**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM 10-K**

| x                                                    | ** ** | **Annual Report Pursuant to Section 13 or  15(d) of the Securities  Exchange Act of 1934**    |
|------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|
| **For the fiscal year ended December 31, 2005** |
| **OR**                                               |
| o                                                    | ** ** | **Transition Report Pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934** |

 

**CommissionFile Number: 000-23065**

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**BRADLEY OPERATING LIMITED PARTNERSHIP**

(Exact name of registrant as specified in its charter)

| **Delaware**                                                    | ** ** | **04-3306041**                       |
|-----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation or  organization) |       | (I.R.S. Employer Identification No.) |

 

**131 Dartmouth StreetBoston, Massachusetts 02116**(Address, including zipcode, of principal executive offices)

**Registrant’stelephone number, including area code: (617) 247-2200**

Securities registered pursuant toSection 12(b) of the Act:   None

Securities registered pursuant toSection 12(g) of the Act:   None

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether disclosure ofdelinquent filers pursuant to Item 405 of Regulation S-K is not containedherein and will not be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part IIIof this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Act). Yes o No x

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Act). Yes o No x

Indicate by check mark whether the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

As of June 30, 2005, the aggregate market valueof the 496,762 common units of limited partnership interest (“Units”) held bynon-affiliates of the registrant was $17.4 million based upon the last reportedsale price of $35.02 per share on the New York Stock Exchange on June 30,2005 of the common stock of Heritage Property Investment Trust, Inc., areal estate investment trust and the sole stockholder of the sole generalpartner of the registrant, for which the Units are redeemable under certaincircumstances at the election of Heritage Property Investment Trust, Inc.(For this computation, the registrant has excluded the market value of allUnits beneficially owned by Heritage Property Investment Trust, Inc.)

**DocumentsIncorporated by Reference**

HeritageProperty Investment Trust, Inc., the sole stockholder of the registrant’ssole general partner, expects to file no later than April 14, 2006, itsdefinitive Proxy Statement for its 2006 Annual Meeting of Stockholders andhereby incorporates by reference into Part III hereof the portions of suchProxy Statement described in Items 10, 11, 12, 13 and 14 hereof.

 

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**BRADLEYOPERATING LIMITED PARTNERSHIPANNUAL REPORT ON FORM 10-K INDEX**

| Item No. | ** ** | ** **                                                                                                         | ** ** | **Page No.** | ** ** |
|---------------|------------|--------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|
| ** **    |       | **PART I**                                                                                                    |       |              |       |   |   |
| Item 1:       |       | Business                                                                                                           |       |              | 3          |   |   |
| Item 1A:      |       | Risk Factors                                                                                                       |       |              | 12         |   |   |
| Item 1B:      |       | Unresolved Staff Comments                                                                                          |       |              | 19         |   |   |
| Item 2:       |       | Properties                                                                                                         |       |              | 19         |   |   |
| Item 3:       |       | Legal Proceedings                                                                                                  |       |              | 34         |   |   |
| Item 4:       |       | Submission of Matters to a Vote of Security Holders                                                                |       |              | 35         |   |   |
| ** **    |       | **PART II**                                                                                                   |       |              |       |   |   |
| Item 5:       |       | Market for Registrant’s Common Equity, Related  Stockholder Matters and Issuer Purchases of Equity Securities |       |              | 35         |   |   |
| Item  6:      |       | Selected  Financial Data                                                                                           |       |              | 36         |   |   |
| Item 7:       |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                        |       |              | 38         |   |   |
| Item 7A:      |       | Quantitative and Qualitative Disclosures About Market  Risk                                                        |       |              | 64         |   |   |
| Item 8:       |       | Financial Statements and Supplementary Data                                                                        |       |              | 66         |   |   |
| Item 9:       |       | Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure                              |       |              | 66         |   |   |
| Item  9A:     |       | Controls  and Procedures                                                                                           |       |              | 66         |   |   |
| Item 9B:      |       | Other Information                                                                                                  |       |              | 67         |   |   |
| ** **    |       | **PART III**                                                                                                  |       |              |       |   |   |
| Item 10:      |       | Directors and Executive Officers of the Registrant                                                                 |       |              | 68         |   |   |
| Item  11:     |       | Executive  Compensation                                                                                            |       |              | 68         |   |   |
| Item 12:      |       | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters                    |       |              | 68         |   |   |
| Item 13:      |       | Certain Relationships and Related Party Transactions                                                               |       |              | 68         |   |   |
| Item 14:      |       | Principal Accounting Fees and Services                                                                             |       |              | 68         |   |   |
| ** **    |       | **PART IV**                                                                                                   |       |              |       |   |   |
| Item 15:      |       | Exhibits and Financial Statement Schedules                                                                         |       |              | 68         |   |   |

 

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**PART I**

**Forward-Looking Statements**

This Annual Report on Form 10-K,together with other statements and information we publicly disseminate containscertain forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended. Forward-looking statements are statementsthat relate to expectations, beliefs, projections, future plans and strategies,anticipated events or trends and similar expressions concerning matters thatare not historical facts. The forward-looking statements made in this AnnualReport reflect our current views about future events and are subject to risks,uncertainties, assumptions and changes in circumstances that may cause ouractual results to differ significantly from the current views expressed in anyforward-looking statement. Forward-looking statements involve known and unknownrisks, uncertainties and other factors that are, in some cases, beyond ourcontrol and that could materially affect actual results. Forward lookingstatements, therefore, should not be relied upon. The factors that could causeactual results to differ materially from current expectations are discussedunder “**Item 1A—Risk Factors**.” Theforward-looking statements contained in this Annual Report represent ourjudgment as of the date of this report, and we caution readers not to placeundue reliance on those statements.

**Item 1:**                       Business

Heritage PropertyInvestment Trust, Inc., Bradley Operating Limited Partnership and theirsubsidiaries are separate legal entities. For ease of reference, the terms “we,”“us,” “our,” and “ours” refer to the business and properties of all theseentities, unless the context indicates otherwise. Similarly, references to “Heritage”or “the Company” refer to Heritage Property Investment Trust, Inc. and itssubsidiaries and references to “Bradley OP” refer to Bradley Operating LimitedPartnership and its subsidiaries.

**Overview**

Bradley OP is one of the legal entities through whichHeritage Property Investment Trust, Inc., a fully integrated,self-administered and self-managed real estate investment trust, or “REIT,”conducts substantially all of its business and owns (either directly or throughsubsidiaries) substantially all of its assets. Heritage is one of the nation’slargest owners of neighborhood and community shopping centers, with propertieslocated in the Eastern, Midwestern and Southwestern United States. As of December 31,2005, Heritage had a shopping center portfolio consisting of 171 shoppingcenters, located in 30 states and totaling approximately 35.0 millionsquare feet of total gross leasable area (“GLA”), of which approximately28.7 million square feet was Company-owned GLA. Heritage’s shopping centerportfolio was 92.4% leased as of December 31, 2005. Heritage also ownsthree office buildings in addition to its shopping center portfolio. Heritageis headquartered in Boston, Massachusetts and has sixteen regional officeslocated in the Eastern, Midwestern, and Southwestern United States.

Heritage conducts its business exclusively through itssubsidiaries and primarily through its two operating partnerships, HeritageProperty Investment Limited Partnership, or “Heritage OP”, and Bradley OP.Bradley OP is a Delaware limited partnership and is the primary entity throughwhich Heritage conducts its operations in the Midwest. As of December 31,2005, Bradley OP and its subsidiaries owned 115 shopping centers, located in 24states and totaling approximately 19.0 million square feet of Company-ownedGLA.

Heritage is the sole general partner of Heritage OPand one of Heritage’s wholly owned subsidiaries is the sole general partner ofBradley OP. Although Heritage generally manages the affairs of Bradley OP andHeritage OP in the same manner, Heritage is operating two distinct operatingpartnerships, having elected not to merge or combine Heritage OP and Bradley OPas a legal matter at this time. This structure 

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is commonly referred to asan umbrella partnership REIT, or UPREIT. As of December 31, 2005, Heritageowned directly or indirectly all of the ownership interests in Heritage OP andapproximately 98.2% of the ownership interests in Bradley OP.

Pursuant to the Bradley OP partnership agreement,through our subsidiary acting as the sole general partner of Bradley OP, wegenerally have full, exclusive and complete responsibility and discretion inthe management, operation and control of Bradley OP, including the ability tocause Bradley OP to enter into certain major transactions, includingacquisitions, developments and dispositions of properties and refinancings ofexisting indebtedness.

Interests in Bradley OP are evidenced by two classesof unit holders: general partner “common” units owned by our subsidiary as “GPUnits,” and limited partner “common” units evidenced by “LP Units.” The holdersof LP Units have the right, under certain circumstances, to exchange theirunits for shares of Heritage common stock on a one-for-one basis. Holders of GPUnits and LP Units are referred to as “common unit holders.”

LP Units are generally held by persons who receivedlimited partner interests in connection with their contributions of direct orindirect interests in one or more properties to Bradley OP. Bradley OP isobligated to redeem each LP Unit at the request of the holder for cash equal tothe fair market value of a share of our common stock at the time of theredemption. Heritage may elect to acquire those LP Units presented forredemption for either one share of common stock or cash. With each redemptionof LP Units, Heritage’s percentage ownership interest in Bradley OP increases.Bradley OP may issue additional LP Units to purchase additional properties orto purchase land parcels for the development of properties in transactions thatdefer some or all of the seller’s tax consequences. Offering LP Units insteadof cash for properties may provide potential sellers with partial federalincome tax deferral.

Bradley OP also has the authority to issue preferredunits that may have distribution and other rights senior to the rights ofholders of common or preferred units.

Although there is no separate trading market for LPUnits, we believe the market value of the shares of Heritage common stock onthe New York Stock Exchange may provide existing and potential holders of LPUnits with a mechanism by which to value LP Units from time to time, aftergiving effect to the particular tax position of each holder. The trading valueof the common stock serves as a useful surrogate for the value of LP Units becausethe distributions to the holders of LP Units are made concurrently with and inthe same amount per LP Unit as distributions we pay to each share of Heritagecommon stock and because of the redemption rights of the holders of the LPUnits.

We elected to be taxed asa REIT under Sections 856 through 860 of the Internal Revenue Code of 1987, asamended (the ”Code”), commencing with our initial taxable year ended December 31,1999. We believe that we are organized in conformity with the requirements forqualification as a REIT under the Code, and that our manner of operationenables us to meet the requirements for taxation as a REIT for federal incometax purposes. To maintain our REIT status, we must meet a number oforganizational and operational requirements, including a requirement that wedistribute at least 90% of our REIT taxable income to our stockholders. As aREIT, we generally will not be subject to federal income tax on REIT taxableincome we distribute to our stockholders. If we fail to qualify as a REIT inany taxable year, we will be subject to federal income tax at regular corporaterates. Even if we qualify for taxation as a REIT, we may be subject to somefederal, state and local taxes on our income and property.

**Business and Growth Strategies**

Although the operations of Bradley OP are separatefrom the operations of Heritage OP and our other subsidiaries, our business andgrowth strategies with respect to the operations of Bradley OP are identical toour strategies in managing our other operations.

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Our businessstrategy has been, and will continue to be, to generate stable and increasingcash flow and asset value by managing a portfolio of real estate propertieslocated in attractive markets with strong economic and demographiccharacteristics. Our business strategy consists of the following elements:

·       **Maximizing cash flow from our properties by continuingto enhance the operating performance of each property****.**   We manage our properties through a coordinatedproperty management and leasing program, which enables us to achieve operating,marketing and leasing efficiencies. We aggressively lease currently availablespace and space that becomes available, both to existing and new tenants.

·       **Building and leveraging our long-term tenantrelationships.  **An important priority in managing our businessis establishing and developing strong, lasting relationships with our tenants.We believe that we have been successful in consistently meeting or exceedingthe expectations and demands of our tenants. Over the years, this strategy hasallowed us to forge mutually beneficial business relationships, enabling ourtenants, through our broad geographic focus and contacts, to enter new marketsand leverage opportunities to increase their presence in and across markets.

·       **Increasing the number of anchor and national tenants to enhance thequality and stability of our neighborhood and community shopping centers.  **Webelieve that securing multiple anchors and other national tenants at a givencenter enhances the attractiveness of that center by increasing consumertraffic, which enhances the performance of our other tenants within the center’sremaining available space. The presence of strong, credit-quality anchor andnational tenants also increases the stability and long-term prospects of thecenter.

·       **Targeting redevelopment and expansion projects that webelieve will generate substantial returns.  **We seek to leverageour operating and redevelopment capabilities to capitalize on prospects withinour existing portfolio. In particular, we are currently exploring opportunitiesto expand our existing centers, to reposition our tenant mix and, whereappropriate, to lease parcels on our properties with minimal incremental cost.

·       **Exploring opportunities to improve the overall quality of our portfoliothrough capital recycling.  **We continually analyze each assetin our core property portfolio with the goal of improving our portfolio’s  long-term quality by disposing of propertiesthat have demonstrated limited growth potential or are no longer a strategicfit within our overall portfolio. We will redeploy the proceeds of thesedispositions into newer, more promising properties or to finance redevelopmentor development joint venture opportunities.

·       **Pursuing opportunities to acquire multi-anchored,primarily by grocers, neighborhood and community shopping centers.  **Weutilize our knowledge of key markets to pursue opportunistic acquisitions ofprimarily grocer- and multi-anchored shopping centers. We seek to establish afirm market presence by owning multiple properties in an area and employ astrategy that focuses our acquisition activities in densely populated areaswith strong growth prospects. Our senior management team has developedlong-standing relationships with institutional and non-institutional shoppingcenter property owners and operators, and has built a national broker network.These efforts have enhanced our ability to identify and capitalize onacquisition opportunities.

·       **Increasingour sources of capital and acquisition activities by pursuing joint ventureswith local developers and institutional investors.  **As theacquisition environment has grown more competitive, we have developedalternative sources of acquisition candidates and capital sources. Jointventures with developers allow us to leverage our operating expertise to createvalue, enhance our profitable growth and participate in areas of newdevelopments. We also actively pursue with institutional investors jointventures the goals of which are to provide us with an alternative source 

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of capital. Thesejoint ventures allow us to use our management experience and infrastructure toexpand our portfolio, generating solid returns for both our partners andourselves.

**Our Competitive Strengths**

We seek toimplement our strategy in a number of ways, including by our:

·       **Grocer-anchored neighborhood and community shoppingcenter focus.  **As of December 31, 2005, approximately 68%of our centers were grocer-anchored and these centers accounted forapproximately 70% of our total net operating income for the year. Grocerswithin our centers are dominant in their marketplace, which, in our experience,allows them to be more resistant to economic downturns by the nature of theirbusiness, generating continuous consumer traffic to our centers.

·       **Multi-anchored focus.  **Our shoppingcenters have an average of 2.8 anchor tenants. We consider an anchor tenant tobe a tenant that occupies at least 15,000 square feet at one of our centers. Inour experience, multiple anchors attract greater consumer flow through theentire shopping center and add to the economic stability of our shoppingcenters as a whole.

·       **Diverse and stable tenant base.  **Webelieve our tenant roster is well-diversified and of good credit quality. As ofDecember 31, 2005, our top twenty tenants contributed less than 28% of ourannualized base rental revenue, with no single tenant representing more than5.4% of our annualized base rental revenue. As of December 31, 2005, wehad approximately 3,300 separate leases with various tenants, includingnational and regional supermarket chains, drug stores, discount retail stores,other nationally or regionally known stores and a great variety of otherregional and local retailers. We believe that this diversity of tenants willenable us to generate more stable cash flows over time.

·       **Geographic diversification.  **Ourproperties are located in 30 states, in the Eastern, Midwestern andSouthwestern United States. As of December 31, 2005, the five largestconcentrations of properties in our total portfolio, based on total annualizedbase rent, were located in Illinois, North Carolina, Minnesota, Indiana and NewYork, representing 11.5%, 9.5%, 9.3%, 6.8%, and 6.7% of our total portfolio,respectively. We believe that geographic diversity helps mitigate the risksassociated with localized economic downturns.

·       **Attractive locations with strong market demographics.  **Theaverage population within a three-mile radius of our properties isapproximately 63,000 and the average annual household income in such areas is$64,000, based upon 2000 census data provided by Applied Geographic Solutions.We believe these strong market demographics provide our properties with aconsistent supply of shoppers who exhibit strong demand for goods and services.

·       **Seasoned management team.  **Our seniormanagement team is comprised of executives with an average of over20 years of experience in the acquisition, management, leasing,redevelopment and construction of real estate or retail properties. Inparticular, we believe the in-depth market knowledge and long-term tenantrelationships developed by our senior management provide us with a keycompetitive advantage.

·       **Prudentbalance sheet management.   **Through our financing strategy, wemaintain a strong and flexible financial position with what we believe to be aprudent level of leverage and a large and growing pool of unencumberedproperties, and we manage our exposure to interest rate risk from our floatingrate debt. Currently, we have a credit rating from three major rating agencies—Standard &Poor’s, which has given us a rating of BBB-, Moody’s Investor Service, whichhas given us a rating of Baa3, and Fitch Ratings, which has given us a ratingof BBB-.

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**Financing Strategy**

Our financing strategy with respect to the operationsof Bradley OP is identical to our strategy in financing our other operations.Our financing strategy is to maintain a strong financial position bymaintaining a prudent level of leverage and managing our variable interest rateexposure. We have accomplished this by being flexible in selecting the bestmeans available of financing our operations and growth, including accessing thepublic equity markets.

At December 31, 2005, we had approximately$1.5 billion of indebtedness consisting of a combination of our unsecuredline of credit, unsecured term loan, an aggregate $450 million of unsecurednotes issued by the Company or by Bradley OP and $631 million of mortgageindebtedness. As of December 31, 2005, this aggregate indebtedness had aweighted average interest rate of 6.18% with an average maturity of4.2 years. As of December 31, 2005, our market capitalization,including outstanding debt, was $3.1 billion, resulting in a debt-to-totalmarket capitalization ratio of approximately 47.6%.

On March 29, 2005, we refinanced our thenexisting line of credit, entering into a new three-year $400 millionunsecured line of credit with a group of lenders and Wachovia Bank, NationalAssociation, as agent, expiring March 28, 2008, subject to a one-yearextension. At our request, subject to the agent’s consent, this line of creditmay be increased to $500 million. This line of credit bears interest ateither the lender’s base rate or a floating rate based on a spread over LIBORranging from 62.5 basis points to 115 basis points, depending upon our debtrating. This credit facility also includes a competitive bid option that allowsthe Company to hold auctions among the participating lenders in the facilityfor up to fifty percent of the facility amount. The variable rate in effect at December 31,2005 was 4.98%. This line of credit also has a facility fee based on the amountcommitted ranging from 15 to 25 basis points, depending upon our debt rating,and requires quarterly payments. As of December 31, 2005,$328 million was outstanding under this line of credit. Bradley OP andHeritage OP have guaranteed this line of credit.

On November 28, 2005, we entered into a $100million term loan or “bridge loan” with Wachovia Capital Markets, LLC, asarranger, Wachovia Investment Holdings, LLC, as agent, and certain otherfinancial institutions, expiring August 28, 2006, subject to a two-yearextension. Amounts borrowed under this bridge loan bear interest at either thelender’s base rate or a floating rate based on a spread over LIBOR ranging from55 basis points to 115 basis points, depending upon our debt rating. Thevariable rate in effect at December 31, 2005 was 5.09%. This bridge loanalso has a facility fee based on the amount committed ranging from 12.5 to 25basis points, depending upon our debt rating, and requires quarterly payments. Asof December 31, 2005, $50 million was drawn under the bridge loan. BradleyOP and Heritage OP have guaranteed this bridge loan.

During the fourth quarter 2005, we entered into $150million of forward-starting interest rate swaps with a fixed rate of 5.019%. Weentered into the interest rate swap contracts designated and qualifying as cashflow hedges. The purpose of these forward swaps is to mitigate the risk ofchanges in forecasted interest payments on $150 million of ten-year fixed-ratefinancing anticipated to be obtained in the second or third quarter of 2006.

During October 2003, we filed a shelfregistration statement on Form S-3 for up to $500 million ofdebt securities, preferred stock, common stock and common stock warrants. Thisshelf registration statement permits us to utilize the public debt and equitymarkets as a principal source of capital for our expansion and other needs. Asof December 31, 2005, we had approximately $389 million available forissuance under this shelf registration statement.

We intend to finance future growth with the mostadvantageous source of capital available. These sources may include sellingcommon stock, preferred stock or debt securities through public offerings orprivate offerings, incurring or assuming additional indebtedness throughsecured or unsecured borrowings, and issuing units of limited partnershipinterests of Bradley OP in exchange for contributed property. We 

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may also finance futuregrowth by disposing of existing properties and redeploying the proceeds intoacquisitions or to finance redevelopment or development joint ventureopportunities.

In addition, we expect tocontinue to enter into joint ventures with institutions and developers todevelop and acquire properties or portfolios, reducing the amount of capitalrequired by us to make those investments. These joint ventures also provide uswith a capital source for new development, as well as the opportunity to earnfees for asset and property management services. As asset manager, we will beengaged by our partners to apply similar operating, investment, and capitalstrategies to the portfolios owned by the joint ventures.

**Investment Strategy**

Our investment strategywith respect to the operations of Bradley OP is identical to our strategies inmanaging our other operations.

*Acquisitions*

We target multi-anchored, open-air neighborhood andcommunity shopping centers generally containing greater than 125,000 squarefeet of GLA. In particular, we seek to acquire those shopping centers anchoredby market-leading grocers or those regional operators who have dominantpositions in their trade areas. We also seek to acquire shopping centers withmultiple retail anchors, including electronics, home improvement, off-priceretailers, office superstores, and fabric and clothing retailers, all of whomwe believe to be generally beneficial to the value of the center. In additionto those anchors, we also seek properties with a diverse tenant mix thatincludes service retailers, such as banks, florists, restaurants, and appareland specialty shops. We seek convenient and easily accessible locations thatoffer abundant parking close to residential communities, excellent visibilityfor our tenants and easy access for neighborhood shoppers.

With respect to our geographical focus, historically,our acquisition activities were focused primarily in the Eastern and MidwesternUnited States. We seek to establish a significant market presence by owningmultiple properties in an area. We focus our acquisition activities primarilyin densely populated areas with strong growth prospects, either in geographicareas proximate to our existing neighborhood and community shopping centers,which allows us to maximize our current resources and manage expenses, or innew markets where the opportunity presented is a sizable portfolio that willallow us to reach an economy of scale.

We will continue to evaluate all potentialacquisitions on a property-by-property and market-by-market basis. We evaluateeach market based on similar criteria, including: stable or growing populationbase; positive job growth; diverse economy; and other competitive factors.

During 2005, we expanded our shopping center portfolioby acquiring seven properties aggregating 1.3 million square feet of GLA,of which 0.7 million square feet was Company-owned GLA. The aggregateinvestment for the seven properties was $143 million, which was fundedthrough borrowings under our line of credit, the assumption of mortgage debt,and the issuance of common units of limited partnership interest in Bradley OP.We generally acquire new properties through Bradley OP or one of itssubsidiaries.

With the emergence of Wal-Mart and increasedconsolidation within the traditional grocer industry, our recent andanticipated future activity has and may include acquisitions of shoppingcenters that do not contain a traditional grocer-anchor. These centers may, insome instances, contain a specialty grocer. However, we will continue to focuson acquiring our core property type—dominant, well-established grocer- andmulti-anchored shopping centers located in densely populated communities withstrong growth prospects within our core markets.

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In recent years, themarket for acquisitions has been particularly competitive with a greater numberof potential buyers pursuing properties. The low cap rate environment andreduced costs of funds have further served to dramatically increase prices paidfor shopping center properties. As a result, our effort to expand our portfoliothrough acquisition has been adversely affected. We expect these conditions topersist for the foreseeable future. As a result, we expect that a substantialamount of our future acquisition activity will be completed through jointventures, as discussed below.

*Development andCapital Raising Joint Ventures*

To increase our access to potential acquisitions andalternative sources of capital to fund future acquisitions, particularly inlight of the current competition within the acquisition market, we have beenpursuing, and will continue to pursue, joint venture arrangements with thirdparty developers and institutional investors. We expect such joint ventures totake one of two forms.

The first type of joint venture arrangement we arepursuing is with third party developers. In these joint ventures, we willpartner with a local developer to develop and construct shopping centers inattractive markets. Fundamentally, this development joint venture strategy issimply an extension of our acquisition philosophy because these joint ventureswill enable us to take advantage of attractive opportunities to “pre-purchase”quality assets. These development properties will be similar to thoseproperties within our core portfolio. In addition, these joint ventures willprovide us with the potential for generating fee income.

To date, we have completed two joint venturearrangements with third party developers. We have entered into additional jointventure arrangements with third party developers for the development of sitesunder contract in which the underlying projects are still in the approval andentitlement process.

The second type of joint venture arrangement we arepursuing is with institutional investors, the primary goal of which is toprovide us with alternative sources of capital. These joint ventures allow usto use our management experience and infrastructure to expand our portfolio,generating solid returns for both our partners and ourselves and enabling us toearn steady fee income. We expect the types of properties we might acquirethrough these joint ventures to be stabilized properties similar to those weseek to acquire for our core portfolio.

In April 2005, in a joint venture withIntercontinental Real Estate Investment Fund III, LLC, a fund sponsored andmanaged by Intercontinental Real Estate Corporation, we acquired SkillmanAbrams, a 133,000 square foot shopping center located in Dallas, Texas, for atotal purchase price of approximately $19 million, including assumed mortgagedebt. We have a 25% interest in the joint venture and are the property managerof Skillman Abrams pursuant to a property management agreement.

We expect to continue toincrease our joint venture activity in both these areas in 2006. Our jointventure activities have generally been conducted through Bradley OP.

*Dispositions*

We generally hold ourproperties for investment and the production of rental income and not for sale tobuyers in the ordinary course of our business. However, we continually analyzeeach asset in our portfolio and will consider those properties that might besold for optimal sale prices, given prevailing market conditions and theparticular characteristics of each property.  Through our capital recycling program, we alsoidentify and pursue the sale of those properties that no longer meet ourlong-term strategy due to their size, geographic location or demonstrated lackof sufficient growth opportunities. In late January 2006, we finalized anagreement to sell eight such shopping centers, which are being sold as aportfolio to a single buyer and constitute all of our centers in Nebraska andSouth Dakota. All of these properties are owned by Bradley OP. We expect todispose of other non-strategic assets in the future.

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**In-HouseLeasing and Property Management Program**

We believe that effective leasing is the key tosuccessful asset management. We maintain close relationships with our tenants,properties and markets by maintaining sixteen regional offices in addition toour corporate headquarters in Boston. A majority of these offices are staffedwith leasing representatives. Our primary goal is for each leasingrepresentative to become an expert in his or her marketplace by becomingfamiliar with current tenants as well as potential local, regional and nationaltenants who would complement our current tenant mix. The renewal andreplacement of tenants is critical to our leasing and management performance.

Our full time property managers are located throughoutour regional offices, which make them easily accessible to our properties. Thisenables our managers to remain in frequent contact with our tenants and toensure the proper maintenance of our properties. We periodically renovate andimprove our properties in order to keep them in top condition to enable us toattract and retain our tenants.

Our leasing and propertymanagement functions are supervised and administered by our senior officers atour Boston headquarters. Corporate management, leasing and property managementpersonnel regularly visit all of our properties to support our regionalpersonnel and to ensure implementation of our policies and directives.

**Competition**

We encounter competition for acquisitions of existingincome-producing properties. We also face competition in leasing availablespace at our properties to prospective tenants. The actual competition fortenants varies depending upon the characteristics of each local market in whichwe own and manage property. We believe that the principal competitive factorsin attracting tenants in our market areas are location, price, and the presenceof anchor tenants and maintenance of properties.

We believe thatcompetition for the acquisition and operation of retail shopping centers ishighly fragmented. We face competition from institutional pension funds, otherdomestic and foreign institutional investors, other REITs and owner-operatorsengaged in the acquisition, ownership, development and leasing of shoppingcenters as well as from numerous local, regional and national real estatedevelopers and owners in each of our markets. In recent years, competition forthe acquisition and development of properties has increased primarily due to agreater number of potential buyers and the reduced cost of funds.

**Environmental Matters**

Under various federal, state and local laws,ordinances and regulations, an owner or operator of real estate may be liablefor the costs of removal or remediation of hazardous or toxic substancespresent at, on, under, in, or released from its property. We currently havefifteen properties in our portfolio that are undergoing or have been identifiedas requiring or potentially requiring some form of remediation (includingmonitoring for compliance) to clean up contamination. Three of these propertiesare owned by Bradley OP. In these cases, contamination has resulted fromon-site uses by current or former owners or tenants, such as gas stations ordry cleaners, which have released pollutants such as gasoline or dry-cleaningsolvents into soil and/or groundwater. We also currently have eleven propertiesin our portfolio that we are monitoring for compliance as a result ofcontamination on adjacent properties. Three of these properties are owned byBradley OP.

Of the approximately fifteen properties cited above,nine of those properties were contributed to us by Net Realty Holding Trust,our largest stockholder. All of these contributed properties (together witheleven other contributed properties for which no remediation is currentlytaking place) are the subject of an indemnity arrangement under which NetRealty Holding Trust has agreed to indemnify us against 

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environmental liabilitiesup to $50 million in the aggregate. Since our formation in 1999, we havebeen reimbursed by Net Realty Holding Trust for approximately $2.0 millionof environmental costs pursuant to this indemnity. As of December 31,2005, we were due $0.6 million under this indemnity. Although we do not believethat the aggregate indemnity amount will be needed, we believe that Net RealtyHolding Trust has the ability to perform under its indemnity up to theaggregate amount. In addition, each of the properties for which we are activelypursuing remediation to clean up contamination is covered by this indemnity. Noneof the properties owned by Bradley OP are covered by the Net Realty HoldingTrust indemnity.

With respect to the remaining properties cited abovenot covered by the Net Realty Holding Trust indemnity, no clean-up activitiesare currently taking place and our requisite on-going responsibilities are tomonitor those properties for compliance and to determine if any remediation orother action may be required in the future. We believe that the costs ofmonitoring these properties are not material, individually or in the aggregate,to our financial condition and we have established reserves for such costs. Anyfailure to remediate the contamination at our properties properly may result inliability to federal, state or local governments for damages to naturalresources or liability to third parties for property damage or personal injuryand may adversely affect our ability to operate, lease or sell that property.Further, no assurance can be given that any environmental studies performedhave identified or will identify all material environmental conditions, thatany prior owner of the properties did not create a material environmentalcondition not known to us or that a material environmental condition does nototherwise exist with respect to any of our properties.

In addition to the costs ofremediation described above, we may incur additional costs to comply withfederal, state and local laws, ordinances and regulations relating toenvironmental protection and general human health and safety. These laws,ordinances and regulations generally govern wastewater discharges, airemissions, the operation and removal of underground and above-ground storagetanks, the use, storage, treatment, transportation and disposal of solid andhazardous materials, the management of asbestos and the remediation ofcontamination. Some of these laws, ordinances and regulations may impose jointand several liability on current or former tenants, owners or operators for thecosts of investigation or remediation of contaminated properties, regardless offault or the legality of the actions that caused the contamination. Some ofthese laws and regulations require compliance with new or more stringentstandards as of future dates. Compliance with new or more stringent laws orregulations, stricter interpretation of existing laws or the future discoveryof environmental contamination may require material expenditures on our part.Future laws, ordinances or regulations may impose material environmentalliability, or the current environmental condition of our properties may affectthe operations of our tenants, the existing condition of the land, operationsin the vicinity of the properties, such as the presence of underground storagetanks, or the activities of unrelated third parties. These laws typically allowliens to be placed on the affected property. In addition, there are variouslocal, state and federal fire, health, life-safety and similar regulations thatmay be applicable to our operations, and that may subject us to liability inthe form of fines or damages for noncompliance.

**Employees**

We run the day-to-dayoperations of Bradley OP. At December 31, 2005, we had 166 totalemployees. Our employees included 24 leasing and support personnel, 55 propertymanagement and support personnel, 10 legal and support personnel and 77corporate management and support personnel. We believe that our relations withour employees are good. None of our employees are unionized.

