<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   FORM 10-K

                 Annual Report Pursuant to Section 15(d) of the
                        Securities Exchange Act of 1934

  X   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
 ----                                                                         
                           ACT OF 1934 (FEE REQUIRED)

For the fiscal year ended December 31, 1997

                         Commission File Number 1-10328

                           BRADLEY REAL ESTATE, INC.
                           -------------------------
             (Exact name of Registrant as specified in its charter)

              Maryland                          04-6034603
              --------                          ----------
      (State of Organization)       (I.R.S. Employer Identification No.)

                40 Skokie Blvd., Northbrook, IL            60062
                -------------------------------            -----
              (Address of Principal Executive Offices)  (ZIP Code)

Registrant's telephone number, including area code (847) 272-9800
                                                   --------------

          Securities registered pursuant to Section 12(b) of the Act:

  Title of each class            Name of each exchange on which registered
  -------------------            -----------------------------------------
     Common Stock                        New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.  Yes  X , No ___

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [     ]

Aggregate market value of 23,478,672 shares of Common Stock believed to be held
by non-affiliates of the registrant based upon the $21.625 closing price for
such Shares on March 2, 1998, on the New York Stock Exchange:  $507,726,282

Number of Shares outstanding as of March 2, 1998:  23,646,759


DOCUMENTS INCORPORATED BY REFERENCE

Registrant expects to file no later than April 1, 1998, its definitive Proxy
Statement for the 1998 Annual Meeting of Stockholders and hereby incorporates by
reference into Part III hereof the portions thereof described in Items 10, 11,
12 and 13 hereof.

                                       1
<PAGE>
 
STATEMENTS MADE OR INCORPORATED IN THIS REPORT INCLUDE A NUMBER OF FORWARD-
LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF
1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, STATEMENTS CONTAINING
THE WORDS "ANTICIPATES", "BELIEVES", "EXPECTS", "INTENDS", "FUTURE", AND WORDS
OF SIMILAR IMPORT WHICH EXPRESS MANAGEMENT'S BELIEF, EXPECTATIONS OR INTENTIONS
REGARDING THE COMPANY'S FUTURE PERFORMANCE OR FUTURE EVENTS OR TRENDS. RELIANCE
SHOULD NOT BE PLACED ON FORWARD-LOOKING STATEMENTS BECAUSE THEY INVOLVE KNOWN
AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS, WHICH MAY CAUSE ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO DIFFER MATERIALLY FROM
ANTICIPATED FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSLY OR IMPLIED BY
SUCH FORWARD-LOOKING STATEMENTS.  IN ADDITION, THE COMPANY UNDERTAKES NO
OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENT, WHETHER
AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.  CERTAIN FACTORS
THAT MIGHT CAUSE SUCH DIFFERENCES ARE DISCUSSED IN THE SECTION ENTITLED "RISK
FACTORS" ON PAGE 15 OF THIS REPORT.


                                     Part I
                                     ------

ITEM 1.  BUSINESS
         --------

General
-------

Bradley Real Estate, Inc. (the "Company") is a fully-integrated real estate
operating company which owns and operates community and neighborhood shopping
centers located in the Midwest region of the United States.  As of December 31,
1997, the Company owned 53 properties (52 shopping centers and one office/retail
property) in 11 states, aggregating over 10.1 million square feet of gross
leasable area ("GLA").  Title to such properties is held by or for the benefit
of Bradley Operating Limited Partnership (the "Operating Partnership"), of which
the Company is the sole general partner and the owner of approximately 94% of
the economic interests in the Operating Partnership.

References in this report to the "Company" include the Operating Partnership and
other consolidated subsidiaries, as well as to the Company's predecessor,
Bradley Real Estate Trust, unless the context otherwise requires.

The Company owns and operates and seeks to acquire grocery-anchored, open-air
community and neighborhood shopping centers located in the Midwest, generally
consisting of the states of Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan,
Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin.
The Company currently owns properties in nine states in this region.  Through
past experience as well as current research, the Company believes that this
region is economically strong and diverse thus providing a favorable environment
for the acquisition, ownership and operation of retail properties.  The Company
evaluates prospective acquisitions in both metropolitan statistical areas
defined by the U.S. Census Bureau and secondary markets within this region that
offer opportunities for favorable investment returns and long-term cash flow
growth.  The Company favors grocery-anchored centers because, based on its past
experience, such properties offer strong and predictable daily consumer traffic
and are less susceptible to downturns in the general economy than apparel- or
leisure-anchored shopping center properties.

As part of its ongoing business, the Company regularly evaluates, and engages in
discussions with public and private entities regarding possible portfolio or
asset acquisitions or business combinations.  During 1997, the Company acquired
25 shopping centers which meet its investment criteria for an aggregate
acquisition price of $189.3 million, although there can be no assurance that
further acquisitions will be made within its target markets or that the
acquisitions that are made will be on as economically advantageous terms to the
Company as those made during 1997.  In evaluating potential acquisitions, the
Company focuses principally on community and neighborhood shopping centers in
its Midwest target market that are anchored by strong national, regional and
independent grocery store chains.  The Company seeks to create an income stream
diversity across many Midwest markets in order to insulate the Company from
economic trends affecting any particular market.
      
                                       2
<PAGE>
 
The Company has elected to qualify as a real estate investment trust ("REIT")
for federal income tax purposes since its organization in 1961.  The Company
believes that it is the nation's oldest continually qualified REIT.

The finance, accounting, leasing, research and administrative functions for the
Company are handled by a central office staff located in the Northbrook,
Illinois headquarters.  The Company maintains regional property management and
leasing offices at properties located in Chicago, Minneapolis, St. Louis,
Indianapolis, Kansas City, and Milwaukee, in order that as many properties as
practicable have a manager located within a one to two hour drive. Acquisition
personnel are located in the Northbrook and Minneapolis locations.  At December
31, 1997, the Company had 94 employees.

1997 Highlights
---------------

The Company's mission is to provide superior returns to its share owners by
creating sustainable growth in per share cash flow through the ownership of
grocery focused retail properties in the Midwest region of the United States.
During 1997, the Company continued to focus on three main strategic objectives:
positioning its capital structure for future growth while simplifying the
organizational structure, managing its existing properties to compete in a
challenging retail environment, and continuing to grow through opportunistic
acquisitions.

Organizational Structure:

 .    In August 1997, the Company completed the contribution of its interest in
     the properties previously owned directly by it to the Operating Partnership
     so that the Company now holds all of its properties through the Operating
     Partnership. This structure, commonly referred to as an umbrella
     partnership REIT, or "UPREIT", is a more conventional structure for an
     operating company holding real estate assets through a partnership, and
     provides additional flexibility to the Company's capital structure.

Capital Structure Activity:

The Company established specific goals for 1997 in the repositioning of its
capital structure.  The focus of these efforts was to transform the Company from
a secured borrower to an unsecured borrower thereby increasing the Company's
financial flexibility, increasing capital raising alternatives and lowering the
Company's overall blended cost of capital.  The Company believes it was largely
successful in pursuit of these goals through the following capital market
activities:

Debt activity

 .    In August and November 1997, respectively, the Company obtained investment
     grade credit ratings from Standard & Poor's Investment Services ("Standard
     & Poor's") of "BBB-" and from Moody's Investors Service ("Moody's") of
     "Baa3".

 .    In September 1997, the Operating Partnership filed a "shelf" registration
     statement which was declared effective in November 1997, under which the
     Operating Partnership may issue up to $300 million in unsecured non-
     convertible investment grade debt securities, giving the Company the
     flexibility to issue such debt securities from time to time when the
     Company determines that market conditions and the opportunity to utilize
     the proceeds from the issuance of such securities are favorable.

 .    In November 1997, the Operating Partnership completed an offering of $100
     million of 7%, seven-year unsecured Notes sold at 99.780% of par, maturing
     in November 2004. The effective interest rate is 7.194%. The issuance was
     the first offering of public debt completed in the Company's thirty-six
     year operating history.

 .    Funds raised in the November debt offering were used to substantially
     prepay a $100 million mortgage note that was assumed in connection with the
     acquisition merger of Tucker Properties Corporation ("Tucker") in March
     1996 (the "Tucker Acquisition"). The mortgage note, originally scheduled to
     mature in September 2000, was issued to a trust qualifying as a real estate
     mortgage investment conduit for federal income tax purposes (the "REMIC
     Note"). Prepayment of the REMIC Note resulted in the discharge from the
     mortgage securing the REMIC Note of six properties, including One North
     State, having a combined gross book value of $181.2 million, substantially
     increasing the base of the Company's unencumbered assets to 88.6% at
     December 31, 1997.

 .    In March 1997, the Company amended its $150 million unsecured revolving
     line of credit, extending the maturity date to March 1999 and reducing the
     interest rate to the lower of the lead bank's base rate or 1.50% over the
     London InterBank Offer Rate ("LIBOR") from the lower of the bank's base
     rate or 1.75% over

                                       3
<PAGE>
 
     LIBOR. In December 1997, the Company entered into a new line of credit
     facility, increasing the aggregate amount available from $150 million to
     $200 million, extending the maturity date to December 2000, and lowering
     the interest rate to the lowest of (i) the lead bank's base rate, (ii) a
     spread over LIBOR ranging from 0.70% to 1.25% depending on the credit
     rating assigned by national credit rating agencies, or (iii) for amounts
     outstanding up to $100 million, a competitive bid rate solicited from the
     syndicate of banks. Based on the current credit ratings assigned by
     Standard & Poor's and Moody's, the spread over LIBOR is 1.00%.

Equity activity

 .    In May 1997, the Company filed a "shelf" registration statement, which was
     declared effective in June 1997, under which the Company may issue up to
     $234.5 million in equity securities from time to time.

 .    In October 1997, the Company entered into a Forward Equity Agreement with
     PaineWebber Incorporated, pursuant to which the Company has the right,
     until April 1998, to sell shares of its common stock with an aggregate
     value up to $60 million to PaineWebber, acting as underwriter, in amounts
     ranging from $5 million to $20 million per transaction. The Agreement
     provides the Company with the ability to match-fund pending and future
     acquisitions.

 .    In December 1997, the Company raised $19.2 million of net proceeds from a
     public offering of 990,000 shares of its common stock utilizing the Forward
     Equity Agreement.

 .    In December 1997, the Company raised $5.7 million of net proceeds from a
     public offering of 300,000 shares of its common stock through another
     underwriter, C.E. Unterberg, Towbin.

Positioned for future growth

 .    At December 31, 1997, the Company had $209 million available under the
     equity "shelf" registration, and $200 million available under the debt
     "shelf" registration.

 .    The Company's ratio of debt to total market capitalization (with total
     market capitalization defined as the current market value of all
     outstanding shares of common stock and limited partnership units that are
     convertible into common stock plus the principal amount of outstanding
     debt) stood at 37.0% at December 31, 1997, and its debt service coverage
     ratio was 3.5x.

 .    The Company's total market capitalization stood at $817.7 million at
     December 31, 1997.

 .    Subsequent to year-end, the Company paid down the line of credit with
     proceeds from the January 1998 issuance of $100 million of 7.2% unsecured
     Notes, maturing in 2008, and with the February 1998 issuance of 392,638
     shares of common stock to a unit investment trust, increasing the available
     borrowing capacity on the line of credit to approximately $155 million.

Management and Leasing Activity:

The Company's management and leasing activities focus on maximizing the current
cash flow of its properties while enhancing long-term value.  The Company's
efforts during 1997 were focused on the reletting of several major tenant
vacancies while continuing to improve its overall occupancies, seeking new
tenants and renewing current tenants at favorable rates.

 .    Despite a competitive retail climate, the properties at December 31, 1997
     were at a 94% occupancy rate.
  
 .    During 1997, the Company signed new leases totaling 559,000 square feet at
     an average rent for comparable space of $9.89 per square foot, representing
     an increase of 12.8% over the prior average rental rate.

 .    During 1997, the Company renewed 88 leases totaling 334,000 square feet at
     an average rate of $10.85 per square foot, representing an increase per
     square foot of 10.2% over the prior average rental rate.

 .    Significant leases completed during 1997 included a 60,000 square-foot
     lease with Waccamaw Pottery at Westview Center, a 55,000 square-foot lease
     with JC Penney at Commons of Chicago Ridge, and a 30,000 square-foot lease
     with OfficeMax at Grandview Plaza, all of which commenced during the year;
     leases signed in 1997 that commence in 1998 include a 73,000 square-foot
     lease with Regal Cinemas at Rollins Crossing, and a 71,000 square-foot
     lease with Jewel/Osco at Commons of Crystal Lake.

 .    Leasing challenges for 1998 include the 111,000 square-foot space leased to
     Montgomery Ward & Co., Incorporated, which filed for reorganization under
     Chapter 11 of the United States Bankruptcy Code in July 1997, announcing
     its intention to close its store at Heritage Square. Additionally, in
     January 1998, HomePlace filed for reorganization under Chapter 11 of the
     Bankruptcy Code, although the tenant has not rejected its lease for 54,000
     square feet at Har Mar Mall, or notified the Company of its intent to close
     the store. Additional challenges for 1998 include leasing several spaces
     that are expected to vacate as a result of the consolidation of

                                       4
<PAGE>
 
     T.J. Maxx and Marshalls, and continuing to lease small shop space on
     favorable terms in a difficult retail climate.

Acquisitions:

The goals for 1997 acquisition activity were to complete $150 million of new
investments meeting the Company's investment criteria, furthering the Company's
franchise in grocery-anchored retail centers located within its Midwest markets.
The Company's investment criteria include demographic trends, anchor strength,
stability among non-anchor tenants, and minimum acceptable yields which
management believes can be increased through the Company's operating and leasing
experience and in certain instances through strategic capital improvements, all
aimed at contributing to the total return earned by the share owners.

 .    During 1997, the Company closed the acquisition of 25 shopping centers for
     a total of 3.1 million square feet at an aggregate cost of $189.3 million.

 .    Such acquisitions included seven shopping centers in Iowa, five in
     Illinois, four in Minnesota, three in Wisconsin, two in Indiana, two in
     Kansas, one in Missouri, and one in South Dakota.

 .    Four of the shopping centers were acquired for $45.3 million, which
     included the issuance of 1,212,630 Limited Partner Units of the Operating
     Partnership (exchangeable for a like number of shares of common stock of
     the Company) valued at $23.4 million.

 .    The acquisition of four shopping centers included the assumption of $26.7
     million of non-recourse mortgage indebtedness.

 .    The acquisitions were completed through eighteen transactions, including
     three separate portfolio acquisitions of five, three, and two properties
     respectively.

 .    Acquisition challenges for 1998 are expected to be increasing the
     acquisition pace of 1997 on favorable terms in light of decreasing entry
     yields and increased competition for product.

 .    In February 1998, the Company completed the acquisition of an additional
     shopping center located in Indiana aggregating approximately 105,000 square
     feet for an aggregate cost of approximately $3.7 million.

Dispositions:

One of the Company's main goals for 1997 was to dispose of certain properties
not in keeping with the Company's current strategic market strategy.  The
challenge was to dispose such properties on economically favorable terms such
that the proceeds could be redeployed into shopping centers with higher growth
potential, requiring lower property management intensity or with a tenant base
more consistent with the current strategy.

 .    During 1997, the Company completed the sales of three properties located in
     New England, having an aggregate cost of $17.5 million and consisting of
     390,000 square feet, for an aggregate net sales price of $19.4 million.
     These properties were held for sale at December 31, 1996.

 .    During 1997, the Company completed the sale of Meadows Town Mall for a net
     sales price of $5.9 million. The property, having a cost basis of $7.2
     million, was acquired in the Tucker Acquisition and was considered by
     management to be a non-core property.

 .    In January 1998, the Company listed for sale its One North State property,
     located on State Street in the "Loop" district of downtown Chicago. The
     640,000 square-foot, mixed-use building does not fit with the Company's
     grocery-anchored community shopping center focus and the Company believes,
     given the current strong investment sales market in downtown Chicago, that
     it is an opportune time to sell this asset. This property was classified as
     held for sale on the Company's December 31, 1997 consolidated balance
     sheet.

The Company's Properties
------------------------

The following table and notes describe the Company's properties and rental
information for leases in effect as of December 31, 1997:

                                       5
<PAGE>
 
<TABLE> 
<CAPTION> 
                                                                                                 
                                                   PERCENT                                                                   BASE   
                                      RENTABLE    LEASED AT                    ANNUALIZED                                    LEASE  
                             YEAR      SQUARE    DECEMBER 31     ANNUALIZED   BASE RENT PER                      SQUARE   EXPIRATION
SHOPPING CENTERS           ACQUIRED     FEET    1997    1996     BASE RENT      LEASED SF     MAJOR TENANTS(1)    FEET       DATE
------------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>        <C>       <C>     <C>      <C>          <C>       <C>                      <C>      <C> 
ILLINOIS                                                                                                              
Commons of Chicago Ridge     1996     309,000   89%      77%     $2,629,000    $ 9.56   JC Penney Home Store*    55,000      2007
  and Annex                                                                             T.J.Maxx*                25,082      1998
Chicago Ridge, IL                                                                       Marshalls*               27,000      1999
                                                                                        Office Depot*            27,680      2002
                                                                                        Cineplex Odeon*          25,000      2008
                                                                                        Michaels Stores*         17,550      1999
                                                                                        Pep Boys*                22,354      2015
                                                                                        For Eyes Optical          2,188      2000
                                                                                        Dollar Bills              5,396      1999
                                                                                        Factory Card Outlet      11,085      2000
------------------------------------------------------------------------------------------------------------------------------------
Commons of Crystal Lake      1996     273,000    69%     75%       2,178,000     11.61  Jewel/Osco*              59,804      2007
Crystal Lake, IL                                                                        Venture Stores           81,338      2006
                                                                                        (not owned) (2)*                         
                                                                                        Jewelry 3                 4,200      2005
                                                                                        Old Country Buffet        9,750      2008
                                                                                        Ulta 3                   10,446      2000
------------------------------------------------------------------------------------------------------------------------------------
Crossroads Center            1992     242,000    98%     93%       1,442,000      6.01  Kmart (ground lease)*    96,268      2001
Fairview Heights, IL                                                                    T.J.Maxx*                33,200      2006
                                                                                        Sally Beauty              2,000      1999
                                                                                        Old Country Buffet        9,550      2003
                                                                                        Dress Barn               12,642      2002
------------------------------------------------------------------------------------------------------------------------------------
Fairhills Shopping Center    1997     106,000    90%      N/A        605,000      6.33  Jewel/Osco*              49,330      1998
Springfield, IL                                                                         Baskin Robbins            1,170      1999
------------------------------------------------------------------------------------------------------------------------------------
Heritage Square              1996     212,000   100%     100%      2,627,000     12.38  Montgomery Ward (3)*    111,016      2013
Naperville, IL                                                                          Circuit City*            28,351      2009
                                                                                        Stroud's*                26,703      2003
                                                                                        Walter E. Smithe          5,000      2002
                                                                                        Coconuts                  6,000      2003
                                                                                        Super Crown Books        10,497      2002
------------------------------------------------------------------------------------------------------------------------------------
High Point Centre            1996     240,000    99%     100%      2,156,000      9.05  Cub Foods*               62,000      2008
Lombard, IL                                                                              T.J.Maxx*               25,200      1998
                                                                                         Office Depot*           36,416      2003
                                                                                         MacFrugal's*            17,040      2006
                                                                                         Payless Shoesource       3,000      1998
                                                                                         Hollywood Video          8,100      2006
                                                                                         David's Bridal          13,205      2005
------------------------------------------------------------------------------------------------------------------------------------
Parkway Pointe               1997      39,000   100%      N/A        463,000     12.00   Shoe Carnival*          10,186      2004
Springfield, IL                                                                          Dress Barn*              8,200      2002
                                                                                         Payless Shoesource       2,560      2004
                                                                                         Bethel Bookstore         5,073      1999 
------------------------------------------------------------------------------------------------------------------------------------
</TABLE> 
                                       6
 
<PAGE>

<TABLE> 
<CAPTION> 

                                                   PERCENT                                                                   BASE   
                                      RENTABLE    LEASED AT                    ANNUALIZED                                    LEASE  
                             YEAR      SQUARE    DECEMBER 31     ANNUALIZED   BASE RENT PER                       SQUARE  EXPIRATION
SHOPPING CENTERS           ACQUIRED     FEET    1997    1996     BASE RENT      LEASED SF     MAJOR TENANTS(1)     FEET      DATE
------------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>        <C>       <C>     <C>      <C>          <C>             <C>                 <C>     <C> 
Rivercrest Center            1994     470,000   100%    100%     $3,674,000        $  7.82    Omni Foods*         87,937     2011
Crestwood, IL                                                                                 Venture Stores*     79,903     2011
                                                                                              Sears Roebuck            
                                                                                               and Co.*           55,000     2001
                                                                                              T.J.Maxx*           34,425     2004
                                                                                              PETsMART*           31,639     2010
                                                                                              Best Buy*           25,000     2008
                                                                                              OfficeMax*          24,000     2007
                                                                                              Hollywood Park*     15,000     2000
                                                                                              Lone Star           
                                                                                               Steakhouse         12,315     2001
                                                                                              Famous Footwear      6,000     2001
                                                                                              Funcoland            1,925     1998
------------------------------------------------------------------------------------------------------------------------------------
Rollins Crossing (4)         1996      66,000    82%     93%        490,000           9.08    Sears Hardware*     21,083     2005
Round Lake Beach, IL                                                                          Super Kmart              
                                                                                               (not owned)*      190,000     2033
                                                                                              MC Sports           13,800     2005
                                                                                              Super Trak          10,000     2005
                                                                                              Pet Care                 
                                                                                               Superstore          6,600     2000
------------------------------------------------------------------------------------------------------------------------------------
Sangamon Center North        1997     140,000    97%     N/A        992,000           7.30    Schnucks*           63,257     2016
Springfield, IL                                                                               U.S. Post Office*   16,000     2005
                                                                                              Revco               12,468     2000
                                                                                              The Book Emporium    5,522     2001
                                                                                              Subway               1,400     1999
------------------------------------------------------------------------------------------------------------------------------------
Sheridan Village             1996     296,000   100%     98%      2,197,000           7.41    Bergner's Dept.          
Peoria, IL                                                                                     Store*            162,852     2006
                                                                                              Cohen's Furniture*  16,600     2009
                                                                                              Fashion Bug         11,020     2002
                                                                                              First of America     5,697     2001
                                                                                              Radio Shack          3,510     2001
------------------------------------------------------------------------------------------------------------------------------------
Sterling Bazaar              1997      82,000    94%     N/A        716,000           9.29    Kroger*             52,337     2011
Peoria, IL                                                                                    Garner's Pizza            
                                                                                               & Wings             2,100     1999
------------------------------------------------------------------------------------------------------------------------------------
Wardcliffe Center            1997      67,000    92%     N/A        317,000           5.11    Big Lots*           26,741     2001
Peoria, IL                                                                                    CVS Pharmacy*       16,160     1998
                                                                                              Golf Discount        5,175     1998
                                                                                              Little Caesar's      2,617     1998
------------------------------------------------------------------------------------------------------------------------------------
Westview Center              1993     323,000    93%     72%      2,454,000           8.17    Cub Foods*          67,163     2009
Hanover Park, IL                                                                              Waccamaw*           60,000     2017
                                                                                              Marshalls*          34,302     2004
                                                                                              Giant Auto          12,000     1999
                                                                                              Bakers Square        5,510     2005
                                                                                              H&R Block            1,200     1998
------------------------------------------------------------------------------------------------------------------------------------
INDIANA
County Line Mall             1997     261,000    95%     N/A      1,627,000           6.56    Target*             99,321     2002
Indianapolis, IN                                                                              Kroger*             52,337     2011
                                                                                              OfficeMax/               
                                                                                               FurnitureMax*      32,208     2004
                                                                                              Jo-Ann Fabrics      13,506     2001
                                                                                              The Book Rack        1,495     1998
------------------------------------------------------------------------------------------------------------------------------------
Martin's Bittersweet Plaza   1997      78,000    98%     N/A        553,000           7.24    Martin's 
Mishawaka, IN                                                                                  Supermarket*       45,079     2012
                                                                                              Osco Drug*          16,000     2012
                                                                                              Mail Boxes, Etc.     1,022     1999
------------------------------------------------------------------------------------------------------------------------------------
</TABLE> 

