with the first nine months of 1998 due to an
increase in occupancy during the second half of 1998. Rental income increased at
Crossroads Centre by $390,000 and $359,000 and at Terrace Mall by $527,000 and
$500,000 for the nine and three-month periods respectively, ended September 30,
1999, from the same periods in the prior year due to the receipt of termination
fees in the third quarter of 1999 from Walgreens at Crossroads Centre and a
vacant theater at Terrace Mall. Rental income increased $216,000 at Sun Ray
Shopping Center for the nine-month period of 1999 due to the commencement of a
26,000 square-foot lease with Bally's Total Fitness commencing during the third
quarter of 1999 and 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 $138,000 from the nine-month period in the
prior year. Rental income increased at Speedway Super Center by $672,000 for the
nine-month period ended September 30, 1999 from the same period 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.

During September 1999, we were notified that Hechinger Co., the operator of an
85,000 square-foot Home Quarters store at Grandview Plaza, would liquidate its
assets in order to pay off creditors. Hechinger Co. had previously filed for
protection under Chapter 11 of the bankruptcy code in June 1999; however, the
store at Grandview Plaza was not included on the initial list of store closures.
As a result of the liquidation, we expect the store to close and cease paying
rent during the fourth quarter of 1999. This tenant contributed approximately
$850,000 in total rental income on an annual basis, which we believe is at or
slightly above current market rates. While we are in preliminary discussions
with several retailers to replace this vacancy, we do not expect a new lease to
commence prior to the end of 2000, resulting in a decrease in rental income at
this center.

Non-Property Specific Revenues and Expenses:

Other income increased from $1,693,000 during the first nine months of 1998 to
$1,911,000 during the first nine months of 1999, and decreased from $634,000 for
the third quarter of 1998 to $582,000 for the third quarter of 1999. Other
income contains both property specific and non-property specific income;
however, the increase during the nine-month period is mostly attributable to
income generated from properties acquired during 1998, mainly from four enclosed
malls acquired in connection with the merger acquisition of Mid-America,
partially offset by a reduction in other income of $154,000 at Grandview Plaza
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. Three of the enclosed malls are currently held for
sale and, if sold, will not contribute to other income in the future.

Mortgage and other interest expense increased from $19,567,000 during the first
nine months of 1998 to $21,998,000 during the first nine months of 1999, and
decreased from $7,424,000 for the third quarter of 1998 to $7,129,000 for the
third 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 $2,037,000 for the nine-month
period and $352,000 for the third quarter. A slightly higher weighted average
balance outstanding on the line of credit during the first nine months of 1999
compared with the first nine months of 1998, was more than offset by a lower
weighted average interest rate in 1999, resulting in a decrease in interest
expense of $128,000. A lower weighted average balance outstanding on the line of
credit during the third quarter of 1999 compared with the third quarter of 1998
resulting from repayments on the line of credit with proceeds from the issuance
of the Series B and C Preferred Units during 1999, combined with a slightly
lower weighted average interest rate, resulted in a decrease in interest expense
of $630,000 for the third quarter of 1999 compared with the third quarter of
1998. Additionally, our increased focus on development and redevelopment
initiatives which have been funded with the line of credit has resulted in a
higher amount of interest capitalized during 1999 compared with 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, and on $100 million, 7.0% seven-year unsecured Notes
issued in 1997, amounted to $10,530,000 in the first nine months of 1998
compared with $11,104,000 for the full nine months in 1999, an increase of
$574,000. Our total weighted average interest rate decreased to 7.18% for the
third quarter of 1999 from 7.21% for the third quarter of 1998.