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**AvailableInformation**

Heritage, the sole stockholder of Bradley OP’s solegeneral partner, has a web site located at http://www.heritagerealty.com. Onits Web site, you can obtain a copy of Heritage’s annual report on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K,and amendments to those reports filed or furnished pursuant toSection 13(a) or 15(d) of the Securities Exchange Act of 1934,as amended, as soon as reasonably practicable after such material iselectronically filed with, or furnished to, the Securities and ExchangeCommission (the “SEC”). We do not make Bradley OP’s reports available on ourwebsite. You may obtain Bradley OP’s reports by accessing the EDGAR database atthe SEC’s website at http://www.sec.gov, or we will furnish an electronic orpaper copy of these reports free of charge upon written request to:

Heritage Property Investment Trust, Inc.Investor Relations131 Dartmouth StreetBoston, MA 02116(617) 247-2200

Also posted on Heritage’sweb site, and available in print upon request to our Investor Relationsdepartment, are the charters for Heritage’s Audit Committee, CompensationCommittee and Nominating and Corporate Governance Committee, Heritage’sCorporate Governance Guidelines, Code of Ethics for Financial Professionals,Code of Business Conduct and Ethics governing our directors, officers andemployees and Whistleblower Policy. Within the time period required by the SECand the New York Stock Exchange, we will disclose on our web site any amendmentto, or waiver from, a provision of our Code of Ethics for FinancialProfessionals and our Code of Business Conduct and Ethics. In addition,Heritage’s web site includes information concerning purchases and sales ofHeritage’s common stock by its executive officers and directors, as well asdisclosure relating to certain non-GAAP financial measures (as defined in theSEC’s Regulation G) that we may make public orally, telephonically, bywebcast, by broadcast or by similar means from time to time.

**Item 1A:**               RiskFactors

Set forth below are therisks that we believe are material to our investors.

***Adverse market conditions affect our results ofoperations.***

The economic performanceand value of our real estate assets is subject to all of the risks associatedwith owning and operating real estate, including risks related to adversechanges in national, regional and local economic and market conditions, changes in retail expendituresby consumers, the perceptions of prospective tenants of the attractiveness ofour properties and the success of our anchor tenants. Our propertiescurrently are located in 30 states, primarily in the East and the Midwest. Theeconomic condition of each of our markets may be dependent on one or moreindustries. An economic downturn generally or in one of these industry sectorsmay result in an increase in tenant bankruptcies, which may harm ourperformance in the affected market. Economic and market conditions also mayimpact the ability of our tenants to make lease payments. If our properties donot generate sufficient income to meet our operating expenses, including futuredebt service, our income and results of operations would be significantlyharmed.

***Downturns or changes in the retailing industry willhave a direct impact on our performance.***

Our properties consistprimarily of neighborhood and community shopping centers. Our performance,therefore, is generally linked to economic conditions in the market for retailspace. The market for retail space has been, and could in the future be,adversely affected by weakness in the national, regional and 

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localeconomies, the adverse financial condition of some large retailing companies,the ongoing consolidation in the retail sector, the increasing market strengthof Wal-Mart, including its continued growth as a grocer, the excess amount ofretail space in a number of markets, and increasing consumer purchases throughcatalogues or the Internet. In particular, consolidation within the retailindustry has reduced the number of prospective tenants to lease our availablespace. Furthermore, many national tenants have increased their overall buyingpower as a result of consolidation, thereby increasing their leverage innegotiating lease terms with us. To the extent that any of these conditionsoccur or continue, they are likely to impact market rents for retail space.

***A downturn in ourtenants’ businesses, tenant bankruptcies, leasing delays we encounter,particularly with respect to our anchor tenants, will affect our ability tocollect balances due from tenants and would seriously harm our operatingresults.***

At any time, our tenants may experience a downturn intheir businesses that may weaken their financial condition. As a result, ourtenants may delay lease commencement, fail to make rental payments when due, ordeclare bankruptcy. We are subject to the risk that these tenants may be unableto make their lease payments or may decline to extend a lease upon itsexpiration. Any tenant bankruptcies, leasing delays, or failure to make rentalpayments when due could result in the termination of the tenant’s lease andmaterial losses to our company and would harm our operating results.

Any bankruptcy filings byor relating to one of our tenants or a lease guarantor would bar all efforts byus to collect pre-bankruptcy debts from that tenant, the lease guarantor ortheir property, unless we receive an order permitting us to do so from thebankruptcy court. A tenant or lease guarantor bankruptcy could delay ourefforts to collect past due balances under the relevant leases, and couldultimately preclude full collection of these sums. If a tenant assumes thelease while in bankruptcy, all pre-bankruptcy balances due under the lease mustbe paid to us in full. However, if a tenant rejects the lease while inbankruptcy, we would have only a general unsecured claim for pre-petitiondamages. Any unsecured claim we hold may be paid only to the extent that fundsare available and only in the same percentage as is paid to all other holders ofunsecured claims. It is possible that we may recover substantially less thanthe full value of any unsecured claims we hold, which may harm our financialcondition.

***Certain provisions of our leases with our tenants mayharm our operating performance.***

We have entered into leases with some of our tenantsthat allow the tenant to terminate their lease or to pay reduced rent from usif an anchor tenant in the same shopping center terminates its lease with us orfails to occupy the premises. In that event, we may be unable to re-let thevacated space. Similarly, the leases of some anchor tenants may permit theanchor tenant to transfer its lease to another retailer. The transfer to a newanchor tenant could cause customer traffic in the retail center to decrease,which would reduce the income generated by that retail center. A transfer of alease to a new anchor tenant could also allow other tenants to make reducedrental payments or to terminate their leases at the retail center.

In addition, in manycases, our tenant leases contain provisions giving the tenant the exclusiveright to sell particular types of merchandise or provide specific types ofservices within the particular retail center, or limit the ability of othertenants within that center to sell that merchandise or provide those services.When re-leasing space after a vacancy by one of these other tenants, theseprovisions may limit the number and types of prospective tenants for the vacantspace. The failure to re-let or to re-let on satisfactory terms could harm ouroperating results.

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***We faceconsiderable competition in the leasing market and may not be able to renewleases or re-let space as leases expire.***

We face competition from similar retail centers withinthe trade areas of each of our centers when renewing leases or releasing spaceas leases expire. In addition, any new competitive properties that aredeveloped within the trade areas of our existing properties may result inincreased competition. Even if our tenants do renew or we are successful inre-letting space, it is possible that the terms of renewal or re-letting may beless favorable than existing lease terms.

For example, increasedcompetition for tenants may require us to make capital improvements toproperties that we would not have otherwise planned to make. Any unbudgetedcapital expenditures we undertake may divert cash that would otherwise beavailable for distributions to stockholders. Ultimately, to the extent we areunable to renew leases or re-let space as leases expire, cash flow from tenantswould be decreased resulting in lower operating results.

***We face increasing competition in the acquisition ofadditional real estate properties and other assets.***

We face competition in making acquisitions ofadditional real estate properties and other assets. Integral to our businessstrategy is our ability to expand through acquisitions, which requires us toidentify suitable acquisition candidates or investment opportunities that meetour criteria and are comparable with our growth strategy. We compete with manyother entities engaged in real estate investment activities for acquisitions ofretail shopping centers, including institutional pension funds, other domesticand foreign institutional investors, other REITs and other owner-operators ofshopping centers. These competitors may drive up the price we must pay for thereal estate properties, other assets and other companies we seek to acquire, ormay succeed in acquiring those companies or assets themselves. In addition, ourpotential acquisition targets may find our competitors to be more attractivesuitors because they may have greater resources, may be willing to pay more, ormay have a more compatible operating philosophy. In particular, larger REITsmay enjoy significant competitive advantages that result from, among otherthings, a lower cost of capital and enhanced operating efficiencies.

In addition, during 2005,the number of entities and the amount of funds competing for suitableinvestment properties continued to increase. This resulted in increased demandfor these assets and therefore increased prices paid for them. If we pay higherprices for properties, our profitability will be reduced.

***Current and futuredevelopment of real estate properties may not yield expected returns and maystrain management resources.***

We are actively involvedin establishing joint ventures with third party developers and expect to investin additional development joint ventures in the future. Our participation inthese joint ventures exposes us to the risks inherent in developing realestate, which include construction delays, cost overruns, financing risks,failure to meet expected occupancy and rent levels, delays in and the inabilityto obtain zoning, occupancy and other governmental permits, and changes inzoning and land use laws. Overall project costs may significantly exceed thecosts that were estimated when the project was originally undertaken, which mayresult in reduced returns, or even losses, from those investments.

***We anticipate thatour working capital reserves and cash flow from operations may not be adequateto cover all of our cash needs and we will have to obtain financing from othersources.***

We anticipate that ourworking capital reserves may not be adequate to cover all of our cash needs. Inorder to cover those needs, we would have to obtain financing from othersources. Sufficient financing may not be available or, if available, may not beavailable on economically feasible terms or on terms acceptable 

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to us.Additional borrowings for working capital purposes will increase our interestexpense, and therefore may harm our financial condition and results ofoperations.

***As of December 31,2005, we have approximately $1.5 billion of debt, a portion of which isvariable rate debt, which may impede our business and operating performance.***

Asof December 31, 2005, we have approximately $1.5 billion ofoutstanding indebtedness, approximately $392 million of which bears interest ata variable rate, and we have the ability to borrow $72 million ofadditional variable rate debt under our line of credit. Increases in interestrates on our existing indebtedness would increase our interest expense, whichcould harm our cash flow and our ability to pay distributions.

We also intend to incur additional debt in connectionwith future acquisitions of real estate. We may, in some instances, borrowunder our line of credit or borrow new funds to acquire properties. Inaddition, we may incur or increase our mortgage debt by obtaining loans securedby a portfolio of some or all of the real estate properties we acquire. We mayalso borrow funds, if necessary, to satisfy the requirement that we distributeto stockholders as distributions at least 90% of our annual REIT taxableincome, or otherwise as is necessary or advisable to ensure that we maintainour qualification as a REIT for federal income tax purposes.

Our substantialdebt may harm our business and operating results, including:

·       Requiringour company to use a substantial portion of our funds from operations to payinterest, which reduces the amount available for distributions;

·       Placingus at a competitive disadvantage compared to our competitors that have lessdebt;

·       Makingour company more vulnerable to economic and industry downturns and reducing ourflexibility in responding to changing business and economic conditions; and

·       Limiting our ability toborrow more money for operations, capital or to finance acquisitions in thefuture.

***Our financial covenants may restrict our operating oracquisition activities.***

The mortgages on our properties contain customarynegative covenants such as those that limit our ability, without the priorconsent of the lender, to further mortgage the applicable property or todiscontinue insurance coverage. In addition, our outstanding unsecured debtcontains customary restrictions, requirements and other limitations on ourability to incur indebtedness, including total debt to assets ratios, secureddebt to total asset ratios, debt service coverage ratios and minimum ratios ofunencumbered assets to unsecured debt, which we must maintain. Our ability toborrow under our line of credit and bridge loan is subject to compliance withthese financial and other covenants.

We rely on borrowingsunder our line of credit to finance acquisitions and redevelopment activitiesand for working capital, and if we were unable to borrow under our line ofcredit or to refinance existing indebtedness, our financial condition andresults of operations would likely be adversely impacted. Our line of credit,bridge loan, and the indentures under which we have previously issued unsecuredpublic debt also contain limitations on our ability to incur future secured andunsecured debt. If we need to pledge properties in order to borrow additionalfunds, these covenants could reduce our flexibility in conducting ouroperations by limiting our ability to borrow and may create a risk of defaulton our debt if we cannot continue to satisfy these covenants. If we breachcovenants in our debt agreements, the lender can declare a default and requireus to repay the debt immediately and, if the debt is secured, can immediatelytake possession of the property securing the loan.

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***We could become toohighly leveraged because our organizational documents do not contain anylimitation on the amount of debt we may incur.***

Our organizationaldocuments do not limit the amount of indebtedness that we, or our operatingpartnerships, Heritage OP and Bradley OP, may incur. Although we intend tomaintain a balance between our total outstanding indebtedness and the value ofour portfolio, we could alter this balance at any time. If we become highlyleveraged, the resulting increase in debt service could adversely affect ourability to make payments on our outstanding indebtedness and harm our financialcondition.

***A downgrade in our credit rating could negativelyimpact us.***

The floating rates ofinterest applicable to our line of credit and bridge loan are determined basedon the credit ratings of our debt provided by independent rating agencies.Thus, if these credit ratings are downgraded, our interest expense will be, andour ability to raise additional debt may be, negatively impacted.

***We do not haveexclusive control over our joint venture investments, so we are unable toensure that our objectives will be pursued.***

We have invested in somecases as a co-venturer in the development of new properties, instead ofdeveloping projects directly. These investments involve risks not present in awholly owned development project. In these investments, we do not haveexclusive control over the development, financing, leasing, management andother aspects of the project. As a result, the co-venturer might have interestsor goals that are inconsistent with our interests or goals, take action contraryto our interests or otherwise impede our objectives. The co-venturer also mightbecome insolvent or bankrupt.

***Compliance withchanging regulation of corporate governance and public disclosure may result inadditional expenses.***

Our efforts to comply withevolving laws, regulations and standards, including the Sarbanes-Oxley Act of2002, new SEC regulations and New York Stock Exchange rules, have resulted in,and are likely to continue to result in, increased general and administrativeexpenses and a diversion of management time and attention fromrevenue-generating activities to compliance activities. In particular, ourongoing efforts to comply with Section 404 of the Sarbanes-Oxley Act of2002 and the related regulations regarding our required assessment of ourinternal control over financial reporting and our external auditors’ audit ofthat assessment has required the commitment of significant financial andmanagerial resources. We expect these efforts to require the continuedcommitment of significant resources. Further, our board members, chiefexecutive officer and chief financial officer could face an increased risk ofpersonal liability in connection with the performance of their duties. As aresult, we may have difficulty attracting and retaining qualified board membersand executive officers, which could harm our business.

***The costs of compliance with laws and changes in lawsmay harm our operating results.***

Costs associated with complying with laws and changesin laws may adversely affect our financial condition and operating results. Wehave incurred increases in expenses as a result of regulatory changes and thecosts of compliance at the corporate level associated with maintaining ourstatus as a public company. These expenses are generally not passed through toour tenants under our leases. As a result, these increased expenses mayadversely affect our cash flow and our ability to service our debt and makedistributions to our stockholders.

In addition, ourproperties are subject to various federal, state and local regulatoryrequirements, such as the requirements of the Americans with Disabilities Actof 1990 and state and local fire and life safety requirements. Failure tocomply with these requirements could result in the imposition of fines by 

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regulatoryagencies and governmental authorities or awards of damages to privatelitigants. In addition, these requirements are subject to change and newrequirements could be imposed that would require significant unanticipatedexpenditures by us. Any of these events could adversely affect our cash flowand distribution to stockholders.

***If we suffer lossesthat are not covered by insurance or that are in excess of our insurancecoverage limits, we could lose invested capital and anticipated profits.***

Catastrophic losses, suchas losses due to wars, terrorist attacks, earthquakes, floods, hurricanes,pollution or environmental matters, generally are either uninsurable or noteconomically insurable, or may be subject to insurance coverage limitations, suchas large deductibles or co-payments. If one of these events occurred to, orcaused the destruction of, one or more of our properties, we could lose bothour invested capital and anticipated profits from that property.

***Lack of liquidityof real estate investments could significantly impede our ability to respond toadverse changes in the performance of our properties.***

Because real estateinvestments are relatively illiquid, our ability to promptly sell one or moreproperties in our portfolio in response to changing economic, financial andinvestment conditions is limited. The real estate market is affected by manyfactors, such as general economic conditions, availability of financing,interest rates and other factors, including supply and demand, that are beyondour control. We cannot predict whether we will be able to sell any property forthe price or on the terms set by us, or whether any price or other termsoffered by a prospective purchaser would be acceptable to us. We also cannotpredict how long we would need to find a willing purchaser and complete thesale of a property. In addition, in recent years, some national anchor tenantshave purchased their own parcels within our centers, which could reduce thevalue of our centers.

***Further issuances of equity securities may be dilutiveto current security holders.***

The interest of ourexisting security holders could be diluted if additional equity securities areissued to finance future acquisition and other working capital needs as analternative to incurring additional indebtedness. Our ability to execute ourbusiness strategy depends on our access to an appropriate blend of debtfinancing, including unsecured lines of credit and other forms of secured andunsecured debt, and equity financing, including common and preferred equity.

***Our largeststockholder owns approximately 41% of our common stock, exercises significantcontrol of our company and may delay, defer or prevent us from taking actionsthat would be beneficial to our other stockholders.***

Our largest stockholder,Net Realty Holding Trust, a wholly-owned subsidiary of the New England Teamsterand Trucking Industry Pension Fund (“NETT”), owns approximately 41% of theoutstanding shares of our common stock and has the right to nominate four ofour directors. Accordingly, Net Realty Holding Trust is able to exercisesignificant control over the outcome of substantially all matters required tobe submitted to our stockholders for approval, including decisions relating tothe election of our board of directors, and the determination of our day-to-daycorporate and management policies. In addition, Net Realty Holding Trust isable to exercise significant control over the outcome of any proposed merger orconsolidation of our company under Maryland law. Net Realty Holding Trust’sownership interest in our company may discourage third parties from seeking toacquire control of our company, which may adversely affect the market price ofour common stock.

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***Provisions of thecompany’s charter and bylaws could inhibit changes in control of the company,and could prevent stockholders from obtaining a premium price for our commonstock.***

Our organizationaldocuments contain provisions which may have the effect of delaying, deferringor preventing a change in control of our company or the removal of existingmanagement and, as a result, could prevent our stockholders from being paid apremium for their shares of common stock over the then-prevailing marketprices. These provisions include staggered terms for our directors, advancenotice requirements for stockholder proposals and the absence of cumulativevoting rights. In addition, our organizational documents permit our board ofdirectors to issue up to 50,000,000 shares of preferred stock, having thosepreferences, conversion or other rights, voting powers, restrictions,limitations as to distributions, qualifications, or terms or conditions ofredemption as determined by our board. Thus, our board could authorize theissuance of preferred stock with terms and conditions that could have theeffect of discouraging a takeover or other transaction in which holders of someor a majority of our shares might receive a premium for their shares over thethen-prevailing market price of our shares.

***Our board ofdirectors has adopted the limitations available in Maryland law on changes incontrol that could prevent transactions in the best interests of stockholders.***

Certain provisions ofMaryland law applicable to us prohibit “business combinations,” includingcertain issuances of equity securities, with any person who beneficially owns10% or more of the voting power of outstanding shares, or with an affiliate ofours who, at any time within the two-year period prior to the date in question,was the beneficial owner of 10% or more of the voting power of the outstandingvoting shares (a so-called “interested stockholder”), or with an affiliate ofan interested stockholder. These prohibitions last for five years after themost recent date on which the interested stockholder became an interestedstockholder. After the five-year period, a business combination with aninterested stockholder must be approved by two super-majority stockholder votesunless, among other conditions, our common stockholders receive a minimum pricefor their shares and the consideration is received in cash or in the same formas previously paid by the interested stockholder for its shares of commonstock.

***Our share ownership limit may discourage a takeover ofthe company and depress our stock price.***

In order for us to qualifyas a REIT, no more than 50% of the value of outstanding shares of our capitalstock may be owned, actually or constructively, by five or fewer individuals atany time during the last half of each taxable year. To make sure that we willnot fail to qualify as a REIT under this test, subject to some exceptions, ourarticles prohibit any stockholder from owning actually or constructively morethan 9.8% of the value or number of outstanding shares of our capital stock.Our board of directors may exempt a person from the 9.8% ownership limit if theboard determines, in its sole discretion, that exceeding the 9.8% ownershiplimit as to any proposed transferee would not jeopardize our qualification as aREIT. This restriction may: discourage a tender offer or other transactions ora change in management or control that might involve a premium price for ourshares or otherwise be in the best interests of our stockholders; or compel astockholder who had acquired more than 9.8% of our stock to dispose of theadditional shares and, as a result, to forfeit the benefits of owning theadditional shares.

***If we fail toremain qualified as a REIT, our distributions will not be deductible by us, andour income will be subject to taxation, reducing our earnings available fordistribution.***

We intend to remainqualified as a REIT under the Code, which will afford us significant taxadvantages. The requirements for this qualification, however, are complex. Ifwe fail to meet these requirements, our distributions will not be deductible byus and we will have to pay a corporate level tax on our income. This wouldsubstantially reduce our cash available to pay distributions. In addition, sucha tax liability might cause us to borrow funds, liquidate some of our investmentsor take other steps, which could negatively affect our operating results.Moreover, if our REIT status is terminated because of our failure 

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to meeta technical REIT requirement or if we voluntarily revoke our election, we wouldgenerally be disqualified from electing treatment as a REIT for the fourtaxable years following the year in which REIT status is lost.

***Even REITs are subject to federal and state incometaxes.***

Even if we maintain our status as a REIT, we maybecome subject to federal income taxes and related state taxes. For example, ifwe have net income from a “prohibited transaction,” that income will be subjectto a 100% tax. A “prohibited transaction” is, in general, the sale or otherdisposition of inventory or property, other than foreclosure property, heldprimarily for sale to customers in the ordinary course of business. We may notbe able to make sufficient distributions to avoid excise taxes applicable toREITs. We may also decide to retain income we earn from the sale or otherdisposition of our property and pay income tax directly on that income. In thatevent, our stockholders would be treated as if they earned that income and paidthe tax on it directly. However, stockholders that are tax-exempt, such ascharities or qualified pension plans, would have no benefit from their deemedpayment of that tax liability.

We are increasinglysubject to state and local taxes on our income or property, either directly orat the level of our operating partnerships or at the level of the other companiesthrough which we indirectly own our assets. We may not be able to continue tosatisfy the REIT requirements, or it may not be in our best interests tocontinue to do so.

**Item 1B:**              UnresolvedStaff Comments

None

**Item 2:**                       Properties

**Shopping Centers**

As of December 31,2005, we had a shopping center portfolio consisting of 171 shopping centers,located in 30 states and totaling approximately 35.0 million square feetof total GLA, of which approximately 28.7 million square feet isCompany-owned GLA. As of December 31, 2005, Bradley OP and itssubsidiaries owned 115 shopping centers, located in 24 states and totalingapproximately 19.0 million square feet of Company-owned GLA. Our shoppingcenter portfolio was approximately 92.4% leased as of December 31, 2005.We believe that our shopping center properties are adequately covered byinsurance. 

**Other Properties**

As of December 31, 2005, the Company owned threeoffice buildings, one in New York and two in Boston, totaling 222,000 squarefeet. We believe that our office buildings are adequately covered by insurance.

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**Offices**

Our corporate headquarters are located at 131Dartmouth Street, Boston, Massachusetts, an office building located in the BackBay constructed and owned by a joint venture that we entered into with ourlargest stockholder. We lease our corporate headquarters space from the jointventure. Under this lease, which contains a term of eleven years, we leaseapproximately 31,000 square feet. We began to pay rent under this lease in February 2005.Heritage pays an average of $1.2 million per year in minimum rent annually.

In addition, we also manage our properties through 16regional offices, strategically located throughout our portfolio states. We own14 of our 16 regional offices, some of which are located in our shopping centerproperties. We believe that our current and anticipated facilities are adequatefor our present and future operations.

Thefollowing table provides information about our properties as of December 31,2005, which includes information with respect to Bradley OP and itssubsidiaries.
| Property Name and Location  | ** **   | **Year Built/   Renovated(1)** | ** **   | **% Leased   as of   12/31/2005** | ** **   | **Company-Owned   GLA(2)** | ** **   | **Total   GLA(3)** | ** **   | **Anchor   SF(4)** | ** **   | **Anchors(5)**                       | ** **   | **Annualized   Base   Rent(6)** | ** **   | **Annualized   Base   Rent/   Sq. Ft.(7)** |
|-----------------------------|--------------|--------------------------------|--------------|-----------------------------------|--------------|----------------------------|--------------|--------------------|--------------|--------------------|--------------|--------------------------------------|--------------|---------------------------------|--------------|--------------------------------------------|
| **Shopping Centers:**       | *** *** | *** ***                   | *** *** | *** ***                      | *** *** | *** ***               | *** *** | *** ***       | *** *** | *** ***       | *** *** | *** ***                         | *** *** | *** ***                    | *** *** | *** ***                               |
| ***Alabama***               | * *     | * *                       | * *     | * *                          | * *     | * *                   | * *     | * *           | * *     | * *           | * *     | * *                             | * *     | * *                        | * *     | * *                                   |
| *Montgomery Commons         |         | 1999                           |         | 100%                              |         | 95,300                     |         | 299,050            |         | 257,550            |         | Super Wal-Mart  (Non-Owned)          |         | $1,002,340                      |         | $10.52                                     |
|                        |         |                           |         |                              |         |                       |         |               |         |               |         | Marshalls                            |         |                            |         |                                       |
|                        |         |                           |         |                              |         |                       |         |               |         |               |         | Michaels                             |         |                            |         |                                       |
| Montgomery Towne  Center    |         | 1996                           |         | 83%                               |         | 176,361                    |         | 266,895            |         | 198,165            |         | Winn Dixie  Supermarket  (Non-Owned) |         | $1,851,270                      |         | $10.50                                     |
|                        |         |                           |         |                              |         |                       |         |               |         |               |         | Bed, Bath &  Beyond         |         |                            |         |                                       |
|                        |         |                           |         |                              |         |                       |         |               |         |               |         | Circuit City                         |         |                            |         |                                       |
|                        |         |                           |         |                              |         |                       |         |               |         |               |         | Carmike Cinemas  (Non-Owned)         |         |                            |         |                                       |
|                        |         |                           |         |                              |         |                       |         |               |         |               |         | Barnes & Noble              |         |                            |         |                                       |
|                        |         |                           |         |                              |         |                       |         |               |         |               |         | OfficeMax                            |         |                            |         |                                       |
| Riverchase Village          |         | 1994                           |         | 89%                               |         | 178,511                    |         | 190,611            |         | 128,225            |         | Bruno’s Supermarket             |         | $1,534,359                      |         | $8.60                                      |
| SC                          |         |                           |         |                              |         |                       |         |               |         |               |         | Best Buy                             |         |                            |         |                                       |
|                        |         |                           |         |                              |         |                       |         |               |         |               |         | PetsMart                             |         |                            |         |                                       |
| ***Connecticut***           |         |                           |         |                              |         |                       |         |               |         |               |         |                                 |         |                            |         |                                       |
| *Crossroads I & II |         | 1994                           |         | 100%                              |         | 105,662                    |         | 217,662            |         | 202,795            |         | Home Depot  (Non-Owned)              |         | $2,134,188                      |         | $20.20                                     |
|                        |         |                           |         |                              |         |                       |         |               |         |               |         | The Sports Authority                 |         |                            |         |                                       |
|                        |         |                           |         |                              |         |                       |         |               |         |               |         | Borders                              |         |                            |         |                                       |
|                        |         |                           |         |                              |         |                       |         |               |         |               |         | OfficeMax                            |         |                            |         |                                       |
| *Crossroads III             |         | 1994                           |         | 79%                               |         | 68,750                     |         | 68,750             |         | 46,278             |         | Levitz Home Furnishings              |         | $1,001,750                      |         | $14.57                                     |
|                        |         |                           |         |                              |         |                       |         |               |         |               |         | Petco                                |         |                            |         |                                       |
| *Hale Road                  |         | 2002                           |         | 100%                              |         | 103,931                    |         | 103,931            |         | 82,221             |         | Babies R US                          |         | $402,523                        |         | $3.87                                      |
|                        |         |                           |         |                              |         |                       |         |               |         |               |         | Bed, Bath & Beyond          |         |                            |         |                                       |
|                        |         |                           |         |                              |         |                       |         |               |         |               |         | AC Moore Arts & Crafts      |         |                            |         |                                       |
| *Northern Hills             |         | 2001                           |         | 100%                              |         | 12,000                     |         | 304,450            |         | 292,450            |         | Lowe’s Home Center  (Non-Owned) |         | $925,231                        |         | $77.10                                     |
|                        |         |                           |         |                              |         |                       |         |               |         |               |         | Target (Non-Owned)                   |         |                            |         |                                       |
| *Slater Street              |         | 1998                           |         | 100%                              |         | 51,370                     |         | 96,185             |         | 64,815             |         | Best Buy (Non-Owned)                 |         | $1,449,419                      |         | $28.22                                     |
|                        |         |                           |         |                              |         |                       |         |               |         |               |         | Office Depot / Bassett Furniture     |         |                            |         |                                       |

20

----

 
| Torrington Plaza            |   | 1963/1994 |   | 94%    |   | 125,710 |   | 132,910 |   | 42,037  |   | TJ Maxx                                                      |   | $1,379,715 |   | $10.98 |
|-----------------------------|--------|-----------|--------|--------|--------|---------|--------|---------|--------|---------|--------|--------------------------------------------------------------|--------|------------|--------|--------|
|                        |   |      |   |   |   |    |   |    |   |    |   | Staples                                                      |   |       |   |   |
| ***Florida***               |   |      |   |   |   |    |   |    |   |    |   |                                                         |   |       |   |   |
| Barton Commons              |   | 1989      |   | 42%    |   | 215,049 |   | 218,049 |   | 52,039  |   | Bealls Dept. Store                                           |   | $468,109   |   | $2.18  |
|                        |   |      |   |   |   |    |   |    |   |    |   | Bealls Outlet                                                |   |       |   |   |
| Naples Shopping             |   | 1962/1997 |   | 100%   |   | 198,843 |   | 202,343 |   | 162,486 |   | Publix Supermarket                                           |   | $2,055,993 |   | $10.34 |
| Center                      |   |      |   |   |   |    |   |    |   |    |   | Marshalls                                                    |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Linens N Things                                              |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Office Depot                                                 |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Books A Million                                              |   |       |   |   |
| Park Shore Shopping         |   | 1973/1993 |   | 100%   |   | 231,830 |   | 240,330 |   | 188,180 |   | Fresh Market                                                 |   | $1,950,985 |   | $8.42  |
| Center                      |   |      |   |   |   |    |   |    |   |    |   | K-Mart                                                       |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Hudson Furniture                                             |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Homegoods                                                    |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Sound Advice                                                 |   |       |   |   |
| Shoppers Haven              |   | 1959/1998 |   | 99%    |   | 206,942 |   | 206,942 |   | 130,687 |   | Winn Dixie Supermarket                                       |   | $1,954,573 |   | $9.45  |
| Shopping Center             |   |      |   |   |   |    |   |    |   |    |   | Bed, Bath & Beyond                                  |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | AC Moore Arts & Crafts                              |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Walgreens                                                    |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Bealls Outlet                                                |   |       |   |   |
| Venetian Isle               |   | 1959/1992 |   | 99%    |   | 183,867 |   | 187,367 |   | 111,831 |   | Publix Supermarket                                           |   | $1,674,618 |   | $9.11  |
| Shopping Center(8)          |   |      |   |   |   |    |   |    |   |    |   | TJ Maxx                                                      |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Linens N Things                                              |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Rec Warehouse Pools and Spas                                 |   |       |   |   |
| ***Georgia***               |   |      |   |   |   |    |   |    |   |    |   |                                                         |   |       |   |   |
| *Shenandoah Plaza           |   | 1987      |   | 97%    |   | 141,072 |   | 144,072 |   | 113,922 |   | Ingles Market/Goodwill Emporium                              |   | $671,147   |   | $4.76  |
|                        |   |      |   |   |   |    |   |    |   |    |   | Wal-Mart/Big Lots/ACS                                        |   |       |   |   |
| ***Illinois***              |   |      |   |   |   |    |   |    |   |    |   |                                                         |   |       |   |   |
| *Bartonville Square         |   | 1972      |   | 100%   |   | 61,678  |   | 61,678  |   | 41,824  |   | Kroger Supermarket                                           |   | $297,455   |   | $4.82  |
| *Butterfield Square         |   | 1997      |   | 96%    |   | 106,767 |   | 121,370 |   | 51,677  |   | Sunset Foods                                                 |   | $1,408,038 |   | $13.19 |
| *The Commons of             |   | 1992/1999 |   | 95%    |   | 324,080 |   | 324,080 |   | 246,039 |   | Home Depot                                                   |   | $3,686,003 |   | $11.37 |
| Chicago Ridge               |   |      |   |   |   |    |   |    |   |    |   | Office Depot                                                 |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Marshalls                                                    |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Pep Boys  (Ground Lease)                                     |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Old Navy                                                     |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | X Sport Fitness                                              |   |       |   |   |
| *The Commons of             |   | 1995/1998 |   | 96%    |   | 273,060 |   | 365,335 |   | 210,569 |   | Jewel Foods/Osco Drugs                                       |   | $3,175,873 |   | $11.63 |
| Crystal Lake                |   |      |   |   |   |    |   |    |   |    |   | Marshalls                                                    |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Toys R Us                                                    |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Hobby Lobby  (Non-Owned)                                     |   |       |   |   |
| *Crossroads Centre          |   | 1975/1988 |   | 97%    |   | 242,470 |   | 247,970 |   | 129,468 |   | KM Fairview Heights  LLC/Hobby Lobby/Big Lots (Ground Lease) |   | $1,593,904 |   | $6.57  |
|                        |   |      |   |   |   |    |   |    |   |    |   | TJ Maxx                                                      |   |       |   |   |
| *Fairhills Shopping  Center |   | 1971/1989 |   | 89%    |   | 107,584 |   | 117,684 |   | 49,330  |   | Jewel Foods/Osco Drugs                                       |   | $607,220   |   | $5.64  |
| *Heritage Square            |   | 1992      |   | 77%    |   | 210,752 |   | 210,752 |   | 117,054 |   | Circuit City                                                 |   | $2,133,078 |   | $10.12 |
|                        |   |      |   |   |   |    |   |    |   |    |   | Carson Furniture Gallery                                     |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | DSW Shoe Warehouse                                           |   |       |   |   |