                                       7
<PAGE>
<TABLE> 
<CAPTION> 

                                              PERCENT                                                                
                                             LEASED AT                                                                    BASE
                                  RENTABLE  DECEMBER 31                 ANNUALIZED                                        LEASE
                           YEAR    SQUARE   -----------    ANNUALIZED  BASE RENT PER                        SQUARE      EXPIRATION
SHOPPING CENTERS         ACQUIRED   FEET    1997   1996    BASE RENT     LEASED SF   MAJOR TENANTS(1)        FEET          DATE
------------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>     <C>        <C>    <C>    <C>           <C>       <C>                       <C>           <C> 
Speedway SuperCenter      1996    541,000    97%    98%    $3,871,000    $  7.40   Kohl's*                   90,027        2004
    and Outlots                                                                    Kroger*                   59,515        2013
Speedway, IN                                                                       Sears Roebuck and Co.*    30,825        2004
                                                                                   Old Navy*                 15,000        2005
                                                                                   Kittles*                  25,320        2000
                                                                                   Factory Card Outlet*      16,675        2003
                                                                                   Lindo Super Spa*          16,859        2000
                                                                                   CVS Pharmacy              10,700        2006
                                                                                   Applebees                  5,400        2010
                                                                                   Indy PC                    1,445        1999
------------------------------------------------------------------------------------------------------------------------------------
The Village               1996    361,000    85%    92%     1,651,000       5.39   JC Penney*                60,600        1999
Gary, IN                                                                           Goldblatt's*              55,000        2000
                                                                                   Post-Tribune Publishing*  19,246        1999
                                                                                   Indiana Employment*       18,050        2000
                                                                                   Aldi's                    13,099        2001
                                                                                   Fagen Pharmacy             5,760        1998
                                                                                   Kids Foot Locker           3,750        2005
------------------------------------------------------------------------------------------------------------------------------------
Washington Lawndale 
  Commons                 1996    333,000    99%    87%     1,672,000       5.08   Target*                   83,110        2005
Evansville, IN                                                                     Stein Mart, Inc.*         40,500        2006
                                                                                   Sears Homelife*           34,527        2003
                                                                                   Dunham's Athleisure Co.*  20,285        2002
                                                                                   Jo-Ann Fabrics*           15,262        2003
                                                                                   Books-A-Million*          20,515        2002
                                                                                   CVS Pharmacy              10,500        2008
                                                                                   U.S. Postal Service        9,400        2000
                                                                                   Kay-Bee Toys               4,744        2001
------------------------------------------------------------------------------------------------------------------------------------
IOWA
----
Burlington Plaza West     1997     88,000   100%    N/A       621,000       7.05   Festival Foods*           52,468        2009
Burlington, IA                                                                     Circus Video               8,000        1999
                                                                                   The Book Emporium          4,000        2002
------------------------------------------------------------------------------------------------------------------------------------
Davenport Retail          1997     63,000   100%    N/A       604,000       9.66   Staples*                  24,153        2011
Davenport, IA                                                                      PETsMART*                 26,280        2011
                                                                                   Factory Card Outlet       12,155        2006
------------------------------------------------------------------------------------------------------------------------------------
Holiday Plaza             1997     46,000    87%    N/A       282,000       6.98   West Music*                8,450        2002
Cedar Falls, IA                                                                    Tan Down Under*            6,000        2001
                                                                                   Little Caesar's            1,480        1999
------------------------------------------------------------------------------------------------------------------------------------
Parkwood Plaza            1997    125,000    92%    N/A       895,000       7.84   FoodSaver*                63,075        2008
Urbandale, IA                                                                      Hollywood Video            6,000        2007
                                                                                   We Care Hair               1,350        2002
------------------------------------------------------------------------------------------------------------------------------------
Southgate Shopping Center 1997    163,000    90%    N/A       452,000       3.09   Hy-Vee Supermarket*       78,388        2014
Des Moines, IA                                                                     Big Lots*                 23,677        2001
                                                                                   Walgreens*                22,000        2012
                                                                                   Community State Bank      10,000        2002
                                                                                   Arona Corporation          8,500        2002
                                                                                   Clariborne Brothers        2,609        2007
------------------------------------------------------------------------------------------------------------------------------------
</TABLE> 

                                       8
<PAGE>
<TABLE>
<CAPTION>
                                          PERCENT
                                         LEASED AT                     ANNUALIZED                                    BASE
                            RENTABLE    DECEMBER 31                       BASE                                    LEASE
                    YEAR     SQUARE    --------------    ANNUALIZED     RENT PER                         SQUARE   EXPIRATION
SHOPPING CENTERS  ACQUIRED    FEET     1997    1996       BASE RENT    LEASED SF     MAJOR TENANTS(1)     FEET       DATE
------------------------------------------------------------------------------------------------------------------------------
<S>               <C>       <C>        <C>      <C>      <C>           <C>          <C>                  <C>      <C>
Spring Village       1997     91,000   100%     N/A       $ 567,000      $  6.22    Eagle Foods*         45,763      2005
Davenport, IA                                                                       Walgreens            10,800      2000
                                                                                    Movie Gallery         5,400      2000
                                                                                    Cost Cutters          1,200      2000
------------------------------------------------------------------------------------------------------------------------------
Warren Plaza         1997     90,000   100%     N/A         665,000         7.38    Hy-Vee
Dubuque, IA                                                                          Supermarket*        51,492      2013
                                                                                    Renier Company        7,200      2001
                                                                                    Perkins Restaurant    5,000      2000
                                                                                    Subway                1,300      2002
------------------------------------------------------------------------------------------------------------------------------
KANSAS
Mid State Plaza      1997    287,000    85%     N/A         798,000         3.26    Sutherlands*         80,155      2002
Salina, KS                                                                          Food 4 Less*         32,579      2004
                                                                                    Dollar General       10,700      2002
                                                                                    Mid States Cinema     7,449      2002
                                                                                    Cellular One          1,000      1998
------------------------------------------------------------------------------------------------------------------------------
Santa Fe Square      1996    134,000   100%     95%       1,096,000         8.20    Hy-Vee
Olathe, KS                                                                           Supermarket*        55,820      2007
                                                                                    Fashion Bug          11,500      2004
                                                                                    Paper Warehouse       9,490      2005
                                                                                    Papa John's Pizza     1,250      2002
------------------------------------------------------------------------------------------------------------------------------
Westchester Square   1997    165,000    94%     N/A       1,277,000         8.27    Hy-Vee
Lenexa, KS                                                                           Supermarket*        63,000      2006
                                                                                    Treasury Drug         8,468      2001
                                                                                    Pizza Hut             2,775      2002
------------------------------------------------------------------------------------------------------------------------------
KENTUCKY
Stony Brook          1996    136,000    97%     94%       1,371,000        10.33    Kroger*              79,625      2021
Louisville, KY                                                                      Gatti's Pizza        10,258      2000
                                                                                    Shogun Japanese       6,170      2000
                                                                                    Fantastic Sams        1,260      1999
------------------------------------------------------------------------------------------------------------------------------
MINNESOTA
Brookdale Square     1996    185,000    86%     84%       1,199,000         7.48    Circuit City*        36,391      2014
Brooklyn, MN                                                                        Office Depot*        30,395      2004
                                                                                    Drug Emporium*       25,782      2000
                                                                                    United Artists*      24,534      2002
                                                                                    Blockbuster Video     6,008      2004
                                                                                    USA Karate            2,317      1998
------------------------------------------------------------------------------------------------------------------------------
Burning Tree Plaza   1993    139,000    93%    100%       1,177,000         9.12    T.J.Maxx*            30,000      2004
Duluth, MN                                                                          Best Buy*            28,000      2013
                                                                                    Piece Goods Shops*   17,682      1999
                                                                                    Only Deals           10,000      2002
                                                                                    Memorial Blood        5,400      2002
                                                                                    Disc Go Round         1,200      2000
------------------------------------------------------------------------------------------------------------------------------
Central Valu         1997    123,000    93%     N/A         900,000         7.83    Rainbow Foods*       66,314      1999
Columbia Heights, MN                                                                Slumberland
                                                                                     Clearance*          24,632      1999
                                                                                    Walgreens            12,000      2000
                                                                                    Top Valu Liquor      11,838      1999
------------------------------------------------------------------------------------------------------------------------------
Elk Park             1997    155,000    98%     N/A       1,320,000         8.65    Cub Foods*           60,066      2016
Elk River, MN                                                                       Fashion Bug          12,053      2006
                                                                                    Only Deals            6,020      2003
                                                                                    Vision World          1,406      2000
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
                                       9
<PAGE>
 
<TABLE>
<CAPTION>
                                                PERCENT
                                               LEASED AT                                                                  BASE
                                    RENTABLE  DECEMBER 31                     ANNUALIZED                                  LEASE
                          YEAR       SQUARE   -----------      ANNUALIZED    BASE RENT PER                     SQUARE  EXPIRATION
SHOPPING CENTERS        ACQUIRED      FEET    1997   1996      BASE RENT       LEASED SF    MAJOR TENANTS(1)    FEET      DATE  
---------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>        <C>        <C>    <C>       <C>              <C>     <C>                     <C>       <C> 
Har Mar Mall                1992     430,000    92%    89%     $3,807,000           $ 9.63      HomePlace(5)*  54,489        2011
Roseville, MN                                                                                   Barnes &
                                                                                                 Noble*        44,856        2010  
                                                                                                Marshalls*     34,858        2003
                                                                                                T.J.Maxx*      25,025        1998
                                                                                                General
                                                                                                 Cinema*       22,252        2001
                                                                                                General
                                                                                                 Cinema*       19,950        2000
                                                                                                Michaels 
                                                                                                 Stores*       17,907        2003
                                                                                                Petters
                                                                                                 Warehouse*    17,386        2006
                                                                                                The Ground
                                                                                                 Round          5,796        2002
                                                                                                Binding
                                                                                                 Memories       1,970        2002
----------------------------------------------------------------------------------------------------------------------------------
Hub West Shopping Center    1991      78,000   100%   100%        847,000            10.82      Rainbow
Richfield, MN                                                                                    Foods*        50,817        2012
                                                                                                Bally Total
                                                                                                 Fitness*      26,185        2001
                                                                                                Great Clips     1,300        1999
----------------------------------------------------------------------------------------------------------------------------------
Richfield Hub Shopping
 Center                     1988     138,000    99%    96%      1,274,000             9.31      Marshalls*     26,785        2003
Richfield, MN                                                                                   Michaels
                                                                                                 Stores*       24,235        1999
                                                                                                Walgreens      12,000        2000
                                                                                                Famous
                                                                                                 Footwear       6,000        1998
                                                                                                Burger King     4,401        2016
----------------------------------------------------------------------------------------------------------------------------------
Roseville Center            1997      74,000    93%   N/A         628,000             9.05      Minnesota
Roseville, MN                                                                                    Fabrics*      12,000        2004
                                                                                                Snyder Drugs*   8,250        1998
                                                                                                Blockbuster
                                                                                                 Video          8,162        2003
                                                                                                Big Wheel
                                                                                                 Auto           5,800        2003
                                                                                                Snuffy's Malt
                                                                                                 Shoppe         2,750        2001
----------------------------------------------------------------------------------------------------------------------------------
Sun Ray Shopping Center     1961     258,000    83%    81%      1,654,000             7.72      JC Penney*     40,451        1999
St. Paul, MN                                                                                    Marshalls*     26,256        1998
                                                                                                T.J.Maxx*      23,955        2007
                                                                                                Petters
                                                                                                 Warehouse*    20,000        2007
                                                                                                Michaels
                                                                                                 Stores*       18,127        2004
                                                                                                Snyder Drugs   13,800        2002
                                                                                                Petland         5,141        2000
                                                                                                Bruegger's
                                                                                                 Bagels         2,400        2006
----------------------------------------------------------------------------------------------------------------------------------
Terrace Mall                1993     137,000    94%    94%        914,000             7.09      Rainbow
Robbinsdale, MN                                                                                  Foods*        59,232        2013
                                                                                                North
                                                                                                 Memorial*     32,000        1999
                                                                                                Blockbuster
                                                                                                 Video          7,826        1999
                                                                                                Mail Boxes,
                                                                                                 Etc.           1,358        1999
----------------------------------------------------------------------------------------------------------------------------------
Westview Valu               1997     163,000    93%   N/A         901,000             5.90      Cub Foods*     92,646        1999
West St. Paul, MN                                                                               Burlington Coat
                                                                                                 Factory*      41,248        2004
                                                                                                Mill End
                                                                                                 Textiles       7,826        2000
                                                                                                David V. Sass,
                                                                                                 D.D.S.         1,900        2005
----------------------------------------------------------------------------------------------------------------------------------
Westwind Plaza              1994      88,000    90%    91%        873,000            11.04      Northern
Minnetonka, MN                                                                                   Hydraulics*   18,165        2002
                                                                                                Walgreens      11,009        1999
                                                                                                Big Wheel
                                                                                                 Auto           6,200        2000
                                                                                                Caribou
                                                                                                 Coffee         2,880        2007
----------------------------------------------------------------------------------------------------------------------------------
White Bear Hills            1993      73,000   100%   100%        593,000             8.12      Festival
White Bear Lake, MN                                                                              Foods*        45,679        2011
                                                                                                Walgreens      11,890        2010
                                                                                                Video Update    6,000        2006
                                                                                                Cost Cutters    1,200        2002
----------------------------------------------------------------------------------------------------------------------------------
</TABLE> 

                                       10
<PAGE>

<TABLE>
<CAPTION>
                                                PERCENT
                                               LEASED AT                                                                  BASE
                                    RENTABLE  DECEMBER 31                     ANNUALIZED                                  LEASE
                          YEAR       SQUARE   -----------      ANNUALIZED    BASE RENT PER                     SQUARE  EXPIRATION
SHOPPING CENTERS        ACQUIRED      FEET    1997   1996      BASE RENT       LEASED SF    MAJOR TENANTS(1)    FEET      DATE
---------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>         <C>       <C>    <C>       <C>           <C>            <C>                <C>     <C>
MISSOURI
--------
Grandview Plaza         1971        316,000     88%    78%     $2,186,000        $ 7.89     Home Quarters*     84,611        2013
Florissant, MO                                                                              Schnucks*          68,025        2011
                                                                                            Office Max*        30,183        2012
                                                                                            Walgreens*         15,984        2008
                                                                                            Thoughtful Cards    6,121        2000
                                                                                            Custom Cellular     2,400        2004
----------------------------------------------------------------------------------------------------------------------------------
Liberty Corners         1997        121,000    100%    N/A        833,000          6.86     Price Chopper*     56,000        2007
Liberty, MO                                                                                 Fashion Bug        10,770        2000
                                                                                            Bette's Hallmark    8,450        1999
                                                                                            Famous Footwear     4,500        1998
----------------------------------------------------------------------------------------------------------------------------------
NEW MEXICO
----------
St. Francis Plaza       1995         36,000    100%   100%        357,000          9.97     Walgreens*         14,950        2013
Santa Fe, NM                                                                                Wild Oats*         14,850        2006
----------------------------------------------------------------------------------------------------------------------------------
SOUTH DAKOTA
-----------                                                                                 Nash Finch*        44,337        2017
Baken Park              1997        184,000     94%    N/A        999,000          5.75     Ben Franklin*      27,155        2003
Rapid City, SD                                                                              Boyd's Drugs*      19,200        2004
                                                                                            Hardware Hank      11,000        1999
                                                                                            Crown Gallery       6,147        2000
                                                                                            Baken Park Barber
                                                                                              Shop                700        2002
----------------------------------------------------------------------------------------------------------------------------------
TENNESSEE
---------
Williamson Square       1996        335,000     90%    93%      2,218,000          7.38     Wal-Mart*         117,493        2008
Franklin, TN                                                                                Kroger*            63,986        2008
                                                                                            Carmike Cinemas*   29,000        2008
                                                                                            YMCA               14,450        2002
                                                                                            Comfort Source      7,743        2003
                                                                                            Pearle Vision
                                                                                              Center            3,180        2000
----------------------------------------------------------------------------------------------------------------------------------
WISCONSIN
---------
Madison Plaza           1997        128,000    100%    N/A        971,000          7.62     Supersaver*        73,309        2008
Madison, WI                                                                                 Walgreens          13,500        2005
                                                                                            Planet Video        6,000        2004
                                                                                            Subway              1,200        1999
----------------------------------------------------------------------------------------------------------------------------------
Mequon Pavilions        1996        212,000     99%    99%      2,269,000         10.86     Kohl's Food
Mequon, WI                                                                                    Emporium*        45,697        2010
                                                                                            Furniture
                                                                                              Clearance*       19,900        1999
                                                                                            Bedtime            11,512        2001
                                                                                            Mequon Pharmacy     6,500        1998
                                                                                            The Men's
                                                                                              Wearhouse         4,738        2000
----------------------------------------------------------------------------------------------------------------------------------
Park Plaza              1997        108,000    100%    N/A        600,000          5.55     Sentry Foods*      45,000        2006
Manitowoc, WI                                                                               Big Lots*          29,063        1998
                                                                                            Associated Bank     7,837        2003
                                                                                            Rent A Center       3,093        1998
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      11
<PAGE>

<TABLE>
<CAPTION>
                                                PERCENT
                                               LEASED AT                                                                  BASE
                                    RENTABLE  DECEMBER 31                     ANNUALIZED                                  LEASE
                          YEAR       SQUARE   -----------      ANNUALIZED    BASE RENT PER                     SQUARE  EXPIRATION
SHOPPING CENTERS        ACQUIRED      FEET    1997   1996      BASE RENT       LEASED SF    MAJOR TENANTS(1)    FEET      DATE
---------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>         <C>       <C>    <C>       <C>           <C>            <C>                <C>     <C>
Spring Mall                 1997     180,000   100%   N/A      $1,125,000          $6.24     Pick N Save*       77,150      2013
Greenfield, WI                                                                               T. J. Maxx*        32,658      2003
                                                                                             Walgreens*         17,600      2007
                                                                                             Spring Mall
                                                                                             Theater*           16,000      2004
                                                                                             Fashion Bug*       16,000      2004
                                                                                             Sally Beauty        2,146      1998
----------------------------------------------------------------------------------------------------------------------------------
RETAIL OFFICE BUILDING
----------------------
One North State             1996     640,000    98%    98%      9,955,000          15.89     First Chicago*    296,782      2003
Chicago, IL                                                                                  Arthur
                                                                                             Andersen(6)*      126,533      1998
                                                                                             T.J. Maxx*         77,675      2001
                                                                                             Filene's
                                                                                             Basement*          50,000      2002
                                                                                             Int'l Academy of
                                                                                             Design*            44,000      2003
                                                                                             Bruegger's Bagels   2,845      2002
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
                                      12
     
<PAGE>
 

(1)  Major tenants (indicated with an asterisk) are defined as tenants leasing
     15,000 square feet or more of the rentable square footage with the
     exception of Parkway Pointe, Holiday Plaza, Roseville Center and St.
     Francis Plaza. In some cases, the named tenant occupies the premises as a
     sublessee. The Company views "anchor" tenants as a subset of the major
     tenants at each property, generally consisting of those tenants which also
     represent more than 15% of the property's rentable square footage.

(2)  The amount of rentable square feet at Commons of Crystal Lake does not
     include approximately 81,000 square feet which is owned by Metropolitan
     Life and leased to Venture Stores.

(3)  Montgomery Ward, which has sought protection under Chapter 11 of the U.S.
     Bankruptcy Code, notified the Company that it intended to close this store
     on or about December 31, 1997. However, this tenant has not yet rejected
     its lease.

(4)  The amount of rentable square feet at Rollins Crossing does not include
     approximately 190,000 square feet which is owned by Kmart Corporation.

(5)  HomePlace has sought protection under Chapter 11 of the U.S. Bankruptcy
     Code.

(6)  Upon payment of a $1.8 million cancellation fee to the Company, this tenant
     exercised its option on April 1, 1996, to terminate its lease, effective as
     of April 1, 1998. Although the tenant briefly vacated in 1996, the tenant
     elected to re-occupy the space during 1997. Subsequent to year-end, Arthur
     Andersen assigned the lease to Andersen Consulting, which extended the
     lease for a two-year period commencing April 1, 1998.

Tenant Mix and Leases

As evidenced by the foregoing table, the Company's tenant mix is diverse and
well represented by supermarkets, drugstores and other consumer necessity or
value-oriented retailers. Based on its past experience, the Company believes
that such tenants tend to be stable performers in both good and bad economic
times. As of December 31, 1997, 39 of the Company's shopping centers were
anchored by supermarkets, most of which are leading grocery chains in their
respective markets, comprising approximately 18% of the Company's annualized
base rent and 22% of the Company's GLA. No tenant included in the Company's
portfolio of properties on December 31, 1997, accounted for 10% or more of the
Company's rental income in 1997. In addition to the tenants listed in the
preceding table, the Company's properties include a variety of smaller shop
leases of various tenant types, including restaurants, home life styles, women's
ready-to-wear, cards, books, and electronics.

The terms of the outstanding retail leases vary from tenancies at will to 50
years. Anchor tenant leases are typically for 10 to 25 years, with one or more
extension options available to the lessee upon expiration of the initial lease.
By contrast, smaller shop leases are typically negotiated for three to five year
terms. The longer term of the major tenant leases serves to protect the Company
against significant vacancies and to assure the presence of strong tenants who
draw consumers to the Company's centers. The shorter term of the smaller shop
leases allows the Company to adjust rental rates for non-major store space on a
regular basis and upgrade the overall tenant mix.