                                       12
<PAGE>   13
General and administrative expense increased from $5,227,000 during the first
nine months of 1998 to $6,252,000 during the first nine months of 1999, and from
$2,107,000 for the quarter ended September 30, 1998 to $2,185,000 for the
quarter ended September 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"). We took advantage of a similar opportunity during September 1999,
replacing $25 million of short-term floating rate debt under the line of credit
with the issuance of 8.875% Series C Cumulative Redeemable Perpetual Preferred
Units (the "Series C Preferred Units"). Although the spreads between the
interest rate currently available under the line of credit facility and the
rates associated with the Series B and C Preferred Units are 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 and C
Preferred Units were $2,822,000 during the first nine months of 1999, and
$1,257,000 during the third quarter of 1999; on a going-forward basis, such
distributions are projected to be approximately $1.7 million for each full
quarterly period that the Series B and C Preferred Units are outstanding.

Distributions on the Series A Convertible Preferred Stock issued in connection
with the merger acquisition of Mid-America in August 1998 were $5,478,000 for
the first nine months of 1999, and $1,826,000 during the third quarter of 1999,
compared with $1,096,000 during the nine and three month periods of 1998.

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 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, both directly and 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 during the next year.
However the utilization of available liquidity for such opportunities will be
carefully calibrated to changing market conditions.

As of September 30, 1999, our financial liquidity was provided by the unused
balance on our bank line of credit of $152.5 million. Additionally, as of
September 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 remainder 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
                                       13
<PAGE>   14
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 September 30, 1999 consisted of fixed-rate notes
totaling $101.4 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 $1,224,000 during the nine-month period ended September 30, 1999,
with another $0.6 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. Additionally, we expect to incur approximately $27 million for the
redevelopment of four shopping centers, and continue to build a modest pipeline
of acquisition and development opportunities. 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 $51,016,000 during
the first nine months of 1999, from $43,398,000 during the same period in 1998.
This increase is primarily due to the growth of our portfolio, from 53
properties at January 1, 1998 (95 properties at September 30, 1998), to 96
properties at September 30, 1999.

For the nine months ended September 30, 1999, funds from operations ("FFO")
increased $5,198,000, or 14%, from $38,300,000 for the nine months ended
September 30, 1998, to $43,498,000. For the three months ended September 30,
1999, FFO increased $1,267,000, or 10%, from $13,186,000 for the three months
ended September 30 1998, to $14,453,000. 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.

Investing Activities

Net cash flows used in investing activities decreased to $15,306,000 during the
first nine months of 1999, from $112,018,000 during the same period in 1998.
During the first nine months 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, invested
approximately $4,944,000 in four redevelopment initiatives, 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 nine months of
1999 amounted to $3,943,000.

During the first nine months of 1998, in addition to the properties acquired in
connection with the merger acquisition of Mid-America, we completed the
acquisitions of nineteen shopping centers located in the Midwest, aggregating
2.6 million square feet for a total purchase price of approximately
$178,900,000. During this period, we also completed the sales of a 640,000
square-foot mixed-use property located in downtown Chicago, Illinois for a net
sales price of approximately $82,090,000, and a 46,000 square-foot shopping
center located in Iowa, for a net sales price of approximately $1,869,000.

Financing Activities

Net cash flows from financing activities decreased to a use of cash of
$35,710,000 during the first nine months of 1999 from a source of cash of
$67,156,000 during the same period in 1998. Distributions to common and
preferred share owners, as well as to the minority interest, were $36,540,000 in
the first nine months of 1999, and $28,095,000 in the first nine months of 1998.

The two shopping centers acquired during the first nine months of 1999 were
acquired with cash provided by our line of credit. The merger acquisition of
Mid-America was financed through the issuance of approximately 3.5 million
shares of Series A Preferred Stock