21

----

 
| *High Point Centre    |   | 1988      |   | 95%    |   | 240,002 |   | 240,002 |   | 141,068 |   | Cub Foods                           |   | $2,344,138 |   | $9.77  |
|-----------------------|--------|-----------|--------|--------|--------|---------|--------|---------|--------|---------|--------|-------------------------------------|--------|------------|--------|--------|
|                  |   |      |   |   |   |    |   |    |   |    |   | Office Depot                        |   |       |   |   |
|                  |   |      |   |   |   |    |   |    |   |    |   | Babies R Us                         |   |       |   |   |
|                  |   |      |   |   |   |    |   |    |   |    |   | Big Lots                            |   |       |   |   |
| *Long Meadow  Commons |   | 1996      |   | 92%    |   | 118,471 |   | 118,471 |   | 65,816  |   | Dominick’s  Supermarket        |   | $1,658,408 |   | $14.00 |
| *Parkway Pointe       |   | 1996      |   | 100%   |   | 38,737  |   | 222,037 |   | 179,300 |   | Wal-Mart  (Non-Owned)               |   | $549,113   |   | $14.18 |
|                  |   |      |   |   |   |    |   |    |   |    |   | Target (Non-Owned)                  |   |       |   |   |
|                  |   |      |   |   |   |    |   |    |   |    |   | Party Tree  (Non-Owned)             |   |       |   |   |
| *Rivercrest           |   | 1992/1999 |   | 100%   |   | 488,680 |   | 847,635 |   | 711,859 |   | Dominick’s Supermarket         |   | $4,400,750 |   | $9.01  |
|                  |   |      |   |   |   |    |   |    |   |    |   | Best Buy                            |   |       |   |   |
|                  |   |      |   |   |   |    |   |    |   |    |   | PetsMart                            |   |       |   |   |
|                  |   |      |   |   |   |    |   |    |   |    |   | TJ Maxx                             |   |       |   |   |
|                  |   |      |   |   |   |    |   |    |   |    |   | Kimco Realty Corp./  K-Mart         |   |       |   |   |
|                  |   |      |   |   |   |    |   |    |   |    |   | Sears                               |   |       |   |   |
|                  |   |      |   |   |   |    |   |    |   |    |   | OfficeMax                           |   |       |   |   |
|                  |   |      |   |   |   |    |   |    |   |    |   | Hollywood Park                      |   |       |   |   |
|                  |   |      |   |   |   |    |   |    |   |    |   | Target (Non-Owned)                  |   |       |   |   |
|                  |   |      |   |   |   |    |   |    |   |    |   | Kohl’s (Non-Owned)             |   |       |   |   |
|                  |   |      |   |   |   |    |   |    |   |    |   | Menards (Non-Owned)                 |   |       |   |   |
|                  |   |      |   |   |   |    |   |    |   |    |   | Sony Theaters  (Non-Owned)          |   |       |   |   |
| *Rollins Crossing     |   | 1995/1998 |   | 100%   |   | 148,117 |   | 342,237 |   | 283,704 |   | Super K-Mart  (Non-Owned)           |   | $1,156,930 |   | $7.81  |
|                  |   |      |   |   |   |    |   |    |   |    |   | Sears Paint & Hardware     |   |       |   |   |
|                  |   |      |   |   |   |    |   |    |   |    |   | Regal Cinema  (Ground Lease)        |   |       |   |   |
| *Sangamon Center      |   | 1970/1996 |   | 98%    |   | 139,907 |   | 151,107 |   | 79,257  |   | Schnuck’s Supermarket          |   | $1,209,236 |   | $8.64  |
| North                 |   |      |   |   |   |    |   |    |   |    |   | U.S. Post Office                    |   |       |   |   |
| *Sheridan Village     |   | 1954/1995 |   | 97%    |   | 303,915 |   | 303,915 |   | 177,409 |   | Bergner’s Dept Store           |   | $2,401,304 |   | $7.90  |
|                  |   |      |   |   |   |    |   |    |   |    |   | Cohen’s Furniture Co.          |   |       |   |   |
| *Sterling Bazaar      |   | 1992      |   | 94%    |   | 84,535  |   | 84,535  |   | 52,337  |   | Kroger Supermarket                  |   | $743,821   |   | $8.80  |
| *Twin Oaks Centre     |   | 1991      |   | 97%    |   | 98,197  |   | 98,197  |   | 59,682  |   | Hy-Vee Supermarket                  |   | $716,870   |   | $7.30  |
| *Wardcliffe Shopping  |   | 1976/1977 |   | 96%    |   | 67,681  |   | 67,681  |   | 48,341  |   | CVS                                 |   | $375,980   |   | $5.56  |
| Center                |   |      |   |   |   |    |   |    |   |    |   | Big Lots                            |   |       |   |   |
| *Westview Center      |   | 1992      |   | 88%    |   | 325,507 |   | 416,307 |   | 209,963 |   | Cub Foods                           |   | $2,496,999 |   | $7.67  |
|                  |   |      |   |   |   |    |   |    |   |    |   | LA Fitness                          |   |       |   |   |
|                  |   |      |   |   |   |    |   |    |   |    |   | Value City Dept. Store  (Non-Owned) |   |       |   |   |
| ***Indiana***         |   |      |   |   |   |    |   |    |   |    |   |                                |   |       |   |   |
| *Apple Glen Crossing  |   | 2001/2002 |   | 98%    |   | 150,446 |   | 440,987 |   | 384,426 |   | Super Wal-Mart  (Non-Owned)         |   | $1,805,191 |   | $12.00 |
|                  |   |      |   |   |   |    |   |    |   |    |   | Kohl’s (Non-Owned)             |   |       |   |   |
|                  |   |      |   |   |   |    |   |    |   |    |   | Dick’s Sporting Goods          |   |       |   |   |
|                  |   |      |   |   |   |    |   |    |   |    |   | Best Buy (Ground Lease)             |   |       |   |   |
|                  |   |      |   |   |   |    |   |    |   |    |   | PetsMart                            |   |       |   |   |
| *County Line Mall     |   | 1976/1991 |   | 91%    |   | 268,589 |   | 271,389 |   | 213,950 |   | Kroger Supermarket                  |   | $1,554,582 |   | $5.79  |
|                  |   |      |   |   |   |    |   |    |   |    |   | OfficeMax                           |   |       |   |   |
|                  |   |      |   |   |   |    |   |    |   |    |   | Old Time Pottery                    |   |       |   |   |
|                  |   |      |   |   |   |    |   |    |   |    |   | Sofa Express                        |   |       |   |   |
| *Double Tree Plaza    |   | 1996      |   | 96%    |   | 98,342  |   | 110,342 |   | 49,773  |   | Amelia’s Supermarket           |   | $740,490   |   | $7.53  |
| *Germantown           |   | 1985      |   | 79%    |   | 216,430 |   | 223,630 |   | 115,143 |   | Sav-A-Lot Supermarket               |   | $987,573   |   | $4.56  |
| Shopping Center       |   |      |   |   |   |    |   |    |   |    |   | Elder Beerman Department Store      |   |       |   |   |
|                  |   |      |   |   |   |    |   |    |   |    |   | Englert’s Home Comfort Center  |   |       |   |   |

22

----

 
| *King’s Plaza          |   | 1965      |   | 87%    |   | 102,788 |   | 104,888 |   | 60,200  |   | Cub Foods                                       |   | $467,961   |   | $4.55  |
|-----------------------------|--------|-----------|--------|--------|--------|---------|--------|---------|--------|---------|--------|-------------------------------------------------|--------|------------|--------|--------|
| *Lincoln Plaza              |   | 1968      |   | 94%    |   | 103,938 |   | 103,938 |   | 47,228  |   | Kroger Supermarket                              |   | $707,080   |   | $6.80  |
| *Martin’s Bittersweet  |   | 1992      |   | 100%   |   | 91,798  |   | 94,808  |   | 71,157  |   | Martin’s  Supermarket                      |   | $776,928   |   | $8.46  |
| Plaza                       |   |      |   |   |   |    |   |    |   |    |   | Osco Drug                                       |   |       |   |   |
| Meridian Village            |   | 1990      |   | 100%   |   | 130,774 |   | 130,774 |   | 65,030  |   | O’Malia’s Supermarket                 |   | $1,370,320 |   | $10.48 |
|                        |   |      |   |   |   |    |   |    |   |    |   | Godby Home Furnishings                          |   |       |   |   |
| *Rivergate Shopping  Center |   | 1982      |   | 82%    |   | 133,086 |   | 137,486 |   | 90,666  |   | Wal-Mart                                        |   | $366,777   |   | $2.76  |
| *Sagamore Park Centre       |   | 1982      |   | 92%    |   | 118,436 |   | 118,436 |   | 66,063  |   | Payless Supermarket                             |   | $938,760   |   | $7.93  |
| *Speedway                   |   | 1960/1998 |   | 87%    |   | 564,279 |   | 569,879 |   | 252,624 |   | Kroger Supermarket                              |   | $4,653,165 |   | $8.25  |
| SuperCenter                 |   |      |   |   |   |    |   |    |   |    |   | AJ Wright                                       |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Kohl’s                                     |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Sears                                           |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Factory Card Outlet                             |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Old Navy                                        |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Petco                                           |   |       |   |   |
| *The Village                |   | 1950      |   | 94%    |   | 304,725 |   | 307,525 |   | 115,325 |   | US Factory Outlet                               |   | $2,284,383 |   | $7.50  |
|                        |   |      |   |   |   |    |   |    |   |    |   | AJ Wright                                       |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Dollar Tree                                     |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Indiana Department of Employment                |   |       |   |   |
| *Washington                 |   | 1957/1993 |   | 80%    |   | 331,912 |   | 331,912 |   | 168,409 |   | Stein Mart                                      |   | $1,649,615 |   | $4.97  |
| Lawndale Commons            |   |      |   |   |   |    |   |    |   |    |   | Dunham’s Sporting Goods                    |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Gensic’s Furniture House                   |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Jo-Ann Fabrics                                  |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Books A Million                                 |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Big Lots                                        |   |       |   |   |
| ***Iowa***                  |   |      |   |   |   |    |   |    |   |    |   |                                            |   |       |   |   |
| *Burlington Plaza West      |   | 1989      |   | 81%    |   | 88,118  |   | 92,118  |   | 52,468  |   | Hobby Lobby                                     |   | $416,509   |   | $4.73  |
| *Davenport Retail           |   | 1996      |   | 100%   |   | 62,588  |   | 229,588 |   | 214,433 |   | Staples                                         |   | $645,531   |   | $10.31 |
| Center                      |   |      |   |   |   |    |   |    |   |    |   | PetsMart                                        |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Super Target  (Non-Owned)                       |   |       |   |   |
| *Kimberly West              |   | 1987/1997 |   | 90%    |   | 113,713 |   | 116,513 |   | 76,896  |   | Hy-Vee Supermarket                              |   | $598,750   |   | $5.27  |
| *Parkwood Plaza             |   | 1992      |   | 28%    |   | 126,369 |   | 126,369 |   | N/A     |   | N/A                                             |   | $251,444   |   | $1.99  |
| *Southgate Shopping         |   | 1972/1996 |   | 90%    |   | 154,174 |   | 154,174 |   | 102,065 |   | Hy-Vee Supermarket                              |   | $537,957   |   | $3.49  |
| Center                      |   |      |   |   |   |    |   |    |   |    |   | Big Lots                                        |   |       |   |   |
| *Spring Village             |   | 1980/1991 |   | 42%    |   | 90,263  |   | 92,763  |   | N/A     |   | N/A                                             |   | $311,712   |   | $3.45  |
| *Warren Plaza               |   | 1980/1993 |   | 97%    |   | 90,102  |   | 187,135 |   | 160,925 |   | Hy-Vee Supermarket                              |   | $709,038   |   | $7.87  |
|                        |   |      |   |   |   |    |   |    |   |    |   | Target (Non-Owned)                              |   |       |   |   |
| ***Kansas***                |   |      |   |   |   |    |   |    |   |    |   |                                            |   |       |   |   |
| *Mid State Plaza            |   | 1971      |   | 79%    |   | 286,601 |   | 293,101 |   | 152,692 |   | Ashley Furniture Home Store                     |   | $938,009   |   | $3.27  |
|                        |   |      |   |   |   |    |   |    |   |    |   | Sutherlands Lumber                              |   |       |   |   |
|                        |   |      |   |   |   |    |   |    |   |    |   | Hobby Lobby                                     |   |       |   |   |
| *Santa Fe Square            |   | 1987      |   | 97%    |   | 133,698 |   | 133,698 |   | 55,820  |   | Hy-Vee Supermarket/Office  Depot/Bloom Brothers |   | $1,277,310 |   | $9.55  |
| *Shawnee Parkway Plaza      |   | 1979/1995 |   | 96%    |   | 92,213  |   | 92,213  |   | 59,128  |   | Price Chopper Supermarket                       |   | $641,911   |   | $6.96  |
| Village Plaza               |   | 1975      |   | 85%    |   | 55,698  |   | 55,698  |   | 31,431  |   | Ray’s Apple Market                         |   | $206,582   |   | $3.71  |

23

----

 
| *Westchester Square       |   | 1968/1998 |   | 97%    |   | 164,944 |   | 168,644 |   | 63,000  |   | Hy-Vee Supermarket                                 |   | $1,399,805 |   | $8.49  |
|---------------------------|--------|-----------|--------|--------|--------|---------|--------|---------|--------|---------|--------|----------------------------------------------------|--------|------------|--------|--------|
| *West Loop                |   | 1986/1998 |   | 99%    |   | 199,032 |   | 199,032 |   | 98,558  |   | Dillons Supermarket                                |   | $1,488,061 |   | $7.48  |
| Shopping Center           |   |      |   |   |   |    |   |    |   |    |   | Waters True Value                                  |   |       |   |   |
|                      |   |      |   |   |   |    |   |    |   |    |   | American Academy Hair Design                       |   |       |   |   |
| ***Kentucky***            |   |      |   |   |   |    |   |    |   |    |   |                                               |   |       |   |   |
| *Dixie Plaza              |   | 1987      |   | 8%     |   | 48,021  |   | 82,804  |   | N/A     |   | N/A                                                |   | $48,239    |   | $1.00  |
| *Midtown Mall             |   | 1970/1994 |   | 99%    |   | 153,822 |   | 153,822 |   | 106,383 |   | Kroger Supermarket                                 |   | $1,009,275 |   | $6.56  |
|                      |   |      |   |   |   |    |   |    |   |    |   | Big Lots/Odd Lots                                  |   |       |   |   |
|                      |   |      |   |   |   |    |   |    |   |    |   | Gatti’s Pizza                                 |   |       |   |   |
| *Plainview Village Center |   | 1977      |   | 96%    |   | 164,367 |   | 186,167 |   | 39,399  |   | Kroger Supermarket                                 |   | $1,412,120 |   | $8.59  |
| *Stony Brook              |   | 1988      |   | 100%   |   | 137,013 |   | 238,213 |   | 169,775 |   | Kroger Supermarket                                 |   | $1,575,032 |   | $11.50 |
|                      |   |      |   |   |   |    |   |    |   |    |   | H.H. Gregg  (Non-Owned)                            |   |       |   |   |
| ***Maine***               |   |      |   |   |   |    |   |    |   |    |   |                                               |   |       |   |   |
| Pine Tree Shopping        |   | 1958/1973 |   | 99%    |   | 287,513 |   | 287,513 |   | 214,178 |   | AJ Wright                                          |   | $936,592   |   | $3.26  |
| Center                    |   |      |   |   |   |    |   |    |   |    |   | Mardens                                            |   |       |   |   |
|                      |   |      |   |   |   |    |   |    |   |    |   | Jo-Ann Fabrics                                     |   |       |   |   |
|                      |   |      |   |   |   |    |   |    |   |    |   | Packard Development  (Ground Lease)                |   |       |   |   |
| ***Massachusetts***       |   |      |   |   |   |    |   |    |   |    |   |                                               |   |       |   |   |
| *Berkshire Crossing       |   | 1996      |   | 100%   |   | 442,248 |   | 442,248 |   | 385,522 |   | Price Chopper Supermarket                          |   | $3,604,877 |   | $8.15  |
|                      |   |      |   |   |   |    |   |    |   |    |   | Wal-Mart  (Ground Lease)                           |   |       |   |   |
|                      |   |      |   |   |   |    |   |    |   |    |   | Home Depot  (Ground Lease)                         |   |       |   |   |
|                      |   |      |   |   |   |    |   |    |   |    |   | Staples                                            |   |       |   |   |
|                      |   |      |   |   |   |    |   |    |   |    |   | Michaels                                           |   |       |   |   |
|                      |   |      |   |   |   |    |   |    |   |    |   | Barnes & Noble                            |   |       |   |   |
| *Burlington Square        |   | 1983/1992 |   | 87%    |   | 86,290  |   | 86,290  |   | 34,097  |   | Staples                                            |   | $2,478,668 |   | $28.72 |
|                      |   |      |   |   |   |    |   |    |   |    |   | Eastern Mountain Sports                            |   |       |   |   |
| Lynn Market Place         |   | 1966/1993 |   | 100%   |   | 78,092  |   | 78,092  |   | 52,620  |   | Shaw’s Supermarket                            |   | $652,400   |   | $8.35  |
| Watertower Plaza          |   | 1988/1998 |   | 96%    |   | 296,320 |   | 296,320 |   | 214,889 |   | Shaw’s Supermarket                            |   | $3,868,919 |   | $13.06 |
|                      |   |      |   |   |   |    |   |    |   |    |   | TJ Maxx                                            |   |       |   |   |
|                      |   |      |   |   |   |    |   |    |   |    |   | OfficeMax                                          |   |       |   |   |
|                      |   |      |   |   |   |    |   |    |   |    |   | Barnes & Noble                            |   |       |   |   |
|                      |   |      |   |   |   |    |   |    |   |    |   | Linens N Things                                    |   |       |   |   |
|                      |   |      |   |   |   |    |   |    |   |    |   | Petco                                              |   |       |   |   |
|                      |   |      |   |   |   |    |   |    |   |    |   | Michaels                                           |   |       |   |   |
|                      |   |      |   |   |   |    |   |    |   |    |   | NAMCO                                              |   |       |   |   |
| Westgate Plaza            |   | 1969/1996 |   | 94%    |   | 103,903 |   | 103,903 |   | 77,768  |   | Stop & Shop/ Staples/Ocean  State Job Lot |   | $969,091   |   | $9.33  |
|                      |   |      |   |   |   |    |   |    |   |    |   | TJ Maxx                                            |   |       |   |   |
| ***Michigan***            |   |      |   |   |   |    |   |    |   |    |   |                                               |   |       |   |   |
| *Cherry Hill Marketplace  |   | 1992/1999 |   | 84%    |   | 120,568 |   | 123,468 |   | 53,739  |   | Farmer Jacks                                       |   | $1,189,021 |   | $9.86  |
| *The Courtyard            |   | 1989      |   | 96%    |   | 125,967 |   | 265,622 |   | 219,421 |   | V.G. Food Center                                   |   | $875,932   |   | $6.95  |
|                      |   |      |   |   |   |    |   |    |   |    |   | OfficeMax                                          |   |       |   |   |
|                      |   |      |   |   |   |    |   |    |   |    |   | Dunham’s Sporting Goods                       |   |       |   |   |
|                      |   |      |   |   |   |    |   |    |   |    |   | Home Depot  (Non-Owned)                            |   |       |   |   |

24

----

 
| *Grand Traverse Crossing |   | 1996      |   | 100%   |   | 387,273 |   | 387,273 |   | 339,156 |   | Wal-Mart  (Ground Lease)     |   | $2,692,094 |   | $6.95  |
|--------------------------|--------|-----------|--------|--------|--------|---------|--------|---------|--------|---------|--------|------------------------------|--------|------------|--------|--------|
|                     |   |      |   |   |   |    |   |    |   |    |   | Home Depot  (Ground Lease)   |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | Borders (Ground Lease)       |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | Toys R Us                    |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | Staples                      |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | PetsMart                     |   |       |   |   |
| *Redford Plaza           |   | 1956/1987 |   | 96%    |   | 284,448 |   | 284,448 |   | 194,014 |   | Kroger Supermarket           |   | $2,285,863 |   | $8.04  |
|                     |   |      |   |   |   |    |   |    |   |    |   | Burlington Coat Factory      |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | Bally Total Fitness          |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | AJ Wright                    |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | Aco Hardware                 |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | The Resource Network         |   |       |   |   |
| ***Minnesota***          |   |      |   |   |   |    |   |    |   |    |   |                         |   |       |   |   |
| *Austin Town Center      |   | 1999      |   | 60%    |   | 110,680 |   | 200,680 |   | 130,049 |   | Aldi Foods                   |   | $491,586   |   | $4.44  |
|                     |   |      |   |   |   |    |   |    |   |    |   | Staples                      |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | Target (Non-Owned)           |   |       |   |   |
| *Brookdale Square        |   | 1971/1994 |   | 41%    |   | 185,883 |   | 185,883 |   | 66,834  |   | Brookdale Theater            |   | $470,165   |   | $2.53  |
|                     |   |      |   |   |   |    |   |    |   |    |   | Pep Boys                     |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | Up Front Event Center        |   |       |   |   |
| *Burning Tree Plaza      |   | 1987/1998 |   | 100%   |   | 182,969 |   | 182,969 |   | 117,716 |   | Best Buy                     |   | $1,699,660 |   | $9.29  |
|                     |   |      |   |   |   |    |   |    |   |    |   | TJ Maxx                      |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | Hancock Fabrics              |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | Dunham’s Sporting Goods |   |       |   |   |
| *Central Valu Center     |   | 1961/1984 |   | 92%    |   | 124,700 |   | 124,700 |   | 90,946  |   | Rainbow Foods                |   | $827,957   |   | $6.64  |
|                     |   |      |   |   |   |    |   |    |   |    |   | Slumberland Clearance        |   |       |   |   |
| Division Place           |   | 1991      |   | 87%    |   | 129,753 |   | 134,753 |   | 24,016  |   | TJ Maxx                      |   | $1,347,026 |   | $10.38 |
| *Elk Park Center         |   | 1995/1999 |   | 98%    |   | 204,992 |   | 302,635 |   | 200,677 |   | Cub Foods                    |   | $2,015,544 |   | $9.83  |
|                     |   |      |   |   |   |    |   |    |   |    |   | Target (Non-Owned)           |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | OfficeMax                    |   |       |   |   |
| *Har Mar Mall            |   | 1965/1992 |   | 98%    |   | 433,082 |   | 433,082 |   | 254,539 |   | Cub Foods                    |   | $4,885,324 |   | $11.28 |
|                     |   |      |   |   |   |    |   |    |   |    |   | Barnes & Noble      |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | Marshalls                    |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | Homegoods                    |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | TJ Maxx                      |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | AMC Theatres                 |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | Michaels                     |   |       |   |   |
| *Hub West (9)            |   |      |   |   |   |    |   |    |   |    |   |                         |   |       |   |   |
| *Richfield Hub           |   | 1952/1992 |   | 99%    |   | 214,855 |   | 217,655 |   | 129,400 |   | Rainbow Foods                |   | $2,429,827 |   | $11.31 |
|                     |   |      |   |   |   |    |   |    |   |    |   | Bally Total Fitness          |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | Marshalls                    |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | Michaels                     |   |       |   |   |
| *Marketplace at 42       |   | 1999      |   | 98%    |   | 120,487 |   | 150,687 |   | 72,371  |   | Rainbow Foods                |   | $1,626,477 |   | $13.50 |
|                     |   |      |   |   |   |    |   |    |   |    |   | Walgreens (Non-Owned)        |   |       |   |   |
| *Roseville Center        |   | 1950/2000 |   | 98%    |   | 76,894  |   | 155,694 |   | 65,000  |   | Rainbow Foods  (Non-Owned)   |   | $895,926   |   | $11.65 |
| *Southport Centre        |   | 1992      |   | 100%   |   | 124,937 |   | 426,985 |   | 346,566 |   | Cub Foods (Non-Owned)        |   | $1,802,929 |   | $14.43 |
|                     |   |      |   |   |   |    |   |    |   |    |   | Best Buy                     |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | Dollar Tree                  |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | Super Target  (Non-Owned)    |   |       |   |   |
|                     |   |      |   |   |   |    |   |    |   |    |   | OfficeMax (Non-Owned)        |   |       |   |   |

25

----

 
| *Sun Ray Shopping Center      |   | 1958/1992 |   | 95%    |   | 287,385 |   | 287,385 |   | 181,950 |   | Cub Foods  (Ground Lease)            |   | $2,520,124 |   | $8.77  |
|-------------------------------|--------|-----------|--------|--------|--------|---------|--------|---------|--------|---------|--------|--------------------------------------|--------|------------|--------|--------|
|                          |   |      |   |   |   |    |   |    |   |    |   | TJ Maxx                              |   |       |   |   |
|                          |   |      |   |   |   |    |   |    |   |    |   | Bally Total Fitness                  |   |       |   |   |
|                          |   |      |   |   |   |    |   |    |   |    |   | Michaels                             |   |       |   |   |
|                          |   |      |   |   |   |    |   |    |   |    |   | Valu Thrift Store                    |   |       |   |   |
| *Ten Acres Center             |   | 1972/1986 |   | 100%   |   | 162,364 |   | 162,364 |   | 133,894 |   | Cub Foods                            |   | $1,202,897 |   | $7.41  |
|                          |   |      |   |   |   |    |   |    |   |    |   | Burlington Coat Factory              |   |       |   |   |
| *Terrace Mall                 |   | 1979/1993 |   | 90%    |   | 135,031 |   | 250,031 |   | 212,430 |   | Rainbow Foods                        |   | $1,006,599 |   | $7.45  |
|                          |   |      |   |   |   |    |   |    |   |    |   | North Memorial Hospital  (Non-Owned) |   |       |   |   |
|                          |   |      |   |   |   |    |   |    |   |    |   | North Memorial Medical  Center       |   |       |   |   |
| *Westwind Plaza               |   | 1985      |   | 100%   |   | 87,933  |   | 147,933 |   | 80,245  |   | Cub Foods (Non-Owned)                |   | $1,165,209 |   | $13.25 |
|                          |   |      |   |   |   |    |   |    |   |    |   | Northern Tool and Equipment          |   |       |   |   |
| *White Bear Hills             |   | 1990/1996 |   | 100%   |   | 73,095  |   | 81,895  |   | 45,679  |   | Festival Foods                       |   | $629,086   |   | $8.61  |
| ***Mississippi***             |   |      |   |   |   |    |   |    |   |    |   |                                 |   |       |   |   |
| County Line Plaza             |   | 1997      |   | 99%    |   | 221,567 |   | 268,367 |   | 171,062 |   | Haverty’s Furniture             |   | $2,916,188 |   | $13.16 |
|                          |   |      |   |   |   |    |   |    |   |    |   | OfficeMax                            |   |       |   |   |
|                          |   |      |   |   |   |    |   |    |   |    |   | Barnes & Noble              |   |       |   |   |
|                          |   |      |   |   |   |    |   |    |   |    |   | Old Navy                             |   |       |   |   |
|                          |   |      |   |   |   |    |   |    |   |    |   | Shoe Station                         |   |       |   |   |
|                          |   |      |   |   |   |    |   |    |   |    |   | Circuit City  (Non-Owned)            |   |       |   |   |
| ***Missouri***                |   |      |   |   |   |    |   |    |   |    |   |                                 |   |       |   |   |
| Clocktower Place              |   | 1987      |   | 97%    |   | 214,198 |   | 222,348 |   | 129,807 |   | Dierberg’s Market               |   | $2,295,624 |   | $10.72 |
|                          |   |      |   |   |   |    |   |    |   |    |   | TJ Maxx                              |   |       |   |   |
|                          |   |      |   |   |   |    |   |    |   |    |   | Office Depot                         |   |       |   |   |
| *Ellisville Square            |   | 1990      |   | 99%    |   | 146,052 |   | 149,552 |   | 107,772 |   | K-Mart                               |   | $1,395,887 |   | $9.56  |
|                          |   |      |   |   |   |    |   |    |   |    |   | Lukas Liquors                        |   |       |   |   |
| *Grandview Plaza              |   | 1961/1991 |   | 78%    |   | 296,008 |   | 296,008 |   | 169,892 |   | Schnuck’s Supermarket           |   | $1,781,900 |   | $6.02  |
|                          |   |      |   |   |   |    |   |    |   |    |   | Old Time Pottery                     |   |       |   |   |
|                          |   |      |   |   |   |    |   |    |   |    |   | Walgreens                            |   |       |   |   |
| *Hub Shopping Center          |   | 1972/1995 |   | 94%    |   | 160,423 |   | 160,423 |   | 103,322 |   | Price Chopper Supermarket            |   | $783,853   |   | $4.89  |
| *Liberty Corners              |   | 1987/1996 |   | 99%    |   | 124,858 |   | 214,358 |   | 136,500 |   | Price Chopper Supermarket            |   | $943,009   |   | $7.55  |
|                          |   |      |   |   |   |    |   |    |   |    |   | Sutherlands  (Non-Owned)             |   |       |   |   |
| *Maplewood Square             |   | 1998      |   | 100%   |   | 71,590  |   | 75,590  |   | 57,575  |   | Shop n’ Save Supermarket        |   | $545,405   |   | $7.62  |
| *Marketplace at  Independence |   | 1988      |   | 95%    |   | 241,896 |   | 253,396 |   | 133,942 |   | Price Chopper  Supermarket           |   | $2,110,316 |   | $8.72  |
|                          |   |      |   |   |   |    |   |    |   |    |   | Old Navy                             |   |       |   |   |
| *Prospect Plaza               |   | 1979/1999 |   | 96%    |   | 189,996 |   | 189,996 |   | 136,566 |   | Price Chopper Supermarket            |   | $1,543,290 |   | $8.12  |
|                          |   |      |   |   |   |    |   |    |   |    |   | Hobby Lobby                          |   |       |   |   |
|                          |   |      |   |   |   |    |   |    |   |    |   | The Salvation Army Family Store      |   |       |   |   |
| *Watts Mill Plaza             |   | 1973/1997 |   | 94%    |   | 161,717 |   | 169,717 |   | 91,989  |   | Price Chopper Supermarket            |   | $1,409,089 |   | $8.71  |
|                          |   |      |   |   |   |    |   |    |   |    |   | Westlake Hardware                    |   |       |   |   |