Leases to anchor tenants tend to provide lower minimum rents per square foot
than smaller shop leases. Excluding office space, anchor tenant leases for
properties included in the portfolio at December 31, 1997, provided an average
annual minimum rent of $5.96 per square foot, compared with non-anchor tenant
leases which provided an average annual minimum rent of $9.29. In general, the
Company believes that minimum rental rates for anchor tenant leases entered into
several years ago are at or below current market rates, while recent anchor
tenant leases and most non-anchor leases provide for minimum rental rates that
more closely reflect current market rates. The payment by tenants of minimum
rents that are below current market rates is offset in part by payment of
percentage rents.

Annual minimum future rentals to be received under non-cancelable operating
leases in effect at December 31, 1997, for the properties included in the
portfolio at December 31, 1997, and the number of leases that will expire, the
square feet covered by such leases and the minimum annual rent in the year of
expiration under such expiring leases for the next ten years are as follows:

                                      13
<PAGE>


<TABLE> 
<CAPTION> 
                                                                  Leases Expiring
                                               ------------------------------------------------------
           Year Ending          Minimum             Number         Square Feet         Minimum
           December 31        Future Rents        of Leases        -----------       Future Rents
           -----------        ------------        ---------                          ------------
<S>                           <C>              <C>                 <C>               <C> 
              1998             $74,370,000           156             636,810          $6,246,198
              1999              68,813,000           205             849,033           7,867,885
              2000              62,083,000           191             799,870           7,329,498
              2001              55,549,000           135             753,264           6,804,701
              2002              47,168,000           155             894,799           7,717,082
              2003              40,585,000            68             854,352           8,859,492
              2004              32,628,000            37             600,681           3,688,075
              2005              29,472,000            45             376,307           2,939,856
              2006              25,523,000            44             674,111           4,075,968
              2007              22,410,000            23             339,542           2,543,871
</TABLE> 

One North State

One North State was the only property in the portfolio at December 31, 1997,
that represented 10% or more of the historic book value of the Company's total
assets at December 31, 1997, or accounted for 10% or more of the Company's gross
revenues in 1997. One North State is a mixed-use property located in the "Loop"
area of downtown Chicago, Illinois. The property aggregates approximately
640,000 square feet of GLA including approximately 160,000 square feet of retail
space. Real estate taxes for this property amounted to approximately $3,800,000
for 1997. The retail portion of this property is anchored by T.J. Maxx and
Filene's Basement. The leases to T.J. Maxx and Filene's Basement provide current
minimum annual rent of approximately $1,225,000 and $1,000,000, respectively.
The office portion of this property is leased primarily to First Chicago and
Arthur Andersen. The leases to First Chicago and Arthur Andersen provide current
minimum annual rent of approximately $4,000,000 and $1,518,000, respectively.
The lease with Arthur Andersen expiring March 31, 1998, was assigned to Andersen
Consulting and was extended subsequent to year-end, providing minimum annual
rent of $1,645,000 per annum through March 2000.

The Company has listed for sale One North State because the property does not
fit with the Company's grocery-anchored community shopping center focus and the
Company believes, given the current strong investment sales market in downtown
Chicago, that it is an opportune time to sell this asset. The disposition of
this property is expected to be completed during 1998, although there can be no
assurance such disposition will occur.

The following tables set forth certain supplemental information with respect to
One North State, and reflect Andersen Consulting's extension of its lease
effective April 1998. See "Risk Factors - Real Estate Investment Considerations-
Potential Negative Effect of Sale of One North State Property."

a.   Percentage leased at December 31 for the last five years:

<TABLE> 
<CAPTION> 
<S>                               <C> 
          1997                       98%
          1996                       98%
          1995                       95%
          1994                       95%
          1993                       95%
</TABLE> 

b.   The average effective annual minimum rentals per square foot for 1997,
1996, and 1995 were as follows:

<TABLE> 
<CAPTION> 
<S>                               <C> 
          1997                    $15.89
          1996                    $15.18
          1995                    $15.45
</TABLE> 

                                      14
<PAGE>

 
c.   Leases in effect at December 31, 1997, expiring over each of the next ten
years, assuming no tenants exercise renewal options (except Andersen
Consulting):

<TABLE> 
<CAPTION> 
                            No. of        Square          Minimum
                            Leases         Feet         Future Rents
                            ------         ----         ------------
<S>                         <C>          <C>            <C> 
          1998                  -              -        $          -
          1999                  1          1,177              76,505
          2000                  2        128,340           1,827,507
          2001                  6         83,767           1,652,970
          2002                  4         54,296           1,164,470
          2003                  3        341,577           4,744,361
          2004                  -              -                   -
          2005                  2          2,035             125,307
          2006                  -              -                   -
          2007                  -              -                   -
</TABLE> 

Risk Factors

General

As in every business, there are risk factors that face the Company and its
operations. By setting forth below some of the factors that could cause the
actual results of the Company's operations or plans to differ materially from
the Company's expectations as set forth in statements in this Report or
elsewhere that may be considered to be "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, the Company seeks to avail itself of the "safe
harbor" provided in the Private Securities Litigation Reform Act of 1995.

Substantial Debt Obligations and Term of Debt

The Company's obligations for borrowed money aggregated approximately $302.7
million at December 31, 1997, as compared to $188.9 million at December 31,
1996. The ratio of debt to total market capitalization of the Company was
approximately 37% as compared to 32% at December 31, 1996. This increase in the
Company's leverage and its ratio of debt to total market capitalization could
increase the risk of default under its indebtedness. Failure to pay debt
obligations when due could result in the Company losing its interest in the
properties collateralizing such obligations.

The Company believes that the ratio of debt to total market capitalization is an
important factor to consider in evaluating a REIT's debt level because this
ratio is one indicator of a company's ability to borrow funds. The Company
believes that using the ratio of debt to book value of assets is not as reliable
an indicator of a REIT's debt level because the book value of a REIT's assets
indicates only the depreciated value of the REIT's property without
consideration of the market value of such assets at a particular point in time.
The use of the ratio of debt to total market capitalization of a company is more
variable than the book value because it is dependent on the current stock price
of a company. Accordingly, there can be no assurance that the use of the ratio
of debt to total market capitalization in evaluating the Company's debt level
will adequately protect it from being too highly leveraged.

Eight properties as of December 31, 1997 secure an aggregate of approximately
$51.2 million of mortgage debt, with balloon maturities of approximately $10.0
million due in September 1998, $2.9 million in 2003, $10.7 million in 2005, $7.9
million in 2006, $2.1 million in 2007 and $9.8 million in 2016. The line of
credit, with a balance of $151.7 million as of December 31, 1997, matures in
2000. The $100 million of unsecured Notes payable at December 31, 1997 matures
in 2004. Subsequent to year-end, the Company paid-down the line of credit with
proceeds from the issuance of $100 million of 7.2% unsecured Notes, maturing in
2008. The Company has historically been able to refinance debt when it has
become due on terms which it believes to be commercially reasonable. There can
be no assurance that the Company will continue to be able to repay or refinance
its indebtedness on commercially reasonable or any other terms.

                                      15
<PAGE>
 

Although management attempts to maintain a balance between total outstanding
indebtedness and the value of the portfolio of properties (i.e., a ratio of debt
and preferred stock to Real Estate Value of 50% or less, with "Real Estate
Value" defined as net operating income divided by 10.25%), and a ratio of debt
to total market capitalization between 30% and 40%, there can be no assurance
that management will not alter these ratios at any time. Accordingly, the
Company could become more highly leveraged, resulting in an increase in debt
service that could adversely affect the Company's ability to make expected
distributions to share owners and in an increased risk of default on its
obligations under any outstanding indebtedness. Failure to pay its debt
obligations when due could also result in the Company losing its interest in any
properties that secure indebtedness included within such obligations.

The Company's unsecured line of credit bears interest at a variable rate. The
balance outstanding under the line of credit at December 31, 1997, was $151.7
million; and the Company may increase outstanding borrowings to $200 million. To
the extent the Company's exposure to increases in interest rates is not
eliminated through interest rate protection or cap agreements, such increases
will adversely affect the Company's net income, funds from operations ("FFO")
and cash available for distribution and may affect the amount of distributions
it can make to its share owners.

The Company has entered into an interest rate protection agreement with
BankBoston (the "Bank"), with respect to $57 million of indebtedness, whereby
the Bank will reimburse the Company the amount by which the then applicable
three month LIBOR rate exceeds the then applicable cap rate per the agreement
(currently 7.50%). The Company has entered into an interest rate swap agreement
with the Bank with respect to $43 million, thereby fixing the interest rate on
the $43 million through April 14, 1998. There can be no assurance that these
interest rate protection provisions will be effective, or that once the interest
rate protection agreements expire, the Company will enter into additional
interest rate protection agreements.

The foregoing risks associated with the debt obligations of the Company may
adversely affect the market price of the Company's common stock and may inhibit
the Company's ability to raise capital and issue equity in both the public and
private markets.

Potential Anti-Takeover Effect of Certain Provisions

Certain provisions contained in the Company's Articles of Amendment and
Restatement (the "Charter") and Bylaws (the "Bylaws") may have the effect of
discouraging a third party from making an acquisition proposal for the Company
and may thereby inhibit a change in control of the Company. These provisions
include the following: (i) the Company's Charter provides for three classes of
Directors, with the term of office of one class expiring each year, (ii) the
Company's Bylaws provide that the holders of not less than 25% of the
outstanding shares of common stock may call a special meeting of the Company's
share owners, and (iii) the Charter generally limits any holder from acquiring
more than 9.8% of the value of all outstanding capital stock of the Company.
With respect to clause (ii) in the preceding sentence, a recent change in the
Maryland General Corporation Law, under which the Corporation is organized,
authorizes the Directors of the Company to amend the Bylaws to increase the
number of outstanding shares of common stock required to call a special meeting
from 25% to a majority.

These provisions described above could have a potential anti-takeover effect on
the Company. The staggered Board provision in the Charter prevents stockholders
from voting on the election of more than one class of directors at each annual
meeting of stockholders and thus may have the effect of keeping the members of
the Board of Directors of the Company in control for a longer period of time.
The staggered Board provision and the provision in the Bylaws requiring holders
of at least 25% of the outstanding shares of common stock to call a special
meeting of stockholders may have the effect of making it more difficult for a
third party to acquire control of the Company without the consent of its Board
of Directors, including certain acquisitions which stockholders deem to be in
their best interest. In addition, the ownership limits in the Charter may also
(i) deter certain tender offers for the shares of common stock which might be
attractive to certain stockholders, or (ii) limit the opportunity for
stockholders to receive a premium for their shares of common stock that might
otherwise exist if an investor were attempting to assemble a block of shares in
excess of 9.8% of the value of the outstanding shares of common stock, or
otherwise effect a change in control.

The provisions of the Maryland General Corporation Law relating to certain
"business combinations" and "control share" acquisitions involving corporations
organized under the laws of that state may also inhibit a change in control of
the Company.

                                      16
<PAGE>
 

Real Estate Investment Considerations

Dependence on Midwestern Region and Retail Industry

Substantially all of the Company's properties are located in the Midwestern
region of the United States and such properties consist predominantly of
community and neighborhood shopping centers. The Company's performance therefore
is linked to economic conditions in the Midwest and in the market for retail
space generally. The market for retail space has been adversely affected by the
ongoing consolidation in the retail sector, the adverse financial condition of
certain large companies in this sector and the excess amount of retail space in
certain markets. To the extent that these conditions impact the market rents for
retail space, they could result in a reduction of net income, FFO and cash
available for distribution and thus affect the amount of distributions the
Company can make to its share owners.

In addition, the Company predominantly owns and operates shopping centers
catering to retail tenants. To the extent that the investing public has a
negative perception of the retail sector, the value of shares of common stock of
the Company may be negatively impacted, thereby resulting in such shares trading
at a discount below the inherent value of the assets of the Company as a whole.

Financial Condition and Bankruptcy of Tenants

Since substantially all of the Company's income has been, and will continue to
be, derived from rental income from retail shopping centers, the Company's net
income, FFO and cash available for distribution would be adversely affected if a
significant number of tenants were unable to meet their obligations to the
Company or if the Company were unable to lease, on economically favorable terms,
a significant amount of space in its shopping centers. In addition, in the event
of default by a tenant, the Company may experience delays and incur substantial
costs in enforcing its rights as landlord.

At any time, a tenant of the Company's properties may seek the protection of the
bankruptcy laws, which could result in the rejection and termination of the
tenant lease. Such an event could cause a reduction of net income, FFO and cash
available for distribution and thus affect the amount of distributions the
Company can make to its share owners. No assurance can be given that any present
tenant which has filed for bankruptcy protection will continue making payments
under its lease or that any tenants will not file for bankruptcy protection in
the future or, if any tenants file, that they will continue to make rental
payments in a timely manner. In addition, a tenant may, from time to time,
experience a downturn in its business, which may weaken its financial condition
and result in a reduction or failure to make rental payments when due. If a
lessee or sublessee defaults in its obligations to the Company, the Company may
experience delays in enforcing its right as lessor or sublessor and may incur
substantial costs and experience significant delays associated with protecting
its investment, including costs incurred in renovating and releasing the
property.

Vacancies and Lease Renewals

The Company is continually faced with expiring tenant leases at its properties.
Some lease expirations provide the Company with the opportunity to increase
rentals or to hold the space available for a stronger long-term tenancy. In
other cases, there may be no immediately foreseeable strong tenancy for space,
and the space may remain vacant for a longer period than anticipated or may be
able to be re-leased only at less favorable rents. In such situations, the
Company may be subject to competitive and economic conditions over which it has
no control. Accordingly, there is no assurance that the effects of possible
vacancies or lease renewals at such properties may not reduce the rental income,
net income, FFO and funds available for distribution below levels anticipated by
the Company.

Potential Negative Effect of Sale of One North State Property

During the year ended December 31, 1997, more than 10% of the total revenue of
the Company was derived from rents and expense reimbursements from tenants of
the One North State property, which is a "mixed use" property located in
downtown Chicago. The total rents currently being paid by certain of this
property's tenants may be in excess of current market rates. The leases of these
tenants begin to expire in 2001.

                                      17
<PAGE>
 
The Company has listed for sale One North State because the property does not
fit with the Company's grocery-anchored community shopping center focus and the
Company believes, given the current strong investment sales market in downtown
Chicago, that it is an opportune time to sell this asset. The disposition of
this property is expected to be completed during 1998, although there can be no
such assurance. The Company's operating results could be adversely affected if
the Company is not able, promptly after such a sale, to redeploy the sales
proceeds into one or more other properties that produce net operating income at
a level comparable to that of One North State.

Possible Environmental Liabilities
----------------------------------

Under various federal, state and local laws, ordinances and regulations, an
owner of real estate is liable for the costs of removal or remediation of
certain hazardous or toxic substances on or in such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances. The
presence of such substances, or the failure to properly remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to use such property as collateral in its borrowings. All of the
Company's properties have been subjected to Phase I or similar environmental
audits (which involve inspection without soil sampling or ground water analysis)
by independent environmental consultants. Except as described below, these
environmental audit reports have not revealed any potential significant
environmental liability, nor is management aware of any environmental liability
with respect to the properties that it believes would have a material adverse
effect on the Company's business, assets or results of operations. No assurance
can be given that existing environmental studies with respect to the properties
reveal all environmental liabilities or that any prior owner of any such
property did not create any material environmental condition not known to
management.

Phase II site assessments of the Commons of Chicago Ridge property acquired in
the Tucker Acquisition have disclosed the presence of contaminants in fill
material and soil at the property that could be associated with the property's
former use as a landfill and as the former site of an asphalt plant and storage
tanks for petroleum products (which storage tanks have been removed from the
property), but not at such levels as would require reporting to environmental
agencies. These Phase II site assessments also disclosed the presence in
groundwater of contaminants similar to those detected in the soil samples.
Environmental assessments of the property have also detected methane gas,
probably associated with the former use of the property as landfill. A regular
maintenance program was implemented by Tucker and is being continued by the
Company to control the migration and effect of the methane gas. There can be no
assurance that an environmental regulatory agency such as the Illinois
Environmental Protection Agency will not in the future require further
investigation to determine the source and vertical and horizontal extent of the
contamination. If any such investigation is required and confirms the existence
of contaminants at the levels disclosed in the Phase II site assessments, it is
possible that the relevant agency could require the Company to take action to
address the contamination, which action could range from ongoing monitoring to
remediation of the contamination. Based on the information currently available,
management does not believe that the cost of responding to such contamination
would be material to the Company.

In connection with the execution of the merger agreement relating to the Tucker
Acquisition, the Company and certain individuals who had previously provided a
limited indemnity to Tucker for environmental liabilities at Commons of Chicago
Ridge (the "Individuals") agreed to indemnify the Company and its subsidiaries
and affiliates against all claims, losses, costs and expenses incurred by such
parties arising out of any administrative, regulatory or judicial action, suit,
investigation or proceeding in connection with any applicable environmental
health or safety law regarding hazardous substances, materials, wastes or
petroleum products, or any common law right of action regarding such substances,
materials, wastes or products, whether brought by a governmental or regulatory
authority or by a third party, that is initiated on or before October 4, 2003,
with respect to conditions or acts at the Commons of Chicago Ridge which existed
prior to October 4, 1993. In connection with this indemnification obligation,
the Company has agreed to keep the Individuals reasonably informed of various
activities relating to the property and to consult with the Individuals with
respect to any potential claims, settlements and remediation which could trigger
the indemnification obligations of the Individuals. There can be no assurance
that the Individuals will be in a position to honor their indemnity obligations.
Regardless of such indemnification, based on the information currently
available, management does not believe that the environmental liabilities and
expenses relating to the Commons of Chicago Ridge property would have a material
effect on the liquidity, financial condition or operating results of the
Company.

                                      18
<PAGE>
 
Insurance
---------

The Company carries comprehensive general liability coverage and umbrella
liability coverage on all of its properties with limits of liability which
management deems adequate to insure against liability claims and provide for
cost of defense. Similarly, the Company is insured against the risk of direct
physical damage in amounts the Company estimates to be adequate to reimburse the
Company on a replacement cost basis for costs incurred to repair or rebuild each
property, including loss of rental income during the reconstruction period.
Currently, the Company also insures the properties for loss caused by earthquake
or flood in the aggregate amount of $10 million per occurrence. Because of the
high cost of this type of insurance coverage and the wide fluctuations in price
and availability, management has made the determination that the risk of loss
due to earthquake and flood does not justify the cost to increase coverage
limits any further under current market conditions. Should the availability and
pricing of this coverage become more cost advantageous, management would re-
evaluate its position.

Uncertainty of Meeting Acquisition Objectives
---------------------------------------------

The Company continually seeks prospective acquisitions of additional shopping
centers and portfolios of shopping centers which management believes can be
purchased at attractive initial yields and/or which demonstrate the potential
for revenue and cash flow growth through implementation of renovation,
expansion, re-tenanting and re-leasing programs similar to those undertaken with
respect to properties in the existing portfolio. There can be no assurance that
the Company will effect any potential acquisition that it may evaluate. The
evaluation process involves costs which are non-recoverable in the case of
acquisitions which are not consummated. In addition, notwithstanding
management's adherence to its criteria for evaluating and due diligence
regarding potential acquisitions, there can be no assurance that any acquisition
that is consummated will meet management's expectations. During the course of
1997, the Company noticed a trend of decreasing capitalization rates applicable
to properties being acquired, i.e. increasing purchase prices for comparable
properties, and this trend has continued to date in 1998. 

Competition
-----------

All of the Company's properties are located in developed areas. There are
numerous other retail properties and real estate companies within the market
area of each such property which compete with the Company for tenants and
development and acquisition opportunities. The number of competitive retail
properties and real estate companies in such areas could have a material effect
on (i) the Company's ability to rent space at the properties and the amount of
rents charged and (ii) development and acquisition opportunities. The Company
competes for tenants and acquisitions with others who have greater resources
than it has.

Year 2000 Issues
----------------

In the conduct of its own operations, the Company relies upon commercial
computer software primarily provided by independent software vendors. After an
analysis of the Company's exposure of the impact of "year 2000 issues" (i.e.
issues that may arise resulting from computer programs that use only the last
two, rather than all four, digits of the year), the Company believes that such
commercial software is substantially year 2000 compliant and that such
independent vendors will be able to complete such year 2000 compliance in a
timely manner and without any material impact on the Company's business,
operations or financial condition. However, the Company is subject to year 2000
issues that may affect the economy generally or any tenants, suppliers or others
with whom the Company does business and over whose year 2000 compliance the
Company has no control.

Adverse Consequence of Failure to Qualify as a REIT and Other Tax Risks
-----------------------------------------------------------------------

The Company believes that it has operated in a manner that permits it to qualify
as a REIT under the Internal Revenue Code (the "Code") for each taxable year
since its formation in 1961. Although management of the Company believes that
the Company is organized and is operating in such a manner, no assurance can be
given that the Company will be able to continue to operate in a manner so as to
qualify or remain so qualified. Qualification as a REIT involves the application
of highly technical and complex Code provisions for which there are only limited
judicial or administrative interpretations and the determination of various
factual matters and circumstances not entirely within the Company's control. For
example, in order to qualify as a REIT, at least 95% of the Company's gross
income in any year must be derived from qualifying sources and the Company must
make distributions to

                                       19
<PAGE>
 
share owners aggregating annually at 95% of its REIT taxable income (excluding
net capital gains). In addition, no assurance can be given that new legislation,
new regulations, administrative interpretations or court decisions will not
change the tax laws with respect to qualification as a REIT or the federal
income tax consequences of such qualification. The Company, however, is not
aware of any currently pending tax legislation that would adversely affect its
ability to continue to operate as a REIT.

If the Company fails to qualify as a REIT, it will be subject to federal income
tax (including any applicable alternative minimum tax) on its taxable income at
corporate rates. In addition, unless entitled to relief under certain statutory
provisions, it will also be disqualified from treatment as a REIT for the four
taxable years following the year during which qualification is lost. This
treatment would reduce the net earnings of the Company available for investment
or distribution to share owners because of the additional tax liability for the
year or years involved. In addition, distribution would no longer be required to
be made. To the extent that distributions to share owners would have been made
in anticipation of the Company's qualifying as a REIT, the Company might be
required to borrow funds or to liquidate certain of its investments to pay the
applicable tax. The failure to qualify as a REIT would also constitute a default
under certain debt obligations of the Company.

In connection with the Tucker Acquisition, Tucker represented to the Company
that, since its formation, it also operated so as to qualify as a REIT under the
Code up to the time of the Tucker Acquisition. If Tucker failed to qualify as a
REIT in any year in which it elected so to qualify and consequently becomes
liable to pay taxes as a regular non-REIT corporation, the liabilities of Tucker
that the Company assumed upon effectiveness of the Tucker Acquisition include
such tax liability. Moreover, Tucker's failure to qualify as a REIT could
disqualify the Company as a REIT for the periods following the Tucker
Acquisition. The Company's acquisition of Tucker's general partner interest in
the Operating Partnership and Tucker's indirect interests in certain subsidiary
partnerships of the Operating Partnership involve special tax considerations,
including the qualification of each such partnership as a "partnership" for
federal income tax purposes, which also could impact the Company's ability to
qualify as a REIT.