                                       14
<PAGE>   15

with a $25.00 liquidation value, the assumption of Mid-America's liabilities
including approximately $66 million of debt of which $28 million was prepaid at
close, and the payment of certain transaction costs. Of the nineteen additional
shopping centers acquired during the first three quarters of 1998, seventeen
were acquired with cash from financing provided by the unsecured bank line of
credit. Two shopping centers were acquired with cash provided by the unsecured
bank line of credit and the assumption of $19,492,000 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. On September 7, 1999, we issued one million 8.875% Series C
Cumulative Redeemable Preferred Units to an institutional investor at a price of
$25.00 per unit. Net proceeds from the issuances of approximately $73.4 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
third quarter of 1999, we continued the redevelopment of Prospect Plaza, located
in Gladstone, Missouri, acquired in December 1998, and of Cherry Hill
Marketplace located in Westland, Michigan, and 30th Street Plaza located in
Canton, Ohio, both of which were acquired during the second quarter of 1999. 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 substantially completed during the middle part of 2000. During the third
quarter of 1999, we continued our redevelopment of the Commons of Chicago Ridge,
a shopping center in our core portfolio located in metropolitan Chicago, and
broke ground on the new 112,000 square-foot Home Depot just after quarter-end.
These projects are the types of redevelopment investment opportunities upon
which we expect to 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 modest pipeline of
development opportunities and potential acquisitions of shopping centers where
we can use our redevelopment experience to 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:

-   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.



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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.

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, development and redevelopment opportunities in the Midwest on
favorable terms; expected property dispositions may be delayed or terminated;
the availability of equity and debt capital in the public markets; the fact that
returns from development, redevelopment and acquisition activity may not be at
expected levels; inherent risks in ongoing redevelopment and development
projects including, but not limited to, cost overruns resulting from weather
delays, changes in the nature and scope of redevelopment and development
efforts, and market factors involved in the pricing of material and labor; 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.
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PART II - OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

              Not applicable

Item 2.  CHANGES IN SECURITIES

              On September 7, 1999, the Operating Partnership issued 1,000,000
              of its 8.875% Series C Cumulative Redeemable Perpetual Preferred
              Units (the "Series C Preferred Units") to an institutional
              investor at a price of $25.00 per unit, resulting in net proceeds
              to the Operating Partnership of approximately $24.3 million. On or
              after September 7, 2004, the Operating Partnership may redeem the
              Series C Preferred Units at its option, in whole or in part, at
              any time for cash at a redemption price equal to the redeemed
              holder's capital account (initially $25.00 per unit), plus an
              amount equal to all accumulated, accrued and unpaid distributions
              or dividends thereon to the date of redemption. In lieu of cash,
              the Operating Partnership may elect to deliver shares of 8.875%
              Series C Cumulative Redeemable Perpetual Preferred Stock of the
              Company (the "Series C Preferred Shares") on a one-for-one basis,
              plus an amount equal to all accumulated, accrued and unpaid
              distributions or dividends thereon to the date of redemption. The
              Series C Preferred Units do not include any mandatory redemption
              or sinking fund provisions.

              Holders of the Series C Preferred Units have the right to exchange
              Series C Preferred Units for shares of Series C Preferred Shares
              on a one-for-one basis. The exchange right is exercisable, in
              minimum amounts of 500,000 units, at the option of holders of the
              Series C Preferred Units (i) at any time on or after September 7,
              2009, (ii) at any time if full quarterly distributions shall not
              have been made for six quarters, whether or not consecutive, or
              (iii) upon the occurrence of certain specified events related to
              the treatment of the Operating Partnership or the Series C
              Preferred Units for federal income tax purposes. The Series C
              Preferred Units were issued in reliance on an exemption from
              registration under Section 4(2) of the Securities Act, and the
              rules and regulations promulgated thereunder.

Item 3.  DEFAULTS UPON SENIOR SECURITIES
              Not applicable

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
              Not applicable

Item 5.  OTHER INFORMATION

              Not applicable

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibit No.               Description
                  -----------               -----------

                  27                    Financial Data Schedule

         (b)      Reports on Form 8-K

                  The following Form 8-K was filed during the period July 1,
1999 through September 30, 1999:

                  1)       Form 8-K filed September 8, 1999 (earliest event
                           September 7, 1999), reporting in Item 5., the
                           issuance by Bradley Operating Limited Partnership of
                           1,000,000 units of 8.875% Series C Cumulative
                           Redeemable Perpetual Preferred Units to an
                           institutional investor at a price of $25.00 per unit.


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<PAGE>   18

                                   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:    November 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




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