26

----

 
| ***Nebraska***        |   |           |   |   |   |    |   |    |   |    |   |                                         |   |       |   |   |
|-----------------------|--------|----------------|--------|--------|--------|---------|--------|---------|--------|---------|--------|----------------------------------------------|--------|------------|--------|--------|
| *Bishop Heights       |   | 1971/1997      |   | 78%    |   | 34,388  |   | 128,448 |   | 106,992 |   | Russ’ IGA Supermarket                   |   | $109,088   |   | $3.17  |
|                  |   |           |   |   |   |    |   |    |   |    |   | Shopko (Non-Owned)                           |   |       |   |   |
| *Cornhusker Plaza     |   | 1988           |   | 96%    |   | 84,083  |   | 163,063 |   | 121,723 |   | Hy-Vee Supermarket                           |   | $468,733   |   | $5.57  |
|                  |   |           |   |   |   |    |   |    |   |    |   | Wal-Mart (Non-Owned)                         |   |       |   |   |
| *Eastville Plaza      |   | 1986           |   | 100%   |   | 68,546  |   | 139,636 |   | 99,046  |   | Hy-Vee Supermarket                           |   | $568,788   |   | $8.30  |
|                  |   |           |   |   |   |    |   |    |   |    |   | Menard’s (Non-Owned)                    |   |       |   |   |
| *Edgewood Shopping    |   | 1980/1994      |   | 99%    |   | 179,964 |   | 406,514 |   | 210,020 |   | SuperSaver Supermarket                       |   | $1,679,481 |   | $9.33  |
| Center                |   |           |   |   |   |    |   |    |   |    |   | Osco Drug                                    |   |       |   |   |
|                  |   |           |   |   |   |    |   |    |   |    |   | Target (Non-Owned)                           |   |       |   |   |
| *The Meadows          |   | 1998           |   | 100%   |   | 67,840  |   | 70,840  |   | 50,000  |   | Russ’ IGA Supermarket                   |   | $521,475   |   | $7.69  |
| *Miracle Hills Park   |   | 1988           |   | 87%    |   | 69,606  |   | 139,606 |   | 66,000  |   | Cub Foods (Non-Owned)                        |   | $641,814   |   | $9.22  |
| *Stockyards Plaza     |   | 1988           |   | 100%   |   | 129,459 |   | 148,659 |   | 85,649  |   | Hy-Vee Supermarket                           |   | $1,063,721 |   | $8.22  |
|                  |   |           |   |   |   |    |   |    |   |    |   | Movies 8                                     |   |       |   |   |
| ***New  Hampshire***  |   |           |   |   |   |    |   |    |   |    |   |                                         |   |       |   |   |
| *Bedford Grove        |   | 1989           |   | 99%    |   | 216,941 |   | 216,941 |   | 182,745 |   | Shop N’ Save                            |   | $1,736,229 |   | $8.00  |
|                  |   |           |   |   |   |    |   |    |   |    |   | Wal-Mart  (Ground Lease)                     |   |       |   |   |
| Bedford Mall          |   | 1963/1999      |   | 89%    |   | 265,091 |   | 265,091 |   | 192,207 |   | Marshalls                                    |   | $2,477,027 |   | $9.34  |
|                  |   |           |   |   |   |    |   |    |   |    |   | Bob’s Stores                            |   |       |   |   |
|                  |   |           |   |   |   |    |   |    |   |    |   | Staples                                      |   |       |   |   |
|                  |   |           |   |   |   |    |   |    |   |    |   | Linens N Things                              |   |       |   |   |
|                  |   |           |   |   |   |    |   |    |   |    |   | Decathalon Sports (Ground Lease)             |   |       |   |   |
|                  |   |           |   |   |   |    |   |    |   |    |   | Hoyts Cinemas                                |   |       |   |   |
| Capitol Shopping      |   | 1961/1999      |   | 100%   |   | 182,821 |   | 189,821 |   | 129,551 |   | Demoulas Market Basket                       |   | $1,415,399 |   | $7.74  |
| Center                |   |           |   |   |   |    |   |    |   |    |   | Burlington Coat Factory                      |   |       |   |   |
|                  |   |           |   |   |   |    |   |    |   |    |   | Marshalls                                    |   |       |   |   |
| Tri City Plaza        |   | 1968/1992      |   | 97%    |   | 146,947 |   | 146,947 |   | 84,920  |   | Demoulas Market Basket                       |   | $992,093   |   | $6.75  |
|                  |   |           |   |   |   |    |   |    |   |    |   | TJ Maxx                                      |   |       |   |   |
| ***New Jersey***      |   |           |   |   |   |    |   |    |   |    |   |                                         |   |       |   |   |
| *Cross Keys Common    |   | 1995           |   | 92%    |   | 216,428 |   | 417,388 |   | 279,945 |   | Super Wal-Mart  (Non-Owned)                  |   | $3,150,173 |   | $14.56 |
|                  |   |           |   |   |   |    |   |    |   |    |   | AJ Wright                                    |   |       |   |   |
|                  |   |           |   |   |   |    |   |    |   |    |   | Staples                                      |   |       |   |   |
|                  |   |           |   |   |   |    |   |    |   |    |   | Ross Dress for Less                          |   |       |   |   |
| Morris Hills Shopping |   | 1957/1994      |   | 100%   |   | 159,454 |   | 159,454 |   | 109,161 |   | Mega Marshalls                               |   | $2,463,277 |   | $15.45 |
| Center                |   |           |   |   |   |    |   |    |   |    |   | Clearview Cinema  (Ground Lease)             |   |       |   |   |
|                  |   |           |   |   |   |    |   |    |   |    |   | Michaels                                     |   |       |   |   |
| *Old Bridge Gateway   |   | 1956/1991/1995 |   | 97%    |   | 235,995 |   | 235,995 |   | 106,380 |   | Bayshore  Fitness & Wellness Center |   | $3,325,620 |   | $14.09 |
|                  |   |           |   |   |   |    |   |    |   |    |   | Marshalls                                    |   |       |   |   |
|                  |   |           |   |   |   |    |   |    |   |    |   | Modell’s Sporting Goods                 |   |       |   |   |
|                  |   |           |   |   |   |    |   |    |   |    |   | Best Home Furnishings                        |   |       |   |   |
| ***New  Mexico***     |   |           |   |   |   |    |   |    |   |    |   |                                         |   |       |   |   |
| *St. Francis Plaza    |   | 1992/1993      |   | 100%   |   | 35,800  |   | 35,800  |   | 20,850  |   | Wild Oats Market                             |   | $401,670   |   | $11.22 |
| ***New York***        |   |           |   |   |   |    |   |    |   |    |   |                                         |   |       |   |   |
| College Plaza         |   | 1975/1994      |   | 100%   |   | 175,086 |   | 175,086 |   | 126,812 |   | Bob’s Stores                            |   | $1,538,184 |   | $8.79  |
|                  |   |           |   |   |   |    |   |    |   |    |   | Marshalls                                    |   |       |   |   |
|                  |   |           |   |   |   |    |   |    |   |    |   | Eckerd Drugs                                 |   |       |   |   |
|                  |   |           |   |   |   |    |   |    |   |    |   | Staples                                      |   |       |   |   |

27

----

 
| Dalewood I Shopping Center           |   | 1966/1995 |   | 97%    |   | 59,569  |   | 59,569  |   | 36,989  |   | Pathmark                                     |   | $651,541   |   | $10.94 |
|--------------------------------------|--------|-----------|--------|--------|--------|---------|--------|---------|--------|---------|--------|----------------------------------------------|--------|------------|--------|--------|
| Dalewood II                          |   | 1970/1995 |   | 100%   |   | 81,326  |   | 81,326  |   | 59,326  |   | Turco’s Supermarket                     |   | $2,071,605 |   | $25.47 |
| Shopping Center                      |   |      |   |   |   |    |   |    |   |    |   | Bed, Bath & Beyond                  |   |       |   |   |
| Dalewood III Shopping  Center        |   | 1972/1995 |   | 100%   |   | 48,390  |   | 48,390  |   | 28,361  |   | TJ Maxx                                      |   | $1,208,497 |   | $24.97 |
| Falcaro’s Plaza                 |   | 1968/1993 |   | 100%   |   | 61,295  |   | 63,295  |   | 29,887  |   | OfficeMax                                    |   | $1,039,604 |   | $16.96 |
| Kings Park Shopping                  |   | 1963/1985 |   | 100%   |   | 71,940  |   | 73,940  |   | 48,870  |   | Key Foods                                    |   | $1,047,477 |   | $14.56 |
| Center                               |   |      |   |   |   |    |   |    |   |    |   | TJ Maxx                                      |   |       |   |   |
| Nesconset Shopping Center            |   | 1961/1999 |   | 100%   |   | 122,996 |   | 124,996 |   | 33,460  |   | Office Depot/ HomeGoods                      |   | $1,648,016 |   | $13.40 |
| Parkway Plaza                        |   | 1973/1992 |   | 95%    |   | 89,704  |   | 89,704  |   | 31,600  |   | TJ Maxx                                      |   | $1,820,144 |   | $20.29 |
| Roanoke Plaza                        |   | 1972/1994 |   | 100%   |   | 99,131  |   | 101,631 |   | 58,150  |   | Best Yet Market                              |   | $1,360,147 |   | $13.72 |
|                                 |   |      |   |   |   |    |   |    |   |    |   | TJ Maxx                                      |   |       |   |   |
| Rockville Centre Shopping  Center    |   | 1975      |   | 100%   |   | 44,131  |   | 44,131  |   | 27,781  |   | HomeGoods                                    |   | $604,374   |   | $13.70 |
| *Salmon Run Plaza                    |   | 1993      |   | 100%   |   | 68,761  |   | 181,195 |   | 164,614 |   | Hannaford’s Supermarket                 |   | $1,097,978 |   | $15.97 |
|                                 |   |      |   |   |   |    |   |    |   |    |   | K-Mart (Non-Owned)                           |   |       |   |   |
| Suffolk Plaza                        |   | 1967/1998 |   | 100%   |   | 84,480  |   | 89,680  |   | 56,759  |   | Waldbaum’s Supermarket                  |   | $857,119   |   | $10.15 |
| Three Village Plaza                  |   | 1964/1991 |   | 100%   |   | 77,458  |   | 77,458  |   | 38,955  |   | King Kullen Grocery                          |   | $1,332,745 |   | $17.21 |
| Turnpike Plaza                       |   | 1971/1994 |   | 100%   |   | 52,950  |   | 52,950  |   | 30,700  |   | Waldbaum’s Supermarket                  |   | $958,716   |   | $18.11 |
| ***North  Carolina***                |   |      |   |   |   |    |   |    |   |    |   |                                         |   |       |   |   |
| *The Commons at  Chancellor Park     |   | 1994      |   | 98%    |   | 348,604 |   | 358,204 |   | 309,041 |   | Home Depot  (Ground Lease)                   |   | $2,404,331 |   | $6.90  |
|                                 |   |      |   |   |   |    |   |    |   |    |   | Hobby Lobby                                  |   |       |   |   |
|                                 |   |      |   |   |   |    |   |    |   |    |   | Circuit City                                 |   |       |   |   |
|                                 |   |      |   |   |   |    |   |    |   |    |   | Marshalls                                    |   |       |   |   |
|                                 |   |      |   |   |   |    |   |    |   |    |   | Value City                                   |   |       |   |   |
|                                 |   |      |   |   |   |    |   |    |   |    |   | Peak Fitness                                 |   |       |   |   |
| Crown Point Shopping  Center         |   | 1990      |   | 76%    |   | 147,200 |   | 164,200 |   | 100,000 |   | Lowe’s Home Centers / Old  Time Pottery |   | $760,800   |   | $5.17  |
| *Franklin Square                     |   | 1990      |   | 95%    |   | 318,435 |   | 517,735 |   | 379,568 |   | Super Wal-Mart  (Non-Owned)                  |   | $3,140,083 |   | $9.86  |
|                                 |   |      |   |   |   |    |   |    |   |    |   | Best Buy                                     |   |       |   |   |
|                                 |   |      |   |   |   |    |   |    |   |    |   | Ross Dress for Less                          |   |       |   |   |
|                                 |   |      |   |   |   |    |   |    |   |    |   | Bed, Bath & Beyond                  |   |       |   |   |
|                                 |   |      |   |   |   |    |   |    |   |    |   | Dollar Tree                                  |   |       |   |   |
|                                 |   |      |   |   |   |    |   |    |   |    |   | Pep Boys  (Ground Lease)                     |   |       |   |   |
|                                 |   |      |   |   |   |    |   |    |   |    |   | OfficeMax                                    |   |       |   |   |
|                                 |   |      |   |   |   |    |   |    |   |    |   | Michaels                                     |   |       |   |   |
| Innes Street Market                  |   | 1998      |   | 100%   |   | 349,433 |   | 349,433 |   | 296,740 |   | Food Lion Supermarket                        |   | $3,397,369 |   | $9.72  |
|                                 |   |      |   |   |   |    |   |    |   |    |   | Lowe’s Home Centers                     |   |       |   |   |
|                                 |   |      |   |   |   |    |   |    |   |    |   | Tinseltown Cinema                            |   |       |   |   |
|                                 |   |      |   |   |   |    |   |    |   |    |   | Marshalls                                    |   |       |   |   |
|                                 |   |      |   |   |   |    |   |    |   |    |   | Staples                                      |   |       |   |   |
|                                 |   |      |   |   |   |    |   |    |   |    |   | Circuit City                                 |   |       |   |   |
|                                 |   |      |   |   |   |    |   |    |   |    |   | Old Navy                                     |   |       |   |   |
| McMullen Creek Shopping  Center (10) |   | 1988      |   | 80%    |   | 283,323 |   | 292,923 |   | 53,166  |   | Burlington Coat Factory                      |   | $2,511,816 |   | $8.87  |

28

----

 
| New Centre Market      |   | 1998      |   | 100%   |   | 143,763 |   | 266,263 |   | 202,040 |   | Target (Non-Owned)                           |   | $1,646,201 |   | $11.45 |
|------------------------|--------|-----------|--------|--------|--------|---------|--------|---------|--------|---------|--------|----------------------------------------------|--------|------------|--------|--------|
|                   |   |      |   |   |   |    |   |    |   |    |   | Marshalls                                    |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | PetsMart                                     |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | OfficeMax                                    |   |       |   |   |
| Tarrymore Square       |   | 1989      |   | 76%    |   | 260,405 |   | 260,405 |   | 85,447  |   | Marshalls                                    |   | $1,893,388 |   | $7.27  |
|                   |   |      |   |   |   |    |   |    |   |    |   | Carolina Clearing House                      |   |       |   |   |
| University Commons     |   | 1989      |   | 98%    |   | 235,396 |   | 235,396 |   | 135,326 |   | Lowes Foods                                  |   | $2,713,653 |   | $11.53 |
|                   |   |      |   |   |   |    |   |    |   |    |   | TJ Maxx                                      |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | Homegoods                                    |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | AC Moore Arts & Crafts              |   |       |   |   |
| University Commons     |   | 1996      |   | 100%   |   | 232,820 |   | 338,020 |   | 270,249 |   | Kroger Supermarket                           |   | $2,699,890 |   | $11.60 |
| Greenville             |   |      |   |   |   |    |   |    |   |    |   | TJ Maxx                                      |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | Circuit City                                 |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | Barnes & Noble                      |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | Target (Non-Owned)                           |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | Linens N Things                              |   |       |   |   |
| Wendover Place         |   | 1997      |   | 100%   |   | 406,775 |   | 538,075 |   | 441,954 |   | Harris-Teeter/ Michaels/Ross  Dress for Less |   | $4,409,700 |   | $10.84 |
|                   |   |      |   |   |   |    |   |    |   |    |   | Kohl’s                                  |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | Dick’s Sporting Goods                   |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | Babies R Us                                  |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | PetsMart                                     |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | Old Navy                                     |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | Linens N Things                              |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | Target (Non-Owned)                           |   |       |   |   |
| ***Ohio***             |   |      |   |   |   |    |   |    |   |    |   |                                         |   |       |   |   |
| *30th Street Plaza     |   | 1951/1999 |   | 96%    |   | 157,055 |   | 157,055 |   | 111,251 |   | Giant Eagle Supermarket                      |   | $1,475,538 |   | $9.40  |
|                   |   |      |   |   |   |    |   |    |   |    |   | Marc’s Pharmacy                         |   |       |   |   |
| *Clock Tower Plaza     |   | 1989      |   | 100%   |   | 237,975 |   | 244,475 |   | 172,300 |   | Ray’s Supermarket                       |   | $1,497,883 |   | $6.29  |
|                   |   |      |   |   |   |    |   |    |   |    |   | Wal-Mart                                     |   |       |   |   |
| *Salem Consumer        |   | 1988      |   | 92%    |   | 274,652 |   | 274,652 |   | 131,650 |   | Cub Foods                                    |   | $2,319,942 |   | $8.45  |
| Square                 |   |      |   |   |   |    |   |    |   |    |   | Office Depot                                 |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | Michigan Sporting Goods                      |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | AJ Wright                                    |   |       |   |   |
| ***Pennsylvania***     |   |      |   |   |   |    |   |    |   |    |   |                                         |   |       |   |   |
| Boyertown Plaza        |   | 1961      |   | 30%    |   | 83,229  |   | 88,629  |   | N/A     |   | N/A                                          |   | $383,227   |   | $4.60  |
| Colonial Commons       |   | 1991/2003 |   | 88%    |   | 433,362 |   | 451,462 |   | 291,835 |   | Giant Foods                                  |   | $6,145,092 |   | $14.18 |
|                   |   |      |   |   |   |    |   |    |   |    |   | Dick’s Sporting Goods                   |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | Linens N Things                              |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | AMC Theatres 9                               |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | Ross Dress for Less                          |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | Marshalls                                    |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | TJ Maxx                                      |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | OfficeMax                                    |   |       |   |   |
| Lehigh Shopping Center |   | 1955/1999 |   | 76%    |   | 372,243 |   | 376,243 |   | 211,215 |   | Giant Foods  (Ground Lease)                  |   | $2,042,685 |   | $5.49  |
|                   |   |      |   |   |   |    |   |    |   |    |   | Mega Marshalls                               |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | Staples                                      |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | D&D Budget & Clearance          |   |       |   |   |
|                   |   |      |   |   |   |    |   |    |   |    |   | Dan Schantz Nursery                          |   |       |   |   |

29

----

 
| *Warminster Towne       |   | 1997      |   | 100%   |   | 237,234 |   | 317,917 |   | 276,840 |   | Shop Rite Supermarket                 |   | $3,098,745 |   | $13.06 |
|-------------------------|--------|-----------|--------|--------|--------|---------|--------|---------|--------|---------|--------|---------------------------------------|--------|------------|--------|--------|
| Center                  |   |      |   |   |   |    |   |    |   |    |   | Kohl’s (Non-Owned)               |   |       |   |   |
|                    |   |      |   |   |   |    |   |    |   |    |   | Ross Dress for Less                   |   |       |   |   |
|                    |   |      |   |   |   |    |   |    |   |    |   | PetsMart                              |   |       |   |   |
|                    |   |      |   |   |   |    |   |    |   |    |   | OfficeMax                             |   |       |   |   |
|                    |   |      |   |   |   |    |   |    |   |    |   | Pep Boys (Ground Lease)               |   |       |   |   |
|                    |   |      |   |   |   |    |   |    |   |    |   | Rag Shop                              |   |       |   |   |
|                    |   |      |   |   |   |    |   |    |   |    |   | Old Navy                              |   |       |   |   |
| ***South Carolina***    |   |      |   |   |   |    |   |    |   |    |   |                                  |   |       |   |   |
| *Fairview Corners       |   | 2004      |   | 99%    |   | 131,002 |   | 254,682 |   | 181,741 |   | Super Target  (Non-Owned)             |   | $1,674,908 |   | $12.79 |
|                    |   |      |   |   |   |    |   |    |   |    |   | Ross Dress for Less                   |   |       |   |   |
|                    |   |      |   |   |   |    |   |    |   |    |   | TJ Maxx                               |   |       |   |   |
| ***South  Dakota***     |   |      |   |   |   |    |   |    |   |    |   |                                  |   |       |   |   |
| *Baken Park             |   | 1962/1997 |   | 90%    |   | 195,526 |   | 195,526 |   | 95,039  |   | Nash Finch Supermarket                |   | $1,370,511 |   | $7.01  |
|                    |   |      |   |   |   |    |   |    |   |    |   | Ben Franklin                          |   |       |   |   |
|                    |   |      |   |   |   |    |   |    |   |    |   | Boyd’s Drug                      |   |       |   |   |
| ***Tennessee***         |   |      |   |   |   |    |   |    |   |    |   |                                  |   |       |   |   |
| *The Market of Wolf     |   | 2000      |   | 90%    |   | 298,586 |   | 471,924 |   | 313,652 |   | Target (Non-Owned)                    |   | $3,546,257 |   | $11.88 |
| Creek                   |   |      |   |   |   |    |   |    |   |    |   | Haverty’s Furniture  (Non-Owned) |   |       |   |   |
|                    |   |      |   |   |   |    |   |    |   |    |   | The Sports Authority                  |   |       |   |   |
|                    |   |      |   |   |   |    |   |    |   |    |   | Best Buy                              |   |       |   |   |
|                    |   |      |   |   |   |    |   |    |   |    |   | Office Depot                          |   |       |   |   |
|                    |   |      |   |   |   |    |   |    |   |    |   | Cost Plus World Market                |   |       |   |   |
| Oakwood                 |   | 1989/1997 |   | 97%    |   | 278,017 |   | 280,767 |   | 178,769 |   | Publix Supermarket                    |   | $2,635,741 |   | $9.48  |
| Commons (11)            |   |      |   |   |   |    |   |    |   |    |   | Bed, Bath & Beyond           |   |       |   |   |
|                    |   |      |   |   |   |    |   |    |   |    |   | Ross Dress for Less                   |   |       |   |   |
|                    |   |      |   |   |   |    |   |    |   |    |   | PetsMart                              |   |       |   |   |
|                    |   |      |   |   |   |    |   |    |   |    |   | Peebles Department Store              |   |       |   |   |
| Watson Glen             |   | 1989      |   | 100%   |   | 264,360 |   | 264,360 |   | 206,427 |   | Bi-Lo Foods                           |   | $1,985,984 |   | $7.51  |
| Shopping Center         |   |      |   |   |   |    |   |    |   |    |   | K-Mart                                |   |       |   |   |
|                    |   |      |   |   |   |    |   |    |   |    |   | Goody’s Family Clothing          |   |       |   |   |
|                    |   |      |   |   |   |    |   |    |   |    |   | Franklin Athletic Club                |   |       |   |   |
| *Williamson Square      |   | 1988/1993 |   | 99%    |   | 330,226 |   | 340,476 |   | 202,102 |   | Kroger Supermarket                    |   | $2,625,542 |   | $7.95  |
|                    |   |      |   |   |   |    |   |    |   |    |   | Hobby Lobby                           |   |       |   |   |
|                    |   |      |   |   |   |    |   |    |   |    |   | USA Baby                              |   |       |   |   |
|                    |   |      |   |   |   |    |   |    |   |    |   | Hancock Fabrics                       |   |       |   |   |
|                    |   |      |   |   |   |    |   |    |   |    |   | New River Fellowship                  |   |       |   |   |
| ***Texas***             |   |      |   |   |   |    |   |    |   |    |   |                                  |   |       |   |   |
| Buckingham Place        |   | 1980/1997 |   | 93%    |   | 150,228 |   | 156,228 |   | 96,274  |   | Minyard Food Stores                   |   | $1,009,502 |   | $6.72  |
|                    |   |      |   |   |   |    |   |    |   |    |   | Big Lots                              |   |       |   |   |
| The Crossing            |   | 2000/2001 |   | 89%    |   | 187,075 |   | 253,454 |   | 150,963 |   | Kroger Signature  (Non-Owned)         |   | $1,858,786 |   | $9.94  |
|                    |   |      |   |   |   |    |   |    |   |    |   | Kohl’s (Ground Lease)            |   |       |   |   |
| Las Colinas Village     |   | 2001/2002 |   | 86%    |   | 104,682 |   | 131,682 |   | 24,025  |   | Staples                               |   | $1,810,846 |   | $17.30 |
| Randall’s Bay Area |   | 1989/2001 |   | 98%    |   | 78,650  |   | 78,650  |   | 55,200  |   | Randall’s Food Market            |   | $663,650   |   | $8.44  |
| Randall’s Fairmont |   | 1985/2003 |   | 86%    |   | 105,869 |   | 112,069 |   | 56,358  |   | Randall’s Food Market            |   | $911,418   |   | $8.61  |
| Royal Oaks Village      |   | 2001/2002 |   | 98%    |   | 145,286 |   | 145,286 |   | 85,380  |   | HEB Grocery                           |   | $2,892,180 |   | $19.91 |
| Trinity Commons         |   | 1998      |   | 95%    |   | 197,423 |   | 197,423 |   | 84,228  |   | Tom Thumb                             |   | $3,097,076 |   | $15.69 |
| (12)                    |   |      |   |   |   |    |   |    |   |    |   | DSW Shoe Warehouse                    |   |       |   |   |

30

----

 
| ***Vermont***                |       |       |       |       |       |           |       |           |       |           |       |                          |       |             |       |       |
|------------------------------|------------|------------|------------|------------|------------|----------------|------------|----------------|------------|----------------|------------|-------------------------------|------------|------------------|------------|------------|
| Rutland Plaza                |       | 1966/1996  |       | 99%        |       | 224,514        |       | 224,514        |       | 182,264        |       | Price Chopper Supermarket     |       | $1,882,104       |       | $8.38      |
|                         |       |       |       |       |       |           |       |           |       |           |       | Wal-Mart                      |       |             |       |       |
|                         |       |       |       |       |       |           |       |           |       |           |       | TJ Maxx                       |       |             |       |       |
|                         |       |       |       |       |       |           |       |           |       |           |       | Plaza Movie Plex              |       |             |       |       |
| ***Virginia***               |       |       |       |       |       |           |       |           |       |           |       |                          |       |             |       |       |
| Spradlin Farm                |       | 2000/2001  |       | 100%       |       | 181,055        |       | 442,055        |       | 366,962        |       | Home Depot  (Non-Owned)       |       | $2,390,725       |       | $13.20     |
|                         |       |       |       |       |       |           |       |           |       |           |       | Target (Non-Owned)            |       |             |       |       |
|                         |       |       |       |       |       |           |       |           |       |           |       | TJ Maxx                       |       |             |       |       |
|                         |       |       |       |       |       |           |       |           |       |           |       | Barnes & Noble       |       |             |       |       |
|                         |       |       |       |       |       |           |       |           |       |           |       | Michaels                      |       |             |       |       |
|                         |       |       |       |       |       |           |       |           |       |           |       | Goody’s Family Clothing  |       |             |       |       |
| ***Wisconsin***              |       |       |       |       |       |           |       |           |       |           |       |                          |       |             |       |       |
| *Fairacres Shopping Center   |       | 1992       |       | 94%        |       | 79,736         |       | 82,486         |       | 58,678         |       | Pick ‘N Save Supermarket |       | $626,066         |       | $7.85      |
| *Fitchburg Ridge             |       | 1980       |       | 94%        |       | 50,555         |       | 61,805         |       | 16,631         |       | Wisconsin Dialysis            |       | $456,526         |       | $9.03      |
| *Fox River Plaza             |       | 1987       |       | 100%       |       | 169,883        |       | 173,383        |       | 137,113        |       | Pick ‘N Save Supermarket |       | $833,479         |       | $4.91      |
|                         |       |       |       |       |       |           |       |           |       |           |       | K-Mart                        |       |             |       |       |
| *Madison Plaza               |       | 1988/1994  |       | 62%        |       | 54,275         |       | 127,584        |       | N/A            |       | N/A                           |       | $325,844         |       | $6.00      |
| *Mequon Pavilions            |       | 1967/1991  |       | 95%        |       | 213,436        |       | 213,436        |       | 65,995         |       | Sendik’s Food  Market    |       | $2,976,273       |       | $13.94     |
|                         |       |       |       |       |       |           |       |           |       |           |       | Bed, Bath &  Beyond  |       |             |       |       |
| *Moorland Square             |       | 1990       |       | 100%       |       | 98,303         |       | 195,403        |       | 149,674        |       | Pick ‘N Save Supermarket |       | $867,625         |       | $8.83      |
|                         |       |       |       |       |       |           |       |           |       |           |       | K-Mart (Non-Owned)            |       |             |       |       |
| *Oak Creek Centre            |       | 1988       |       | 40%        |       | 91,510         |       | 99,510         |       | N/A            |       | N/A                           |       | $159,464         |       | $1.74      |
| *Park Plaza                  |       | 1959/1993  |       | 91%        |       | 113,655        |       | 113,655        |       | 74,054         |       | Big Lots                      |       | $626,764         |       | $5.51      |
|                         |       |       |       |       |       |           |       |           |       |           |       | Hobby Lobby                   |       |             |       |       |
| *Spring Mall                 |       | 1967/1994  |       | 92%        |       | 204,861        |       | 204,861        |       | 135,055        |       | Pick ‘N Save Supermarket |       | $1,478,156       |       | $7.22      |
|                         |       |       |       |       |       |           |       |           |       |           |       | TJ Maxx                       |       |             |       |       |
|                         |       |       |       |       |       |           |       |           |       |           |       | Walgreens                     |       |             |       |       |
| *Taylor Heights              |       | 1989       |       | 84%        |       | 85,072         |       | 223,862        |       | 158,630        |       | Piggly Wiggly Foods           |       | $785,335         |       | $9.23      |
|                         |       |       |       |       |       |           |       |           |       |           |       | Wal-Mart (Non-Owned)          |       |             |       |       |
| ***TOTAL SHOPPING***         | ** ** | ** ** | ** ** | **92%**    | ** ** | **28,733,853** | ** ** | **34,972,571** | ** ** | **22,348,777** | ** ** | ** **                    | ** ** | **$263,757,648** | ** ** | **$9.18**  |
| ***CENTERS***                | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** | ** **                    | ** ** | ** **       | ** ** | ** ** |
| **Office Buildings:**        |       |       |       |       |       |           |       |           |       |           |       |                          |       |             |       |       |
| William J. McCarthy Building |       | 1963/1995  |       | 89%        |       | 93,019         |       | 93,019         |       |           |       | N/A                           |       | $2,685,185       |       | $28.87     |
| 545 Boylston Street          |       | 1972/1996  |       | 91%        |       | 89,075         |       | 89,075         |       |           |       | Allied Advertising            |       | $2,772,608       |       | $31.13     |
|                         |       |       |       |       |       |           |       |           |       |           |       | Trinity Church                |       |             |       |       |
| Executive Office             |       | 1970       |       | 94%        |       | 40,180         |       | 40,180         |       |           |       | Norca Corporation             |       | $791,913         |       | $19.71     |
| Building                     |       |       |       |       |       |           |       |           |       |           |       | Sol G Atlas Realty            |       |             |       |       |
|                         |       |       |       |       |       |           |       |           |       |           |       | Heritage                      |       |             |       |       |
| ***TOTAL OFFICE***           | ** ** | ** ** | ** ** | **91%**    | ** ** | **222,274**    | ** ** | **222,274**    | ** ** | ** **     | ** ** | ** **                    | ** ** | **$6,249,706**   | ** ** | **$28.12** |
| ***BUILDINGS***              | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** | ** **                    | ** ** | ** **       | ** ** | ** ** |
| *** ***                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** | ** **                    | ** ** | ** **       | ** ** | ** ** |
| ***TOTAL PORTFOLIO***        | ** ** | ** ** | ** ** | **92%**    | ** ** | **28,956,127** | ** ** | **35,194,845** | ** ** | ** **     | ** ** | ** **                    | ** ** | **$270,007,354** | ** ** | **$9.32**  |

----

*                     Designates property owned by Bradley OP or one of itssubsidiaries. The Total Company-Owned GLA and Annualized Base Rent for theBradley OP portfolio is 19.0 million square feet and $163.1 million,respectively as of December 31, 2005. 

(1)             Represents the year the property originally opened forbusiness and, if applicable, the year in which a substantial renovation wascompleted. These dates do not include years in which tenant improvements weremade to the properties. 

31

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(2)             Represents gross leasable area owned by us, including1,568,720 square feet of gross leaseable area subject to ground leases andexcludes 6,238,744 square feet of non-owned gross leasable area. 

(3)             Some of our shopping centers contain space not owned byus and space leased to tenants under ground leases. In addition to CompanyOwned GLA, Total GLA includes approximately 6.2 million square feet of thisnon-owned gross leasable area, which generally is owned directly by the anchoroccupying this space, and 1.6 million square feet of ground leased gross leaseablearea. 

(4)             Represents square feet of gross leasable area at aproperty that an anchor tenant either leases or owns. 

(5)             We define anchor tenants as single tenants which lease15,000 square feet or more at a property. We define major tenants at our officebuildings as tenants which lease 10% or more of the rentable square footage ata property. 

(6)             We calculate Annualized Base Rent for all leases inplace in which tenants are in occupancy at December 31, 2005 as follows: totalbase rent to be received during the entire term of each lease, divided by theterms in months for such leases, multiplied by 12. For any leases relating toproperties we acquired from NETT's real estate company upon our formation orrelating to properties acquired from Bradley, we calculate total base rent tobe received beginning from the date we acquired the property. 

(7)             Represents Annualized Base Rent divided by CompanyOwned GLA at December 31, 2005. 

(8)             Property contains 11,627 square feet of office space. 

(9)             Property is comprised of two shopping centers. 

(10)       Property contains 32,638 square feet of office space. 

(11)       We hold a leasehold interest in this property pursuantto a ground lease that expires in 2088. 

(12)       We hold a leasehold interest in this property pursuantto a ground lease that expires in 2037. 