The failure to qualify as a REIT would have a material adverse effect on an
investment in the Company as the taxable income of the Company would be subject
to federal income taxation at corporate rates, and, therefore, the amount of
cash available for distribution to its share owners would be reduced or
eliminated.

ITEM 2.  PROPERTIES
         ----------

The properties owned by the Company at December 31, 1997 are described under
Item 1 and in Note 4 of the Notes to Financial Statements contained in this
Report.

The Company's principal office is located at 40 Skokie Boulevard in Northbrook,
Illinois, where the Company leases approximately 10,000 square feet of space
from an unrelated landlord. The Company maintains regional property management
and leasing offices at certain of its properties located in Chicago,
Minneapolis, St. Louis, Indianapolis, Kansas City, and Milwaukee.

ITEM 3.  LEGAL PROCEEDINGS
         -----------------

Not applicable.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
         -----------------------------------------------

Not applicable.

ITEM 4.A.  EXECUTIVE OFFICERS OF THE REGISTRANT
           ------------------------------------

The Company's by-laws provide that the officers of the Company shall be a
President, a Treasurer, a Secretary and such other officers as are elected or
appointed by the Directors. Each officer holds office at the pleasure of the
Directors. The Directors have determined that the following officers are
executive officers of the Company within the meaning of Rule 3b-7 under the
Securities Exchange Act:

                                      20
<PAGE>
 
President and Chief Executive Officer - Thomas P. D'Arcy, age 38, has held this
position since February 1996, having served as Executive Vice President since
September 1995, Senior Vice President since 1992 and Vice President since 1989.
Prior to joining the Company, Mr. D'Arcy was employed by R.M. Bradley & Co.,
Inc. as a member of its property management and real estate brokerage
departments for over eight years.

Executive Vice President - Richard L. Heuer, age 45, has held this position
since late 1994. Prior to joining the Company, Mr. Heuer was employed by the
Welsh Companies from September 1993, and Towle Real Estate Company from 1988,
which companies were the independent property management companies that managed
the Company's Minnesota properties.

Executive Vice President - E. Paul Dunn, age 51, has held this position since
March 1996. Prior to joining the Company, Mr. Dunn was Executive Vice President
of the Welsh Companies in Minneapolis, Minnesota since 1983.

Senior Vice President - Marianne Dunn, age 38, was named Senior Vice President
of the Company in September 1995, having served as Vice President of the
Company since 1993 and as Investment Manager since 1990.

Chief Financial Officer and Treasurer - Irving E. Lingo, Jr., age 46, has held
the position with the Company since September 1995. Prior to joining the
Company, Mr. Lingo served as Chief Financial Officer of Lingerfelt Industrial
Properties, a division of The Liberty Property Trust, from June 1993 to
September 1995. Prior to June 1993, Mr. Lingo was Vice President-Finance of CSX
Realty, a subsidiary of CSX Corporation, from 1991-1992.

Vice President of Construction - Frank J. Comber, age 57, has held this position
since August 1996. Prior to joining the Company, Mr. Comber served as Vice
President of Construction Services for Merchandise Mart Properties from 1989 to
1996 and First Vice President for Homart Development Company from 1973 to 1988.

Vice President of Leasing - Steven St. Peter, age 46, has held this position
since August 1996. Prior to joining the Company, Mr. St. Peter served as
National Director of Real Estate for Bally's Total Fitness from 1995 to 1996,
Midwest Manager of Real Estate for TJX Corporation from 1993 to 1995 and
Director of Leasing for H.S.S. Development from 1990 to 1993.

None of the Officers or Directors of the Company is related to any other Officer
or Director of the Company. No description is required with respect to any of
the foregoing persons of any type of event referred to in Item 401(f) of
Regulation S-K.

                                      21
<PAGE>

                                    Part II
                                    -------

ITEM 5.  MARKET FOR THE REGISTRANT'S SHARES AND RELATED STOCKHOLDER MATTERS
         ------------------------------------------------------------------

The Company's Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "BTR". The ranges of high and low prices reported on the NYSE
during 1996 and 1997 were:
<TABLE>
<CAPTION>
Quarter Ended          High         Low         Quarter Ended          High       Low
-------------          ----         ---         -------------          ----       ---
<S>                    <C>          <C>         <C>                    <C>        <C>
March 31, 1996         $15          $12 7/8     March 31, 1997         $20 3/4    $17 3/8
June 30, 1996           15           13 7/8     June 30, 1997           20 3/8     17 1/2
September 30, 1996      16 5/8       13 3/4     September 30, 1997      21 1/4     18
December 31, 1996       18           16 3/8     December 31, 1997       21 7/16    18
</TABLE> 

The closing sale price on the NYSE on March 2, 1998, was $21 5/8. At December
31, 1997 there were approximately 750 holders of record of the Company's
shares. 

Dividends have been paid by the Company during the past two full years as
follows:

<TABLE>
<CAPTION>
Payment                Per Share     Payment                Per Share
-------                ---------     -------                ---------
<S>                    <C>           <C>                    <C>  
March 29, 1996          $  .33       March 31, 1997          $  .33
June 28, 1996              .33       June 30, 1997              .33
September 27, 1996         .33       September 30, 1997         .33
December 27, 1996          .33       December 31, 1997          .35
</TABLE> 

The Company has determined that approximately 28% and 14% of the distributions
paid in 1997 and 1996, respectively, were non-taxable returns of capital to
share owners, approximately 57% and 69% of the distributions paid in 1997 and
1996, respectively, were ordinary dividends and 15% and 17% of the distributions
paid in 1997 and 1996, respectively, were a capital gain.

Recent Issue of Unregistered Securities
---------------------------------------

On December 23, 1997 and December 31, 1997, respectively, Bradley Operating
Limited Partnership issued 247,279 and 205,431 limited partner units that may be
exchanged after January 1, 1999, for an equal number of shares of common stock
of the Company, as a part of the consideration paid for the acquisitions of
Baken Park and Spring Mall. At the date of each transaction, the value of a
share of common stock for which each limited partnership unit may be exchanged
was $20.22. No registration statement was required in connection with the
issuances because the transactions did not involve public offerings and were
exempt under Section 4(2) of the Securities Act.

                                       22
<PAGE>
 
ITEM 6.  SELECTED FINANCIAL DATA
<TABLE> 
<CAPTION> 

                                                                              Year Ended December 31,
                                                  -------------------------------------------------------------------------
                                                         1997           1996            1995          1994         1993
                                                         ----           ----            ----          ----         ----
                                                                  (Thousands of dollars, except per share data)
<S>                                                  <C>            <C>              <C>          <C>           <C>  
Total income                                          $   97,552     $  78,839        $ 36,572     $  32,987     $  23,469
Total expenses                                            74,116        60,711          28,141        25,343        17,934
                                                  -------------------------------------------------------------------------
Income before net gain on sale of properties and  
  extraordinary item                                      23,436        18,128           8,431         7,644         5,535
Net gain on sale of properties                             7,438         9,379               -           983             -
                                                  -------------------------------------------------------------------------
Income before extraordinary item and allocation      
  to minority interest                                    30,874        27,507           8,431         8,627         5,535
Income allocated to minority interest                    (1,116)         (285)               -             -             -
                                                  -------------------------------------------------------------------------
Income before extraordinary item                          29,758        27,222           8,431         8,627         5,535
Extraordinary loss, net of minority interest             (4,631)             -               -             -             -
                                                  -------------------------------------------------------------------------
Net income                                            $   25,127     $  27,222        $  8,431     $   8,627     $   5,535
                                                  =========================================================================
Basic earnings per common share:
   Income before extraordinary item                   $     1.36     $    1.54        $   0.85     $    1.05     $    0.82
   Extraordinary loss, net of minority interest           (0.21)             -               -             -             -
                                                  -------------------------------------------------------------------------
   Net income                                         $     1.15     $    1.54        $   0.85     $    1.05     $    0.82
                                                  =========================================================================
Diluted earnings per common share:
   Income before extraordinary item                   $     1.36     $    1.54        $   0.85     $    1.05     $    0.82
   Extraordinary loss, net of minority interest           (0.21)             -               -             -             -
                                                  -------------------------------------------------------------------------
   Net income                                         $     1.15     $    1.54        $   0.85     $    1.05     $    0.82
                                                  =========================================================================
Distributions per share                               $     1.34     $    1.32        $   1.32     $    1.29     $    1.22
Weighted average shares outstanding                   21,776,146    17,619,546       9,863,767     8,191,831     6,715,813
Net cash provided by (used in):
   Operating activities                               $   44,827     $  31,633        $ 12,733     $  10,877     $   6,532
   Investing activities                               $(122,649)     $(16,715)        $(9,953)     $(33,653)     $(39,451)
   Financing activities                               $   75,107     $ (8,153)        $(2,276)     $  22,019     $  28,237
Funds from operations*                                $   41,174     $  30,345        $ 15,249     $  12,382     $   8,914
Total assets at end of year                           $  668,791     $ 502,284        $180,545     $ 166,579     $ 127,931
Total debt at end of year                             $  302,710     $ 188,894        $ 39,394     $  66,748     $  29,317
</TABLE> 

*Funds from operations ("FFO"), as defined by the National Association of Real
Estate Investment Trusts ("NAREIT") and as followed by the Company, represents
net income (computed in accordance with generally accepted accounting
principles), excluding gains or losses from debt restructuring and sales of
property, plus depreciation and amortization. In computing FFO, the Company does
not add back to net income the amortization of costs incurred in connection with
the Company's financing activities or depreciation of non-real estate assets,
but does add back to net income significant non-recurring events that materially
distort the comparative measurement of company performance over time.

Reference is made to "Management's Discussion and Analysis" (Item 7) for a
discussion of various factors or events which materially affect the
comparability of the information set forth above.

                                       23
<PAGE>
 
ITEM 7.
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

General

Unless otherwise required by the context, references to the "Company" below
include references to Bradley Operating Limited Partnership (the "Operating
Partnership") through which the Company owns its properties and conducts its
business.

The Company believes that improving its financial flexibility will better
position the Company for future growth, allowing it to take advantage of
acquisition, renovation and expansion opportunities. The Company further
considers its liquidity and ability to generate cash from operating and from
financing activities to be sufficient, and expects them to continue to be
sufficient, to meet its operating expense, debt service, REIT distribution
requirements and acquisition opportunities for the foreseeable future. Due to
the capital intensive nature of real estate in general, the avenues available
for raising capital, as well as the mix of debt and equity, are critical
components in the ability of the Company to continue to grow.

The Company funds operating expenses and distributions primarily from operating
cash flows, although its bank line of credit may also be used for these
purposes. The Company funds acquisitions and capital expenditures primarily from
the line of credit and, to a lesser extent, operating cash flows, as well as
through the issuance of securities. The Company may also acquire properties
through the direct issuance of securities of the Company, or through the
issuance of Limited Partner Units of the Operating Partnership. Additionally,
the Company may dispose of certain non-core properties, reinvesting the proceeds
from such dispositions into properties with better growth potential and that are
more consistent with the Company's strategic focus. In addition, the Company may
acquire partial interests in real estate assets through participation in joint
venture transactions.

The Company focuses its investment activities on community and neighborhood
shopping centers primarily located in the midwestern United States anchored by
regional and national grocery store chains. The Company will continue to seek
acquisition opportunities of individual properties and property portfolios and
of private and public real estate entities in both primary and secondary Midwest
markets, where management can utilize its extensive experience in shopping
center renovation, expansion, re-leasing and re-merchandising to achieve long-
term cash flow growth and favorable investment returns.

As of December 31, 1997, financial liquidity was provided by $4,747,000 in cash
and cash equivalents and by the Company's unused balance on the line of credit
of $48,300,000. In addition, at December 31, 1997, the Company has an effective
"shelf" registration statement under which the Company may issue up to
$209,013,000 in equity securities and an additional "shelf" registration
statement under which the Operating Partnership may issue up to $200,000,000 in
unsecured, non-convertible investment grade debt securities. Subsequent to
December 31, 1997, the Operating Partnership issued an additional $100,000,000
in unsecured Notes, reducing the available borrowing capacity under its "shelf"
registration to $100,000,000, and increasing the available borrowing capacity
under its line of credit. The "shelf" registration statements give the Company
the flexibility to issue additional equity or debt securities from time to time
when management determines that market conditions and the opportunity to utilize
the proceeds from the issuance of such securities are favorable. The Company
also has $40,000,000 remaining under a Forward Equity Program with PaineWebber
Incorporated ("PaineWebber"), pursuant to which the Company has the right, until
April 21, 1998, to sell shares of its common stock to PaineWebber, acting as
underwriter, in amounts ranging from $5 million to $20 million per transaction.

Mortgage debt outstanding at December 31, 1997 consisted of eight fixed-rate
notes totaling $51,227,000 with a weighted average interest rate of 8.18%
maturing at various dates through 2016. Short-term liquidity requirements
include debt service payments due within one year. Scheduled principal
amortization of mortgage debt totaled $656,000 during the year ended December
31, 1997. During the year ending December 31, 1998, scheduled principal
amortization of mortgage debt is approximately $980,000. Additionally, in
September 1998, approximately $10,011,000, with an interest rate of 9.875% is
scheduled to mature. Management currently expects to fund such debt service
requirements with operating cash flow and the line of credit. The Company has
historically been able to refinance debt when it has become due on terms which
it believes to be commercially reasonable. While the Company
                                       
                                      24
<PAGE>
 
currently expects to fund long-term liquidity requirements through the issuance
of a combination of additional investment grade unsecured debt securities,
equity securities and through the bank line of credit, there can be no assurance
that the Company will be able to repay or refinance its indebtedness on
commercially reasonable or any other terms.

Operating Activities

Net cash flows provided by operating activities increased to $44,827,000 during
1997, from $31,633,000 during 1996 and $12,733,000 in 1995. These increases were
due primarily to the growth of the Company's portfolio.

Funds from operations ("FFO") increased $10,829,000 or 36% during 1997, from
$30,345,000 in 1996 to $41,174,000 in 1997. FFO increased by $15,096,000 or 99%
during 1996 from $15,249,000 in 1995. The Company generally considers FFO to be
a relevant and meaningful supplemental measure of the performance of an equity
REIT because it is predicated on a cash flow analysis, contrasted with net
income, a measure predicated on generally accepted accounting principles which
gives effect to non-cash items such as depreciation. FFO, as defined by the
National Association of Real Estate Investment Trusts ("NAREIT") and as followed
by the Company, represents net income (computed in accordance with generally
accepted accounting principles), excluding gains or losses from debt
restructuring and sales of property, plus depreciation and amortization. In
computing FFO, the Company does not add back to net income the amortization of
costs incurred in connection with the Company's financing activities or
depreciation of non-real estate assets, but does add back to net income
significant non-recurring events that materially distort the comparative
measurement of company performance over time. FFO does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles and should not be considered as an alternative to cash
flow as a measure of liquidity. Since the definition of FFO is a guideline,
computation of FFO may vary from one REIT to another. FFO is not necessarily
indicative of cash available to fund cash needs.

Investing Activities

Net cash flows from investing activities decreased to a net use of cash of
$122,649,000 during 1997, from a net use of cash of $16,715,000 in 1996 and a
net use of cash of $9,953,000 in 1995.

During 1997, the Company acquired 25 shopping centers at an aggregate cost of
$189,307,000. Eighteen shopping centers were acquired with $118,122,000 in cash
provided by the Company's line of credit. Three shopping centers were acquired
through a combination of $8,174,000 in cash drawn from the line of credit, the
assumption of $16,768,000 in non-recourse mortgage notes and a $1,000,000
unsecured short-term non-interest bearing note. Three shopping centers were
acquired with a combination of the issuance of Limited Partner Units valued at
$19,196,000 which the holders may ultimately exchange for 1,007,199 shares of
the Company's common stock, and $11,940,000 in cash provided by the Company's
line of credit. One shopping center was acquired via the issuance of Limited
Partner Units valued at $4,154,000, which the holders may ultimately exchange
for 205,431 shares of the Company's common stock, the assumption of a $9,909,000
non-recourse mortgage note and $44,000 in cash provided by the line of credit.

Also during 1997, the Company completed the sales of three properties located in
New England, having an aggregate cost of $17,511,000 for an aggregate net sales
price of $19,377,000. These properties were held for sale at December 31, 1996
because such properties were not aligned with the Company's strategic market
focus. Additionally, the Company completed the sale of Meadows Town Mall during
1997 for a net sales price of $5,904,000, redeploying the proceeds from the sale
toward the acquisitions of additional shopping centers. The property, having a
cost basis of $7,196,000, was acquired in the merger acquisition of Tucker
Properties Corporation ("Tucker") in March 1996 (the "Tucker Acquisition") and
was considered by management to be a non-core property.

On March 15, 1996, the Company closed the Tucker Acquisition after approval by
the share owners of the two companies. The acquisition was completed through the
issuance of 7.4 million common shares of the Company valued at $13.96 per share,
the payment of certain transaction costs and the assumption of all of Tucker's
liabilities, including the $100,000,000 REMIC Note discussed below. The
acquisition was structured as a tax-free transaction, and was accounted for
using the purchase method of accounting.

During 1996, in addition to the acquisition of fourteen properties in connection
with the Tucker Acquisition, the Company acquired two shopping centers in
separate transactions at an aggregate cost of approximately $18,000,000.

                                       25
<PAGE>
 
The first property was acquired for $9,100,000 with cash drawn from the
Company's line of credit. The second property acquisition was structured as a
"like-kind" exchange for federal income tax purposes, whereby the Company
applied proceeds of $12,900,000 from the sale of a ground lease in exchange for
the acquisition of a shopping center for $8,900,000. The excess cash proceeds
from the sale were used to pay-down the Company's line of credit.

Financing Activities

Net cash flows provided by financing activities increased to $75,107,000 in 1997
from a net use of cash of $8,153,000 during 1996 from a net use of cash of
$2,276,000 during 1995. Distributions to share owners (treated as a reduction in
cash flows from financing activities in the Company's financial statements) were
$29,387,000 in 1997, $23,168,000 in 1996, and $13,098,000 in 1995.

Prior to the Tucker Acquisition, the Company held title to all of its properties
directly. From March 1996 until August 1997, the Company held title to some of
its properties (primarily those owned prior to the Tucker Acquisition) directly
and the remainder of its properties (primarily those acquired in and subsequent
to the Tucker Acquisition) through the Operating Partnership. In August 1997,
the Company completed the contribution of its interest in the properties
previously owned directly by it to the Operating Partnership. As a result of
such contribution, the Company now holds its interests in all of its properties
through the Operating Partnership. This structure is commonly referred to as an
umbrella partnership REIT, or "UPREIT." Economic interests in the Operating
Partnership are evidenced by units of partnership interest ("Units") with the
interest of the general partner evidenced by General Partner Units. The
interests of persons who have contributed direct or indirect interests in
certain properties to the Operating Partnership are evidenced by Limited Partner
Units. The Limited Partner Units are convertible into common shares of the
Company on a one-for-one basis, subject to certain limitations. The Operating
Partnership Agreement provides for distributions by the Operating Partnership to
be made to the holders of Limited Partner Units at the same time as, and in the
same amount as, distributions by the Company on an equivalent number of shares
of Company common stock, and for all other distributions to be made to the
general partner. Accordingly, the Company's contribution of such properties to
the Operating Partnership was made without consideration, inasmuch as the
respective economic interest of the limited partners in the Operating
Partnership and of the Company as general partner were not altered by such
contribution. The contribution had no effect on the consolidated financial
statements of the Company.

The contribution of properties originally owned directly by the Company to the
Operating Partnership was motivated by the Company's desire to consolidate its
assets under the ownership of a single entity. The Company believed that holding
all of its properties within a single entity would enhance its ability to obtain
an investment grade debt rating. In September 1997, the Operating Partnership
filed a "shelf" registration statement under which it could issue up to $300
million in unsecured, non-convertible investment grade debt securities, giving
the Company the flexibility to issue such debt securities from time to time when
the Company determines that market conditions and the opportunity to utilize
proceeds from the issuance of such securities are favorable. In August 1997,
Standard & Poor's Investment Services ("Standard & Poor's") assigned an
investment grade credit rating of "BBB-" to the Operating Partnership. In
November 1997, Moody's Investors Service ("Moody's") assigned a prospective
rating of "(P)Baa3" to the unissued shelf registration of debt securities filed
by the Operating Partnership.

In connection with the Tucker Acquisition, the Company assumed a $100 million
mortgage note issued to an entity qualifying as a real estate mortgage
investment conduit (REMIC) for federal income tax purposes. The mortgage note,
secured by six properties, was scheduled to mature September 2000, and was at an
effective interest rate of 7.23%. In November 1997, the Company prepaid the
REMIC Note primarily with the proceeds of the offering by the Operating
Partnership of $100 million of 7% unsecured Notes due November 15, 2004,
utilizing the "shelf" registration. The Notes were rated "BBB-" by Standard &
Poor's and "Baa3" by Moody's. Prepayment of the REMIC Note resulted in an
extraordinary loss on prepayment of debt of $4,054,000 (net of the minority
interest portion), consisting primarily of a prepayment yield maintenance fee.
However, the issuance of such unsecured debt extended the Company's weighted
average debt maturity and resulted in a lower effective interest rate on $100
million of debt, while the prepayment resulted in the discharge from the
mortgage securing the REMIC Note of six properties, including One North State,
having a combined gross book value of $181.2 million. Prepayment of the mortgage
and release of the six assets securing the mortgage also had the effect of
increasing the Company's unencumbered asset base to 88.6% at December 31, 1997.

In 1997, the Company filed a "shelf" registration statement, under which the
Company may issue up to $234,460,000 of equity securities through underwriters
or in privately negotiated transactions from time to time. On December 1, 1997,
the Company completed an offering of 990,000 shares of its common stock from the
"shelf"

                                       26
<PAGE>
 
registration at a price to the public of $20.375 per share. Net proceeds from
the offering, $19,166,000 (net of offering costs of $376,000), were used to
reduce outstanding indebtedness under the line of credit. The shares were sold
under a Forward Equity Program entered into with PaineWebber on October 21,
1997, pursuant to which the Company has the right, until April 21, 1998, to sell
shares of its common stock with an aggregate value up to $60 million to
PaineWebber, acting as underwriter, in amounts ranging from $5 million to $20
million per transaction. The Agreement provides the Company with the ability to
match-fund pending and future acquisitions. Although no further shares have been
sold under the Forward Equity Program, the Company completed an additional
offering of 300,000 shares of its common stock on December 10, 1997 at a price
to the public of $20.50 per share, leaving $209,013,000 available under the
"shelf" registration. Net proceeds from the offering, $5,726,000 (net of
offering costs of $73,000), were used to reduce outstanding indebtedness under
the line of credit.