32

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The following tables provide information about thetenants and lease expirations within the portfolio of properties owned byBradley OP and its subsidiaries. These tables exclude information with respectto properties owned by Heritage and its other subsidiaries.

**TopTenants by Annualized Base Rent**

| **Tenant**                              | ** ** | ** ** | ** ** | **# of   Stores** | ** ** | **Total  GLA** | ** ** | **GLA  as a %  of Total** | ** ** | **Tenant  Annualized  Base Rent(1)** | ** ** | **% of Total  Annualized  Base Rent(2)** | ** ** | **Type of Business** | ** ** |
|-----------------------------------------|------------|------------|------------|-----------------------------|------------|----------------|------------|-------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------------|------------|--------------------------------|------------|
|  1 TJX Companies(3)                |       |       | 20         |                        |       | 584,535        |       |                                | 3.07       | %                                         |       |                                                    | $          | 4,950,264                      |       |   |   | 3.04 | % |   | Off Price/Soft Goods |   |
|  2 Supervalu(4)                    |       |       | 10         |                        |       | 657,733        |       |                                | 3.46       | %                                         |       |                                                    | 4,700,273  |                           |       |   | 2.88 | % |   | Grocer |   |
|  3 Kroger(5)                       |       |       | 12         |                        |       | 658,230        |       |                                | 3.46       | %                                         |       |                                                    | 4,354,664  |                           |       |   | 2.67 | % |   | Grocer |   |
|  4 Associated Wholesale Grocers(6) |       |       | 9          |                        |       | 571,947        |       |                                | 3.01       | %                                         |       |                                                    | 3,363,503  |                           |       |   | 2.06 | % |   | Grocer |   |
|  5 Roundy’s(7)                |       |       | 8          |                        |       | 491,482        |       |                                | 2.59       | %                                         |       |                                                    | 3,252,686  |                           |       |   | 1.99 | % |   | Grocer |   |
|  6 Home Depot                      |       |       | 4          |                        |       | 459,073        |       |                                | 2.41       | %                                         |       |                                                    | 3,049,963  |                           |       |   | 1.87 | % |   | Home Improvement |   |
|  7 Hy-Vee                          |       |       | 9          |                        |       | 547,466        |       |                                | 2.88       | %                                         |       |                                                    | 2,728,627  |                           |       |   | 1.67 | % |   | Grocer |   |
|  8 Wal-Mart                        |       |       | 7          |                        |       | 651,499        |       |                                | 3.43       | %                                         |       |                                                    | 2,656,116  |                           |       |   | 1.63 | % |   | Discount |   |
|  9 Blockbuster                     |       |       | 21         |                        |       | 137,045        |       |                                | 0.72       | %                                         |       |                                                    | 2,349,721  |                           |       |   | 1.44 | % |   | Video Sales / Rentals |   |
| 10 Walgreens                            |       |       | 12         |                        |       | 156,765        |       |                                | 0.82       | %                                         |       |                                                    | 2,062,863  |                           |       |   | 1.26 | % |   | Drug Store |   |
| 11 Charming Shoppes(8)                  |       |       | 25         |                        |       | 194,852        |       |                                | 1.02       | %                                         |       |                                                    | 2,008,502  |                           |       |   | 1.23 | % |   | Discount / Apparel |   |
| 12 Dollar Tree                          |       |       | 26         |                        |       | 272,308        |       |                                | 1.43       | %                                         |       |                                                    | 1,965,726  |                           |       |   | 1.21 | % |   | Discount |   |
| 13 Best Buy                             |       |       | 6          |                        |       | 230,914        |       |                                | 1.21       | %                                         |       |                                                    | 1,963,250  |                           |       |   | 1.20 | % |   | Electronics |   |
| 14 Staples                              |       |       | 6          |                        |       | 143,734        |       |                                | 0.76       | %                                         |       |                                                    | 1,955,460  |                           |       |   | 1.20 | % |   | Office Products |   |
| 15 Sears Holdings(9)                    |       |       | 9          |                        |       | 307,231        |       |                                | 1.62       | %                                         |       |                                                    | 1,872,410  |                           |       |   | 1.15 | % |   | Discount |   |
| 16 Hallmark                             |       |       | 32         |                        |       | 170,814        |       |                                | 0.90       | %                                         |       |                                                    | 1,865,718  |                           |       |   | 1.14 | % |   | Cards/Gifts |   |
| 17 OfficeMax                            |       |       | 7          |                        |       | 173,968        |       |                                | 0.92       | %                                         |       |                                                    | 1,726,517  |                           |       |   | 1.06 | % |   | Office Products |   |
| 18 Safeway(10)                          |       |       | 2          |                        |       | 153,213        |       |                                | 0.81       | %                                         |       |                                                    | 1,601,949  |                           |       |   | 0.98 | % |   | Grocer |   |
| 19 Hobby Lobby                          |       |       | 6          |                        |       | 320,779        |       |                                | 1.69       | %                                         |       |                                                    | 1,577,425  |                           |       |   | 0.97 | % |   | Crafts |   |
| 20 Office Depot                         |       |       | 6          |                        |       | 142,605        |       |                                | 0.75       | %                                         |       |                                                    | 1,469,536  |                           |       |   | 0.90 | % |   | Office Products |   |

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(1)           We calculate annualized base rent for all leases inplace in which tenants are in occupancy at December 31, 2005 as follows:total base rent to be received during the entire term of each lease, divided bythe terms in months for such leases, multiplied by 12. For any leases relatingto properties we acquire, we calculate total base rent to be received beginningfrom the date we acquired the property.

(2)           Represents total Tenant Annualized Base Rent divided byTotal Annualized Base Rent of $163,097,484.

(3)           TJX Companies include: TJ Maxx (7), Marshalls (7), A.J.Wright (5) and Homegoods (1).

(4)           Supervalu Inc. includes: Cub Foods (5), Shop n’Save (1), Shop Rite (1) and Ray’s Supermarket (1).Supervalu Inc. also includes (2) Cub Foods locations leased by alimited liability corporation of which Supervalu Inc. is a member.

(5)           The Kroger Co. includes: Kroger (10), Pay LessSupermarket (1) and Dillons (1).

(6)           Associated Wholesale Grocers includes: Price Chopper(6), Russ’ IGA (2) and Super Saver (1).

(7)           Roundy’s, Inc. includes: Pick N Save (4) andRainbow Foods (4).

(8)           Charming Shoppes includes: Fashion Bug (18), LaneBryant (4) and Catherine’s (3).

(9)           Sears Holding Corporation includes: Sears (3), K-Mart(2), Sears Dental (1), Sears NTB (1), Sears Paint & Hardware (1) andLands’ End (1).

(10)     Safeway includes Dominick’s (2).

33

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**TotalLease Expiration Roll Out**

| **Lease  Expiration Year** | ** ** | ** ** | ** ** | **Number of  Expiring  Leases** | ** ** | **Expiring  Square Feet** | ** ** | **% of Total  Sq. Ft. Expiring** | ** ** | **Expiring  Base Rent(1)** | ** ** | **% of Total  Base Rent** | ** **      | **Expiring  Base Rent /  Sq. Ft.(2)** | ** ** |
|----------------------------|------------|------------|------------|--------------------------------------|------------|--------------------------------|------------|------------------------------------------------------|------------|---------------------------------|------------|------------------------------------------|-----------------|------------------------------------------------------|------------|
| 2006(3)                    |       |       | 349        |                                 |       | 1,559,915                      |       |                                                 | 8.9        | %                               |       | $                                        | 14,086,771      |                                                 |       | 8.5 | % |   |   | $ | 9.03 |   |   |
| 2007                       |       |       | 352        |                                 |       | 1,821,519                      |       |                                                 | 10.4       | %                               |       | 18,573,911                               |            |                                                 | 11.1       | % |   |   | 10.20 |   |   |
| 2008                       |       |       | 390        |                                 |       | 2,142,652                      |       |                                                 | 12.2       | %                               |       | 22,967,860                               |            |                                                 | 13.8       | % |   |   | 10.72 |   |   |
| 2009                       |       |       | 280        |                                 |       | 2,013,582                      |       |                                                 | 11.5       | %                               |       | 18,672,187                               |            |                                                 | 11.2       | % |   |   | 9.27 |   |   |
| 2010                       |       |       | 265        |                                 |       | 1,602,644                      |       |                                                 | 9.2        | %                               |       | 18,892,871                               |            |                                                 | 11.3       | % |   |   | 11.79 |   |   |
| 2011                       |       |       | 144        |                                 |       | 1,683,049                      |       |                                                 | 9.6        | %                               |       | 15,335,823                               |            |                                                 | 9.2        | % |   |   | 9.11 |   |   |
| 2012                       |       |       | 52         |                                 |       | 754,150                        |       |                                                 | 4.3        | %                               |       | 7,600,839                                |            |                                                 | 4.6        | % |   |   | 10.08 |   |   |
| 2013                       |       |       | 54         |                                 |       | 1,077,262                      |       |                                                 | 6.2        | %                               |       | 9,744,518                                |            |                                                 | 5.8        | % |   |   | 9.05 |   |   |
| 2014                       |       |       | 55         |                                 |       | 996,272                        |       |                                                 | 5.7        | %                               |       | 9,829,845                                |            |                                                 | 5.9        | % |   |   | 9.87 |   |   |
| 2015                       |       |       | 36         |                                 |       | 748,916                        |       |                                                 | 4.3        | %                               |       | 5,275,844                                |            |                                                 | 3.2        | % |   |   | 7.04 |   |   |
| 2016 and  Thereafter       |       |       | 95         |                                 |       | 3,100,469                      |       |                                                 | 17.7       | %                               |       | 25,674,474                               |            |                                                 | 15.4       | % |   |   | 8.28 |   |   |
| **Totals**                 | ** ** | ** ** | **2,072**  |                                 | ** ** | **17,500,430**                 | ** ** | ** **                                           | **100.0**  | **%**                           | ** ** | **$**                                    | **166,654,943** | ** **                                           | ** ** | **100.0** | **%** | ** ** | ** ** | **$** | **9.52** |   |   |

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(1)          Represents the last12 months of rent payable immediately prior to the expiration of thelease.

(2)          Represents Expiring BaseRent divided by Expiring Square Feet.

(3)          Includestenants on a month-to-month agreement.

**Item 3:**                       LegalProceedings

On October 31, 2001, a complaint was filedagainst Heritage in the Superior Court of Suffolk County of the Commonwealth ofMassachusetts by Weston Associates and its president, Paul Donahue, allegingthat Heritage owes Mr. Donahue and his firm a fee in connection withservices he claims he performed on Heritage’s behalf in connection with itsacquisition of Bradley Real Estate Inc. On September 18, 2000,Heritage acquired Bradley, a publicly traded REIT based in Illinois with nearly100 shopping center properties located primarily in the Midwest, at anaggregate cost of approximately $1.2 billion. Through his personalrelationships with the parties involved, at Heritage’s request, Mr. Donahueintroduced Heritage to Bradley and its senior management team. Mr. Donahuealleges, however, that he played an instrumental role in the negotiation andcompletion of Heritage’s acquisition of Bradley beyond merely introducing theparties. For these alleged efforts, Mr. Donahue demands that he receive afee equal to 2% of the aggregate consideration Heritage paid to acquireBradley, or a fee of approximately $24 million. In addition, Mr. Donahuealso seeks treble damages based on alleged unfair or deceptive businesspractices under Massachusetts law.

On November 29, 2002, the court granted Heritage’smotion to dismiss Mr. Donahue’s claims. Mr. Donahue subsequentlyfiled an appeal of the court’s decision and, on March 4, 2004, an oralargument was heard with respect to Mr. Donahue’s appeal. On July 14,2004, the Massachusetts Appellate Court reversed the lower court’s decisiondismissing Mr. Donahue’s claims. The Appellate Court’s decision revertsthe case back to the Superior Court for discovery and additional proceedings,which are currently ongoing. It is not possible at this time to predict theoutcome of this litigation and we intend to vigorously defend against theseclaims.

Except as set forth above,neither we nor Bradley OP are involved in any material litigation nor, to our knowledge,is any material litigation threatened against us or Bradley OP, other thanroutine litigation arising in the ordinary course of business, which isgenerally expected to be covered by insurance. In the opinion of ourmanagement, based upon currently available information, this litigation is notexpected to have a material adverse effect on our or Bradley OP’s business,financial condition or results of operations.

34

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**Item 4:**                       Submissionof Matters to a Vote of Security Holders

**None**

**PART II**

**Item 5:**                       Marketfor Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities

There is no established trading market for the LPUnits. As of December 31, 2005, there were 24 holders of record of LPUnits, including Heritage. In addition, our wholly owned subsidiary is theholder of all of the GP Units.

Thefollowing table sets forth the quarterly distributions per LP Unit declared byBradley OP with respect to each period set forth below. 

| **Quarter Ended**   | ** ** | ** ** | ** ** | **Distributions** | ** ** |
|--------------------------|------------|------------|------------|-------------------|------------|
| December 31,  2005  |       |       | $          | 0.525             |       |   |
| September 30,  2005 |       |       | $          | 0.525             |       |   |
| June 30,  2005      |       |       | $          | 0.525             |       |   |
| March 31,  2005     |       |       | $          | 0.525             |       |   |
| December 31,  2004  |       |       | $          | 0.525             |       |   |
| September 30,  2004 |       |       | $          | 0.525             |       |   |
| June 30,  2004      |       |       | $          | 0.525             |       |   |
| March 31, 2004      |       |       | $          | 0.525             |       |   |

 

The Bradley OP partnership agreement provides that thenet operating cash flow of Bradley OP will be distributed from time to time asdetermined by our subsidiary (but not less frequently than quarterly) pro ratain accordance with the partners’ respective percentage interests andpriorities. In the Bradley OP partnership agreement, Bradley OP is required topay to the holders of LP Units a quarterly distribution of at least the amountof the dividend Heritage declares on its common stock, subject to the rights ofthe holders of any preferred units.

During the years ended December 31, 2005 and2004, Bradley OP issued an aggregate of 176,506 and 189,588 commonLP Units, respectively, in connection with the contribution of a propertyto Bradley OP by the individual owners of the property. TheseLP Units were issued in reliance on exemption from registration under Section 4(2) ofthe Securities Act of 1933. Bradley OP relied on the exemption under Section 4(2) basedon factual representations received from the limited partners who received theLP Units.

In December 2005, Bradley OP issued an aggregateof 1,313,522 common LP Units to Heritage OP in consideration for anintercompany transfer of two shopping centers located in North Carolina toBradley OP. Heritage OP then distributed those units to Heritage. TheseLP Units were issued in reliance on exemption from registration under Section 4(2) ofthe Securities Act of 1933.

35

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**Item 6:**                       SelectedFinancial Data

As discussed in thebeginning of **“Management’s Discussion and Analysis ofFinancial Condition and Results of Operations”** under the heading **“Restatement Summary,”**Bradley OP previously restated its financial statements and other financialinformation for the years ended December 31, 2004 and 2003, and for eachof the quarters therein, as well as the quarterly periods ended March 31, 2005and June 30, 2005. The table below reflects the impact of that restatementof those historical financial statements.

Thefollowing selected historical consolidated financial and operating data shouldbe read together with **“Management’s Discussionand Analysis of Financial Condition and Results of Operations”** andBradley OP’s consolidated financial statements on page F-1 of this Form 10-K.All historical financial information has been presented on an accrual basis inaccordance with U.S. generally accepted accounting principles, (“GAAP”),applicable to real estate investment trusts for all periods presented.

| ** **                                                              | ** ** | **Year Ended December 31,**                                                                              | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                              | ** ** | **2005**                                                                                                                | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                              | ** ** | **(Dollars, units, and square footage in thousands except per-unit data)** | ** ** |
| **STATEMENT OF OPERATIONS DATA:**                                       |       |                                                                                                                    |       |   |   |   |   |   |   |   |   |
| Revenue:                                                                |       |                                                                                                                    |       |   |   |   |   |   |   |   |   |
| Rentals and recoveries                                                  |       | $                                                                                                                       | 205,272    |   | $ | 188,206 |   | $ | 186,061 |   | $ | 170,911 |   | $ | 155,710 |   |
| Interest and other                                                      |       | 332                                                                                                                     |       | 374 |   | 36 |   | 58 |   | 132 |   |
| Total revenue                                                           |       | 205,604                                                                                                                 |       | 188,580 |   | 186,097 |   | 170,969 |   | 155,842 |   |
| Expenses:                                                               |       |                                                                                                                    |       |   |   |   |   |   |   |   |   |
| Operating                                                               |       | 61,233                                                                                                                  |       | 57,361 |   | 56,111 |   | 52,082 |   | 47,704 |   |
| General and administrative                                              |       | 19,694                                                                                                                  |       | 17,617 |   | 14,562 |   | 15,324 |   | 8,256 |   |
| Depreciation and amortization                                           |       | 59,124                                                                                                                  |       | 50,526 |   | 47,973 |   | 42,964 |   | 39,033 |   |
| Interest                                                                |       | 49,687                                                                                                                  |       | 39,048 |   | 33,030 |   | 35,537 |   | 47,102 |   |
| Loss on prepayment of debt                                              |       | —                                                                                                                  |       | — |   | — |   | 4,215 |   | — |   |
| Total expenses                                                          |       | 189,738                                                                                                                 |       | 164,552 |   | 151,676 |   | 150,122 |   | 142,095 |   |
| Income before net  gains                                                |       | 15,866                                                                                                                  |       | 24,028 |   | 34,421 |   | 20,847 |   | 13,747 |   |
| Net derivative (losses) gains                                           |       | —                                                                                                                  |       | — |   | — |   | (7,766 | ) | 986 |   |
| Gain on sale of real estate investment                                  |       | —                                                                                                                  |       | 28 |   | — |   | — |   | — |   |
| Income before  equity in (loss) income from unconsolidated subsidiaries |       | 15,866                                                                                                                  |       | 24,056 |   | 34,421 |   | 13,081 |   | 14,733 |   |
| Equity in (loss) income from unconsolidated  subsidiaries               |       | (77                                                                                                                     | )          | 86 |   | — |   | — |   | — |   |
| Income before  discontinued operations                                  |       | 15,789                                                                                                                  |       | 24,142 |   | 34,421 |   | 13,081 |   | 14,733 |   |
| Income from discontinued operations                                     |       | —                                                                                                                  |       | 532 |   | 615 |   | 755 |   | 784 |   |
| Gain on sale of discontinued operations                                 |       | —                                                                                                                  |       | 970 |   | — |   | — |   | — |   |
| Net income                                                              |       | 15,789                                                                                                                  |       | 25,644 |   | 35,036 |   | 13,836 |   | 15,517 |   |
| Preferred stock distributions                                           |       | —                                                                                                                  |       | (2,176 | ) | (6,656 | ) | (6,656 | ) | (6,656 | ) |
| Net income attributable to common   unitholders                         |       | $                                                                                                                       | 15,789     |   | $ | 23,468 |   | $ | 28,380 |   | $ | 7,180 |   | $ | 8,861 |   |
| Per Unit Data:                                                          |       |                                                                                                                    |       |   |   |   |   |   |   |   |   |
| Basic and diluted income from continuing operations                     |       | $                                                                                                                       | 0.46       |   | $ | 0.65 |   | $ | 0.82 |   | $ | 0.21 |   | $ | 0.35 |   |
| Basic and diluted income from discontinued operations                   |       | $                                                                                                                       | —     |   | $ | 0.04 |   | $ | 0.02 |   | $ | 0.03 |   | $ | 0.03 |   |
| Basic and diluted income attributable to common  unitholders            |       | $                                                                                                                       | 0.46       |   | $ | 0.69 |   | $ | 0.84 |   | $ | 0.24 |   | $ | 0.38 |   |
| Distributions declared per unit                                         |       | $                                                                                                                       | 2.10       |   | $ | 2.10 |   | $ | 2.10 |   | $ | 2.12 |   | 1.94 |   |
| Weighted average  common units outstanding—Basic and diluted       |       | 34,364                                                                                                                  |       | 34,132 |   | 33,787 |   | 30,073 |   | 23,379 |   |

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| **BALANCE SHEET DATA: (at end of period)**                                                |   |      |      |      |   |      |   |      |      |      |   |
|-------------------------------------------------------------------------------------------|--------|-----------|-----------|-----------|--------|-----------|--------|-----------|-----------|-----------|--------|
| Real estate investments,  before accumulated depreciation                                 |   | $         | 1,707,619 |      | $      | 1,497,981 |   | $         | 1,420,548 |      | $      | 1,404,015 |   | $ | 1,143,111 |   |
| Total assets                                                                              |   | 1,628,315 |      | 1,448,165 |   | 1,312,641 |   | 1,339,680 |      | 1,173,004 |   |
| Total liabilities                                                                         |   | 1,088,800 |      | 898,319   |   | 645,664   |   | 639,967   |      | 661,002   |   |
| Minority interest                                                                         |   | —    |      | 2,425     |   | 2,425     |   | 2,425     |      | 2,425     |   |
| Redeemable capital                                                                        |   | 22,012    |      | 16,752    |   | 84,681    |   | 83,497    |      | 75,527    |   |
| Partners’ capital                                                                    |   | 517,503   |      | 530,669   |   | 579,871   |   | 613,791   |      | 434,050   |   |
| **OTHER DATA:**                                                                           |   |      |      |      |   |      |   |      |      |      |   |
| # of shopping  centers (at end of period)                                                 |   | 115       |      | 106       |   | 105       |   | 105       |      | 96        |   |
| Gross leasable  area of shopping centers (sq. ft. at end of period, in thousands)(1) |   | 19,011    |      | 17,646    |   | 17,589    |   | 17,589    |      | 15,378    |   |
| Total portfolio  net operating income(2)                                                  |   | $         | 144,039   |      | $      | 130,845   |   | $         | 129,950   |      | $      | 118,829 |   | $ | 108,006 |   |
| Cash flows from  operating activities                                                     |   | $         | 64,787    |      | $      | 71,156    |   | $         | 89,154    |      | $      | 75,105 |   | $ | 50,780 |   |
| Cash flows from  investing activities                                                     |   | $         | (150,846  | )         | $      | (44,743   | )      | $         | (19,250   | )         | $      | (119,448 | ) | $ | (13,768 | ) |
| Cash flows from financing  activities                                                     |   | $         | 81,501    |      | $      | (23,570   | )      | $         | (68,839   | )         | $      | 41,212 |   | $ | (33,231 | ) |

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(1)           Represents the total gross leasable area of all BradleyOP-owned and operated shopping center square footage.

(2)           For a detailed discussion of net operating income (“NOI”),including the reasons management believes NOI is useful to investors, and areconciliation of NOI to a GAAP measure, see pages 63-64.

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**Item7:**                       Management’sDiscussion and Analysis of Financial Condition and Results of Operations

*The following discussion should be read in conjunctionwith the selected financial data and the historical consolidated financialstatements and related notes thereto.*

Heritage PropertyInvestment Trust, Inc., Bradley Operating Limited Partnership and theirrespective subsidiaries are separate legal entities. For ease of reference, theterms “we,” “us,” “our,” and “ours” refer to the business and properties of allthese entities, unless the context indicates otherwise. Similarly, referencesto “Heritage” or “the Company” refer to Heritage Property Investment Trust, Inc.and its subsidiaries and references to “Bradley OP” or “the OperatingPartnership” refer to Bradley Operating Limited Partnership and itssubsidiaries.

**Restatement Summary**

In November 2005,Bradley OP amended and restated its financial statements and other financialinformation for the years ended December 31, 2004 and 2003, and for eachof the quarters therein, as well as for the quarterly periods ended March 31and June 30, 2005. Those amendments were made to correct an errorpertaining to the unrecorded effects of certain stock options previouslygranted to Thomas C. Prendergast, Heritage’s Chairman, President and ChiefExecutive Officer.

In 2000, Heritage enteredinto an employment agreement with Mr. Prendergast, which provides forHeritage to make annual grants to Mr. Prendergast of stock options. Theagreement also provided for Heritage to reimburse Mr. Prendergast in cashfor any taxes he would have incurred in connection with the vesting andexercise of those stock options. In October 2005, Heritage discovered thatthe tax-offset payment provision in respect of Mr. Prendergast’s stockoptions should have been accounted for as a liability in its financialstatements from the moment the fair market value of its stock exceeded theexercise price of the options. Additionally, this liability also should havecaused Heritage to expense the intrinsic value of Mr. Prendergast’s stockoptions on a variable basis.

To correct the error,Heritage restated its financial statements for the years ended December 31,2004 and 2003, and the quarterly periods ended March 31, 2005 and June 30,2005, to record a liability and to recognize compensation expense, a componentof general and administrative expense, associated with the tax-offset provision.Heritage allocates 100% of its general and administrative expense to itssubsidiaries, including costs associated with Bradley OP. During the fiscalyears ended December 31, 2004, 2003 and 2002, Heritage allocatedapproximately 63%, 65%, and 66%, respectively, of these costs to Bradley OP. Asthe sole stockholder of Bradley OP’s general partner, Heritage determined thatBradley OP was likewise required to amend and restate its financial statementsand other financial information for the fiscal years ended December 31,2004 and 2003, and the quarterly periods ended March 31, 2005 and June 30,2005, to reflect additional general and administrative expense allocated toBradley OP by Heritage as a result of the tax-offset provision.

On November 14, 2005, Bradley OP filed anamendment to its Annual Report on Form 10-K/A for the fiscal yearended December 31, 2004 to restate its previously issued audited financialstatements for the fiscal years ended December 31, 2004 and 2003, and anamendment to its Quarterly Reports on Form 10-Q/A for the quarterlyperiods ended March 31, 2005 and June 30, 2005, to restate itsunaudited quarterly financial statements for those quarterly periods.

On December 30, 2005,Mr. Prendergast’s employment agreement with Heritage was amended toeliminate the tax-offset provision in respect of his stock options. Inconsideration for his agreement to eliminate the provision, Mr. Prendergastreceived a one-time cash payment of $6.4 million. As a result of thisamendment, in fiscal periods ending after December 31, 2005, Heritage isno longer required to record a liability relating to the tax-offset provisionon these stock options and Mr. Prendergast’s stock options are no longersubject to variable accounting treatment. See Note 2 to the ConsolidatedFinancial Statements of this Form 10-K for a summary of therestatement and the accounting impact of the elimination of the tax-offsetprovision.

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**Overview**

We are a fully integrated, self-administered andself-managed real estate investment trust, or “REIT.” We are one of the nation’slargest owners of neighborhood and community shopping centers. As of December 31,2005, we had a shopping center portfolio consisting of 171 shopping centers,located in 30 states and totaling approximately 35.0 million square feetof GLA, of which approximately 28.7 million square feet was Company-ownedGLA. Our shopping center portfolio was approximately 92.4% leased as of December 31,2005.

Heritage conducts its business exclusively through itssubsidiaries and primarily through its two operating partnerships, HeritageProperty Investment Limited Partnership, or “Heritage OP”, and Bradley OP.Bradley OP is a Delaware limited partnership and is the primary entity throughwhich Heritage conducts its operations in the Midwest. As of December 31,2005, Bradley OP and its subsidiaries owned 115 shopping centers, located in 24states and totaling approximately 19.0 million square feet ofCompany-owned GLA.

Our operating strategy is to own (directly orindirectly through joint ventures) and manage a quality portfolio of communityand neighborhood shopping centers that will provide stable cash flow andinvestment returns. Our focus is to own primarily grocer- and multi-anchoredcenters with a diverse tenant base in attractive geographic locations withstrong demographics and growth prospects. We derive substantially all of ourrevenues from rentals and recoveries received from tenants under existingleases on our properties. Our operating results therefore depend primarily onour tenants’ ability to pay rent.

Generally, we do not expect our net operating incometo deviate significantly in the short-term. This is because our leases with ourtenants provide us a stable cash flow over the long-term. In addition, otherthan in circumstances such as higher than anticipated snow removal costs,utility expenses or real estate taxes, our operating expenses generally remainpredictable.

However, as an owner of community and neighborhoodshopping centers, our performance is linked to economic conditions in theretail industry in those markets where our centers are located. The retailsector continues to change as a result of industry consolidation. Thisconsolidation has created an excess of available retail space and increasedcompetition for that space. We believe the nature of the properties that we ownand invest in, primarily grocer- and multi-anchored neighborhood and communityshopping centers in attractive markets with strong economic and demographiccharacteristics and growth prospects, provides a relatively stable revenue flowin uncertain economic times, as these properties are more resistant to economicdown cycles. This stability is due to the fact that consumers still need topurchase food and other goods found at grocers and other retailers, even indifficult economic times.

In the face of these challenging market conditions, wefollow a dual growth strategy. The first part of our growth strategy is tofocus on increasing our internal growth by leveraging our existing tenantrelationships to improve the performance of our existing shopping centerportfolio. In 2006, we anticipate that we will experience lower growth in netoperating income within our existing portfolio than in the past two years as aresult of higher vacancy and lower growth rental rates at certain propertieslocated primarily in the Midwest.

We believe that some of these properties continue tomeet our long-term ownership criteria. We expect significant leasing activityto occur at these properties in 2006, although this activity is not likely tohave a positive impact on our performance until late 2006 or early 2007. Wealso may incur higher revenue enhancing capital expenditures, such as tenantimprovements and leasing commissions, than in prior periods, as we re-letvacant space at these centers.

In other instances, we have concluded that someproperties do not meet our long-term ownership criteria as a result of theirlocation, size or tenant mix. In the near future, we intend to dispose of theseproperties, allowing us to improve the overall quality of our portfolio andtake advantage of favorable 

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market conditions. In January 2006,we finalized an agreement to sell eight such properties located in Nebraska andSouth Dakota, and we are actively working toward disposing of other assets thatfit this category.

The disposition of shopping center properties pursuantto our capital recycling program may lead to short-term decreases in our netincome. However, we intend to offset any such decreases by re-investing thecash proceeds received in connection with such sales. We may use these cashproceeds to grow our existing portfolio either by direct acquisition or throughfuture joint ventures or to fund development or redevelopment commitments. Wemay also use those proceeds to improve the quality of our balance sheet, suchas by reducing our outstanding indebtedness, or to buyback shares of our commonstock pursuant to our stock buyback program.

In connection with our capital recycling program, wemay sell a property at a price that is less than the net book value of thatproperty in our financial statements. In connection with a sale of a property,we may also prepay existing mortgage indebtedness on a property and incur aprepayment penalty in connection with that prepayment. In those circumstances,we may incur significant losses and expenses that could negatively andmaterially impact our financial results.

The second part of our growth strategy is to focus onachieving external growth through the expansion of our portfolio. We continueto pursue targeted acquisitions of primarily grocer- and multi-anchoredneighborhood and community shopping centers in attractive markets with strongeconomic and demographic characteristics. In recent years, the market foracquisitions has been particularly competitive with a greater number ofpotential buyers pursuing properties. The low cap rate environment and reducedcosts of funds have further served to dramatically increase prices paid forshopping center properties, which has adversely affected our ability to acquirenew properties. We expect these conditions to persist for the foreseeable future.

To increase access to potential acquisitions andalternative sources of capital to fund future acquisitions, we have beenpursuing, and will continue to pursue, joint venture arrangements withinstitutional investors and third party developers. In February 2006, wereached a tentative agreement to establish a capital raising joint ventureplatform involving a contribution of certain of our existing assets, in returnfor cash and a membership interest in the joint venture. If completed, thisjoint venture will enable us to increase our sources of capital and our abilityto pursue high quality acquisitions. The contribution of shopping centerproperties to the joint venture will represent a disposition of property, whichmay lead to short-term decreases in our net operating income. We expect that asubstantial amount of our future acquisition activity will be completed throughjoint ventures.

During the past few years, as reflected below, ourgeneral and administrative expenses have been higher than anticipated as aresult of increased staffing, various business initiatives aimed at futuregrowth, the increased costs associated with being a public company, andunanticipated severance costs. In particular, we have incurred higher costsassociated with our review of our internal controls to ensure compliance with Section 404of the Sarbanes-Oxley Act.

As described above under **“RestatementSummary,”** we have also incurred additional unanticipatedcompensation expense to reflect the effect of the presence and elimination ofthe tax-offset provision contained in the employment agreement between Heritageand Thomas C. Prendergast, its Chairman, President and Chief Executive Officer,relating to certain stock options granted to Mr. Prendergast. In addition,we have incurred significant costs associated with the restatement of ourhistorical financial statements relating to the tax-offset provision, includingunanticipated professional fees (primarily, legal and accounting) and Boardmeeting costs.

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While there can be no assurance, in 2006, weanticipate a significant reduction in our general and administrative expenses,particularly in the amount of incentive compensation to be paid to our seniormanagement.

We currently expect toincur additional debt in connection with future acquisitions. As of December 31,2005, we had $1.5 billion of indebtedness, of which approximately$828.0 million was unsecured indebtedness. Although we expect to assumeadditional secured debt in connection with acquisitions, particularlyacquisitions made through joint ventures, we intend to finance our operationsand growth in the future primarily through borrowings under our line of creditfacility, unsecured private or public debt offerings or by additional equityofferings.

**Critical Accounting Policies**

We have identified the following critical accountingpolicies that affect our more significant estimates and judgments used in thepreparation of Bradley OP’s financial statements. The preparation of financialstatements in conformity with GAAP requires us to make estimates and judgmentsthat affect the reported amounts of assets and liabilities, revenues andexpenses, and related disclosures of contingent assets and liabilities.

On an ongoing basis, weevaluate our estimates, including those related to revenue recognition and theallowance for doubtful accounts receivable and real estate investments andasset impairment. We state these critical accounting policies in the notes toour consolidated financial statements and at relevant sections in thisdiscussion and analysis. Our estimates are based on information that iscurrently available to us and on various other assumptions that we believe arereasonable under the circumstances. Actual results could differ from thoseestimates and those estimates could be different under varying assumptions orconditions.

*Revenue Recognition*

Rental income with scheduled rent increases isrecognized using the straight-line method over the term of the leasescommencing when the tenant takes possession of the space. The aggregate excessof rental revenue recognized on a straight-line basis over cash received underapplicable lease provisions is included in accounts receivable. In addition,leases for both retail and office space generally contain provisions under whichthe tenants reimburse us for a portion of property operating expenses and realestate taxes incurred by us, requiring us to estimate the amount of revenuefrom these recoveries. Such recoveries revenue is recorded based on management’sestimate of its recovery of certain operating expenses and real estate taxexpenses, pursuant to the terms contained in related leases. In addition,certain of our operating leases for retail space contain contingent rentprovisions under which tenants are required to pay a percentage of their salesin excess of a specified amount as additional rent. We do not recognize thiscontingent rental income until those tenants meet their specified salestargets, thereby triggering the additional rent obligations.

We must estimate theuncollectibility of our accounts receivable related to minimum rent, deferredrent, expense reimbursements and other revenue or income. We specificallyanalyze accounts receivable and historical bad debts, tenant concentrations,tenant creditworthiness, current economic trends and changes in our tenantpayment terms when evaluating the adequacy of the allowance for doubtfulaccounts receivable. These estimates have a direct impact on our net income,because a higher bad debt allowance would result in lower net income.

*Real EstateInvestments*

At our formation in July 1999, contributed realestate investments were recorded at the carry-over basis of our predecessor,which was fair market value of the assets in conformity with GAAP applicable to

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pension funds. Subsequentacquisitions of real estate investments, including those acquired in connectionwith our acquisition of Bradley in September 2000 and other acquisitionssince our formation, are recorded at cost. Expenditures that substantiallyextend the useful life of a real estate investment are capitalized.Expenditures for maintenance, repairs and betterments that do not materiallyextend the useful life of a real estate investment are charged to operations asincurred. Thus, we must make judgments as to whether an expenditure willmaterially extend the useful life of a real estate investment and becapitalized, or rather, immediately expensed as a repair.

Theprovision for depreciation and amortization has been calculated using thestraight-line method over the following estimated useful lives: 

| Land improvements           |   | 10-15 years                                     |
|-----------------------------|--------|-------------------------------------------------|
| Buildings and  improvements |   | 20-39 years                                     |
| Tenant improvements         |   | Shorter of useful life or term of related lease |

 

We are required to make subjective assessments as tothe useful lives of our properties for purposes of determining the amount ofdepreciation to reflect on an annual basis with respect to our properties.These assessments have a direct impact on our net income because if we were toshorten the expected useful life of our properties or improvements, we woulddepreciate them over fewer years, resulting in higher depreciation expense andlower net income on an annual basis during these periods.

We apply Statement of Financial Accounting Standards (“SFAS”)No. 144, *Accounting for the Impairmentor Disposal of Long-Lived Assets*, to recognize and measureimpairment of long-lived assets. We review each real estate investment forimpairment whenever events or circumstances indicate that the carrying value ofa real estate investment may not be recoverable. The review of recoverabilityis based on an estimate of the future undiscounted cash flows, excludinginterest charges, expected to result from the real estate investment’s use andeventual disposition. These cash flows consider factors such as expected futureoperating income, trends and prospects, as well as the effects of leasingdemand, competition and other factors. If impairment exists due to theinability to recover the carrying value of a real estate investment, an impairmentloss is recorded to the extent that the carrying value exceeds estimated fairmarket value, resulting in a lower net income. No such impairment losses havebeen recognized to date.

Real estate investments held for sale are carried atthe lower of carrying amount or fair value, less cost to sell. Depreciation andamortization are suspended during the period held for sale.

We apply SFAS No. 141, *Business Combinations*, to property acquisitions.Accordingly, the fair value of the real estate acquired is allocated to theacquired tangible assets, and identified intangible assets and liabilities,consisting of the value of above-market and below-market leases, other value ofin-place leases and value of tenant relationships, based in each case on theirfair values.

The fair value of the tangible assets of an acquiredproperty is determined by valuing the property as if it were vacant, and the “as-if-vacant”value is then allocated based on management’s determination of the relativefair values of these assets. Management determines the as-if-vacant fair valueof a property using methods similar to those used by independent appraisers.Factors considered by management in performing these analyses include anestimate of carrying costs during the expected lease-up periods consideringcurrent market conditions and costs to execute similar leases. In estimatingcarrying costs, management includes real estate taxes, insurance and otheroperating expenses and estimates of lost rental revenue during the expectedlease-up periods based on current market demand. Management also estimatescosts to execute similar leases including leasing commissions, legal and otherrelated costs. The “as-if-vacant” value is then allocated among land, landimprovements, building, and building improvements based on Bradley OP’sestimate of replacement costs.

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In allocating the fair value of the identifiedintangible assets and liabilities of an acquired property, above-market andbelow-market in-place lease values are recorded based on the present value(using an interest rate that reflects the risks associated with the leasesacquired) of the difference between (i) the contractual amounts to be paidpursuant to the in-place leases and (ii) management’s estimate of fairmarket lease rates for the corresponding in-place leases, measured over aperiod equal to the remaining non-cancelable term of the lease. The capitalizedabove-market lease values are amortized as a reduction of rental income overthe remaining non-cancelable terms of the respective leases. The capitalizedbelow-market lease values are amortized as an increase to rental income overthe initial term and any fixed rate renewal periods in the respective leases.

The aggregate value ofother acquired intangible assets, consisting of in-place leases and tenantrelationships, is measured by the excess of (i) the purchase price paidfor a property after adjusting existing in-place leases to market rental ratesover (ii) the estimated fair value of the property as if vacant,determined as set forth above. This aggregate value is allocated betweenin-place lease values and tenant relationships, if any, based on management’sevaluation of the specific characteristics of each tenant’s lease; however, thevalue of tenant relationships has not been separated from in-place lease valuefor the additional interests in real estate entities because such value and itsimpact on amortization expense is estimated to be immaterial for theseparticular acquisitions. Should future acquisitions of properties result inallocating material amounts to the value of tenant relationships, an amountwould be separately allocated and amortized over the estimated life of therelationship. The value of in-place leases exclusive of the value ofabove-market and below-market in-place leases is amortized to expense over theremaining non-cancelable periods of the respective leases. If a lease were tobe terminated prior to its stated expiration, all unamortized amounts relatingto that lease would be written off.

*Investments inJoint Ventures*

Upon entering into a joint venture agreement, BradleyOP assesses whether or not the joint venture is considered a variable interestentity in accordance with Financial Accounting Standards Board (“FASB”)Interpretation No. 46R, *Consolidationof Variable Interest Entities* (“FIN No. 46R”). As of December 31,2005, Bradley OP had one investment in a joint venture that is a variableinterest entity of which Bradley OP has determined that it is the primarybeneficiary, as defined by FIN No. 46R. This investment is thereforeconsolidated in the accompanying consolidated financial statements of BradleyOP included in Item 8 of this Annual Report.

Bradley OP accounts forits investments in joint ventures that are not deemed to be variable interestentities pursuant to Accounting Principles Board (“APB”) No. 18, *The Equity Method of Accounting for Investments inCommon Stock*and**Statement of Position No. 78-9,*Accounting for Investments in Real EstateVentures* (“SOP No. 78-9”). As of December 31, 2005,Bradley OP accounted for its two unconsolidated joint ventures under the equitymethod of accounting, because the Operating Partnership does not control theseentities, despite having the ability to exercise significant influence overthem. These investments were recorded initially at cost, as Investments inUnconsolidated Joint Ventures, and subsequently adjusted for an allocation ofequity in earnings, plus cash contributions, and less cash distributions. Underthe equity method of accounting, the net equity investment of the OperatingPartnership is reflected on the consolidated balance sheet, and the OperatingPartnership’s allocation of net income or loss from the joint ventures isincluded on the consolidated statements of operations as Equity in (Loss)Income From Unconsolidated Joint Ventures. The Operating Partnership’sallocation of joint venture income or loss follows the joint venture’sdistribution priorities. In accordance with the provisions of SOP No. 78-9,the Operating Partnership recognizes fees received from joint ventures relatingsolely to the extent of the outside partner’s interest. Such fees areclassified on the consolidated statements of operations as Interest, Other, andJoint Venture Fee Income.

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**Results of Operations**

Between January 1, 2003 and December 31,2005, Bradley OP increased its total portfolio of properties (after reflectingdispositions) (“Total Portfolio”) from 105 properties to 115 properties andfrom 17.6 million Company-owned GLA to 19.0 million Company-owned GLA. Asa result of this growth of Bradley OP’s Total Portfolio, the financial datapresented below show significant changes in revenues and expenses fromperiod-to-period attributable to these acquisitions. In order to provide anadditional meaningful comparison of results for the years ended December 31,2005, 2004, and 2003, we present below changes in operating results withrespect to those properties that Bradley OP owned for each period compared (werefer to this comparison as Bradley OP’s “Same Property Portfolio” for theapplicable period) as well as with respect to Bradley OP’s Total Portfolio. Fora discussion of the consolidated results of operations of Heritage and itssubsidiaries, including Bradley OP, for the year ended December 31, 2005and 2004, see Heritage’s Quarterly Report on Form 10-K for the yearended December 31, 2005 as filed with the Securities and ExchangeCommission.

In addition, amounts classified as discontinuedoperations in the accompanying consolidated financial statements are excludedfrom the Total Portfolio information. In 2004, Bradley OP completed the partialdisposition of a property. Amounts related to the portion of this propertydisposed, consisting of $0.6 million  forthe year ended December 31, 2004 are included in the Total Portfolio as the sale of the portion of theproperty was not considered to be a discontinued operation. However thoseoperations are excluded from the Same Property Portfolio.

As discussed in the beginning of this section underthe heading, “**Restatement Summary**,”Bradley OP previously restated its financial statements and other financialinformation for the years ended December 31, 2004 and 2003, and for eachof the quarterly periods in the fiscal year ended December 31, 2004, as well asthe quarterly periods ended March 31, 2005 and June 30, 2005.The information below reflects the impact of that restatement.

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*Comparison of the year ended December 31, 2005 tothe year ended December 31, 2004*

Thefollowing table shows selected operating information for Bradley OP’sTotal Portfolio and for the 103 properties acquired prior to January 1,2004 that remained in the Total Portfolio through December 31, 2005, whichconstitute the Same Property Portfolio for the years ended December 31,2005 and 2004. 

| ** **                                                  | ** ** | **Same Property Portfolio** | ** ** | **Total Portfolio** | ** ** |
|-------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------|------------|
| ** **                                                  | ** ** | **2005**                              | ** ** | **2004**                 | ** ** | **Increase/  (Decrease)** | ** ** | **%  Change** | ** ** | **2005** | ** ** | **2004** | ** ** | **Increase/  (Decrease)** | ** ** | **%  Change** | ** ** |
| Revenue:                                                    |       |                                  |       |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Rentals                                                     |       | $                                     | 137,644    |                     | $          | 136,993 |   |   | $ | 651 |   |   |   | 0.5 | % |   | $ | 149,103 |   | $ | 138,622 |   |   | $ | 10,481 |   |   |   | 7.6 | % |   |
| Percentage rent                                             |       | 1,732                                 |       | 1,975                    |       |   | (243 | ) |   |   | (12.3 | )% |   | 1,733 |   | 2,133 |   |   | (400 | ) |   |   | (18.8 | )% |   |
| Recoveries                                                  |       | 48,685                                |       | 45,784                   |       |   | 2,901 |   |   |   | 6.3 | % |   | 52,223 |   | 46,152 |   |   | 6,071 |   |   |   | 13.2 | % |   |
| Other property                                              |       | 2,294                                 |       | 1,297                    |       |   | 997 |   |   |   | 76.9 | % |   | 2,213 |   | 1,299 |   |   | 914 |   |   |   | 70.4 | % |   |
| Total revenue                                               |       | 190,355                               |       | 186,049                  |       |   | 4,306 |   |   |   | 2.3 | % |   | 205,272 |   | 188,206 |   |   | 17,066 |   |   |   | 9.1 | % |   |
| Expenses:                                                   |       |                                  |       |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Property operating expenses                            |       | 27,108                                |       | 26,611                   |       |   | 497 |   |   |   | 1.9 | % |   | 28,584 |   | 26,765 |   |   | 1,819 |   |   |   | 6.8 | % |   |
| Real estate taxes                                           |       | 29,920                                |       | 30,312                   |       |   | (392 | ) |   |   | (1.3 | )% |   | 32,649 |   | 30,596 |   |   | 2,053 |   |   |   | 6.7 | % |   |
| Net operating income (*)                               |       | $                                     | 133,327    |                     | $          | 129,126 |   |   | $ | 4,201 |   |   |   | 3.3 | % |   | 144,039 |   | 130,845 |   |   | 13,194 |   |   |   | 10.1 | % |   |
| Add:                                                        |       |                                  |       |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest, other, and joint venture fee income               |       |                                  |       |                     |       |   |   |   |   |   |   |   |   | 332 |   | 374 |   |   | (42 | ) |   |   | (11.2 | )% |   |
| Gain on sale of real estate investment                      |       |                                  |       |                     |       |   |   |   |   |   |   |   |   | — |   | 28 |   |   | (28 | ) |   |   | (100.0 | )% |   |
| Equity in (loss) income from unconsolidated joint  ventures |       |                                  |       |                     |       |   |   |   |   |   |   |   |   | (77 | ) | 86 |   |   | (163 | ) |   |   | (189.5 | )% |   |
| Income from discontinued operations                         |       |                                  |       |                     |       |   |   |   |   |   |   |   |   | — |   | 1,502 |   |   | (1,502 | ) |   |   | (100.0 | )% |   |
| Deduct:                                                     |       |                                  |       |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                               |       |                                  |       |                     |       |   |   |   |   |   |   |   |   | 59,124 |   | 50,526 |   |   | 8,598 |   |   |   | 17.0 | % |   |
| Interest                                                    |       |                                  |       |                     |       |   |   |   |   |   |   |   |   | 49,687 |   | 39,048 |   |   | 10,639 |   |   |   | 27.2 | % |   |
| General and administrative                                  |       |                                  |       |                     |       |   |   |   |   |   |   |   |   | 19,694 |   | 17,617 |   |   | 2,077 |   |   |   | 11.8 | % |   |
| Preferred distributions                                     |       |                                  |       |                     |       |   |   |   |   |   |   |   |   | — |   | 2,176 |   |   | (2,176 | ) |   |   | (100.0 | )% |   |
| Net income  attributable to common shareholders             |       |                                  |       |                     |       |   |   |   |   |   |   |   |   | $ | 15,789 |   | $ | 23,468 |   |   | $ | (7,679 | ) |   |   | (32.7 | )% |   |

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*                     For a detailed discussion of net operating income (“NOI”),including the reasons management believes NOI is useful to investors, and areconciliation of NOI to a GAAP measure, see pages 63-64.

The following discussionof our results of operations for the years ended December 31, 2005 and2004 relates to the Total Portfolio, except where otherwise noted.

**Revenue**

*Rental Revenue.**  *Rental revenue, includingtermination fee income, increased primarily as a result of:

·       anincrease of approximately $10.3 million due to ten properties acquired afterJanuary 1, 2004, partially offset by a $0.4 million decrease related to a2004 partial property disposition; and

·       ona Same Property Portfolio basis, an increase of $0.7 million primarily as aresult of a $1.1 million increase in minimum rent attributable to increasedoccupancy and leases and rollovers of existing tenants at higher rental rates.The increase in rental revenue was partially offset by a $0.4 million increasein the provision for doubtful accounts due to increased reserves associatedwith higher outstanding accounts receivable balances.

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*Percentage Rent.**  *Percentage rent decreased primarilyas a result of:

·       adecrease of $0.2 million related to a 2004 partial property disposition; and

·       ona Same Property Portfolio basis, a decrease of $0.2 million primarily due tolower sales volume and higher sales breakpoints for leases with significantpercentage rent provisions.

*Recoveries Revenue.**  *Recoveries revenue increasedprimarily due to the following:

·       anincrease of $3.2 million due to ten properties acquired after January 1,2004; and

·       ona Same Property Portfolio basis, an increase of $2.9 million primarily as aresult of an increase in property operating recovery income, which increased asa result of an increase in recovery rates due to higher occupancy.

*Other Property Income.**  *Other property income increasedprimarily as a result of an additional $1.1 million of tax incentivefinancing income received at one of Bradley OP’s shopping centers.

**Expenses**

*Property OperatingExpenses.**  *Propertyoperating expenses increased due to the following:

·       anincrease of $1.3 million due to ten properties acquired after January 1,2004; and

·       ona Same Property Portfolio basis, an increase of $0.5 million primarily due to a$0.9 million increase in snow removal costs, partially offset by a$0.2 million decrease in insurance costs and a $0.2 million decrease inrepair and maintenance expense.

*Real Estate Taxes.**  *Real estate taxes increasedprimarily due to the following:

·       anincrease of $2.4 million due to ten properties acquired after January 1,2004; and

·       on a Same PropertyPortfolio basis, a decrease of $0.4 million primarily due to decreasedvaluations assessed for certain properties primarily located in Indiana andIllinois as well as an increase in capitalized real estate tax expenseassociated with redevelopment projects.

**Other**

*Interest,other, and joint venture fee income.*   Interest,other, and joint venture fee income remained relatively flat for 2005 ascompared with 2004.

*Gainon Sale of Real Estate Investment.**  *Gain on sale of real estateinvestment decreased as the result of Bradley OP not having sold any realestate investments during the year ended December 31, 2005.

*Equityin (Loss) Income from Unconsolidated Joint Ventures.**  *Equity in (loss) income fromunconsolidated joint ventures decreased $0.2 million due to a net lossallocated to Bradley OP from its unconsolidated joint ventures.

*Incomefrom Discontinued Operations.**  *Income from discontinued operationsdecreased as a result of Bradley OP not having disposed of any propertiesduring the year ended December 31, 2005, as compared to two propertiesdisposed of during fiscal year 2004, excluding the partial disposition, whichwas not considered a discontinued operation.

*Depreciationand Amortization.**  *Expensesattributable to depreciation and amortization increased due to depreciationattributable to new properties acquired and depreciation of new capital andtenant improvements implemented within the Same Property Portfolio.

*InterestExpense.**  *Interestexpense increased $10.6 million primarily as a result of an increase in overallindebtedness of $194.9 million from December 31, 2004 to December 31,2005 as well as higher 

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interest rates. Thisincrease was primarily due to indebtedness incurred in connection with theacquisition of properties. Bradley OP’s weighted average effective interestrate was 5.59% at December 31, 2005 as compared with 5.38% at December 31,2004.

*Generaland Administrative Expenses.**  *Heritage allocates 100% of its general andadministrative expenses to its subsidiaries, including costs associated withBradley OP. For costs specifically identifiable to a subsidiary, Heritageperforms a direct allocation. Remaining costs are allocated based on the squarefootage of properties owned by each subsidiary. During the years ended December 31,2005 and 2004, Heritage allocated approximately 63% of these remaining costs toBradley OP.

Bradley OP’s general and administrative expenses,consisting primarily of salaries, bonuses, employee benefits, insurance andother corporate-level expenses, increased $2.1 million from December 31,2005 compared to December 31, 2004.

Heritage’s general and administrative expenses,consisting primarily of salaries, bonuses, employee benefits, insurance andother corporate-level expenses, increased $3.2 million, which included $0.8million of professional costs, primarily legal and accounting, incurred in 2005due to the restatement of prior financial statements, partially offset by adecrease of $1.3 million in stock option expense related to variable accountingof certain stock options (as discussed in the **“RestatementSummary”** above). The tax-offset provision and intrinsic value ofthese stock options decreased $2.9 million in the year ended December 31,2005 compared with December 31, 2004 due to a greater decrease in theCompany’s stock price during that time period. This decrease was partiallyoffset by an increase in expense of $1.6 million related to the payment andrelated taxes associated with amending the employment agreement to eliminatethe tax-offset provision in respect of these stock options.

After considerationof the non-recurring items related to the restatement of prior financialstatements as described above, the net $3.7 million increase in general andadministrative expenses is primarily due to:

·       anincrease of $1.9 million primarily due to an increase in stock compensation and$0.5 million due to higher payroll costs associated with a larger workforce. Theincrease in stock compensation expense is primarily due to the amortization offour grants of performance based shares in the year ended December 31,2005 as compared with the amortization of three grants of performance basedshares in the year ended December 31, 2004;

·       anincrease in office related costs of $0.6 million primarily due to increasedrecruiting costs and higher office expenses due to a larger workforce;

·       anincrease in advertising and related costs of $0.4 million primarily due to increasedcorporate promotions and other advertising costs; and

·       anincrease of $0.3 million in board compensation due to increased compensation toboard members and greater number of meetings of the board of directors andboard committees.

*Preferred Distributions.**  *Preferred distributions decreasedas a result of Bradley OP redeeming all of its Series B and C PreferredUnits in the first and third quarters of 2004, respectively.

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*Comparison of theyear ended December 31, 2004 to year ended December 31, 2003*

Thetable below shows selected operating information for Bradley OP’s TotalPortfolio and the 103 properties acquired prior to January 1, 2003 thatremained in the Total Portfolio through December 31, 2004, whichconstitute the Same Property Portfolio for the years ended December 31,2004 and 2003. 

| ** **                                          | ** ** | **Same Property Portfolio** | ** ** | **Total Portfolio** | ** ** |
|-----------------------------------------------------|------------|-----------------------------|------------|--------------------------|------------|
| ** **                                          | ** ** | **2004**                    | ** ** | **2003**                 | ** ** | **Increase/  (Decrease)** | ** ** | **%  Change** | ** ** | **2004** | ** ** | **2003** | ** ** | **Increase/  (Decrease)** | ** ** | **%  Change** | ** ** |
| Revenue:                                            |       |                        |       |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Rentals                                             |       | $                           | 136,982    |                     | $          | 137,955 |   |   | $ | (973 | ) |   |   | (0.7 | )% |   | $ | 138,622 |   | $ | 138,705 |   |   | $ | (83 | ) |   |   | (0.1 | )% |   |
| Percentage rent                                     |       | 1,975                       |       | 2,262                    |       |   | (287 | ) |   |   | (12.7 | )% |   | 2,133 |   | 2,358 |   |   | (225 | ) |   |   | (9.5 | )% |   |
| Recoveries                                          |       | 45,793                      |       | 43,764                   |       |   | 2,029 |   |   |   | 4.6 | % |   | 46,152 |   | 43,756 |   |   | 2,396 |   |   |   | 5.5 | % |   |
| Other property                                      |       | 1,298                       |       | 1,240                    |       |   | 58 |   |   |   | 4.7 | % |   | 1,299 |   | 1,242 |   |   | 57 |   |   |   | 4.6 | % |   |
| Total revenue                                       |       | 186,048                     |       | 185,221                  |       |   | 827 |   |   |   | 0.4 | % |   | 188,206 |   | 186,061 |   |   | 2,145 |   |   |   | 1.2 | % |   |
| Expenses:                                           |       |                        |       |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Property operating expenses                         |       | 26,610                      |       | 26,977                   |       |   | (367 | ) |   |   | (1.4 | )% |   | 26,765 |   | 26,977 |   |   | (212 | ) |   |   | 0.8 | % |   |
| Real estate taxes                                   |       | 30,312                      |       | 29,134                   |       |   | 1,178 |   |   |   | 4.0 | % |   | 30,596 |   | 29,134 |   |   | 1,462 |   |   |   | 5.0 | % |   |
| Net operating income (*)                            |       | $                           | 129,126    |                     | $          | 129,110 |   |   | $ | 16 |   |   |   | 0.0 | % |   | 130,845 |   | 129,950 |   |   | 895 |   |   |   | 0.7 | % |   |
| Add:                                                |       |                        |       |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest, other, and joint venture fee income       |       |                        |       |                     |       |   |   |   |   |   |   |   |   | 374 |   | 36 |   |   | 338 |   |   |   | 938.9 | % |   |
| Gain on sale of real estate investment              |       |                        |       |                     |       |   |   |   |   |   |   |   |   | 28 |   | — |   |   | 28 |   |   |   | 100.0 | % |   |
| Equity in income from unconsolidated joint ventures |       |                        |       |                     |       |   |   |   |   |   |   |   |   | 86 |   | — |   |   | 86 |   |   |   | 100.0 | % |   |
| Income from discontinued operations                 |       |                        |       |                     |       |   |   |   |   |   |   |   |   | 1,502 |   | 615 |   |   | 887 |   |   |   | 144.2 | % |   |
| Deduct:                                             |       |                        |       |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                  |       |                        |       |                     |       |   |   |   |   |   |   |   |   | 50,526 |   | 47,973 |   |   | 2,553 |   |   |   | 5.3 | % |   |
| Interest                                            |       |                        |       |                     |       |   |   |   |   |   |   |   |   | 39,048 |   | 33,030 |   |   | 6,018 |   |   |   | 18.2 | % |   |
| General and administrative                          |       |                        |       |                     |       |   |   |   |   |   |   |   |   | 17,617 |   | 14,562 |   |   | 3,055 |   |   |   | 21.0 | % |   |
| Preferred distributions                             |       |                        |       |                     |       |   |   |   |   |   |   |   |   | 2,176 |   | 6,656 |   |   | (4,480 | ) |   |   | (67.3 | )% |   |
| Net income  attributable to common shareholders     |       |                        |       |                     |       |   |   |   |   |   |   |   |   | $ | 23,468 |   | $ | 28,380 |   |   | $ | (4,912 | ) |   |   | 17.3 | % |   |

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*                     For a detailed discussion of net operating income (“NOI”),including the reasons management believes NOI is useful to investors, and areconciliation of NOI to a GAAP measure, see pages 63-64.

The following discussion of our results of operationsfor the years ended December 31, 2004 and 2003 relates to the TotalPortfolio, except where otherwise noted.

*Rental Revenue.**  *Rental revenue, includingtermination fee income, decreased primarily as a result of:

·       anincrease of approximately $1.2 million due to three properties acquired after January 1,2003, partially offset by a $0.2 million decrease related to the 2004 partialproperty dispositions; and

·       ona Same Property Portfolio basis, an decrease of $1.0 million, primarily theresult of a decrease in minimum rent of $2.0 million offset by a $0.9million decrease in the provision for allowance for doubtful accounts. The decreasein minimum rent is due to a decrease of $2.0 million from termination feeincome. A lower provision was required for the year ended December 31,2004 as compared with the year ended December 31, 2003 as a result of adecrease in large tenant bankruptcies.

*Percentage Rent.**  *Percentage rent decreased primarilyas a result of:

·       anincrease of $0.1 million related to the 2004 partial property dispositions; and

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·       ona Same Property Portfolio basis, a decrease of $0.3 million primarily due tothe loss of three anchor tenants with significant percentage rent components aswell as the uncertainty of realization that certain tenant sales thresholdshave been met.

*Recoveries Revenue.**  *Recoveries revenue increasedprimarily due to the following:

·       anincrease of $0.4 million due to three properties acquired after January 1,2003, and

·       on a Same PropertyPortfolio basis, an increase of $2.0 million primarily due to an overallincrease in property operating expense recovery income and other reimbursementincome of $0.9 million, an increase in real estate tax recovery income of$0.8 million, and a decrease in the provision for allowance for doubtfulaccounts of $0.4 million. Property operating expense recovery incomeincreased primarily as a result of an increase in the property operatingexpense recovery rates due to true-ups related to the annual reconciliationprocess offset by a decrease in reimbursable property operating expenses. Realestate recovery income increased primarily as a result of an increase in realestate tax expense as well as an increase in the real estate tax expenserecovery rates due to true-ups related to an improved annual reconciliationprocess.

**Expenses**

*Property OperatingExpenses.**  *Propertyoperating expenses decreased due to the following:

·       anincrease of $0.2 million due to three properties acquired after January 1,2003; offset by

·       ona Same Property Portfolio basis, a decrease of $0.4 million primarily as aresult of a $0.5 million lease buy-out expense recorded in the prior yearand a $0.3 million decrease in insurance expense. These decreases werepartially offset by a $0.2 million increase in maintenance and supervisionexpense and a $0.1 million increase in utility expense.

*Real Estate Taxes.**  *Real estate taxes increasedprimarily due to the following:

·       anincrease of $0.3 million due to three properties acquired after January 1,2003; and

·       a $1.2 million increase inreal estate taxes on a Same Property Portfolio basis primarily as a result ofincreased valuations assessed for certain properties primarily located inIndiana and Illinois.

**Other**

*Interest,Other, and Joint Venture Fee Income.**  *Interest, other, and joint venturefee income increased, because in 2003, Bradley OP had no investments inunconsolidated joint ventures compared to one investment in an unconsolidatedjoint venture in 2004.

*Gainon Sale of Real Estate Investment.**  *Gain on sale of real estateinvestment increased as the result of Bradley OP having sold real estateinvestments during the year ended December 31, 2004.

*Equityin Income from Unconsolidated Joint Ventures.**  *Equity in income fromunconsolidated joint ventures increased due to Bradley OP having entered intoits first joint venture agreement in May 2004 with a third party developerfor the development and construction of a property.

*Incomefrom Discontinued Operations.**  *Income from discontinued operationsincreased due to the gain on sale of the discontinued operations in 2004.

*Depreciationand Amortization.**  *Expensesattributable to depreciation and amortization increased due to depreciationattributable to new properties acquired and depreciation of new capital andtenant improvements implemented within the Same Property Portfolio.

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*InterestExpense.**  *Interestexpense increased $6.0 million primarily due to the issuance of$350 million of unsecured notes payable, higher average balances under ourline of credit, and an increase in mortgage loans payable as a result of theassumption of debt from various property acquisitions partially offset by therepayment of $100.0 million of bonds payable. In addition, the weightedaverage interest rate increased slightly in 2004 as compared with 2003. Theweighted average effective interest rate was 5.38% at December 31, 2004 ascompared with 5.09% at December 31, 2003.

*Generaland Administrative Expenses.**  *Heritage allocates 100% of its general andadministrative expenses to its subsidiaries, including costs associated withBradley OP. For costs specifically identifiable to a subsidiary, Heritageperforms a direct allocation. Remaining costs are allocated based on the squarefootage of properties owned by each subsidiary. During the years ended December 31,2004 and 2003, Heritage allocated approximately 63% and 65%, respectively, ofthese remaining costs to Bradley OP.

Bradley OP’s general and administrative expenses,consisting primarily of salaries, bonuses, employee benefits, insurance andother corporate-level expenses, increased $3.1 million from December 31,2004 compared to December 31, 2003.

Heritage’s generaland administrative expenses, consisting primarily of salaries, bonuses,employee benefits, insurance and other corporate-level expenses, increased $4.5million. This increase was primarily due to:

·       anincrease of $1.2 million in stock compensation costs due to an increase in theintrinsic value of certain variable stock options. The intrinsic valueincreased due to a greater increase in our stock price during the year ended December 31,2004 as compared with year ended December 31, 2003;

·       anincrease of $1.1 million in other stock compensation expense and $0.4 milliondue to higher payroll costs associated with a larger workforce. The increase instock compensation expense is primarily due to the amortization of three annualgrants of performance based restricted shares in the year ended December 31,2004 as compared with the amortization of two annual grants of performancebased restricted shares in the year ended December 31, 2003;

·       anincrease of $1.5 million in salary and incentive compensation expense due to alarger workforce, including the retention of two additional senior officersresponsible for joint venture initiatives and as corporate counsel, and thereplacement of stock options to be issued to senior management by the issuanceof additional restricted shares of substantially equal value;

·       anincrease of $0.9 million in office rent due to the Company’s relocation of itscorporate office in February 2004; and

·       anincrease of $0.5 million in expenses associated with being a public company,including compliance with the Sarbanes-Oxley Act; and

·       anincrease of $0.4 million in office expenses primarily due to expenses relatedto the relocation of the corporate office as well as increased consulting fees.