During 1996, the Company completed a public offering of 2,875,000 shares of
common stock at a price of $16.50 per share. Net proceeds from the offering of
approximately $44,851,000 were used to reduce outstanding borrowings under the
line of credit.

In February 1998, the Company issued 392,638 shares of common stock to a unit
investment trust at a price of $20.375 per Share. Net proceeds from the offering
of approximately $7,600,000 were used to reduce outstanding borrowings under the
line of credit.

In March 1997, the Company amended its $150 million unsecured line of credit
facility, extending the maturity date to March 1999 and reducing the interest
rate to the lower of the lead bank's base rate of 1.50% over the London
InterBank Offer Rate ("LIBOR") from the lower of the bank's base rate or 1.75%
over LIBOR. In December 1997, the Company entered into a new line of credit
facility with an expanded syndicate of banks, increasing the aggregate amount
available from $150 million to $200 million, extending the maturity date to
December 2000, and lowering the interest rate to the lowest of (i) the lead
bank's base rate, (ii) a spread over LIBOR ranging from 0.70% to 1.25% depending
on the credit rating assigned by national credit rating agencies, or (iii) for
amounts outstanding up to $100 million, a competitive bid rate solicited from
the syndicate of banks. Based on the current credit ratings assigned by Standard
& Poor's and Moody's, the spread over LIBOR is 1.00%.

The line of credit provides for the payment of a facility fee in the amount of
$300,000 per annum. In the event the current credit ratings were downgraded by
either Standard & Poor's or Moody's, the facility fee would increase to $500,000
per annum, and the spread over the base rate would increase by 0.25% and the
spread over LIBOR would increase to 1.25%. The line of credit is available for
the acquisition, development, renovation and expansion of new and existing
properties, working capital and general business purposes. The Company incurred
an extraordinary loss on the prepayment of debt in the amount of $577,000 (net
of the minority interest portion) in connection with replacing the previous line
of credit. At December 31, 1997, the weighted average interest rate on the line
of credit was 7.19%.

The line of credit contains certain financial and operational covenants that,
among other provisions, limit the amount of secured and unsecured indebtedness
the Company may have outstanding at any time, and provide for the maintenance of
certain financial tests including minimum net worth and debt service coverage
requirements. The Company believes it was in compliance with such covenants
during 1997 and that such covenants will not adversely affect the Company's
business or the operation of its properties.

In January 1998, the Company issued $100 million, 7.2%, ten-year unsecured Notes
maturing on January 15, 2008. The proceeds from the offering were used to pay
amounts outstanding under the line of credit. 

Capital Strategy

Management believes that the Company's recent growth and operating performance
have enhanced the Company's ability to raise further capital in the public
markets. As indicated above, the Company has positioned itself to take advantage
of favorable opportunities by increasing the dollar amount of both equity and
debt securities that it may issue pursuant to "shelf" registration statements.
Further, by increasing the availability under the Company's line of credit to
$200 million, while lowering the cost of borrowing funds under the line of
credit, the Company is able to take advantage of growth opportunities on more
favorable terms. However, there can be no assurance that further acquisitions
will be made or that the acquisitions that are made will be on as economically
advantageous terms to the Company as those made during 1997. While the public
capital markets have generally been favorable for selected REITs during the past
few years, there can be no assurance either that the public markets will remain
receptive to

                                       27
<PAGE>
 
providing new capital to REITs or that the terms upon which the Company may be
able to raise funds will be attractive or favorable to the Company or to its
share owners.

At December 31, 1997, the Company was holding for sale One North State because
the property does not fit with the Company's grocery-anchored community shopping
center focus and the Company believes, given the current strong investment sales
market in downtown Chicago, that it is an opportune time to sell this asset.
Proceeds received from the sale of One North State would provide a significant
source of capital and liquidity to the Company. Management currently expects to
use the net proceeds from a sale to reduce outstanding borrowings under the line
of credit with the expectation that the increased borrowing capacity under the
line of credit would be used to acquire additional shopping centers within the
Company's target market and that are more in keeping with the Company's
strategic focus. Proceeds received from such sale may also be applied in whole
or in part to tax-deferred "like-kind" exchange acquisitions of additional
properties. There can be no assurance that a sale will be completed, or that if
a sale is completed, the net proceeds will be redeployed into investments with
favorable economic conditions.

Year 2000 Issues

The Company conducts its business primarily with commercial software provided by
third party vendors. After an analysis of the Company's exposure to the impact
of year 2000 issues, management believes that such commercial software is
substantially year 2000 compliant, and that completion of the year 2000
compliance is not expected to have a material impact on the Company's business,
operations or financial condition. Management is not in a position to evaluate
the extent (if any) to which any year 2000 issues that may affect the economy
generally or any tenants, suppliers or others with whom the Company does
business in particular would also be likely to affect the Company.

RESULTS OF OPERATIONS

1997 Compared to 1996

Net income for 1997 totaled $25,127,000, or $1.15 per share, compared with
$27,222,000, or $1.54 per share, for the prior year. Net income for 1996
included a gain of $9,379,000 on the sale of the Company's ground lease in
Minneapolis. Net income for 1997 included a net gain of $7,438,000 on the sale
of four non-core properties over the course of the year, a non-recurring charge
of $3,415,000 for certain stock-based compensation, and an extraordinary charge
of $4,631,000 for costs incurred in connection with the prepayment of the REMIC
Note in late November and the write-off of costs associated with the Company's
former line of credit. Weighted average common shares outstanding were
21,776,146 for 1997 compared with 17,619,546 for the prior year. The increased
shares primarily reflect the full year effect of a 2,875,000 share public
offering completed in November 1996 and the public offerings of 1,290,000 shares
completed in December 1997.

Property Specific Revenues and Expenses (in thousands of dollars)

During 1997, the Company acquired 25 shopping centers and sold four shopping
centers. During 1996, the Company acquired sixteen properties, including
fourteen properties in connection with the Tucker Acquisition in March 1996, and
sold its interest in a ground lease.
<TABLE> 
<CAPTION> 
                                                                                                         Properties
                                                                                        Acquisitions/     Held Both
                                                    1997        1996      Difference     Dispositions       Years
                                                    ----        ----      ----------     ------------       -----
<S>                                               <C>         <C>          <C>           <C>             <C> 
Rental income                                     $96,115     $77,512      $18,603       $17,722         $   881
Operations, maintenance and management            $14,012     $12,949      $ 1,063       $ 2,171         $(1,108)
Real estate taxes                                 $18,398     $16,787      $ 1,611       $ 2,129         $  (518)
Depreciation and amortization                     $16,606     $13,286      $ 3,320       $ 2,769         $   551
</TABLE> 

Results attributable to acquisition and disposition activities

Rental income increased from $77,512,000 in 1996 to $96,115,000 in 1997, an
increase of $18,603,000. Approximately $17,722,000 of the net increase was
attributable to the Company's acquisition and disposition activities, of which
$8,933,000 primarily related to the full year effect of the properties acquired
in the Tucker Acquisition in 1996.

                                       28
<PAGE>
  
Operations, maintenance and management expense increased from $12,949,000 in
1996 to $14,012,000 in 1997, an increase of $1,063,000. Approximately $2,171,000
of the net increase was attributable to the Company's acquisition and
disposition activities, of which $1,108,000 primarily related to the full year
effect of the properties acquired in the Tucker Acquisition in 1996, partially
offset by a $1,108,000 decrease for properties held both years.

Real estate taxes increased from $16,787,000 in 1996 to $18,398,000 in 1997, an
increase of $1,611,000. Approximately $2,129,000 of the net increase was
attributable to the Company's acquisition and disposition activities, of which
$866,000 primarily related to the full year effect of the properties acquired in
the Tucker Acquisition in 1996, partially offset by a $518,000 decrease for
properties held both years.

Depreciation and amortization increased from $13,286,000 in 1996 to $16,606,000
in 1997, an increase of $3,320,000. Approximately $2,769,000 of the net increase
was attributable to the Company's acquisition and disposition activities, of
which $1,575,000 primarily related to the full year effect of the properties
acquired in the Tucker Acquisition in 1996.

Results for properties fully operating throughout both years

The remaining increase in rental income of $881,000 was primarily attributable
to increases at Har Mar Mall, Burning Tree Plaza and Crossroads Center
aggregating $1,006,000, partially offset by a decrease at Westview Center of
approximately $382,000. During the second half of 1996, the Company signed
leases at Har Mar Mall for approximately 26,000 square feet, or 6% of the
Center, contributing to an increase in 1997, since such leases were in place for
the full year. Additionally, higher sales for certain tenants at Har Mar Mall
contributed to an increase in percentage rents. The Best Buy store at Burning
Tree Plaza was expanded by approximately 18,000 square feet in March 1997,
contributing to the increased rental income at this property. The rental income
increase at Crossroads Center was primarily due to an increase in occupancy.

Westview Center has continued to suffer from the vacancy of Burlington Coat
Factory in 1994. Management actions with respect to the property included
negotiating reductions in the assessed value of the property, resulting in a
$438,000 reduction in the real estate tax expense in 1997, more than offsetting
the reduction in rental income. Further, during 1997, the Company signed a
60,000 square-foot lease with Waccamaw Pottery, which commenced in October 1997.
This lease is expected to contribute to increased rental income in 1998,
resulting in an overall improvement in the performance of the property. New
leases of 55,000 square feet with JC Penney at Commons of Chicago Ridge which
commenced in June 1997, a 30,000 square-foot lease with OfficeMax at Grandview
Plaza which commenced in December 1997, a 73,000 square-foot lease with Regal
Cinemas at Rollins Crossing estimated to commence in October 1998, and a 71,000
square-foot lease with Jewel/Osco at Commons of Crystal Lake estimated to
commence in July 1998 are expected to contribute to increased rental income in
1998.

In July 1997, Montgomery Ward & Co., Incorporated filed for reorganization under
Chapter 11 of the U.S. Bankruptcy Code, announcing its intention to close its
111,000 square-foot store at Heritage Square prior to December 31, 1997.
Although the tenant has not rejected its lease, such rejection is expected
during 1998, resulting in a reduction in rental income at this property. In
January 1998, HomePlace filed for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. Although the tenant has not rejected its lease for 54,000
square feet at Har Mar Mall or notified the Company of its intent to close the
store, a vacancy of HomePlace would result in a reduction in rental income at
this property.

The remaining decrease in operations, maintenance and management expense of
$1,108,000 was primarily attributable to decreases at Rivercrest Center, Har Mar
Mall, Westview Center and Crossroads Shopping Center, aggregating approximately
$947,000. The overall decreases were attributable to reductions in bad debt
expense, as well as snow removal due to a harsh winter in 1996.

The remaining decrease in real estate taxes of $518,000 was primarily
attributable to the aforementioned reduction at Westview Center as well as a
decrease of approximately $150,000 at Rivercrest Center.

The remaining increase in depreciation and amortization of $551,000 was
attributable to new construction and leasing at Burning Tree Plaza and Sun Ray
Shopping Center as well as new tenancies at various other locations.

                                       29
<PAGE>
 
Non-Property Specific Expenses

Mortgage and other interest increased from $13,404,000 in 1996 to $16,562,000 in
1997. Interest expense on the line of credit, net of amounts capitalized,
increased from $5,666,000 to $6,605,000. The increase in interest expense on the
line of credit was due to a higher average outstanding balance primarily as a
result of drawing approximately $138 million for the acquisition activity during
1997, partially offset by lower borrowing rates negotiated through the amendment
and subsequent replacement of the previous $150 million line of credit with a
new $200 million line of credit. The weighted average interest rate on
outstanding borrowings under the line of credit decreased to 7.48% in 1997 from
7.84% during 1996. Mortgage interest expense increased from $7,738,000 in 1996
to $9,221,000 in 1997, primarily due to a longer interest period in 1997 on the
REMIC Note assumed in the Tucker Acquisition in March 1996, but also due to the
assumption of $26,677,000 in mortgage indebtedness in connection with the
acquisition of four shopping centers during 1997. The weighted average interest
rate on mortgage debt outstanding at December 31, 1997 was 8.18%. Mortgage and
other interest in 1997 also includes $736,000 on $100 million of 7% unsecured
Notes issued in November 1997. The proceeds from the issuance were used to
prepay the 7.23% REMIC Note.

The Company incurred an extraordinary loss on the prepayment of debt of $577,000
(net of the minority interest portion) in connection with replacing the previous
line of credit, and incurred an extraordinary loss on the prepayment of debt of
$4,054,000 (net of the minority interest portion), consisting primarily of a
prepayment yield maintenance fee, in connection with the prepayment of the REMIC
Note.

General and administrative expenses increased from $3,532,000 in 1996 to
$5,123,000 in 1997. Although the acquisition of Tucker created substantial
operating efficiencies, following the Tucker Acquisition the Company reorganized
its internal operations to function by disciplines rather than geography. The
reorganization included the addition of executive management for leasing, asset
management and acquisition activities. In addition, the acquisition of 25
properties during 1997 has required an increase in personnel to manage the
additional workload. The increased focus on acquisition activity involves costs
incurred in the evaluation process which are non-recoverable and charged to
general and administrative expense in the case of acquisitions which are not
consummated. The aforementioned reorganization and acquisition activities have
resulted in an increase in payroll and other general and administrative
expenses.

During 1997, after working with an independent compensation consultant, the
Board of Directors terminated the Company's Superior Performance Incentive Plan
and substituted an award of approximately 115,000 shares of the Company's common
stock to certain senior executives, plus a cash amount to reimburse the
executives for taxes resulting from such award. As a result, a non-recurring
charge of $3,415,000 was included in the Company's 1997 financial statements. 

In connection with the Company's stated objective to focus on the Midwest, the
Company relocated its headquarters from Boston, Massachusetts (where the Company
was founded in 1961) to Northbrook, Illinois. As a result of the headquarters
move, the Company incurred a one-time relocation charge of $409,000 during 1996.

During 1996, the Company incurred a charge of $344,000, consisting of deferred
financing costs related to the Company's former bank line of credit and certain
deferred acquisition costs related to acquisitions which the Company chose not
to pursue due to the efforts required to finalize the Tucker Acquisition.

1996 Compared to 1995

During 1996, the Company acquired sixteen properties, including fourteen
properties in connection with the Tucker Acquisition, and sold its interest in a
ground lease. Including operations for the newly acquired properties and the
gain on sale of $9,379,000, net income increased from $8,431,000 in 1995 to
$27,222,000 in 1996. Excluding the gain on sale, net income increased
approximately 112%, from $8,431,000 to $17,843,000. On a per share basis,
excluding the gain on sale of property, net income increased 18.8% from $0.85
per share to $1.01 per share. Per share amounts reflect weighted average shares
outstanding of 17,619,546 in 1996 and 9,863,767 in 1995. The increased shares
primarily reflect the 7,428,157 shares issued in connection with the Tucker
Acquisition in March 1996 and the 2,875,000 share public offering completed in
November 1996.

                                       30
<PAGE>
 
Property Specific Revenues and Expenses (in thousands of dollars)

<TABLE>
<CAPTION>
                                                                                       Acquisitions/     Properties Held
                                               1996        1995        Difference      Dispositions         Both Years
                                               ----        ----        ----------      ------------      ---------------
<S>                                          <C>          <C>           <C>            <C>               <C>
Rental income                                $77,512      $36,405       $41,107           $41,443             $(336)
Operations, maintenance and management       $12,949      $ 5,858       $ 7,091           $ 6,432             $ 659
Real estate taxes                            $16,787      $ 8,726       $ 8,061           $ 8,346             $(285)
Depreciation and amortization                $13,286      $ 7,317       $ 5,969           $ 5,463             $ 506
</TABLE>

Results attributable to acquisition and disposition activities

Rental income increased from $36,405,000 in 1995 to $77,512,000 in 1996, an
increase of $41,107,000. Approximately $42,279,000 of the net increase was
attributable to the Company's acquisition activities, partially offset by
approximately $836,000 attributable to disposition activities.

Other income increased from $167,000 in 1995 to $1,327,000 in 1996. The increase
was partially a result of income received from a sales tax sharing agreement at
Rollins Crossing, one of the properties acquired from Tucker. In addition,
interest income earned on the Company's cash and escrow balances increased due
to an increase in the weighted average daily balances, including, since the
acquisition of Tucker, approximately $3,600,000 held in various escrow accounts
in accordance with the $100 million REMIC Note assumed in the Tucker
Acquisition.

Operations, maintenance and management expense increased from $5,858,000 in 1995
to $12,949,000 in 1996. Approximately $6,432,000 of the increase was
attributable to the Company's acquisition activities.

Real estate taxes increased from $8,726,000 in 1995 to $16,787,000 in 1996.
Approximately $8,346,000 of the increase was attributable to the Company's
acquisition activities. 

Depreciation and amortization increased from $7,317,000 in 1995 to $13,286,000
in 1996, an increase of $5,969,000. Approximately $5,463,000 of the increase was
attributable to the Company's acquisition and disposition activities.

Results for properties fully operating throughout both years

The remaining decrease in rental income of approximately $336,000 was
attributable to decreases at Westview Shopping Center and Grandview Plaza in the
aggregate of $1,115,000, partially offset by increases in rental income at Har
Mar Mall, Burning Tree Plaza and Rivercrest Shopping Center of approximately
$712,000 in the aggregate. Westview Shopping Center continued to suffer from the
vacancy of Burlington Coat Factory in 1994. However, as a result of management's
efforts to reduce real estate taxes at the property, the Company negotiated a
decrease in the assessed value of the property, and received a tax abatement
during 1996 resulting in a decrease in real estate tax expense of approximately
$669,000, more than offsetting the decrease in rental income. The increase in
rental income at Har Mar Mall was primarily attributable to a full year's rental
income from Barnes & Noble Superstore and HomePlace. During the second half of
1996, the Company also signed leases at Har Mar Mall for approximately 26,000
square feet, or 6% of the Center, contributing to the increase. The increase in
rental income at Rivercrest Shopping Center was primarily the result of an
increase in real estate tax reimbursements.

The remaining increase in operations, maintenance and management expense of
$659,000 was attributable to increases at Sun Ray Shopping Center, Har Mar Mall,
and Rivercrest Shopping Center. The increase was also due to a harsh winter in
Minnesota and New England in 1996, resulting in an increase in snow removal
costs of approximately $172,000 for properties held in the portfolio throughout
1996 and 1995. The increase in operations, maintenance and management expense
was partially offset by cost savings resulting from the completion of the
internalization of the property management function for the properties in the
Midwest.

The remaining increase in depreciation and amortization of $506,000 was
primarily a result of new construction and leasing at White Bear Hills, Har Mar
Mall and Burning Tree Plaza as well as new tenancies at various other locations.

Non-Property Specific Expenses

Mortgage and other interest increased from $4,705,000 in 1995 to $13,404,000 in
1996. Interest expense on the line of credit, net of amounts capitalized,
increased from $2,011,000 to $5,666,000. The increase in interest expense on the
line of credit was due to a higher average outstanding balance primarily as a
result of paying off Tucker's secured line


                                       31
<PAGE>
 
of credit with the Company's unsecured line of credit in March 1996, and the
repayment of three mortgages secured by Sun Ray Shopping Center for
approximately $12,300,000 with cash drawn on the line of credit. The weighted
average interest rate on the mortgage notes secured by Sun Ray Shopping Center
was 10.53%. The weighted average interest rate on outstanding borrowings under
the line of credit decreased to 7.84% in 1996 from 8.00% in 1995. Mortgage
interest expense increased from $2,694,000 in 1995 to $7,738,000 in 1996,
primarily the result of the Company's assumption of the $100,000,000 REMIC Note
in connection with the Tucker Acquisition. The effective rate on the REMIC is
7.23% and mortgage interest on the REMIC was approximately $5,729,000 during
1996. The increase in mortgage interest expense was partially offset by a
decrease attributable to the repayment of three mortgage notes secured by Sun
Ray Shopping Center.

General and administrative expenses increased from $1,535,000 in 1995 to
$3,532,000 in 1996. Following the Tucker Acquisition, the Company reorganized
its internal operations to function by disciplines rather than geography, adding
executive management for leasing, asset management and acquisition activities,
completing the internalization of property management and leasing functions and
increasing the number of employees from 16 at December 31, 1995, to 81 at
December 31, 1996. In addition, as a result of its headquarters move from
Boston, Massachusetts to Northbrook, Illinois, the Company incurred a one-time
relocation charge of $409,000 in 1996.

During 1996, the Company incurred a charge of $344,000, consisting of deferred
financing costs related to the Company's former bank line of credit and certain
deferred acquisition costs related to acquisitions which the Company chose not
to pursue due to the efforts required to finalize the Tucker transaction.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the Index to Financial Statements and Schedule later in this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

Not applicable





                                       32
<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
          --------------------------------------------------

The information required by this Item 10 is hereby incorporated by reference to
the text appearing under Part I, Item 4.A. under the caption "Executive Officers
of the Registrant" in this Report, and by reference to the information under the
headings "Information Regarding Nominees and Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's definitive Proxy
Statement for the 1998 Annual Meeting of Stockholders.

ITEM 11.  EXECUTIVE COMPENSATION
          ----------------------

The information required by this Item 11 is hereby incorporated by reference to
the information under the headings "Compensation of Directors and Executive
Officers," "Report of the Compensation Committee," "Compensation Committee
Interlocks and Insider Participation," "Employment Agreements" and "Share
Performance Graph" in the Company's definitive Proxy Statement for the 1998
Annual Meeting of Stockholders.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
          --------------------------------------------------------------

The information required by this Item 12 is hereby incorporated by reference to
the information under the heading "Beneficial Ownership of Shares" in the
Company's definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
          ----------------------------------------------

The information required by this Item 13 is hereby incorporated by reference to
the information under the heading "Certain Relationships and Related Party
Transactions" in the Company's definitive Proxy Statement for the 1998 Annual
Meeting of Stockholders.

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
          ---------------------------------------------------------------

(a) The following documents are filed as part of this Report:

(1) and (2) The Financial Statements and Schedules required by Item 8 are listed
in the Index to Financial Statements and Schedules following the signatures to
this Report.

(3) The following exhibits (listed according to the exhibit index set forth in
the instructions to Item 601 of Regulation S-K), are a part of this Report.

<TABLE>
<CAPTION>
     Exhibit No.     Description                                                                    Page
     -----------     -----------                                                                    ----
     <C>             <S>                                                                            <C>
         3.1         Articles of Amendment and Restatement of Bradley Real Estate, Inc.,            N/A
                     incorporated by reference to Exhibit 3.1 of the Company's Current
                     Report on Form 8-K dated October 17, 1994.
     
         3.2         Articles of Merger between Bradley Real Estate Trust and Bradley Real          N/A
                     Estate, Inc., incorporated by reference to Exhibit 3.2 of the
                     Company's Current Report on Form 8-K dated October 17, 1994.
     