These increased costs were partially offset by$1.3 million less severance costs for the year ended December 31,2004 as compared with the year ended December 31, 2003.

*Preferred Distributions.**  *Preferred distributions decreasedas a result of the Operating Partnership redeeming all of its Series B andC Preferred Units in the first and third quarters of 2004, respectively.

**Liquidity and Capital Resources**

We generally do not maintain significant cash or cashequivalent balances. As a REIT, we are required to distribute at least 90% ofour taxable income to our stockholders on an annual basis. 

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Therefore, as a generalmatter, we meet our liquidity needs from cash generated from operations andexternal sources of capital.

At December 31, 2005, Heritage had$1.5 billion of indebtedness. This indebtedness has a weighted averageinterest rate of 6.18% with an average maturity of 4.2 years. As of December 31,2005, our market capitalization was $3.1 billion, resulting in a debt-to-totalmarket capitalization ratio of approximately 47.6%.

At December 31, 2005,Bradley OP had $1.0 billion of indebtedness, including the full balance ofamounts outstanding under the related party line of credit facility and bridgeloan. This indebtedness had a weighted average interest rate of 5.59% with anaverage maturity of 4.03 years.

*Short-TermLiquidity Requirements*

The short-termliquidity requirements of Heritage and Bradley OP are substantially identicaland are referred to together in the discussion below. These short-termliquidity requirements consist primarily of funds necessary to pay foroperating expenses and other expenditures directly associated with ourproperties, including:

·       Recurringmaintenance capital expenditures necessary to properly maintain our properties;

·       Interestexpense and scheduled principal payments on outstanding indebtedness;

·       Capitalexpenditures incurred to facilitate the leasing of space at our properties,including tenant improvements and leasing commissions; and

·       Futuredistributions paid to our stockholders.

We incur maintenance capital expenditures at ourproperties, which include such expenses as parking lot improvements, roofrepairs and replacements and other non-revenue enhancing capital expenditures.Maintenance capital expenditures were approximately $9.7 million, or $0.34per square foot, for the year ended December 31, 2005, of which,approximately $5.0 million, or $0.28 per square foot, related toproperties within the Bradley OP portfolio. We have also incurred and expect tocontinue to incur revenue enhancing capital expenditures such as tenantimprovements and leasing commissions in connection with the leasing orre-leasing of retail space.

We believe that we qualify and we intend to continueto qualify as a REIT under Sections 856-860 of the Code. As a REIT, weare allowed to reduce taxable income by all or a portion of our distributionspaid to stockholders. We believe that our existing working capital and cashprovided by operations will be sufficient to allow us to pay distributionsnecessary to enable us to continue to qualify as a REIT.

However, under some circumstances, we may be requiredto pay distributions in excess of cash available for those distributions inorder to meet these distribution requirements, and we may need to borrow funds,most likely under our line of credit, to pay distributions in the future.

Historically, we have satisfied our short-termliquidity requirements through our existing working capital and cash providedby our operations as well as with borrowings under our line of credit. Webelieve that our existing working capital and cash provided by operationsshould be sufficient to meet our short-term liquidity requirements. Heritage’scash flows provided by operating activities increased to $124.4 millionfor the year ended December 31, 2005 from $123.0 million for the yearended December 31, 2004.

There are a number offactors that could adversely affect our cash flow. The continuation of aneconomic downturn in one or more of our markets may impede the ability of ourtenants to make lease payments and may impact our ability to renew leases orre-let space as leases expire. In addition, an economic downturn or recessioncould also lead to an increase in tenant bankruptcies, increases in our 

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overallvacancy rates or declines in rents we can charge to re-let properties uponexpiration of current leases. In all of these cases, our cash flow would beadversely affected.

*Long-Term LiquidityRequirements*

The long-term liquidity requirements of Heritage andBradley OP are substantially identical and are referred to together in thediscussion below. Our long-term liquidity requirements consist primarily offunds necessary to pay for scheduled debt maturities, renovations,redevelopment, expansions and other non-recurring capital expenditures that arerequired periodically to our properties, and the costs associated withacquisitions of properties and third party developer joint ventureopportunities that we pursue.

Historically, we have satisfied our long-termliquidity requirements through various sources of capital, including ourexisting working capital, cash provided by operations, our line of credit,bridge financing, the issuance of additional debt and equity securities andlong-term property mortgage indebtedness. We believe these sources of capitalwill continue to be available to us in the future to fund our long-termliquidity requirements. In addition, we also intend to pursue additionalcapital for acquisitions through strategic joint ventures with institutionalinvestors. Heritage engages in financing and other transactions utilizing thesesources of capital exclusively for its subsidiaries’, including Bradley OP’s,use.

There are certain factors that may have a materialadverse effect on our access to capital resources, including our degree ofleverage, the value of our unencumbered assets, our credit rating and borrowingrestrictions imposed on us by existing lenders. Currently, we have a creditrating from three major rating agencies—Standard & Poor’s, which hasgiven us a rating of BBB-, Moody’s Investor Service, which has given us arating of Baa3, and Fitch Ratings, which has given us a rating of BBB-. Allthree of these rating agencies have currently stated our company’s outlook isstable. A downgrade in outlook or rating by a rating agency could occur at anytime if the agency perceives adverse change in our financial condition, resultsof operations or ability to service our debt.

Based on our internal valuation of our properties, webelieve the estimated value of our properties exceeds the outstanding amount ofmortgage debt encumbering those properties as of December 31, 2005.Therefore, at this time, we believe that we could obtain additional funds,either in the form of additional unsecured borrowings or mortgage debt, withoutviolating the financial covenants contained in our line of credit, bridge loan,or unsecured public notes.

Our ability to raise fundsthrough the issuance of equity securities is dependent upon, among otherthings, general market conditions for REITs and the market’s perceptionsregarding the Company and its prospects. We will continue to analyze whichsource of capital is most advantageous to us at any particular point in time,but raising funds through the equity markets may not be consistently availableto us on terms that are attractive or at all.

*EnvironmentalMatters*

We currently have fifteen properties in our portfoliothat are undergoing, or have been identified as requiring, some form ofremediation (including monitoring for compliance) to clean up contamination.Three of these properties are owned by Bradley OP. In these cases,contamination has resulted from on-site uses by current or former owners ortenants, such as gas stations or dry cleaners, which have released pollutantssuch as gasoline or dry-cleaning solvents into soil and/or groundwater. We alsocurrently have eleven properties in our portfolio that we are monitoring forcompliance as a result of contamination on adjacent properties. Three of theseproperties are owned by Bradley OP.

Of the approximately fifteen properties cited above,nine of those properties were contributed to us by Net Realty Holding Trust,our largest stockholder, upon our formation in July 1999. All of thesecontributed properties (together with eleven other contributed properties forwhich no remediation is 

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currently taking place)are the subject of an indemnity arrangement under which Net Realty HoldingTrust has agreed to indemnify us against environmental liabilities up to$50 million in the aggregate. Since our formation, we have been reimbursedby Net Realty Holding Trust for approximately $2.0 million ofenvironmental costs pursuant to this indemnity. As of December 31, 2005,we were due $0.6 million under this indemnity. Although we do not believe thatthe aggregate indemnity amount will be needed, we believe that Net RealtyHolding Trust has the ability to perform under its indemnity up to theaggregate amount. In addition, each of the properties for which we are activelypursuing remediation to clean up contamination is covered by this indemnity. Noneof the properties owned by Bradley OP are covered by the Net Realty HoldingTrust indemnity. With respect to the remaining properties cited above notcovered by the Net Realty Holding Trust indemnity, no clean-up activities arecurrently taking place and our requisite on-going responsibilities are tomonitor those properties for compliance and to determine if any remediation orother action may be required in the future. We believe that the costs ofmonitoring these properties are not material, individually or in the aggregate,to our financial condition and we have established reserves for such costs. Anyfailure to remediate the contamination at our properties properly may result inliability to federal, state or local governments for damages to naturalresources or liability to third parties for property damage or personal injuryand may adversely affect our ability to operate, lease or sell the contaminatedproperty. Further, no assurance can be given that any environmental studiesperformed have identified or will identify all material environmentalconditions, that any prior owner of the properties did not create a materialenvironmental condition not known to us or that a material environmentalcondition does not otherwise exist with respect to any of our properties.

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*ContractualObligations and Contingent Liabilities*

Thefollowing table summarizes our, including Bradley OP’s, repaymentobligations under our indebtedness outstanding as of December 31, 2005 (inthousands):

| **Property**                                               | ** ** | ** ** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
|------------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|-----------|------------|
| Mortgage loans payable:                                    |       |       |       |     |       |     |       |     |       |     |       |     |       |           |       |      |       |
| Meridian Village  Plaza(1)                                 |       | $          | 4,841      |     | —     |     | —     |     | —     |     | —     |     |       | —         |       |      | $          | 4,841 |   |
| *Spring Mall                                               |       | 8,021      |       | —   |       | —   |       | —   |       | —   |       |     | —     |           |       | 8,021     |       |
| *Southport Centre                                          |       | 171        |       | 9,593    |       | —   |       | —   |       | —   |       |     | —     |           |       | 9,764     |       |
| *Long Meadow  Commons(1)(2)                                |       | 344        |       | 8,717    |       | —   |       | —   |       | —   |       |     | —     |           |       | 9,061     |       |
| Innes Street  Market                                       |       | 380        |       | 12,098   |       | —   |       | —   |       | —   |       |     | —     |           |       | 12,478    |       |
| *Southgate  Shopping Center                                |       | 119        |       | 2,166    |       | —   |       | —   |       | —   |       |     | —     |           |       | 2,285     |       |
| *Hale  Road & Northern Hills                      |       | —     |       | 14,600   |       | —   |       | —   |       | —   |       |     | —     |           |       | 14,600    |       |
| *Salem Consumer  Square                                    |       | 508        |       | 563      |       | 8,731    |       | —   |       | —   |       |     | —     |           |       | 9,802     |       |
| *St. Francis  Plaza                                        |       | 207        |       | 225      |       | 243      |       | —   |       | —   |       |     | —     |           |       | 675       |       |
| *Burlington  Square(1)                                     |       | 209        |       | 227      |       | 243      |       | 12,724   |       | —   |       |     | —     |           |       | 13,403    |       |
| *Crossroads  III & Slater Street(1)               |       | 185        |       | 201      |       | 214      |       | 13,295   |       | —   |       |     | —     |           |       | 13,895    |       |
| Buckingham  Place(1)                                       |       | 69         |       | 74       |       | 79       |       | 5,054    |       | —   |       |     | —     |           |       | 5,276     |       |
| County Line  Plaza(1)                                      |       | 222        |       | 240      |       | 256      |       | 16,002   |       | —   |       |     | —     |           |       | 16,720    |       |
| Trinity  Commons(1)                                        |       | 185        |       | 200      |       | 214      |       | 13,776   |       | —   |       |     | —     |           |       | 14,375    |       |
| 8 shopping  centers, cross collaterialized                 |       | 1,843      |       | 1,993    |       | 2,154    |       | 72,132   |       | —   |       |     | —     |           |       | 78,122    |       |
| *Montgomery  Commons(1)                                    |       | 86         |       | 94       |       | 100      |       | 102      |       | 7,334    |       |     | —     |           |       | 7,716     |       |
| *Warminster Towne  Center(1)                               |       | 283        |       | 307      |       | 329      |       | 362      |       | 18,294   |       |     | —     |           |       | 19,575    |       |
| Clocktower  Place(1)                                       |       | 132        |       | 144      |       | 154      |       | 171      |       | 11,838   |       |     | —     |           |       | 12,439    |       |
| 545 Boylston  Street and William J. McCarthy Building |       | 711        |       | 772      |       | 838      |       | 910      |       | 30,896   |       |     | —     |           |       | 34,127    |       |
| 29 shopping  centers, cross collateralized                 |       | 2,728      |       | 2,955    |       | 3,147    |       | 3,461    |       | 220,654  |       |     | —     |           |       | 232,945   |       |
| *The Market of  Wolf Creek III(1)                     |       | 98         |       | 106      |       | 113      |       | 125      |       | 135      |       |     | 8,042      |           |       | 8,619     |       |
| Spradlin Farm(1)                                           |       | 203        |       | 219      |       | 232      |       | 253      |       | 272      |       |     | 15,915     |           |       | 17,094    |       |
| *The Market of  Wolf Creek I(1)                            |       | 163        |       | 176      |       | 188      |       | 206      |       | 222      |       |     | 9,105      |           |       | 10,060    |       |
| *Berkshire  Crossing                                       |       | 472        |       | 503      |       | 534      |       | 571      |       | 608      |       |     | 11,342     |           |       | 14,030    |       |
| *Grand Traverse  Crossing                                  |       | 394        |       | 424      |       | 457      |       | 492      |       | 530      |       |     | 10,621     |           |       | 12,918    |       |
| *Salmon Run  Plaza(1)                                      |       | 349        |       | 381      |       | 417      |       | 456      |       | 498      |       |     | 2,238      |           |       | 4,339     |       |
| *Elk Park Center                                           |       | 321        |       | 346      |       | 374      |       | 403      |       | 435      |       |     | 6,068      |           |       | 7,947     |       |
| *Grand Traverse  Crossing—Wal-Mart                    |       | 179        |       | 193      |       | 208      |       | 225      |       | 156      |       |     | 4,034      |           |       | 4,995     |       |
| *The Market of  Wolf Creek II(1)                           |       | 103        |       | 111      |       | 120      |       | 129      |       | 140      |       |     | 1,288      |           |       | 1,891     |       |
| Montgomery Towne  Center                                   |       | 393        |       | 307      |       | 335      |       | 364      |       | 396      |       |     | 4,866      |           |       | 6,661     |       |
| *Bedford Grove—Wal-Mart                               |       | 164        |       | 178      |       | 191      |       | 207      |       | 223      |       |     | 2,952      |           |       | 3,915     |       |
| *Berkshire  Crossing—Home Depot/Wal-Mart              |       | 258        |       | 278      |       | 300      |       | 324      |       | 349      |       |     | 4,869      |           |       | 6,378     |       |
| Total mortgage  loans payable                              |       | $          | 24,341     |     | 58,391     |     | 20,171     |     | 141,744    |     | 292,980    |     |       | 81,340         |       |      | $          | 618,967 |   |
| *Unsecured notes  payable(3)                               |       | 1,490      |       | —   |       | 100,000  |       | 150,000  |       | —   |       |     | 200,000    |           |       | 451,490   |       |
| *Line of credit  facility                                  |       | —     |       | —   |       | 328,000  |       | —   |       | —   |       |     | —     |           |       | 328,000   |       |
| *Bridge loan  payable                                      |       | 50,000     |       | —   |       | —   |       | —   |       | —   |       |     | —     |           |       | 50,000    |       |
| Total indebtedness                                         |       | $          | 75,831     |     | 58,391     |     | 448,171    |     | 291,744    |     | 292,980    |     |       | 281,340        |       |      | $          | 1,448,457 |   |

 

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(*)          Designates indebtednessof Bradley OP or one of its subsidiaries. Total indebtedness as of December 31,2005 for Bradley OP and its subsidiaries was $1,013,379, which does not reflectthe unamortized mortgage loan premiums totaling $7,067 related to theassumption of ten mortgage loans with above-market contractual interest rates. 

(1)          The aggregate repaymentamount for mortgage loans payable of $618,967 does not reflect the unamortizedmortgage loan premiums totaling $11,852 related to the assumption of sixteenmortgage loans with above-market contractual interest rates.

(2)          Property is encumberedby two mortgage loans maturing in July 2007.

(3)          The aggregate repaymentamount of $451,490 does not reflect the unamortized original discounts of$1,526 related to the April and October 2004 bond issuances to thirdparties. The related party notes payable were not issued at a discount.

As of December 31, 2005, the indebtednessdescribed in the table above requires principal amortization and balloonpayments of $75.8 million in 2006. It is likely that we will not havesufficient funds on hand to repay the remaining balloon amounts at maturity. Wecurrently expect to refinance these and other future balloon payments throughborrowings under our line of credit. We may also refinance this debt throughunsecured private or public debt offerings, through additional debt financingssecured by individual properties or groups of properties or through additionalequity offerings.

As of December 31,2005, in addition to the repayment obligations under the indebtedness describedabove, we (including Bradley OP) have future contractual payment obligationsrelating to construction contracts, ground leases, and leases for the rental ofoffice space as follows (in thousands):

| ** **                                                 | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
|------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|-----------|------------|
| Construction  contracts and tenant improvement obligations |       | $        | 7,650      |     | $          | —   |       | $        | —     |     | $          | —         |       | $         | —     |   |   | $ | — |   |   | $ | 7,650 |   |
| Ground leases and  subleases                               |       | 1,727    |       | 1,817    |       | 1,826    |       | 1,819    |       | 1,812    |       |           | 68,571     |      |       | 77,572 |   |
| Office leases                                              |       | 1,185    |       | 1,189    |       | 1,192    |       | 1,301    |       | 1,274    |       |           | 4,971      |      |       | 11,112 |   |
| Total                                                      |       | $        | 10,562     |     | 3,006      |     | 3,018      |     | 3,120      |     | 3,086      |           |       | 73,542    |       |   | $ | 96,334 |   |
|                                                            |            |          |            |          |            |          |            |          |            |          |            |                |            |           |            |  |  |  |  |  |  |  |  |  |

 

As of December 31,2005, Bradley OP and its subsidiaries had future contractual paymentobligations relating to construction contracts, ground leases, and leases forthe rental of office space which are separately described below (in thousands):

| ** **                                                 | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
|------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|-----------|------------|
| Construction  contracts and tenant improvement obligations |       | $        | 6,319      |     | $          | —   |       | $        | —     |     | $          | —         |       | $         | —     |   |   | $ | — |   |   | $ | 6,319 |   |
| Ground leases and  subleases                               |       | 161      |       | 161      |       | 161      |       | 155      |       | 148      |       |           | 11,377     |      |       | 12,163 |   |
| Total                                                      |       | $        | 6,480      |     | 161        |     | 161        |     | 155        |     | 148        |           |       | 11,377    |       |   | $ | 18,482 |   |
|                                                            |            |          |            |          |            |          |            |          |            |          |            |                |            |           |            |  |  |  |  |  |  |  |  |  |

 

In addition to the contractual payment obligationsincluded above, we have various existing utility and service contracts withvendors related to our property management. We enter into these contracts inthe ordinary course of business, which vary based on usage and may extendbeyond one year. These contracts are generally for one year or less and includeterms that provide for termination with insignificant or no cancellationpenalties.

The future contractualpayment obligations in the above table do not reflect the matters describedbelow under “*Off-Balance Sheet Arrangements*.”  Additionally, the repayment obligationsreflected in the 

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abovetable do not reflect interest payments on debt. In addition, we haveobligations under a retirement benefit plan, which are more fully described inHeritage’s Annual Report on Form 10-K for the year ended December 31,2005. Funding requirements for retirement benefits after 2005 cannot beestimated due to the significant variability in the assumptions required toproject the timing of future cash payments.

*La Vista*

Through Bradley OP’s jointventure with Westwood Development Group, the joint venture has committed topurchase two parcels of land in La Vista, Nebraska adjoining a site our jointventure already owns. The purchase is expected to occur prior to November 30,2007, at a purchase price of $11 million, resulting in a total purchaseprice for all three parcels of $26 million. These parcels of land will bedeveloped into a new 550,000 square foot shopping center expected to becompleted in the second quarter of 2008. This joint venture was consolidated inBradley OP’s financial statements as of December 31, 2005.

*Off-Balance SheetArrangements*

We do not believe that we or Bradley OP currently haveany off-balance sheet arrangements that have, or are reasonably likely to have,a material current or future effect on our financial condition, changes infinancial condition, revenues or expenses, results of operations, liquidity,capital expenditures or capital resources.

However, in a few cases, we or Bradley OP have madecommitments to provide funds to our existing unconsolidated joint ventures(discussed below) under certain circumstances. The commitments associated withthese unconsolidated joint ventures are not reflected as liabilities on ourconsolidated financial statements. These existing unconsolidated joint venturesare not variable interest entities nor do we have control of these partnershipsand, therefore, we account for them using the equity method of accounting.

In May 2004, Bradley OP entered into a jointventure agreement with a third party developer for the development andconstruction of Lakes Crossing Shopping Center in Muskegon, Michigan. As of December 31,2005, Bradley OP does not consolidate the operations of the Lakes Crossingjoint venture in its financial statements. Under the terms of the LakesCrossing joint venture, Bradley OP has a 50% interest in the venture and hasagreed to contribute any capital that might be required by the joint venture.Under the joint venture agreement, at any time subsequent to the secondanniversary of the completion of Lakes Crossing, which is estimated to occur inlate 2006, Bradley OP may be required to purchase the third party’s jointventure interest. The purchase price for this interest would be at theagreed-upon fair market value.

Heritage and Bradley OP have fully guaranteed therepayment of a $22 million construction loan obtained by the LakesCrossing joint venture from Key Bank, National Association, which is anoff-balance sheet arrangement. The Key Bank loan matures in November 2006(subject to a one-year extension). As of December 31, 2005, $17.8 millionis outstanding under the construction loan. This amount is recorded on thebooks and records of the joint venture. In the event we are obligated to repayall or a portion of the construction loan pursuant to the guarantee, we (i) mayremove the manager of the joint venture for cause and terminate all agreementswith the manager, (ii) would receive a promissory note from the jointventure for the amount paid by us together with a first priority mortgage onthe shopping center, and (iii) may prohibit all distributions from thejoint venture or payment of fees by the joint venture until the principal andaccrued interest on the loan is repaid. The estimated fair value of theguarantee as of December 31, 2005 is not material to our financialposition. Accordingly, no liability or additional investment has been recordedrelated to the fair value of the guarantee.

In April 2005, Bradley OP formed a joint venturewith a fund managed by Intercontinental Real Estate Corporation for thespecific purpose of acquiring Skillman Abrams Shopping Center, a 133,000 squarefoot shopping center in Dallas, Texas. Under the terms of the Skillman Abramsjoint venture, we 

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have a 25% interest in theventure and we have agreed to contribute our *pro rata*share of any capital that might be required by the joint venture. The jointventure had a contractual obligation related to a mortgage loan outstanding ofapproximately $14.7 million as of December 31, 2005. We have agreedto indemnify the mortgage lender for bad acts and environmental liabilitieswith respect to the Skillman Abrams loan. As of December 31, 2005, thecarrying value of our investment in the joint venture was approximately $1.1million.

Bradley OP has enteredinto additional joint venture arrangements with third party developers for thedevelopment of sites under contract in which the underlying projects are stillin the approval and entitlement process. In some cases, Bradley OP has paiddeposits in connection with our joint venture entering into purchase and saleagreements with respect to such sites. In the case of projects still in the duediligence or investigative period, these deposits are either fully or partiallyrefundable by the seller or by our joint venture partner.

*Financings*

*Bridge Loan*

On November 28, 2005, we entered into a $100million term loan, or “bridge loan,” with Wachovia Capital Markets, LLC, asarranger, Wachovia Investment Holdings, LLC, as agent, and certain otherfinancial institutions, expiring August 28, 2006, subject to a two yearextension. Our ability to borrow under the bridge loan is subject to ourongoing compliance with a number of financial and other covenants. This bridgeloan, except under some circumstances, limits our ability to make distributionsin excess of 95% of our annual funds from operations. In addition, amountsborrowed under this bridge loan bear interest at either the lender’s base rateor a floating rate based on a spread over LIBOR ranging from 55 basis points to115 basis points, depending upon our debt rating. The variable rate in effectat December 31, 2005 was 5.09%. This bridge loan also has a facility feebased on the amount committed ranging from 12.5 to 25 basis points, dependingupon our debt rating, and requires quarterly payments.

We are the borrower underthis bridge loan, and Bradley OP and Heritage OP have guaranteed this bridgeloan. Upon entering into this bridge loan, we established a related partybridge loan with Bradley OP by advancing the proceeds from the bridge loan toBradley OP. The terms of this related party bridge loan are substantiallyidentical to our bridge loan and is shown as Related Party Bridge Loan on theaccompanying Bradley OP December 31, 2005 balance sheet. This bridge loanis being used principally to fund growth opportunities and for working capitalpurposes. As of December 31, 2005, $50.0 million had been drawn under thebridge loan. The Company anticipates fully repaying the bridge loan in thesecond or third quarter of 2006 with the proceeds of an unsecured financing.

*Line of Credit*

On March 29, 2005, we refinanced our thenexisting line of credit, entering into a new three-year $400 millionunsecured line of credit with a group of lenders and Wachovia Bank, NationalAssociation, as agent, expiring March 28, 2008, subject to a one-yearextension. At our request, subject to the agent’s consent, this line of creditmay be increased to $500 million. Our ability to borrow under this line ofcredit is subject to our ongoing compliance with a number of financial andother covenants. This line of credit, except under some circumstances, limitsour ability to make distributions in excess of 95% of our annual funds fromoperations. In addition, this line of credit bears interest at either thelender’s base rate or a floating rate based on a spread over LIBOR ranging from62.5 basis points to 115 basis points, depending upon our debt rating. This newcredit facility also includes a competitive bid option that allows the Companyto hold auctions among the participating lenders in the facility for up tofifty percent of the facility amount. The variable rate in effect at December 31,2005 was 4.98%. This line of credit also has a 

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facility fee based on theamount committed ranging from 15 to 25 basis points, depending upon our debtrating, and requires quarterly payments.

We are the borrower under this line of credit andBradley OP, Heritage OP and certain of our other subsidiaries have guaranteedthis line of credit. Upon entering into this new line of credit, we establisheda related party line of credit with Bradley OP by advancing the proceeds fromthe new line of credit to Bradley OP. The terms of this related party line ofcredit facility are substantially identical to our line of credit facility andis shown as Related Party Line of Credit Facility on the accompanying BradleyOP December 31, 2005 balance sheet. Bradley OP used these funds to repaythe entire outstanding balance of the prior line of credit. As of December 31,2005, $328.0 million was outstanding under the related party line ofcredit facility

We believe that Heritageis  in compliance with all of thefinancial covenants under the bridge loan and the line of credit as of the dateof this Form 10-K. However, if our properties do not perform as expected,or if unexpected events occur that require us to borrow additional funds,compliance with these covenants may become difficult and may restrict ourability to pursue some of our business initiatives. In addition, thesefinancial covenants may restrict our ability to pursue particular acquisitiontransactions, including for example, acquiring a portfolio of properties thatis highly leveraged. These constraints on acquisitions could significantlyimpede our growth. Furthermore, because the interest rate on the line of creditis variable and based upon LIBOR rates, as LIBOR rates increase so will theinterest rate on the bridge loan and the line of credit.

*Debt Offerings*

*Heritage Notes*

Heritage hasoutstanding two series of unsecured notes. These notes were issued pursuant tothe terms of two separate but substantially identical indentures Heritageentered into with LaSalle Bank National Association, as trustee. These indenturescontain various covenants, including covenants that restrict the amount ofindebtedness that may be incurred by Heritage and its subsidiaries.Specifically, for as long as the debt securities issued under these indenturesare outstanding:

·       Heritageis not permitted to incur additional indebtedness if the aggregate principalamount of all indebtedness of Heritage and its subsidiaries would be greaterthan 60% of the total assets, as defined, of Heritage and its subsidiaries.

·       Heritageis not permitted to incur any indebtedness if the ratio of Heritage’sconsolidated income available for debt service to the annual debt servicecharge for the four consecutive fiscal quarters most recently ended prior tothe date the additional indebtedness is to be incurred would be less than 1.5:1on a pro forma basis.

·       Heritageis not permitted to incur additional indebtedness if, after giving effect tosuch additional indebtedness, the total secured indebtedness of Heritage andits subsidiaries is greater than 40% of the total assets, as defined, ofHeritage and its subsidiaries.

·       Heritageand its subsidiaries may not at any time own total unencumbered assets equal toless than 150% of the aggregate outstanding principal amount of unsecuredindebtedness of Heritage and its subsidiaries.

**Notesdue 2009.****  **OnOctober 15, 2004, Heritage completed the issuance and sale of $150 millionprincipal amount of 4.50% notes due 2009 (the “2009 Notes”). The 2009 Notesbear interest at a rate of 4.50% and mature on October 15, 2009. The 2009Notes may be redeemed at any time at our option, in whole or in part, at aredemption price equal to the sum of (1) the principal amount of the notesbeing redeemed plus accrued interest on the notes to the redemption date and (2) amake-whole amount, if any, 

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with respect to the notesthat is designed to provide yield maintenance protection to the holders ofthese notes.

Through a subsidiary, we contributed the net proceedsof the offering of the 2009 Notes to Bradley OP and received an intercompany notefrom Bradley OP. This intercompany note is classified as Related Party NotesPayable in the accompanying consolidated balance sheets. All of the netproceeds of the offering of the 2009 Notes were then used by Bradley OP toreduce the outstanding balance under our prior line of credit.

**Notesdue 2014.****  **OnApril 1, 2004, Heritage completed the issuance and sale of $200 millionprincipal amount of 5.125% notes due 2014  (the “2014 Notes”). The 2014Notes bear interest at a rate of 5.125% and mature on April 15, 2014. The2014 Notes may be redeemed at any time at our option, in whole or in part, at aredemption price equal to the sum of (1) the principal amount of the notesbeing redeemed plus accrued interest on the notes to the redemption date and (2) amake-whole amount, if any, with respect to the notes that is designed toprovide yield maintenance protection to the holders of these notes.

Through a subsidiary, we contributed the net proceedsof the offering of the 2014 Notes to Bradley OP and received an intercompanynote from Bradley OP. This intercompany note is classified Related Party NotesPayable in the accompanying consolidated balance sheets. All of the netproceeds of the offering of the 2014 Notes were then used by Bradley OP toreduce the outstanding balance under our prior line of credit.

These debt securities have been guaranteed by HeritageOP and Bradley OP.

We believe we are incompliance with all applicable covenants under these indentures as of December 31,2005.

*Bradley* Notes

Prior to ouracquisition of Bradley Real Estate, Inc. (“Bradley”), Bradley OP completedthe sale of three series of senior, unsecured debt securities. We repaid infull one of these series of Bradley OP debt securities upon maturity in November 2004.These debt securities were issued pursuant to the terms of an indenture andthree supplemental indentures entered into by Bradley OP with LaSalle BankNational Association, as trustee, beginning in 1997. The indenture and threesupplemental indentures contain various covenants, including covenants whichrestrict the amount of indebtedness that may be incurred by Bradley OP andthose of our subsidiaries which are owned directly or indirectly by Bradley OP.Specifically, for as long as these debt securities are outstanding:

·       BradleyOP is not permitted to incur additional indebtedness if the aggregate principalamount of all indebtedness of Bradley OP and its subsidiaries would be greaterthan 60% of the total assets, as defined, of Bradley OP and its subsidiaries.

·       BradleyOP is not permitted to incur any indebtedness if the ratio of Bradley OP’sconsolidated income available for debt service to the annual debt servicecharge for the four consecutive fiscal quarters most recently ended prior tothe date the additional indebtedness is to be incurred would be less than 1.5:1on a pro forma basis.

·       BradleyOP is not permitted to incur additional indebtedness if, after giving effect toany additional indebtedness, the total secured indebtedness of Bradley OP andits subsidiaries is greater than 40% of the total assets, as defined, ofBradley OP and its subsidiaries.

·       BradleyOP and its subsidiaries may not at any time own total unencumbered assets equalto less than 150% of the aggregate outstanding principal amount of unsecuredindebtedness of Bradley OP and its subsidiaries.

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For purposes of these covenants, any indebtednessincurred by Heritage, Heritage OP or any of Heritage’s subsidiaries that areowned directly or indirectly by Heritage OP is not included as indebtedness ofBradley OP.