         3.3         Articles of Merger between Tucker Properties Corporation and Bradley           N/A
                     Real Estate, Inc., incorporated by reference to Exhibit 3.3 of the
                     Company's Annual Report on Form 10-K dated March 25, 1996.
     
         3.4         By-laws of Bradley Real Estate, Inc., incorporated by reference to             N/A
                     Exhibit 3.3 of the Company's Current Report on Form 8-K dated October
                     17, 1994.
</TABLE>

                                       33
<PAGE>

<TABLE> 
<S>          <C>                                                                              <C> 
     4.1       Form of stock certificate for shares of Common Stock of Bradley                  N/A
               Real N/A Estate, Inc., incorporated by reference to Exhibit
               4.1 of the Company's Current Report on Form 8-K dated October 17,
               1994.

    4.2.1      Text of Indenture dated as of November 24, 1997 by and between                   N/A
               Bradley Operating Limited Partnership and LaSalle National
               Bank relating to the Senior Debt Securities of Bradley Operating
               Limited Partnership, incorporated by reference to Exhibit 4.1 to
               Bradley Operating Limited Partnership's Registration Statement on
               Form S-3 (File No. 333-36577) dated September 26, 1997.

    4.2.2      Definitive Supplemental Indenture No. 1 dated as of November 24,                 N/A
               1997 between Bradley Operating Limited Partnership and
               LaSalle National Bank, incorporated by reference to Exhibit 4.1
               of Bradley Operating Limited Partnership's Current Report on Form
               8-K dated November 24, 1997.

    4.2.3      Definitive Supplemental Indenture No. 2 dated as of January 28,                  N/A
               1998 between Bradley Operating Limited Partnership and
               LaSalle National Bank, incorporated by reference to Exhibit 4.1
               of Bradley Operating Limited Partnership's Current Report on Form
               8-K dated January 28, 1998.

     10.1      Second Amended and Restated Agreement of Limited Partnership of                  N/A
               Bradley Operating Limited Partnership dated as of September
               2, 1997, incorporated by reference to Exhibit 3.1 of Bradley
               Operating Limited Partnership's Registration Statement on Form 10
               dated September 8, 1997.

   10.2.1      Unsecured Revolving Credit Agreement dated as of December 23,                    N/A
               1997 among Bradley Operating Limited Partnership, as Borrower and
               The First National Bank of Chicago, BankBoston, N.A. and
               certain other banks, as Lenders, and The First National Bank of
               Chicago, as Administrative Agent and BankBoston, N.A., as
               Documentation Agent and Bank of America National Trust & Savings
               Association and Fleet National Bank as Co-Agents, incorporated by
               reference to Exhibit 99.1 of the Company's Current Report on Form
               8-K dated December 19, 1997.

   10.2.2      Form of Guaranty made as of December 23, 1997 by Bradley                         N/A
               Financing Partnership and Bradley Real Estate, Inc. for the
               benefit of The First National Bank of Chicago, incorporated by
               reference to Exhibit 99.4 of the Company's Current Report on Form
               8-K dated December 19, 1997.

    10.3       1993 Stock Option and Incentive Plan, as amended and restated on                 N/A
               September 9, 1996, incorporated by reference to Exhibit 10.4
               of the Company's Annual Report on Form 10-K405 dated March 19,
               1997.

    21.1*      Subsidiaries of the Company.                                                      37

    23.1*      Consent of KPMG Peat Marwick LLP (regarding Form S-3 and Form S-8                 38
               Registration Statements).

    27.1*      Financial Data Schedule                                                           39

----------------
*Filed herewith.
</TABLE> 

                                      34
<PAGE>

<TABLE> 

<S> <C>  
(b)  Reports on Form 8-K
     -------------------

The following Forms 8-K were filed during the period October 1, 1997 through
December 31, 1997:

     1)   September 30, 1997 (filed October 6, 1997), reporting in Item 5. and
          Item 7., a combined financial statement, consistent with Regulation 
          S-X, Rule 3.14, for properties accounting for over 50% of the
          aggregate acquisition costs of a series of properties acquired during
          the period January 1, 1997 through September 30, 1997, in the
          aggregate exceeding 10% of the total assets of the Company and its
          subsidiaries consolidated at December 31, 1996.

     2)   October 10, 1997 (filed October 17, 1997), reporting in Item 5.,
          receipt of Montgomery Ward notice of intention to close store at
          Naperville, Illinois.

     3)   October 22, 1997 (filed October 22, 1997), reporting in Item 5. and
          Item 7., Underwriting Agreement with PaineWebber Incorporated
          relating to sale of Common Stock.

     4)   November 24, 1997 (filed November 24, 1997), reporting in Item 5., the
          issuance by Bradley Operating Limited Partnership of $100,000,000 7%
          Notes due 2004.

     5)   December 1, 1997 (filed December 1, 1997), reporting in Item 5., the
          public offering of 990,000 shares of Common Stock.

     6)   December 8, 1997 (filed December 8, 1997), reporting in Item 5. and
          Item 7., an Underwriting Agreement with C.E. Unterberg, Towbin
          relating to a public offering of 300,000 shares of Common Stock.

     7)   December 19, 1997 (filed December 31, 1997), reporting in Item 5. and
          Item 7., a combined financial statement, consistent with Regulation 
          S-X, Rule 3.14, for properties accounting for over 50% of the
          aggregate acquisition costs of a series of properties acquired during
          the period January 1, 1997 through September 30, 1997, in the
          aggregate exceeding 10% of the total assets of the Company and its
          subsidiaries consolidated at December 31, 1996.

The following Forms 8-K were filed with respect to events subsequent to December
31, 1997:

     1)   January 28, 1998 (filed January 28, 1998), reporting in Item 5. and
          Item 7., the issuance by Bradley Operating Limited Partnership of
          $100,000,000 7.2% Notes due 2008.

     2)   February 18, 1998 (filed February 20, 1998), reporting in Item 5., an
          Underwriting Agreement with A.G. Edwards & Sons, Inc. relating to a
          public offering of 392,638 shares of Common Stock.

                                      35
</TABLE> 
<PAGE>
 
                                  SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized this 19th day of March 1998.

                                        BRADLEY REAL ESTATE, INC.


                                        by: /s/ Thomas P. D'Arcy
                                           ---------------------------- 
                                            Thomas P. D'Arcy, President


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

<TABLE> 
<S>  <C>                                                                                    <C> 

        /s/ Thomas P. D'Arcy                                                                 March 19, 1998
     ------------------------------------------------------------------                      --------------
     Thomas P. D'Arcy, President, CEO and Director

        /s/ Irving E. Lingo, Jr.                                                             March 19, 1998
     ------------------------------------------------------------------                      --------------
     Irving E. Lingo, Jr., Chief Financial Officer and Treasurer                

        /s/ David M. Garfinkle                                                               March 19, 1998
     ------------------------------------------------------------------                      --------------
     David M. Garfinkle, Controller

        /s/ Stephen G. Kasnet                                                                March 19, 1998
     ------------------------------------------------------------------                      --------------
     Stephen G. Kasnet, Director

        /s/ W. Nicholas Thorndike                                                            March 19, 1998
     ------------------------------------------------------------------                      --------------
     W. Nicholas Thorndike, Director

        /s/ William L. Brown                                                                 March 19, 1998
     ------------------------------------------------------------------                      --------------
     William L. Brown, Director

        /s/ Paul G. Kirk, Jr.                                                                March 19, 1998
     ------------------------------------------------------------------                      --------------
     Paul G. Kirk, Jr., Director

        /s/ Joseph E. Hakim                                                                  March 19, 1998
     ------------------------------------------------------------------                      --------------
     Joseph E. Hakim, Director

        /s/ A. Robert Towbin                                                                 March 19, 1998
     ------------------------------------------------------------------                      --------------
     A. Robert Towbin, Director
</TABLE> 

                                      36
<PAGE>
 
                  INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
 
                                                                PAGE
<S>                                                             <C>
Report of Independent Auditors for the years ended
December 31, 1997, 1996 and 1995                                  F2
 
Financial Statements
 
  Consolidated Balance Sheets - December 31, 1997 and 1996        F3
 
  For the years ended December 31, 1997, 1996 and 1995:
 
  Consolidated Statements of Income                               F4
 
  Consolidated Statements of Changes in Share Owners' Equity      F5
 
  Consolidated Statements of Cash Flows                           F6
 
  Notes to Financial Statements                                   F7
 
Schedule
 
  Schedule III - Real Estate and Accumulated Depreciation        F21
 
</TABLE>

All other schedules have been omitted since they are not required, not
applicable, or the information is included in the financial statements or notes
thereto.

                                       F1
<PAGE>
 
                         Independent Auditors' Report


The Board of Directors and Share Owners 
Bradley Real Estate, Inc. and subsidiaries:

We have audited the consolidated financial statements of Bradley Real Estate,
Inc. and subsidiaries as listed in the accompanying index. In connection with
our audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the financial statement
schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bradley Real Estate,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.


                                                   KPMG PEAT MARWICK LLP


Chicago, Illinois
January 28, 1998

                                      F2
<PAGE>
 
                           BRADLEY REAL ESTATE, INC.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                   DECEMBER 31,
                                                                                              1997            1996
                                                                                           -----------------------------
<S>                                                                                       <C>             <C>
ASSETS

Real estate investments - at cost                                                          $626,247,000    $490,133,000
Accumulated depreciation and amortization                                                   (40,574,000)    (30,670,000)
                                                                                           ------------    ------------
 
Net real estate investments                                                                 585,673,000     459,463,000
 
Real estate investments held for sale                                                        52,692,000      10,285,000
 
Other assets:
 Cash and cash equivalents                                                                    4,747,000       7,462,000
 Rents and other receivables, net of allowance for doubtful accounts of
  $2,438,000 for 1997 and $1,636,000 for 1996                                                13,038,000       9,543,000
 Deferred charges, net and other assets                                                      12,641,000      15,531,000
                                                                                           ------------    ------------
Total assets
                                                                                           $668,791,000    $502,284,000
                                                                                           ============    ============
 
LIABILITIES AND SHARE OWNERS' EQUITY

Mortgage loans                                                                               51,227,000     125,394,000
Unsecured notes payable                                                                      99,783,000               -
Line of credit                                                                              151,700,000      63,500,000
Accounts payable, accrued expenses and other liabilities                                     25,086,000      19,505,000
                                                                                           ------------    ------------
 
Total liabilities                                                                           327,796,000     208,399,000
                                                                                           ------------    ------------
 
Minority interest                                                                            21,170,000       4,160,000
                                                                                           ------------    ------------
 
Share Owners' equity:
 Shares of preferred stock, par value $.01 per share:
  Authorized 20,000,000 shares; 0 shares issued and outstanding                                       -               -
 Shares of common stock, par value $.01 per share:
  Authorized 80,000,000 shares; issued and outstanding 22,999,120 and
  21,658,790 shares at December 31, 1997 and 1996, respectively                                 230,000         217,000
 Shares of excess stock, par value $.01 per share:
  Authorized 50,000,000 shares; 0 shares issued and outstanding                                       -               -
 Additional paid-in capital                                                                 333,222,000     298,875,000
 Distributions in excess of accumulated earnings                                            (13,627,000)     (9,367,000)
                                                                                           ------------    ------------
 
Total share owners' equity                                                                  319,825,000     289,725,000
                                                                                           ------------    ------------
Total liabilities and share owners' equity                                                 $668,791,000    $502,284,000
                                                                                           ============    ============
</TABLE>

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

                                      F3
<PAGE>
 
                           BRADLEY REAL ESTATE, INC.

                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                    Years Ended December 31,
                                                         1997                 1996               1995
                                                      ---------------------------------------------------
<S>                                                   <C>                  <C>                <C>
INCOME:

 Rental income                                        $96,115,000          $77,512,000        $36,405,000
 Other income                                           1,437,000            1,327,000            167,000
                                                      -----------          -----------        -----------
                                                       97,552,000           78,839,000         36,572,000
                                                      -----------          -----------        -----------
EXPENSES:
 
 Operations, maintenance and management                14,012,000           12,949,000          5,858,000
 Real estate taxes                                     18,398,000           16,787,000          8,726,000
 Mortgage and other interest                           16,562,000           13,404,000          4,705,000
 General and administrative                             5,123,000            3,532,000          1,535,000
 Non-recurring stock-based compensation                 3,415,000                    -                  -
 Corporate office relocation                                    -              409,000                  -
 Write-off of deferred financing and                           
  acquisition costs                                             -              344,000                  -
 Depreciation and amortization                         16,606,000           13,286,000          7,317,000
                                                      -----------          -----------        -----------
                                                       74,116,000           60,711,000         28,141,000
                                                      -----------          -----------        -----------
 
Income before net gain on sale of properties
 and extraordinary item                                23,436,000           18,128,000          8,431,000
Net gain on sale of properties                          7,438,000            9,379,000                  -
                                                      -----------          -----------        -----------
Income before extraordinary item and
 allocation to minority interest                       30,874,000           27,507,000          8,431,000
Income allocated to minority interest                  (1,116,000)            (285,000)                 -
                                                      -----------          -----------        -----------
Income before extraordinary item                       29,758,000           27,222,000          8,431,000
Extraordinary loss on prepayment of debt,              
 net of minority interest                              (4,631,000)                   -                  -
                                                      -----------          -----------        -----------
 
Net income                                            $25,127,000          $27,222,000        $ 8,431,000
                                                      ===========          ===========        ===========

Weighted average shares outstanding                    21,776,146           17,619,546          9,863,767

Basic earnings per common share:
 Income before extraordinary item                     $      1.36          $      1.54        $      0.85
 Extraordinary loss on prepayment of
  debt, net of minority interest                            (0.21)                   -                  -
                                                      -----------          -----------        -----------
 Net income                                           $      1.15          $      1.54        $      0.85
                                                      ===========          ===========        ===========
 
Diluted earnings per common share:
 Income before extraordinary item                     $      1.36          $      1.54        $      0.85
 Extraordinary loss on prepayment of
  debt, net of minority interest                            (0.21)                   -                  -
                                                      -----------          -----------        -----------
 Net income                                           $      1.15          $      1.54        $      0.85
                                                      ===========          ===========        ===========
</TABLE>

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

                                      F4
<PAGE>

                           BRADLEY REAL ESTATE, INC.

           CONSOLIDATED STATEMENTS OF CHANGES IN SHARE OWNERS' EQUITY

<TABLE>
<CAPTION>
                                                                                                         Retained Earnings
                                                                                                         (Distributions in
                                                                                                             Excess of
                                                                                  Additional Paid-In        Accumulated
                                                          Shares at Par Value         Capital                Earnings)
                                                          --------------------------------------------------------------------------
<S>                                                       <C>                     <C>                    <C>
Balance at December 31, 1994                                   $ 82,000               $103,251,000          $ (8,754,000)
 Net income                                                           -                          -             8,431,000
 Cash distributions ($1.32 per share)                                 -                          -           (13,098,000)
 Issuance of stock, net of offering costs of $2,595,000          30,000                 45,394,000                     -
 Dividend reinvestment participation                                  -                    251,000                     -
 Exercise of stock options                                            -                    128,000                     -
 Reorganization costs                                                 -                   (617,000)                    -
                                                               --------               ------------         -------------
Balance at December 31, 1995                                    112,000                148,407,000           (13,421,000)
 Net income                                                           -                          -            27,222,000
 Cash distributions ($1.32 per share)                                 -                          -           (23,168,000)
 Shares issued to acquire Tucker Properties Corporation          75,000                103,623,000                     -
 Issuance of stock, net of offering costs of $2,618,000          29,000                 44,822,000                     -
 Dividend reinvestment participation                                  -                    196,000                     -
 Exercise of stock options                                        1,000                  1,617,000                     -
 Reallocation of minority interest                                    -                    158,000                     -
 Shares issued in exchange for Limited Partnership units              -                     52,000                     -
                                                               --------               ------------         -------------
Balance at December 31, 1996                                    217,000                298,875,000            (9,367,000)
 Net income                                                           -                          -            25,127,000
 Cash distributions ($1.34 per share)                                 -                          -           (29,387,000)
 Issuance of stock, net of offering costs of $449,000            13,000                 24,879,000                     -
 Dividend reinvestment participation                                  -                    770,000                     -
 Exercise of stock options                                            -                    173,000                     -
 Reallocation of minority interest                                    -                  6,093,000                     -
 Shares issued in exchange for Limited Partnership units              -                     17,000                     -
 Non-recurring stock-based compensation                               -                  2,415,000                     -
                                                               --------               ------------         -------------
Balance at December 31, 1997                                   $230,000               $333,222,000          $(13,627,000)
                                                               ========               ============         =============
</TABLE>

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

                                       F5
<PAGE>
 
                           BRADLEY REAL ESTATE, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                        Years Ended December 31,
                                                                                 1997               1996               1995
                                                                            ---------------------------------------------------
<S>                                                                         <C>                <C>                 <C>
Cash flows from operating activities:
 Net income                                                                 $  25,127,000      $  27,222,000       $  8,431,000
 Adjustments to reconcile net income to net cash provided by
  operating activities:
   Depreciation and amortization                                               16,606,000         13,286,000          7,317,000
   Extraordinary loss on prepayment of debt, net of minority interest           4,631,000                  -                  -
   Non-recurring stock-based compensation                                       3,415,000                  -                  -
   Net gain on sale of properties                                              (7,438,000)        (9,379,000)                 -
   Write-off of deferred financing and acquisition costs                                -            344,000                  -
   Income allocated to minority interest                                        1,116,000            285,000                  -

Change in operating assets and liabilities, net of the effect of the
 Tucker acquisition in 1996:
 (Increase) decrease in rents and other receivables                            (3,629,000)         1,659,000         (2,895,000)
 Increase in accounts payable, accrued expenses and other liabilities           3,639,000            512,000            362,000
 (Increase) decrease in deferred charges                                        1,360,000         (2,296,000)          (482,000)
                                                                            -------------      -------------       ------------
  Net cash provided by operating activities                                    44,827,000         31,633,000         12,733,000
                                                                            -------------      -------------       ------------
Cash flows from investing activities:
 Expenditures for real estate investments                                    (137,945,000)        (9,088,000)                 -
 Expenditures for capital improvements                                         (9,985,000)        (9,642,000)        (9,410,000)
 Purchase of Tucker, net of cash acquired                                               -         (2,130,000)                 -
 Net proceeds from sale of properties                                          25,281,000                  -                  -
 Excess proceeds from like-kind exchange of properties                                  -          4,145,000                  -
 Decrease in investing - related deferred charges                                       -                  -            106,000
 Expenditures for purchase of advisory business                                         -                  -           (649,000)
                                                                            -------------      -------------       ------------
  Net cash used in investing activities                                      (122,649,000)       (16,715,000)        (9,953,000)
                                                                            -------------      -------------       ------------
Cash flows from financing activities:
 Borrowings from lines of credit                                              148,600,000        132,500,000         15,300,000
 Payments under lines of credit                                               (60,400,000)      (129,708,000)       (39,700,000)
 Proceeds from issuance of unsecured notes payable                             99,780,000                  -                  -
 Expenditures for financing costs                                              (3,104,000)        (1,468,000)                 -
 Prepayment of mortgage loans                                                (100,000,000)       (32,234,000)        (4,712,000)
 Payments associated with prepayment of debt                                   (4,444,000)                 -                  -
 Distributions paid                                                           (29,387,000)       (23,168,000)       (13,098,000)
 Distributions to minority interest holders                                    (1,117,000)          (309,000)                 -
 Proceeds from public offerings, net                                           24,892,000         44,851,000         40,508,000
 Proceeds from exercise of stock options                                          173,000          1,618,000            128,000
 Principal payments on mortgage loans                                            (656,000)          (431,000)          (336,000)
 Reorganization costs                                                                   -                  -           (617,000)
 Proceeds from shares issued under dividend reinvestment plan                     770,000            196,000            251,000
                                                                            -------------      -------------       ------------
  Net cash provided by (used in) financing activities                          75,107,000         (8,153,000)        (2,276,000)
                                                                            -------------      -------------       ------------
Net increase (decrease) in cash and cash equivalents                           (2,715,000)         6,765,000            504,000

Cash and cash equivalents:
 Beginning of year                                                              7,462,000            697,000            193,000
                                                                            -------------      -------------       ------------
 End of year
                                                                            $   4,747,000      $   7,462,000       $    697,000
                                                                            =============      =============       ============
Supplemental cash flow information:
 Interest paid, net of amount capitalized                                   $  15,623,000      $  13,366,000       $  4,854,000
                                                                            =============      =============       ============
</TABLE>


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

                                       F6
<PAGE>
 
                           BRADLEY REAL ESTATE, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION

Bradley Real Estate, Inc. ("Bradley" or the "Company") is the nation's oldest
continuously qualified real estate investment trust ("REIT"). Organized in 1961,
the Company focuses on the ownership and operation of community and neighborhood
shopping centers primarily located in the midwestern United States. As of
December 31, 1997, the Company owned 53 properties (52 shopping centers and one
office/retail property) in 11 states, aggregating over 10.1 million square feet
of rentable space, substantially all of which are located in Midwest markets
making the Company one of the leading owners of community and neighborhood
shopping centers in this region. The Company's shopping centers have a diverse
tenant mix dominated by supermarkets, drug stores and other consumer necessity
or value-oriented retailers.

Bradley Operating Limited Partnership ("BOLP") is the entity through which the
Company, a self-administered and self-managed REIT, conducts substantially all
of its business and owns (either directly or through subsidiaries) substantially
all of its assets. Bradley currently owns an approximately 94% economic interest
in and is the sole general partner of BOLP. This structure is commonly referred
to as an umbrella partnership REIT, or "UPREIT." Economic interests in BOLP are
evidenced by units of partnership interest ("Units") with the interest of the
general partner evidenced by general partner units ("GP Units"). The interests
of persons who have contributed direct or indirect interests in certain
properties to BOLP are evidenced by limited partner units ("LP Units"). Each LP
Unit is designed to provide distributions to the holder that are equal to the
distributions paid on each share of Bradley common stock; and each LP Unit is
redeemable (subject to certain limitations) by the holder for the cash
equivalent at the time of redemption of one share of Bradley common stock or, at
Bradley's option, for one share of Bradley common stock. Under the Partnership
Agreement, whenever Bradley issues any shares of its common stock, it
contributes the proceeds to BOLP, and concurrently the number of GP Units held
by Bradley is increased by the number of newly issued shares, such that the
number of GP Units is at all times equal to the number of outstanding shares of
Bradley common stock.

As used herein, the "Company" refers to Bradley Real Estate, Inc. and its
subsidiaries on a consolidated basis (including BOLP) or, where the context so
requires, Bradley Real Estate, Inc. only.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
---------------------

The financial statements are prepared on the accrual basis in accordance with
generally accepted accounting principles. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from these
estimates.

The consolidated financial statements of the Company include the accounts and
operations of the Company, BOLP, Bradley Financing Partnership (a general
partnership of which BOLP owns 99% and a wholly-owned corporate subsidiary owns
the remaining 1%), and the general partnership interest in the joint venture
that owns Williamson Square Shopping Center which is held through BOLP. Due to
the Company's ability as general partner to directly or indirectly control each
of these subsidiaries, each is consolidated for financial reporting purposes.

Upon the acquisition of Tucker Properties Corporation ("Tucker") in 1996, the
limited partners in Tucker Operating Limited Partnership ("TOP"), in which
Tucker had a 95.9% general partnership interest, received 314,739 LP Units in
BOLP in exchange for their limited partnership units in TOP. During 1997,
1,212,630 LP Units were issued in connection with the acquisition of four
shopping centers. The LP Units are convertible into common shares of the Company
on a one-for-one basis, subject to certain limitations. During 1997 and 1996,
1,238 LP Units and 3,738 LP Units, respectively, were converted to common
shares, leaving 1,522,393 LP Units outstanding at December 31, 1997, compared
with 311,001 LP Units outstanding at December 31, 1996.

Rents and Other Receivables
---------------------------

Management has determined that all of the Company's leases with its various
tenants are operating leases. Revenues for such leases are recognized using the
straight-line method over the remaining term of the leases.

                                       F7
<PAGE>
 
Real Estate Investments
-----------------------

Real estate investments are carried at cost less accumulated depreciation. The
provision for depreciation and amortization has been calculated using the
straight-line method based upon the following estimated useful lives of assets:


          Buildings                           31.5 - 39 years
          Improvements and alterations           1 - 39 years

Expenditures for maintenance, repairs and betterments that do not materially
prolong the normal useful life of an asset are charged to operations as incurred
and amounted to $2,604,000, $2,056,000, and $874,000 for 1997, 1996 and 1995,
respectively.

Additions and betterments that substantially extend the useful lives of the
properties are capitalized. Upon sale or other disposition of assets, the cost
and related accumulated depreciation and amortization are removed from the
accounts and the resulting gain or loss, if any, is reflected in net income.
Real estate investments include capitalized interest and other costs on
significant construction in progress. Capitalized costs are included in the cost
of the related asset and charged to operations through depreciation over the
asset's estimated useful life. Interest capitalized amounted to $30,000,
$150,000, and $137,000 in 1997, 1996 and 1995, respectively.

The Company has adopted Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("Statement No. 121") effective January 1, 1996. This Statement provides
guidance for recognition and measurement of impairment of long-lived assets,
certain identifiable intangibles and goodwill related both to assets to be held
and used and assets to be disposed of. Management reviews each property for
impairment whenever events or changes in circumstances indicate that the
carrying value of a property may not be recoverable. The review of
recoverability is based on an estimate of undiscounted future cash flows
expected to result from its use and eventual disposition. If impairment exists
due to the inability to recover the carrying value of a property, an impairment
loss is recorded to the extent that the carrying value of the property exceeds
its estimated fair value.

Real Estate Investments Held for Sale
-------------------------------------

Real estate investments held for sale are carried at the lower of cost or the
fair value less cost to sell. Depreciation and amortization are suspended during
the sale period.

Cash Equivalents
----------------

Cash and cash equivalents consist of cash in banks and short-term investments
with original maturities of less than ninety days.

Deferred Charges
----------------

A majority of deferred charges consist of agency commissions incurred in leasing
the Company's properties. Such charges are amortized using the straight-line
method over the term of the related lease. In addition, deferred charges include
costs incurred in connection with securing long-term debt, including the costs
of entering into interest rate protection agreements. Such costs are amortized
over the term of the related agreement.

Derivative Financial Instruments
--------------------------------

The Company may enter into derivative financial instrument transactions in order
to mitigate its interest rate risk on a related financial instrument. The
Company has designated these derivative financial instruments as hedges and
applies deferral accounting, as the instrument to be hedged exposes the Company
to interest rate risk and the derivative financial instrument reduces that
exposure. Gains and losses related to the derivative financial instrument are
deferred and amortized over the terms of the hedged instrument. If a derivative
terminates or is sold, the gain or loss is deferred and amortized over the
remaining life of the derivative. Derivatives that do not satisfy the criteria
above are carried at market value, and any changes in market value are
recognized in other income. The Company has only entered into derivative
transactions that satisfy the aforementioned criteria.

                                       F8
<PAGE>
 
Earnings Per Share
------------------

In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("Statement No.
128") which supersedes APB Opinion No. 15, "Earnings Per Share."  Statement No.
128 replaces the presentation of "primary EPS," which the Company has
historically presented, with a presentation of "basic EPS," and replaces the
presentation of "fully diluted EPS," which the Company has not been required to
present due to the immaterial difference from primary EPS, with "diluted EPS."
Basic EPS, unlike primary EPS, excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period.  Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity.  Statement No. 128 is
effective for financial statements for both interim and annual periods ending
after December 15, 1997.  Thus, the Company adopted Statement No. 128 and has
included the required presentation and disclosures in the accompanying financial
statements, including a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation, as follows:
<TABLE>
<CAPTION>
 
                                                                        Years Ended December 31,
                                    ------------------------------------------------------------------------------------------------
                                                    1997                        1996                                  1995
                                    -------------------------------   ------------------------------  ------------------------------
                                                              Per-                             Per-                            Per-
                                     Numerator   Denominator  Share   Numerator   Denominator  Share  Numerator   Denominator  Share
                                    -----------  -----------  -----  -----------  -----------  -----  ----------  -----------  -----
<S>                                 <C>          <C>          <C>    <C>          <C>          <C>    <C>         <C>          <C>
Basic EPS:
Income before extraordinary item    $29,758,000   21,776,146  $1.36  $27,222,000   17,619,546  $1.54  $8,431,000    9,863,767  $0.85
 
Effect of dilutive securities:
Stock options                                 -       42,451                   -       16,352                  -       11,977
Stock-based compensation                      -          315                   -            -                  -            -
Conversion of LP Units                1,116,000      799,938             285,000      249,888                  -            -
                                    -----------   ----------         -----------  -----------         ----------  -----------
Diluted EPS:
Income before extraordinary item    $30,874,000   22,618,850  $1.36  $27,507,000   17,885,786  $1.54  $8,431,000    9,875,744  $0.85
                                    ===========   ==========  =====  ===========  ===========  =====  ==========  ===========  =====
</TABLE>

For the years ended December 31, 1997, 1996, and 1995, options to purchase
5,500, 40,000, and 55,751 shares of common stock, respectively, at prices
ranging from $17.00 to $22.00 were outstanding during 1997, 1996, and 1995,
respectively, but were not included in the computation of diluted EPS because
the options' exercise prices were greater than the average market prices of the
common shares.

Stock Option Plans
------------------

In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("Statement No. 123"). Statement No. 123 establishes financial
accounting and reporting standards for stock-based employee compensation plans.
This includes all arrangements by which employees receive shares of stock or
other equity instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of the employer's stock.  Statement No.
123 defines a fair value based method of accounting for an employee stock option
or similar equity instrument and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However, it also
allows an entity to continue to measure compensation cost using the intrinsic
value based method of accounting prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("Opinion No. 25").
The Company elected to continue using Opinion No. 25 and make pro forma
disclosures of net income and earnings per share as if the fair value method of
accounting defined in Statement No. 123 had been applied.  See Note 9 for the
required disclosures.

NOTE 3 - SUPPLEMENTAL CASH FLOW DISCLOSURE

During 1997, four shopping centers were acquired for $45,252,000, which included
the issuance of 1,212,630 LP Units valued at $23,350,000.  Also during 1997, the
acquisition of four shopping centers included the assumption of $26,677,000 of
non-recourse mortgage indebtedness.

                                       F9
<PAGE>
 
The merger acquisition of Tucker on March 15, 1996 resulted in the following
non-cash effect on the Company's balance sheet:

<TABLE>
     <S>                                         <C>
     Assets acquired                             $(310,443,000)
     Liabilities assumed                           204,615,000
     Capital stock issued, at $.01 par value            75,000
     Additional paid-in capital                    103,623,000
                                                 -------------
 
     Purchase of Tucker, net of cash acquired    $  (2,130,000)
                                                 =============
</TABLE>

The like-kind exchange of Nicollet Avenue and Brookdale Square in March 1996,
resulted in a decrease in other net operating assets of $1,649,000 and the
Company assuming net operating liabilities of $173,000.

During 1997 and 1996, 1,238 and 3,738 shares of common stock, respectively, were
issued in exchange for an equivalent number of LP Units held by the minority
interest.

In 1995, the Company issued 325,000 shares of common stock having a value of
$4,916,000 in connection with the acquisition of the REIT advisory business of
its former advisor.

In 1995, a property was purchased for $5,261,000 which included the Company's
assumption of $2,094,000 in non-recourse mortgages.

NOTE 4 - REAL ESTATE INVESTMENTS

The following is a summary of the Company's real estate investments that are
held for lease at December 31:

<TABLE>
<CAPTION>
                                                     1997             1996
                                                 ------------      ------------
<S>                                              <C>               <C>
Land                                             $124,890,000      $ 97,904,000
Buildings                                         436,389,000       332,671,000
Improvements and alterations                       64,124,000        55,041,000
Construction in progress                              844,000         4,517,000
                                                 ------------      ------------
                                                  626,247,000       490,133,000
Accumulated depreciation and amortization         (40,574,000)      (30,670,000)
                                                 ------------      ------------
                                                 $585,673,000      $459,463,000
                                                 ============      ============
</TABLE>

During the second quarter of 1996, the Company placed for sale its Augusta
Plaza, Hood Commons and 585 Boylston Street properties because such properties
were not aligned with the Company's strategic property and market focus.  The
dispositions of these properties were completed during 1997.  Additionally
during 1997, the Company completed the sale of Meadows Town Mall, redeploying
the proceeds from the sale toward the acquisitions of additional properties.
The net gains on the sales of Augusta Plaza, Hood Commons, and 585 Boylston
Street were $826,000, $3,073,000, and $4,839,000, respectively.  The net gain on
sale of properties is presented net of a provision for the loss on the sale of
Meadows Town Mall of $1,300,000, which represents the difference between the
sales price, net of closing costs, and the carrying value of the property.  At
December 31, 1997, the Company was holding for sale One North State, the
Company's only mixed use office/retail property.  The disposition of this
property is expected to be completed during 1998, although there can be no
assurance that such disposition will occur.  The results of operations for
properties classified as held for sale as of December 31, 1997 and 1996, or sold
during 1997, 1996 and 1995, were $8,585,000, $8,745,000, and $2,704,000,
respectively.

The following table sets forth detail with respect to the properties with
ownership interests held by the Company at December 31, 1997 (dollars in
thousands).  The aggregate cost of those properties for federal income tax
purposes was approximately $672,759,000.

                                      F10
<PAGE>

NOTE 4 - REAL ESTATE INVESTMENTS (continued)

<TABLE>
<CAPTION>

                       Initial cost to the Company                Gross amount carried at December 31, 1997
                       ---------------------------                ----------------------------------------- 
                                                   Capitalized                                                  Date      Lives on
                                     Buildings     Subsequent             Buildings                           Acquired     which
                                        and            to                    and                Accumulated      by     Depreciation
SHOPPING CENTERS            Land    Improvements   Acquisition    Land   Improvements   Total   Depreciation  Company   is Computed
------------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>     <C>            <C>           <C>     <C>           <C>      <C>           <C>       <C>
ILLINOIS
--------
Commons of Chicago Ridge    $5,087    $15,113        $1,041      $5,087    $16,154     $21,241       $  706     1996       3 - 39
 and Annex
  Chicago Ridge, IL

Commons of Crystal Lake      3,546     20,093            58       3,546     20,151      23,697          924     1996       4 - 39
  Crystal Lake, IL

Crossroads Center            2,846      8,538           930       2,878      9,436      12,314        1,561     1992      1 - 31.5
  Fairview Heights, IL

Fairhills Shopping Center    2,031      4,982             -       2,031      4,982       7,013           64     1997         39
  Springfield, IL

Heritage Square              8,047     17,099             -       8,047     17,099      25,146          779     1996       1 - 39
  Naperville, IL

High Point Centre            2,969     16,822            65       2,969     16,887      19,856          757     1996      10 - 39
  Lombard, IL

Parkway Pointe                 799      3,197             -         799      3,197       3,996           41     1997         39
  Springfield, IL

Rivercrest Center            7,349     17,147         2,034       7,349     19,181      26,530        2,115     1994       6 - 39
  Crestwood, IL

Rollins Crossing             1,996      8,509           459       2,257      8,707      10,964          392     1996       9 - 39
  Round Lake Beach, IL

Sangamon Center North        1,952      7,809             2       1,952      7,811       9,763          100     1997       3 - 39
  Springfield, IL

Sheridan Village             2,841     19,010           206       2,841     19,216      22,057          900     1996       2 - 39
  Peoria, IL

Sterling Bazaar              2,120      4,480             -       2,120      4,480       6,600           19     1997         39
  Peoria, IL

Wardcliffe Center              478      1,841             -         478      1,841       2,319            8     1997         39
  Peoria, IL

Westview Center              6,417     14,973         3,800       6,404     18,786      25,190        2,247     1993       5 - 39
  Hanover Park, IL

INDIANA
-------
County Line Mall             5,244     11,066             -       5,244     11,066      16,310          118     1997         39
  Indianapolis, IN

Martin's Bittersweet Plaza     993      3,969             1         993      3,970       4,963          100     1997       9 - 39
  Mishawaka, IN

Speedway SuperCenter         6,098     34,555         2,182       6,410     36,425      42,835        1,609     1996       3 - 39
 and Outlots
  Speedway, IN

The Village Shopping         1,152      6,530           287       1,152      6,817       7,969          182     1996       3 - 39
 Center
  Gary, IN

Washington Lawndale          2,488     13,062           817       2,488     13,879      16,367          686     1996       4 - 39
 Commons
  Evansville, IN
</TABLE>

                                      F11
<PAGE>
 
 
NOTE 4 - REAL ESTATE INVESTMENTS (continued)

<TABLE>
<CAPTION>
                          Initial cost
                         to the Company                     Gross amount carried at December 31, 1997
                         --------------                     -----------------------------------------
                                              Capitalized                                                      Date      Lives on
                                Buildings     Subsequent             Buildings                               Acquired      which
                                  and             to                    and                  Accumulated        by      Depreciation
SHOPPING CENTERS       Land   Improvements    Acquisition   Land    Improvements    Total    Depreciation    Company    is Computed
------------------------------------------------------------------------------------------------------------------------------------
<S>               <C>        <C>             <C>            <C>    <C>             <C>      <C>             <C>        <C>
IOWA
----
Burlington Plaza West  $  838      $ 4,458         $    2   $  838       $ 4,460   $ 5,298         $   57      1997        3 - 39
 Burlington, IA

Davenport Retail        1,125        4,500              -    1,125         4,500     5,625             58      1997            39
 Davenport, IA

Holiday Plaza             437        2,338              9      437         2,347     2,784             31      1997        5 - 39
 Cedar Falls, IA

Parkwood Plaza          1,530        7,062            209    1,530         7,271     8,801             85      1997       10 - 39
 Urbandale, IA

Southgate Shopping 
 Center                   721        4,441              -      721         4,441     5,162             10      1997            39
 Des Moines, IA

Spring Village            925        3,636              5      925         3,641     4,566             62      1997        3 - 39
 Davenport, IA

Warren Plaza            1,103        4,892             51    1,103         4,943     6,046            120      1997        4 - 39
 Dubuque, IA

KANSAS
------ 
Mid-State Plaza         1,435        3,349            212    1,435         3,561     4,996              8      1997        5 - 39
 Salina, KS

Santa Fe Square         1,999        7,089            242    1,999         7,331     9,330            184      1996        3 - 39
 Olathe, KS

Westchester Square      3,279        9,837             14    3,279         9,851    13,130             43      1997        3 - 39
 Lenexa, KS

KENTUCKY
--------
Stony Brook             3,106        9,319            174    3,121         9,478    12,599            450      1996        3 - 39
 Louisville, KY

MINNESOTA
---------
Brookdale Square        2,230        6,694             11    2,230         6,705     8,935            304      1996        5 - 39
 Brooklyn, MN

Burning Tree Plaza        609        3,744          5,829      609         9,573    10,182          1,262      1993        3 - 39
 Duluth, MN

Central Valu            1,445        7,097              -    1,445         7,097     8,542             15      1997            39
 Columbia Heights, MN

Elk Park                5,486       10,466              -    5,486        10,466    15,952             22      1997        2 - 39
 Elk River, MN

Har Mar Mall            6,551       15,263          8,841    6,786        23,869    30,655          3,957      1992        5 - 39
 Roseville, MN

Hub West Shopping 
 Center                   757          345          4,165      757         4,510     5,267            828      1991     10 - 31.5
 Richfield, MN

Richfield Hub           3,000        5,390          5,207    3,000        10,597    13,597          3,229      1988        2 - 39
  Shopping Center
 Richfield, MN
</TABLE>

                                      F12
<PAGE>
 
 
NOTE 4 - REAL ESTATE INVESTMENTS (continued)

<TABLE>
<CAPTION>
 
                          Initial cost to the Company               Gross amount carried at December 31, 1997
                          ---------------------------              --------------------------------------------             Lives on
                                                                                                                              which
                                                       Capitalized                                                           Depre-
                                           Buildings   Subsequent               Buildings               Accu-      Date      ciation
                                              and         to                      and                  mulated    Acquired     is
                                            Improve-     Acqui-                 Improve-                Depre-       by       Comp-
SHOPPING CENTERS                  Land       ments       sition      Land        ments      Total      ciation    Company     uted
------------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>         <C>         <C>        <C>          <C>         <C>         <C>          <C>      <C>
MINNESOTA cont.
---------------
Roseville Center                $  1,405    $  4,040    $    23    $  1,405     $  4,063    $  5,468    $   104      1997     3 - 39
 Roseville, MN

Sun Ray Shopping Center               82       2,945     12,359          91       15,295      15,386      7,894      1961     1 - 33
 St. Paul, MN

Terrace Mall                         630       1,706      2,412         630        4,118       4,748        681      1993     4 - 39
 Robbinsdale, MN

Westview Valu                      2,629       6,133          -       2,629        6,133       8,762         13      1997         39
 West St. Paul, MN

Westwind Plaza                     1,949       5,547         76       1,949        5,623       7,572        464      1994     5 - 39
 Minnetonka, MN

White Bear Hills                     750       3,762        514         755        4,271       5,026        461      1993     3 - 39
 White Bear Lake, MN

MISSOURI
--------
Grandview Plaza                      414       2,205     15,116         427       17,308      17,735      5,059      1971     3 - 33
 Florissant, MO

Liberty Corners                    1,050       6,057          -       1,050        6,057       7,107         52      1997         39
 Liberty, MO

NEW MEXICO
----------
St. Francis Plaza                  1,578       3,683          -       1,578        3,683       5,261        252      1995     3 - 39
 Santa Fe, NM

SOUTH DAKOTA
------------
Baken Park                         2,388       7,002          -       2,388        7,002       9,390         15      1997     2 - 39
 Rapid City, SD

TENNESSEE
---------
Williamson Square                  2,570      14,561        287       2,570       14,848      17,418        737      1996     1 - 39
 Franklin, TN

WISCONSIN
---------
Madison Plaza                      2,014       6,121          -       2,014        6,121       8,135         54      1997     3 - 39
 Madison, WI

Mequon Pavilions                   2,761      15,647        125       2,761       15,772      18,533        720      1996     1 - 39
 Mequon, WI

Park Plaza                           982       4,020          -         982        4,020       5,002          9      1997         39
 Manitowoc, WI

Spring Mall                        1,790      12,317          -       1,790       12,317      14,107         26      1997         39
 Greenfield, WI                 --------    --------    -------    --------     --------    --------    -------

Total shopping centers          $124,021    $434,461    $67,765    $124,890     $501,357    $626,247    $40,574
                                --------    --------    -------    --------     --------    --------    -------

RETAIL/OFFICE BUILDING
----------------------
One North State                   16,765      37,317        466      16,947       37,601      54,548      1,856      1996
 Chicago, IL                    --------    --------    -------    --------     --------    --------    -------

Real estate investments held    $ 16,765    $ 37,317    $   466    $ 16,947     $ 37,601    $ 54,548    $ 1,856
  for sale                      --------    --------    -------    --------     --------    --------    -------

Total real estate investments   $140,786    $471,778    $68,231    $141,837     $538,958    $680,795    $42,430
                                ========    ========    =======    ========     ========    ========    =======
</TABLE>
                                      F13
<PAGE>
 
NOTE 5 - MORTGAGE LOANS, UNSECURED NOTES PAYABLE AND LINE OF CREDIT

Mortgage loans outstanding at December 31 consist of the following:

<TABLE>
<CAPTION>
                                                                              1997               1996
                                                                           -----------       ------------
<S>                                                                       <C>                <C>
Mortgage loan secured by Richfield Hub Shopping Center, at 9.875%,
 maturing September 1998.                                                  $ 5,270,000       $  5,355,000
 
Mortgage loan secured by Hub West Shopping Center, at 9.875%, 
 maturing September 1998.                                                    4,865,000         4,942,000
 
Mortgage loan secured by Martin's Bittersweet Plaza, at 8.875%,              
 maturing June 2003.                                                         3,679,000                 -
 
Mortgage loan secured by Williamson Square, at 8.000%, maturing            
 August 2005.                                                               12,709,000         12,902,000
 
Mortgage loan secured by Spring Mall, at 7.250%, maturing October 2006,
 including unamortized premium of $1,174,000.                                9,904,000                  -
 
Mortgage loan secured by Southgate Shopping Center, at 7.250%, 
 maturing October 2007, including unamortized premium of $207,000.           3,159,000                  -
 
Mortgage loan secured by St. Francis Plaza, at 8.125%, maturing                   
 December 2008.                                                              1,845,000          1,945,000
 
Mortgage loan secured by Elk Park, at 7.640%, maturing August 2016.          9,796,000                  -
 
Mortgage note secured by six properties, at 7.230%, maturing
 September 2000, including unamortized premium of $250,000.                          -        100,250,000
                                                                           -----------       ------------
                                                                           $51,227,000       $125,394,000
                                                                           ===========       ============
</TABLE>

The net book value of real estate pledged as collateral for loans was
approximately $76,523,000 (see Note 4). The mortgage loans collateralized by
Richfield Hub Shopping Center and Hub West Shopping Center are cross-
collateralized.

In connection with the acquisition of Tucker, the Company assumed the
obligations under a $100 million mortgage note with a fair value of $100,300,000
and an effective interest rate of 7.23% at the date of acquisition.  The
mortgage note, scheduled to mature September 2000, was secured by Commons of
Crystal Lake, Heritage Square, Sheridan Village, Speedway SuperCenter (excluding
Outlots), Washington Lawndale Commons and One North State.  The mortgage note
was issued to a trust qualifying as a real estate mortgage investment conduit
for federal income tax purposes (the "REMIC Note").  In September 1997, the
Company filed a "shelf" registration statement under which BOLP may issue up to
$300 million in unsecured non-convertible investment grade debt securities,
giving the Company the flexibility to issue such debt securities from time to
time when the Company determines that market conditions and the opportunity to
utilize the proceeds from the issuance of such securities are favorable.  During
August 1997, Standard & Poor's Investment Services ("Standard & Poor's")
assigned an investment grade corporate credit rating of "BBB-" to BOLP.  In
November 1997, Moody's Investors Service ("Moody's") assigned a prospective
rating of "(P)Baa3" to the unissued "shelf" registration of debt securities
filed by BOLP.  On November 26, 1997, the Company prepaid the REMIC Note
primarily with the proceeds of the offering by BOLP of $100 million of 7%
unsecured Notes due November 15, 2004.  The issue was rated "BBB-" by Standard &
Poor's, and "Baa3" by Moody's.  Prepayment of the REMIC Note resulted in an
extraordinary loss on prepayment of debt of $4,054,000 (net of the minority
interest portion), consisting primarily of a prepayment yield maintenance fee.
However, issuance of such unsecured debt extended the Company's weighted average
debt maturity and resulted in a slightly lower effective interest rate on $100
million of debt, while the prepayment of the REMIC Note resulted in the
discharge from the mortgage securing the REMIC Note of properties having an
aggregate gross book value of $181.2 million.  The outstanding balance of the
unsecured Notes at December 31, 1997, net of the unamortized discount, was
$99,783,000.  The effective interest rate on the unsecured Notes is
approximately 7.194%.

In December 1997, BOLP entered into a new $200 million unsecured line of credit
facility with a syndicate of banks, lead by First Chicago NBD and BankBoston,
replacing the previous $150 million unsecured line of credit.  The line of
credit bears interest at a rate equal to the lowest of (i) the lead bank's base
rate, (ii) a spread over LIBOR ranging from 0.70% to 1.25% depending on the
credit rating assigned by national credit rating agencies, or (iii) for amounts
outstanding up to $100 million, a competitive bid rate solicited
                                
                                      F14
<PAGE>
 
from the syndicate of banks.  Based on BOLP's current credit rating assigned by
Standard & Poor's and Moody's, the spread over LIBOR is 1.00%.  Additionally,
there is a facility fee currently equal to $300,000 per annum.  In the event the
current credit ratings were downgraded by either Standard & Poor's or Moody's,
the facility fee would increase to $500,000 per annum, and the spread over the
base rate would increase by 0.25% and the spread over LIBOR would increase to
1.25%.  The line of credit is guaranteed by the Company and matures in December
2000.  The line of credit is available for the acquisition, development,
renovation and expansion of new and existing properties, working capital and
general business purposes.  The Company incurred an extraordinary loss on the
prepayment of debt of $577,000 (net of the minority interest portion) in
connection with replacing the previous line of credit.  At December 31, 1997,
the weighted average interest rate on the line of credit was 7.19%.  The line of
credit contains certain financial and operational covenants that, among other
provisions, limit the amount of secured and unsecured indebtedness the Company
may have outstanding at any time, and provide for the maintenance of certain
financial tests including minimum net worth and debt service coverage
requirements.  The Company believes it was in compliance with such covenants
during 1997 and that such covenants will not adversely affect the Company's
business or the operation of its properties.

The Company uses Treasury Note purchase agreements and interest rate caps and
swaps to limit its exposure to increases in interest rates on its floating rate
debt and to hedge interest rates in anticipation of issuing unsecured debt at a
time when management believes interest rates are favorable, or at least
desirable given the consequences of not hedging an interest rate while the
Company is exposed to increases in interest rates.  The Company does not use
derivative financial instruments for trading or speculative purposes.  At
December 31, 1997, the Company was party to interest rate cap agreements which
entitle the Company to receive on a quarterly basis, the amount, if any, by
which the applicable three-month LIBOR Rate (as defined in the interest rate
protection agreement) for the protected amount exceeds the applicable cap rate
for the protected amount.  The Company was also party to a swap agreement
whereby the Company receives or makes quarterly payments based on the
differential between the three-month LIBOR Rate (as defined in the interest rate
protection agreement) for the protected amount and the applicable fixed swap
rate for the protected amount.

The following summarizes the interest rate protection agreements outstanding at
December 31, 1997:

<TABLE>
<CAPTION>
                                                                         Effect on
       Notional          Maximum       Type of                           Interest        Fair Value
        Amount            Rate         Contract           Maturity        Expense     December 31, 1997
----------------------------------------------------------------------------------------------------------------------------
<S>                            <C>             <C>            <C>                   <C>               <C>
    $ 43,000,000          6.00%          Swap           April 14, 1998   $118,000           $(31,000)
      40,000,000          7.50%           Cap           March 18, 1998          -                  -
      17,000,000          7.50%           Cap           April 11, 1998          -                  -
    ------------                                                         --------           --------
    $100,000,000                                                         $118,000           $(31,000)
    ============                                                         ========           ========
</TABLE>

The aggregate unamortized cost of the interest rate protection agreements was
$34,000 at December 31, 1997.  Additionally, in anticipation of issuing
unsecured debt in the first quarter of 1998, the Company entered into two
Treasury Note purchase agreements with notional amounts of $37 million each,
expiring March 2, 1998.  The contracts were terminated at a cost of $3,798,000
as of January 23, 1998, the date upon which the Company priced a $100 million
issuance of ten-year unsecured Notes (see Note 13).  As of December 31, 1997,
the fair value of the Treasury Note purchase agreements was a deficit of
$2,942,000.  The Company has treated the Treasury Note purchase agreements as
hedges and, accordingly, the loss recognized upon termination of the Treasury
Note purchase agreement will be deferred and amortized over the term of the
underlying debt security as an adjustment to interest expense.  The fair values
of the interest rate protection agreements are estimated using option-pricing
models that value the potential for the interest rate protection agreements to
become in-the-money through changes in interest rates during the remaining terms
of the agreements.  The negative fair value represents the estimated amount the
Company would have to pay to cancel the contract or transfer it to other
parties.

Scheduled principal payments on debt outstanding at December 31, 1997 are as
follows, after considering the effect of a $100 million debt issuance subsequent
to year-end (see Note 13):

<TABLE>
                 <S>                        <C>
                   1998                      $ 10,991,000
                   1999                           918,000
                   2000                        53,372,000
                   2001                         1,060,000
                   2002                         1,140,000
                   Thereafter                 235,229,000
                                             ------------
                                             $302,710,000
                                             ============
</TABLE>
              
                                      F15
<PAGE>
 
NOTE 6 - RENTALS UNDER OPERATING LEASES

Annual minimum future rentals to be received under non-cancelable operating
leases in effect at December 31, 1997 are as follows:

<TABLE>
           <S>                                 <C>
           1998                                   $ 74,370,000
           1999                                     68,813,000
           2000                                     62,083,000
           2001                                     55,549,000
           2002                                     47,168,000
           Later Years                             259,509,000
                                                  ------------
                                                  $567,492,000
                                                  ============
</TABLE>

Total minimum future rentals do not include contingent rentals under certain
leases based upon lessees' sales volume.  Contingent rentals earned amounted to
approximately $1,864,000, $1,397,000, and $1,083,000 in 1997, 1996 and 1995,
respectively.  Certain leases also require lessees to pay all or a portion of
real estate taxes and operating costs, amounting to $25,253,000, $21,748,000,
and $10,774,000 in 1997, 1996 and 1995, respectively.

No tenant accounted for as much as 10% of rental income in 1997, 1996 or 1995.
One North State accounted for greater than 10% of the Company's rental income
during 1997 and 1996.

NOTE 7 - INCOME TAXES

The Company has elected to be taxed as a real estate investment trust ("REIT")
under the Internal Revenue Code (the "Code").  Under the Code, a qualifying REIT
that distributes at least 95% of its ordinary taxable income to its share owners
is entitled to a tax deduction in the amount of the distribution.  In addition,
qualifying REITs are permitted to deduct capital gain distributions in the
determination of the tax on capital gains.  The Company paid distributions to
share owners aggregating $29,387,000, $23,168,000, and $13,098,000, in 1997,
1996, and 1995, respectively.  The Company has determined that for federal
income tax purposes approximately 57% of the distributions paid in 1997 were
ordinary dividends, approximately 15% were a capital gain and approximately 28%
were a return of capital; approximately 69% of the distributions paid in 1996
were ordinary dividends, approximately 17% were a capital gain and approximately
14% were a return of capital; and approximately 84% of the distributions paid in
1995 were ordinary dividends and approximately 16% were a return of capital.

NOTE 8 - SHARE OWNERS' EQUITY

In January 1995, the Company issued 325,000 shares of common stock in
conjunction with the purchase of the REIT advisory business of its former
advisor.  In April 1995, the Company issued 182,500 shares of common stock at a
price of $17 per share, which proceeds were applied to the acquisition of St.
Francis Plaza.  In July 1995, the Company completed a public share offering of
2,500,000 shares of common stock at a price of $16 per share.  Net proceeds from
the offering were approximately $37,405,000 (net of offering costs of
approximately $2,595,000), of which $32,600,000 was used to pay-down the
Company's bank line of credit and $4,712,000 was used to pay-off the non-
recourse mortgages assumed in November 1994, in connection with the Westwind
Plaza purchase.

In November 1996, the Company completed a public offering of 2,875,000 shares of
common stock (including shares issued pursuant to the exercise of the
underwriter over-allotment option) at a price of $16.50 per share.  Net proceeds
from the offering, approximately $44,851,000 (net of offering costs of
$2,618,000), were used to reduce outstanding indebtedness incurred under the
line of credit.

In May 1997, the Company filed a "shelf" registration with the Securities and
Exchange Commission to register $234,460,000 of equity securities that the
Company may issue through underwriters or in privately negotiated transactions
for cash from time to time.

On December 1, 1997, the Company completed an offering of 990,000 shares of its
common stock from the "shelf" registration at a price to the public of $20.375
per share.  Net proceeds from the offering, $19,166,000 (net of offering costs
of $376,000), were used to reduce outstanding indebtedness under the line of
credit.  The shares were sold under a Forward Equity Program entered into with
PaineWebber Incorporated ("PaineWebber") on October 21, 1997, pursuant to which
the Company has the right, until April 21, 1998, to sell shares of its common
stock with an aggregate value up to $60 million to PaineWebber, acting as
underwriter, in amounts ranging from $5 million to $20 million per transaction.
The Company completed an additional offering of 300,000 shares of its common
stock on December 10, 1997 through C.E. Unterberg, Towbin at a price to the
public of $20.50 per share, leaving
                            
                                      F16
<PAGE>
 
$209,013,000 available under the "shelf" registration.  Net proceeds from the
offering, $5,726,000 (net of offering costs of $73,000), were used to reduce
outstanding indebtedness under the line of credit.  A. Robert Towbin, a director
of the Company, serves as Managing Director of C.E. Unterberg, Towbin.

Under the Company's Dividend Reinvestment and Share Purchase Plan in effect
since 1993, share owners of record owning at least 100 shares may elect to
reinvest cash dividends and make limited additional cash payments (minimum $100,
maximum $2,500 per quarter) to purchase newly issued shares of the Company
without brokerage fees or other transaction costs, at a 3% discount from market
prices (as determined in the Plan).  During 1997, 1996 and 1995, the Company
issued 38,592, 13,082, and 16,714 shares, respectively, under this Plan.

NOTE 9 - STOCK OPTION PLANS AND STOCK-BASED COMPENSATION

The Company's 1993 Stock Option and Incentive Plan authorizes options and other
stock-based awards to be granted for up to 5% of the Company's shares
outstanding.  During 1997, 1996 and 1995, options for 94,500, 17,500 and 217,500
shares, respectively, were granted under this Plan.  At December 31, 1997 and
1996, options for 252,000 and 180,000 shares, respectively, remained outstanding
under this and a prior stock option plan (collectively the "Stock Option
Plans").  A committee of the Board of Directors administers the Plan and is
responsible for selecting persons eligible for awards and for determining the
term and duration of any award.

In 1997, the Company's stockholders approved a Superior Performance Incentive
Plan, originally intended to provide an award pool to be divided among senior
executives and directors of the Company in an amount based upon the amount (if
any) by which total returns to stockholders of the Company exceeded total
returns to stockholders of other REITs included in an industry index, over a
three-year period.  Because of administrative complexities that made the
implementation of such Plan impractical, at year-end, after working with an
independent compensation consultant, the Board of Directors terminated the Plan
and substituted a non-recurring award of approximately 115,000 shares of the
Company's common stock to certain senior executives, plus a cash amount to
reimburse the executives for taxes resulting from such award.  As a result, a
non-recurring charge of $3,415,000 was included in the Company's 1997 financial
statements.

The Company has estimated the fair value of stock options granted on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1997, 1996, and 1995, respectively:
dividend yield of 7.13%, 8.96% and 8.87%; expected volatility of 16%, 23%, and
18%; risk-free interest rates of 5.5%, 6.1% and 6.1%; and expected lives of five
years for all three years.  The Company applies Opinion No. 25 and related
Interpretations in accounting for awards under the Plan.  Accordingly, no
compensation cost relating to the Stock Option Plans has been recognized in the
accompanying financial statements.  Had compensation cost for the Company's Plan
been determined consistent with Statement No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
                                                                    1997                 1996                  1995
                                                             -------------------  -------------------  --------------------
<S>                                 <C>                      <C>                  <C>                  <C>
Net income                          As Reported                      $25,127,000          $27,222,000            $8,431,000

                                    Pro Forma                        $25,069,000          $27,202,000            $8,231,000

Net income per share                As Reported, basic               $      1.15          $      1.54            $     0.85
                                    As Reported, diluted             $      1.15          $      1.54            $     0.85

                                    Pro Forma, basic                 $      1.15          $      1.54            $     0.83
                                    Pro Forma, diluted               $      1.15          $      1.54            $     0.83
</TABLE>

The effect of applying Statement No. 123 for disclosing compensation costs under
such pronouncement may not be representative of the effects on reported net
income for future years.

A summary of option transactions during the periods covered by these financial
statements is as follows:
               
                                      F17
<PAGE>
 
<TABLE>
<CAPTION>
                                                                                                              Exercise Prices
                                                                                            Shares                Per Share
                                                                                         ----------------------------------------
<S>                                                                                     <C>                  <C>
Outstanding at December 31, 1993 and 1994                                                     91,375           $11.50 - $22.00
Granted                                                                                      217,500           $14.88 - $16.50
Expired                                                                                       (4,624)          $16.66 - $21.25
Exercised                                                                                     (9,000)          $11.50 - $14.88
                                                                                            --------
Outstanding at December 31, 1995                                                             295,251           $11.50 - $22.00
Granted                                                                                       17,500           $         14.74
Expired                                                                                      (24,251)          $14.75 - $22.00
Exercised                                                                                   (108,500)          $11.50 - $17.00
                                                                                            --------
Outstanding at December 31, 1996                                                             180,000           $11.50 - $21.25
Granted                                                                                       94,500           $18.16 - $19.35
Expired                                                                                      (12,000)          $19.35 - $21.25
Exercised                                                                                    (10,500)          $14.74 - $17.00
                                                                                            --------
Outstanding at December 31, 1997                                                             252,000           $11.50 - $21.25
                                                                                            ========
</TABLE>

Except for 79,500 options granted to employees during 1997, all options
outstanding at December 31, 1997 are fully vested and exercisable.  One half of
the 79,500 options granted to employees during 1997 vest on each of the first
and second anniversary of the grant date over a two-year period, and have a
duration of ten years from the date of grant, subject to earlier termination in
certain circumstances.  The weighted average exercise price per share and the
weighted average contractual life of options outstanding at December 31, 1997
were $16.70 and 7.31 years, respectively.  The weighted average fair value of
options granted during 1997, 1996 and 1995 were $1.36, $1.21, and $0.92,
respectively.

NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires the Company to disclose fair value
information of all financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate fair value.  The
Company's financial instruments, other than debt and interest rate protection
agreements are generally short-term in nature and contain minimal credit risk.
These instruments consist of cash and cash equivalents, rents and other
receivables, and accounts payable.  The carrying amount of these assets and
liabilities in the consolidated balance sheets are assumed to be at fair value.

The Company's mortgage loans are at fixed rates, and when compared with
borrowing rates currently available to the Company with similar terms and
average maturities, approximate fair value.  The Company's line of credit is at
a variable rate, which results in a carrying value that approximates its fair
value.  The fair values of the interest rate protection agreements and
methodologies for determining their fair values are described in Note 5.

NOTE 11 - COMMITMENTS AND CONTINGENCIES

Retirement Savings Plan
-----------------------

The Company provides its employees with a retirement savings plan which is
qualified under Section 401(k) of the Internal Revenue Code.  The provisions of
the plan provide for an employer discretionary matching contribution currently
equal to 35% of the employee's contributions up to 5% of the employee's
compensation.  The employer matching contribution is determined annually by the
Board of Directors, and amounted to $43,000, $13,000, and $10,000 in 1997, 1996,
and 1995, respectively.  Employer contributions and any earnings thereon are
vested in accordance with the following schedule:

                    Years of Service                Percentage
                    ----------------                ----------
                           1                            20%
                           2                            40%
                           3                            60%
                           4                            80%
                           5                           100%

                                      F18
<PAGE>
 
Legal Actions
-------------

The Company is a party to several legal actions which arose in the normal course
of business.  In the opinion of management, there will be no adverse
consequences from these actions which would be material to the Company's
financial position or results of operations.

NOTE 12 - PRO FORMA INFORMATION

On March 15, 1996, the Company closed the merger acquisition of Tucker.  The
acquisition was completed through the issuance of 7.4 million common shares of
the Company valued at $13.96 per share, in exchange for 100% of the outstanding
shares of Tucker, payment of certain transaction costs and the assumption of all
of Tucker's liabilities.  The Tucker share owners received .686 of a share of
Bradley for each outstanding Tucker share.  The acquisition was structured as a
tax-free transaction, and was accounted for using the purchase method of
accounting.  Accordingly, the purchase price was allocated to the assets
purchased and the liabilities assumed based upon the fair values at the date of
acquisition.  The excess of the fair value of assets acquired and liabilities
assumed over the purchase price was not material.  Such excess was allocated to
reduce proportionately, the values assigned to the properties acquired.  The
results of operations of Tucker have been included in the Company's financial
statements from March 15, 1996.

The following table sets forth certain summary unaudited pro forma operating
data for the years ended December 31, 1996 and 1995, as if the merger had been
consummated as of the beginning of 1996 and 1995 after giving effect to certain
adjustments including a reduction in depreciation expense due to longer useful
lives and estimated cost savings of the combined entity.

<TABLE>
<CAPTION>
                                                                          ----------------------------------
                                                                                Year ended December 31,
                                                                              1996                  1995
                                                                          -----------------------------------
<S>                                                                      <C>                   <C>
                                                                                       (Unaudited)
Total revenues                                                              $89,561,000            $87,428,000
Net income                                                                  $29,213,000            $17,135,000
Net income per share, basic                                                 $      1.53            $      0.99
Net income per share, diluted                                               $      1.53            $      0.99
</TABLE>

The unaudited pro forma operating data are presented for comparative purposes
only and are not necessarily indicative of what the actual results of operations
would have been for the years ended December 31, 1996 and 1995, nor does such
data purport to represent the results to be achieved in future periods.

NOTE 13 - SUBSEQUENT EVENTS

On January 28, 1998, BOLP issued $100 million, 7.2%, ten-year unsecured Notes
maturing on January 15, 2008.  Proceeds from the offering were used to pay
amounts outstanding under the bank line of credit.  In February 1998
(unaudited), the Company closed the acquisition of an additional shopping center
located in Indiana aggregating approximately 105,000 square feet for an
aggregate cost of approximately $3.7 million.  Also in February 1998
(unaudited), the Company issued 392,638 shares of common stock from its "shelf"
registration statement and applied net proceeds of approximately $7.6 million to
pay down the line of credit.

NOTE 14 - SUPPLEMENTARY QUARTERLY DATA (UNAUDITED)

<TABLE>
<CAPTION>              
                                                                     March 31,      June 30,          Sept. 30,      Dec. 31,
                                                                       1997           1997               1997          1997
                                                                ----------------------------------------------------------------
                                                                          (Thousands of dollars except per share data)
<S>                                                                 <C>             <C>              <C>             <C>
Rental income                                                         $22,855        $23,034           $24,033        $26,193
Net gain (loss) on sale of properties                                 $ 3,073        $(1,300)          $     -        $ 5,665
Extraordinary loss on prepayment of debt,
  net of minority interest                                            $     -        $     -           $     -        $(4,631)
Net income                                                            $ 8,924        $ 5,028           $ 6,561        $ 4,614
Net income per share, basic                                           $  0.41        $  0.23           $  0.30        $  0.21
Net income per share, diluted                                         $  0.41        $  0.23           $  0.30        $  0.21
</TABLE>

                                      F19
<PAGE>
 
<TABLE>
<CAPTION>      
                                             March 31,      June 30,        Sept. 30,        Dec. 31,
                                               1996           1996             1996            1996
                                        ----------------------------------------------------------------
                                                  (Thousands of dollars except per share data)
<S>                                         <C>             <C>              <C>            <C>
Rental income                                 $11,219        $21,982           $21,442        $22,869
Gain on sale of property                      $ 9,379        $     -           $     -        $     -
Net income                                    $11,375        $ 4,852           $ 4,885        $ 6,110
Net income per share, basic                   $  0.91        $  0.26           $  0.26        $  0.30
Net income per share, diluted                 $  0.91        $  0.26           $  0.26        $  0.30
</TABLE>
                     
                                      F20
<PAGE>
 
                                                                    SCHEDULE III

                           BRADLEY REAL ESTATE, INC.
                           -------------------------
                                        
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                    ----------------------------------------
<TABLE>
<CAPTION>
 
          Cost                                            December 31,
          ----                                            ------------
                                               1997           1996           1995
                                           ------------   ------------   ------------
<S>                                        <C>            <C>            <C>
Balance, beginning of year                 $507,631,000   $189,405,000   $177,939,000
Acquisitions and other additions            199,301,000    320,053,000     11,466,000
Sale of properties and other deductions     (26,137,000)    (1,827,000)             -
                                           ------------   ------------   ------------
Balance, end of year                       $680,795,000   $507,631,000   $189,405,000
                                           ============   ============   ============
 
  Accumulated Depreciation
  ------------------------
 
Balance, beginning of year                 $ 37,883,000   $ 27,591,000   $ 22,385,000
Depreciation provided                        13,407,000     10,292,000      5,206,000
Sale of properties and other deductions      (8,860,000)             -              -
                                           ------------   ------------   ------------
Balance, end of year                       $ 42,430,000   $ 37,883,000   $ 27,591,000
                                           ============   ============   ============
 
</TABLE>
                    
                                      F21