**Notesdue 2006.****  **InMarch 2000, Bradley OP completed the offering of $75 millionaggregate principal amount of its 8.875% Notes due 2006 (the “2006 Notes”). The2006 Notes bear interest at 8.875% per year and mature on March 15, 2006.The 2006 Notes may be redeemed at any time at the option of Bradley OP, inwhole or in part, at a redemption price equal to the sum of (1) theprincipal amount of the 2006 Notes being redeemed plus accrued interest on the2006 Notes to the redemption date and (2) a make-whole amount, if any, withrespect to the 2006 Notes that is designed to provide yield maintenanceprotection to the holders of these notes. In connection with the Bradleyacquisition, we repurchased approximately $73.5 million of the 2006 Notesat a purchase price equal to the principal and accrued interest on the 2006Notes as of the date of purchase, so that approximately $1.5 million ofthe 2006 Notes was outstanding as of December 31, 2005. We repaid the 2006Notes upon maturity with borrowings under our line of credit.

**Notesdue 2008.****  **InJanuary 1998, Bradley OP completed the offering of $100 millionaggregate principal amount of its 7.2% Notes due 2008 (the “2008 Notes”). The2008 Notes bear interest at 7.2% per year and mature on January 15, 2008.The 2008 Notes may be redeemed at any time at the option of Bradley OP, inwhole or in part, at a redemption price equal to the sum of (1) theprincipal amount of the 2008 Notes being redeemed plus accrued interest on the2008 Notes to the redemption date and (2) a make-whole amount, if any,with respect to the 2008 Notes that is designed to provide yield maintenanceprotection to the holders of these notes.

We believe Bradley OP isin compliance with all applicable covenants under these indentures as of December 31,2005.

*Equity Financings*

In April 2002, we completed our initial publicoffering and sold 14,080,556 shares of our common stock at a price of $25.00per share resulting in net proceeds to us of $323 million. We used the netproceeds of the IPO to repay outstanding indebtedness. In connection with ourIPO, all shares of our Series A Cumulative Convertible Preferred Stock andredeemable equity then outstanding converted automatically into shares of ourcommon stock on a one for one basis.

In December 2003, wecompleted a secondary public offering of our common stock and sold a total of3,932,736 shares at a net price of $28.27 per share, resulting in net proceedsto us of $111 million. We used the net proceeds of this offering to repayoutstanding indebtedness, including the indebtedness of Bradley OP.

**Related Party Transactions**

*The TJX Companies*

In July 1999, BernardCammarata became a member of our board of directors. Until September 2005,Mr. Cammarata was non-executive Chairman of the Board of TJX Companies, Inc.,our largest tenant. In September 2005, Mr. Cammarata became Presidentand Chief Executive Officer of TJX, positions he previously held. In October 2005,TJX appointed a new President, with Mr. Cammarata continuing to serve asChief Executive Officer. Annualized base rent from the TJX Companies representsapproximately 5.3% of Heritage’s total annualized base rent and 3.0% of BradleyOP’s total annualized base rent for all leases in which tenants were inoccupancy at December 31, 2005. In addition, as of December 31, 2005,Heritage and Bradley OP had outstanding accounts receivable for contractual andstraight-line rent of 

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$2.0 millionand $0.7 million, respectively.  TJX paysHeritage and Bradley OP rent in accordance with 52 leases and 20 leases,respectively, at our properties.

*Ahold USA*

In July 1999, WilliamM. Vaughn, III became a member of our board of directors. Until December 31,2005, Mr. Vaughn was Senior Vice President, Labor Relations of Ahold USA, Inc.,the parent company of Giant Foods and Stop & Shop. Mr. Vaughn isalso a member of the Board of Trustees of our largest stockholder, New EnglandTeamsters & Trucking Industry Pension Fund (“NETT”). Annualized baserent from Ahold USA and its subsidiary companies represents approximately 0.6%of Heritage’s annualized base rent for all leases in which tenants were inoccupancy at December 31, 2005. In addition, as of December 31, 2005,Heritage had outstanding accounts receivable for contractual and straight-linerent of $0.4 million. Ahold USA and its subsidiary companies pay us rent inaccordance with 3 leases at our properties. None of Ahold USA’s leases relatedto Bradley OP’s Portfolio.

*A.C. Moore*

InJune 2004, Michael J. Joyce became a member of our board ofdirectors. In July 2004, Mr. Joyce became a member of the board ofdirectors of A.C. Moore Arts & Crafts. Annualized base rent from A.C.Moore represents 0.2% of Heritage’s total annualized base rent for all leasesin which tenants were in occupancy at December 31, 2005. In addition, asof December 31, 2005, Heritage had outstanding accounts receivable forcontractual and straight-line rent of $0.1 million. A.C. Moore pays us rent inaccordance with 3 leases at our properties. None of A.C. Moore’s leases relatedto Bradley OP’s Portfolio.

*131 DartmouthStreet Joint Venture*

In November 1999, Heritage entered into a jointventure with an affiliate of NETT for the acquisition and development of a365,000 square foot commercial office building at 131 Dartmouth Street, Boston,Massachusetts. This joint venture is owned 94% by the affiliate of NETT and 6%by Heritage. Heritage was issued this interest as part of a managementarrangement with the joint venture pursuant to which we manage the building.Heritage has no ongoing capital contribution requirements with respect to thisoffice building, which was completed in 2003. Heritage accounts for ourinterest in this joint venture using the cost method and has not expended anyamounts on the office building through December 31, 2005.

In February 2004,Heritage entered into an eleven-year lease with its joint venture with NETT forapproximately 31,000 square feet of space at 131 Dartmouth Street and moved itscorporate headquarters to this space during the first quarter of 2004. Underthe terms of this lease, Heritage began paying rent to the joint venture inFebruary 2005. Heritage pays an average of $1.2 million per year inminimum rent annually. We believe that the rent payable under this lease isconsistent with market rates.

**Contingencies**

*Legal and OtherClaims*

We are subject to legaland other claims incurred in the normal course of business. Based on our reviewand consultation with counsel of those matters known to exist, including thosematters described on page 34, we do not believe that the ultimate outcomeof these claims would materially affect our financial position or results ofoperations.

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*Recourse LoanGuarantees*

In addition to ourunsecured line of credit and unsecured debt securities we and Bradley OP haveissued, we have fully guaranteed the repayment of a $22 million constructionloan obtained by our Lakes Crossing joint venture from Key Bank, NationalAssociation. The Key Bank loan matures in November 2006 (subject to aone-year extension).

*Non-Recourse LoanGuarantees*

In connection with the Bradley acquisition, we enteredinto a special securitized facility with Prudential Mortgage CapitalCorporation (“PMCC”) pursuant to which $244 million of collateralizedmortgage-backed securities were issued by a trust created by PMCC. The trustconsists of a single mortgage loan due from a subsidiary we created, HeritageSPE LLC, to which we contributed 29 of our properties. This loan is secured byall 29 properties we contributed to the borrower.

In connection with the securitized financing withPMCC, we entered into several indemnification and guaranty agreements with PMCCunder the terms of which we agreed to indemnify PMCC for various bad acts ofHeritage SPE LLC and with respect to specified environmental liabilities withrespect to the properties contributed by us to Heritage SPE LLC.

We also have agreed toindemnify other mortgage lenders for bad acts and environmental liabilities inconnection with other mortgage loans that we have assumed.

**Inflation**

Inflation has had aminimal impact on the operating performance of our properties. However, many ofour leases contain provisions designed to mitigate the adverse impact ofinflation. These provisions include clauses enabling us to receive payment ofadditional rent calculated as a percentage of tenants’ gross sales abovepre-determined thresholds, which generally increase as prices rise, and/or escalationclauses, which generally increase rental rates during the terms of the leases.These escalation clauses often are at fixed rent increases or indexedescalations (based on the consumer price index or other measures). Many of ourleases are also for terms of fewer than ten years, which permits us to seek toincrease rents to market rates upon renewal. In addition, most of our leasesrequire the tenant to pay an allocable share of operating expenses, includingcommon area maintenance costs, real estate taxes and insurance. We believe thisreduces our exposure to increases in costs and operating expenses resultingfrom inflation.

**New Accounting Standards**

In December 2004, the FASB issued SFAS No. 123R,*Share-Based Compensation (*“SFAS No. 123R”).SFAS No. 123R supersedes APB Opinion No. 25, *Accounting for Stock Issued to Employees* (“APB Opinion No. 25”),and amends SFAS No. 95, *Statement ofCash Flows*. SFAS No. 123R requires all share-based payments toemployees, including grants of employee stock options, to be recorded as anexpense based on their fair values. The grant-date fair value of employee shareoptions and similar instruments will be estimated using an option-pricing modeladjusted for any unique characteristics of a particular instrument. If anequity award is modified after the grant date, incremental compensation costwill be recognized in an amount equal to the excess of the fair value of themodified award over the fair value of the original award immediately before themodification. Currently, we account for share-based compensation in accordancewith APB Opinion No. 25 and related Interpretations. We are requiredto account for share-based compensation to employees in accordance with SFAS No. 123Ron a modified prospective basis beginning January 1, 2006. Under themodified prospective basis, compensation cost is recognized beginning with theeffective date (a) based on the requirements of SFAS No. 123R for allshare-based payments granted after the effective date and (b) based on therequirements of SFAS No. 123 for all awards granted to employees prior tothe effective date of SFAS No. 123R that remain unvested on 

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the effective date. We donot expect the adoption of SFAS No. 123R to have a material impact onHeritage or Bradley OP’s results of operations, financial position, orliquidity.

In March 2005, the FASB issued FASBInterpretation No. 47, *Accounting forConditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143*(“FIN No. 47”). FIN No. 47 clarifies that conditionalasset retirement obligations meet the definition of liabilities and should berecognized when incurred if their fair values can be reasonably estimated. FIN No.47 is effective for the fiscal year ended December 31, 2005. The adoptionof FIN No. 47 did not have a material effect on Heritage or Bradley OP’sconsolidated results of operations, financial position, or liquidity.

In May 2005, the FASB issued Statement ofFinancial Accounting Standard No. 154, *Accounting Changes andError Corrections* (“SFAS No. 154”). SFAS No. 154 replacesAPB Opinion No. 20, *Accounting Changes,*and SFAS No. 3, *Reporting AccountingChanges in Interim Financial Statements,*and changes therequirements for the accounting for and reporting of a change in accountingprinciple. APB Opinion No. 20 previously required that most voluntarychanges in accounting principle be recognized by including in net income of theperiod of the change the cumulative effect of changing to the new accountingprinciple. SFAS No. 154 requires retrospective application to priorperiods’ financial statements of changes in accounting principle, unless it isimpracticable to determine either the period-specific effects or the cumulativeeffect of the change. SFAS No. 154 is effective for accounting changes andcorrections of errors made in fiscal years beginning after December 15, 2005.We do not expect the adoption of SFAS No. 154 to have a material impact onHeritage or Bradley OP’s financial condition and results of operations,financial position, or liquidity.

In September 2005,the Emerging Issues Task Force issued Issue No. 04-5, *Investor’s Accounting for an Investment in a Limited Partnership Whenthe Investor is the Sole General Partner and the Limited Partners Have CertainRights*, (“EITF No. 04-5”). At issue is what rights heldby the limited partner(s) preclude consolidation in circumstances in whichthe sole general partner would consolidate the limited partnership inaccordance with U.S. generally accepted accounting principles. The assessment oflimited partners’ rights and their impact on the presumption of control of thelimited partnership by the sole general partner should be made when an investorbecomes the sole general partner and should be reassessed if (i) there isa change to the terms or in the exercisability of the rights of the limitedpartners, (ii) the sole general partner increases or decreases itsownership of limited partnership interests, or (iii) there is an increaseor decrease in the number of outstanding limited partnership interests. Thisissue is effective no later than for fiscal years beginning after December 15,2005 and as of June 29, 2005 for new or modified arrangements. Theadoption of EITF No. 04-5 did not have a material impact on Heritage orBradley OP’s financial condition and results of operations, financial position,or liquidity.

**Net Operating Income**

Net operating income, or “NOI,” is a non-GAAPfinancial measure equal to net income available to common shareholders (themost directly comparable GAAP financial measure), plus income allocated tominority interests in Bradley OP, general and administrative expense,depreciation and amortization, and interest expense, less income fromdiscontinued operations, and interest, other, and joint venture fee income.

We use NOI internally, and believe NOI provides usefulinformation to investors, as a performance measure in evaluating the operatingperformance of our real estate assets. This is because NOI reflects only thoseincome and expense items that are incurred at the property level and excludescertain components from net income in order to provide results that moreclosely relate to a property’s results of operations. Our presentation of NOImay not be comparable to NOI reported by other REITs that define NOI differently.We believe that in order to obtain a clear understanding of our operatingresults, NOI should be examined in conjunction with net income as presented inour consolidated financial statements. 

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NOI should not beconsidered as an alternative to net income as an indication of our performanceor to cash flows as a measure of liquidity or ability to make distributions.

Thefollowing sets forth a reconciliation of Bradley OP’s NOI (excluding NOIattributable to Heritage and its other subsidiaries) to net income available tocommon unitholders (excluding NOI attributable to Heritage and its othersubsidiaries). As described in the **“Restatement Summary”**at the beginning of Item 7 **“Management’s Discussion and Analysis ofFinancial Condition and Results of Operations”** of this Annual Report, Bradley OPrestated its financial statements and other financial information for the yearsended December 31, 2004 and 2003, and for each of the quarters therein, aswell as for the quarterly periods ended March 31, 2005 and June 30,2005. This restatement adjusted Bradley OP’s net income. The following tablereflects the impact of those restated historical financial statements (inthousands):

| ** **                                                | ** ** | **Years ended December 31,** | ** ** |
|-----------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                | ** ** | **2005**                                    | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| Net operating  income                                     |       | $                                           | 144,039    |   | $ | 130,845 |   | $ | 129,950 |   | $ | 118,829 |   | $ | 108,006 |   |
| Add:                                                      |       |                                        |       |   |   |   |   |   |   |   |   |
| Interest and  other                                       |       | 332                                         |       | 374 |   | 36 |   | 58 |   | 132 |   |
| Equity in (loss)  income from unconsolidated subsidiaries |       | (77                                         | )          | 86 |   |   |   |   |   |   |   |
| Gains on sales of  real estate investments                |       | —                                      |       | 28 |   | — |   | — |   | — |   |
| Income from  discontinued operations                      |       | —                                      |       | 532 |   | 615 |   | 755 |   | 784 |   |
| Gains on sales of  discontinued operations                |       | —                                      |       | 970 |   | — |   | — |   | — |   |
| Net derivative  gains                                     |       | —                                      |       | — |   | — |   | — |   | 986 |   |
| Deduct:                                                   |       |                                        |       |   |   |   |   |   |   |   |   |
| Depreciation and  amortization                            |       | 59,124                                      |       | 50,526 |   | 47,973 |   | 42,964 |   | 39,033 |   |
| Interest                                                  |       | 49,687                                      |       | 39,048 |   | 33,030 |   | 35,537 |   | 47,102 |   |
| General and  administrative                               |       | 19,694                                      |       | 17,617 |   | 14,562 |   | 15,324 |   | 8,256 |   |
| Loss on  prepayment of debt                               |       | —                                      |       | — |   | — |   | 4,215 |   | — |   |
| Net derivative  losses                                    |       | —                                      |       | — |   | — |   | 7,766 |   | — |   |
| Net income                                                |       | 15,789                                      |       | 25,644 |   | 35,036 |   | 13,836 |   | 15,517 |   |
| Deduct:                                                   |       |                                        |       |   |   |   |   |   |   |   |   |
| Preferred stock  distributions                            |       | —                                      |       | 2,176 |   | 6,656 |   | 6,656 |   | 6,656 |   |
| Net income  attributable to common unitholders            |       | $                                           | 15,789     |   | $ | 23,468 |   | $ | 28,380 |   | $ | 7,180 |   | $ | 8,861 |   |

 

**Item 7A:**               Quantitativeand Qualitative Disclosures About Market Risk

Market risk is the exposure to loss resulting fromadverse changes in market prices, interest rates, foreign currency exchangerates, commodity prices and equity prices. The primary market risk to which weare exposed is interest rate risk, which is sensitive to many factors,including governmental monetary and tax policies, domestic and internationaleconomic and political considerations and other factors that are beyond ourcontrol. Our future income, cash flows and fair values relevant to financialinstruments are dependent upon prevalent market interest rates.

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Thefollowing table presents our (including Bradley OP) contractual fixed rate debtobligations as of December 31, 2005 sorted by maturity date and ourcontractual variable rate debt obligations sorted by maturity date (inthousands):

| ** **        | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011+** | ** ** | **Total(2)** | ** ** | **Weighted   Average   Interest  Rate** | ** ** |
|-------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|-----------|------------|--------------|------------|---------------------------------------------------|------------|
| *Secured Debt:*   |       |     |       |     |       |     |       |     |       |     |       |      |       |         |       |                                              |       |   |   |
| Fixed rate        |       | $        | 23,869     |     | $          | 57,888   |       | $        | 19,637     |     | $          | 141,173   |       | $            | 292,372    |                                              | $          | 69,998 |   | $ | 604,937 |   |   | 7.30 | % |   |
| Variable rate     |       | 472      |       | 503      |       | 534      |       | 571      |       | 608      |       | 11,342    |       | 14,030       |       |                                              | 6.29       | % |   |
| *Unsecured Debt:* |       |     |       |     |       |     |       |     |       |     |       |      |       |         |       |                                              |       |   |   |
| Fixed rate        |       | 1,490    |       | —   |       | 100,000  |       | 150,000  |       | —   |       | 200,000   |       | 451,490      |       |                                              | 5.66       | % |   |
| Variable rate     |       | 50,000   |       | —   |       | 328,000  |       | —   |       | —   |       | —    |       | 378,000      |       |                                              | 4.99       | % |   |
| Total             |       | $        | 75,831     |     | $          | 58,391   |       | $        | 448,171    |     | $          | 291,744   |       | $            | 292,980    |                                              | $          | 281,340 |   | $ | 1,448,457 |   |   | 6.18 | % |   |

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(1)          The aggregate repaymentamount of $1,448,457 does not reflect the unamortized mortgage loan premiumstotaling $11,852 related to the assumption of sixteen mortgage loans withabove-market contractual interest rates and the unamortized original issuediscount of $1,526 on the 2004 bond issuances.

If market rates of interest on our variable rate debtoutstanding at December 31, 2005 increase by 10%, or 50 basis points, theincrease in interest expense would decrease future earnings and cash flows by$2.0 million annually.

Thefollowing table presents Bradley OP’s fixed rate debt obligations, at theircarrying values, sorted by maturity date and Bradley OP’s variable rate debtobligations sorted by maturity date (in thousands): 

| ** **        | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011+** | ** ** | **Total(1)** | ** ** | **Weighted   Average   Interest  Rate** | ** ** |
|-------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|-----------|------------|--------------|------------|---------------------------------------------------|------------|
| *Secured Debt:*   |       |     |       |     |       |     |       |     |       |     |       |      |       |         |       |                                              |       |   |   |
| Fixed rate        |       | $        | 12,162     |     | $          | 38,886   |       | $        | 12,228     |     | $          | 29,050    |       | $            | 28,316     |                                              | $          | 49,217 |   | $ | 169,859 |   |   | 6.66 | % |   |
| Variable rate     |       | 472      |       | 503      |       | 534      |       | 571      |       | 608      |       | 11,342    |       | 14,030       |       |                                              | 6.29       | % |   |
| *Unsecured Debt:* |       |     |       |     |       |     |       |     |       |     |       |      |       |         |       |                                              |       |   |   |
| Fixed rate        |       | 1,490    |       | —   |       | 100,000  |       | 150,000  |       | —   |       | 200,000   |       | 451,490      |       |                                              | 5.66       | % |   |
| Variable rate     |       | 50,000   |       | —   |       | 328,000  |       | —   |       | —   |       | —    |       | 378,000      |       |                                              | 4.99       | % |   |
| Total             |       | $        | 64,124     |     | $          | 39,389   |       | $        | 440,762    |     | $          | 179,621   |       | $            | 28,924     |                                              | $          | 260,559 |   | $ | 1,013,379 |   |   | 5.59 | % |   |

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(1)          The aggregate repaymentamount of $1,013,379 does not reflect the unamortized mortgage loan premiumstotaling $7,067 related to the assumption of ten mortgage loans withabove-market contractual interest rates.

If market rates of interest on Bradley OP’s variablerate debt outstanding at December 31, 2005 increase by 10%, or 50 basispoints, the increase in interest expense would decrease future earnings andcash flows by $2.0 million annually.

During 2005, we enteredinto forward-starting interest rate swaps to mitigate the risk of changes inforecasted interest payments on $150 million of forecasted issuances oflong-term debt. We occasionally use derivative financial instruments to manage,or hedge, interest rate risks related to our borrowings, from lines of creditto medium- and long-term financings. We require that hedging derivativeinstruments effectively reduce the interest rate risk exposure that they are designedto hedge. We do not use derivatives for trading or speculative purposes andonly enter into contracts with major financial institutions based on 

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theircredit rating and other factors. We do not believe that the interest rate riskrepresented by our floating rate debt is material as of December 31, 2005in relation to total assets and our total market capitalization.

**Item 8:**                       FinancialStatements and Supplementary Data

See **“Index toConsolidated Financial Statements and Financial Statement Schedule”** onpage F-1 of this Form 10-K

**Item 9:**                       Changesin and Disagreements with Accountants on Accounting and Financial Disclosure

None.

**Item 9A:**               Controlsand Procedures

Asdiscussed elsewhere in this report, Heritage conducts its business exclusivelythrough its subsidiaries and primarily through its two operating partnerships,Heritage OP and Bradley OP. Although Bradley OP is a separate legal entity,Heritage generally manages the affairs of Bradley OP on a combined basis withHeritage’s other subsidiaries and the management of Bradley OP is the same asthe management of Heritage. Accordingly, for purposes of this Item 9A, allreferences to management refer to both Heritage’s and Bradley OP’s management.

**(a) Restatement**

On October 17, 2005, Heritage determined that itspreviously issued financial statements for the fiscal years ended December 31,2004 and 2003, and for each of the quarterly periods therein, and for thequarterly periods ended March 31, 2005 and June 30, 2005, needed tobe restated to correct an error discovered by Heritage’s management. The errorpertained to the unrecorded effects of certain previously granted stock optionssubject to a tax-offset provision included in the employment agreement ofThomas C. Prendergast, Heritage’s Chairman, President and Chief ExecutiveOfficer. As a result of the error, Heritage, on November 9, 2005 restatedits historical financial statements to record a liability and to recognizecompensation expense, a component of general and administrative expense,related to the effects of the tax-offset provision and to reflect variableaccounting for the stock options subject to the tax-offset provision.

Heritage allocates 100% ofits general and administrative expenses to its subsidiaries, including costsassociated with Bradley OP. For this reason, Bradley OP’s general partner (ofwhich Heritage is the sole stockholder), determined that Bradley OP must alsorestate its historical financial statements to reflect additional general andadministrative expense from the amounts previously reported as a result of thetax-offset provision. See Note 2 to the Consolidated Financial Statements ofthis Form 10-K for a summary of this restatement.

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**(b) Evaluationof Disclosure Controls and Procedures**

TheCompany’s management, with the participation of our Chief Executive Officer andChief Financial Officer, evaluated the effectiveness of the combined disclosurecontrols and procedures (as defined in Rule 13a-15(e) under theSecurities Exchange Act of 1934) of Heritage and its subsidiaries, includingthose controls specific to Bradley OP, as of the end of the period covered bythis report. Based upon that evaluation, our Chief Executive Officer and ChiefFinancial Officer concluded that these disclosure controls and procedures wereeffective as of the end of the period covered by this report.

**(c) Changesin Internal Control over Financial Reporting**

In connection with therestatement described above, under the direction of our Chief Executive Officerand Chief Financial Officer, during the fourth quarter of 2005, our managementreevaluated our disclosure controls and procedures as of December 31, 2004using the criteria set forth by the Committee of Sponsoring Organizations (“COSO”)of the Treadway Commission on Internal Control—Integrated Framework. During thecourse of this reevaluation, our management concluded that our disclosurecontrols and procedures were not effective as of December 31, 2004 due toa material weakness in internal control over financial reporting with respectto our accounting for significant compensation arrangements, such as executiveemployment and severance agreements and stock-based compensation plans.

A material weakness in internal control over financialreporting is a control deficiency (within the meaning of PCAOB AuditingStandard No. 2), or combination of control deficiencies, that results inthere being more than a remote likelihood that a material misstatement of theannual or interim financial statements will not be prevented or detected. PCAOBAuditing Standard No. 2 identifies a number of circumstances (includingthe restatement of previously issued financial statements to reflect thecorrection of a misstatement) that, because of their likely significantnegative effect on internal control over financial reporting, are to beregarded as strong indicators that a material weakness exists.

To remediate the materialweakness described above, during the fourth quarter of 2005, we enhanced ourreview procedures over the accounting for significant compensation arrangements.These enhanced review procedures include the formal review and writtendetermination by our internal accounting staff prior to adoption andimplementation of the accounting for all significant compensation arrangements.As of the date of this Form 10-K, Heritage has designed andimplemented controls over the review of significant compensation arrangementsto ensure that the accounting and reporting of such arrangements are inaccordance with U.S. generally accepted accounting principles and in a mannerthat has remediated the material weakness in Heritage’s internal control overfinancial reporting as of December 31, 2005. As a result of the commonmanagement and controls environment of Heritage and Bradley OP, the remediationof Heritage’s material weakness resulted in the remediation of Bradley OP’smaterial weakness.

**Item 9B:**              OtherInformation

None.

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**PART III**

Note: Heritage PropertyInvestment Trust, Inc. is the sole stockholder of the sole general partnerof Bradley Operating Limited Partnership. Information with respect to thedirectors and officers of Heritage Property Investment Trust, Inc. is containedin various portions of Heritage Property Investment Trust, Inc.’s ProxyStatement for its 2006 Annual Meeting of Stockholders and is incorporatedherein (as set forth below) pursuant to the provisions of General Instruction G(1) toForm S-K and Rule 12b-23.

**Item 10:**                Directorsand Executive Officers of the Registrant

Except as set forth below, the information containedin the sections captioned “Proposal One: Election of Directors,” “ExecutiveCompensation” and “Section 16(a) Beneficial Ownership ReportingCompliance” of Heritage Property Investment Trust, Inc.’s Proxy Statementfor the 2006 Annual Meeting of Stockholders is incorporated herein byreference.

No directors or officersof Heritage Property Investment Trust, Inc. beneficially own any LP Units.

**Item 11:**                ExecutiveCompensation

The information containedin the sections captioned “Proposal One: Election of Directors” and “ExecutiveCompensation” of Heritage Property Investment Trust, Inc.’s ProxyStatement for the 2006 Annual Meeting of Stockholders is incorporated herein byreference.

**Item 12:**                SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters

The information containedin the section captioned “Security Ownership of Certain Beneficial Owners andManagement” of Heritage Property Investment Trust, Inc.’s Proxy Statementfor the 2006 Annual Meeting of Stockholders is incorporated herein byreference.

**Item 13:**                CertainRelationships and Related Transactions

The information containedin the section captioned “Certain Relationships and Related Transactions” ofHeritage Property Investment Trust, Inc.’s Proxy Statement for the 2006Annual Meeting of Stockholders is incorporated herein by reference.

**Item 14:**                PrincipalAccounting Fees and Services

The information containedin the section captioned “Principal Accounting Fees and Services” of HeritageProperty Investment Trust, Inc.’s Proxy Statement for the 2006 AnnualMeeting of Stockholders is incorporated herein by reference.

**PART IV**

**Item 15:**                Exhibitsand Financial Statement Schedules

See page F-1for the index of the financial statements included in the Form 10-K.

**Financial Statement Schedule.**

See page F-1for the index of the financial statement schedule included in the Form 10-K.

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**Exhibits.**
| 3.1  |   | Second Amended and Restated Agreement of Limited  Partnership of Bradley Operating Limited Partnership dated as of  September 2, 1997(1)                                                                                                                                                                                     |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2  |   | Amendment, dated as of September 18, 2000, to  Second Restated Agreement of Limited Partnership of Bradley Operating Limited  Partnership(1)                                                                                                                                                                                 |
| 3.3  |   | Amendment, dated as of April 29, 2002, to  Second Restated Agreement of Limited Partnership of Bradley Operating Limited  Partnership(1)                                                                                                                                                                                     |
| 3.4  |   | Amendment, dated as of May 17, 2002, to Second  Restated Agreement of Limited Partnership of Bradley Operating Limited  Partnership(2)                                                                                                                                                                                       |
| 3.5  |   | Articles of Amendment and Restatement (Third) of  Heritage Property Investment Trust, Inc.(1)                                                                                                                                                                                                                                |
| 3.6  |   | Amended and Restated Bylaws of Heritage Property  Investment Trust, Inc.(1)                                                                                                                                                                                                                                                  |
| 4.1  |   | Indenture, dated as of November 24, 1997, by  and between Bradley Operating Limited Partnership and LaSalle Bank National  Association relating to the Senior Debt Securities of Bradley Operating  Limited Partnership(1)                                                                                                   |
| 4.2  |   | Supplemental Indenture No. 2, dated as of  January 28, 1998, between Bradley Operating Limited Partnership and  LaSalle Bank National Association(1)                                                                                                                                                                    |
| 4.3  |   | Supplemental Indenture No. 3, dated as of  March 10, 2000, between Bradley Operating Limited Partnership and  LaSalle Bank National Association(1)                                                                                                                                                                      |
| 4.4  |   | Supplemental Indenture No. 4, dated as of May,  2004, between Bradley Operating Limited Partnership and LaSalle Bank National  Association(3)                                                                                                                                                                                |
| 4.5  |   | Indenture, dated as of April 1, 2004, by and  between Heritage Property Investment Trust, Inc., Heritage Property  Investment Limited Partnership, Bradley Operating Limited Partnership and  LaSalle Bank National Association relating to 5.125% Notes due 2014 of  Heritage Property Investment Trust, Inc.(3)  |
| 4.6  |   | Form of 5.125% Note due 2014 (Included in  Exhibit 4.6)(3)                                                                                                                                                                                                                                                              |
| 4.7  |   | Guarantee of 5.125% Notes due 2014, dated as of  April 1, 2004, by Heritage Property Investment Limited Partnership(3)                                                                                                                                                                                                       |
| 4.8  |   | Guarantee of 5.125% Notes due 2014, dated as of  April 1, 2004, by Bradley Operating Limited Partnership(3)                                                                                                                                                                                                                  |
| 4.9  |   | Registration Rights Agreement, dated as of  April 1, 2004, by and between Heritage Property Investment  Trust, Inc., Heritage Property Investment Limited Partnership, Bradley  Operating Limited Partnership and the Initial Purchasers relating to 5.125%  Notes due 2014 and Guarantees of 5.125% Notes due 2014(3)  |
| 4.10 |   | Indenture, dated as of October 15, 2004, by and  between Heritage Property Investment Trust, Inc,, Heritage Property  Investment Limited Partnership, Bradley Operating Limited Partnership and  LaSalle Bank National Association relating to 4.50% Notes due 2009 of  Heritage Property Investment Trust, Inc.(4)     |
| 4.11 |   | Form of 4.50% Note due 2009 (Included in  Exhibit 4.10)                                                                                                                                                                                                                                                                 |
| 4.12 |   | Guarantee of 4.50% Notes due 2009, dated as of  October 15, 2004, by Heritage Property Investment Limited Partnership(4)                                                                                                                                                                                                     |
| 4.13 |   | Guarantee of 4.50% Notes due 2009, dated as of  October 15, 2004, by Bradley Operating Limited Partnership(4)                                                                                                                                                                                                                |
| 4.16 |   | Registration Rights Agreement, dated as of  October 15, 2004, by and between Heritage Property Investment  Trust, Inc., Heritage Property Investment Limited Partnership, Bradley  Operating Limited Partnership and the Initial Purchasers relating to 4.50%  Notes due 2009 and Guarantees of 4.50% Notes due 2009(4) |

69

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| 10.1 |   | Credit Agreement, dated as of March 29, 2005 by  and among Heritage Property Investment Trust, Inc., Wachovia Capital  Markets, LLC, as Arranger, Wachovia Bank, National Association, as  Agent, each of Deutsche Bank Trust Company Americas and Key Bank National  Association, as Syndication Agents, each of Bank of America, National  Association and Commerzbank Aktiengesellschaft, New York Branch, as  Documentation Agents, and each of the financial institutions initially a  signatory to the Credit Agreement(5) |
|------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 21.1 |   | List of Subsidiaries of the registrant                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 23.1 |   | Consent of KPMG LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 31.1 |   | Certification of Chief Executive Officer of Heritage  Property Investment Trust, Inc. Pursuant to Securities Exchange Act  Rules 13a-14(a) and 15d-14(a)                                                                                                                                                                                                                                                                                                                                                                              |
| 31.2 |   | Certification of Chief Financial Officer of Heritage  Property Investment Trust, Inc. Pursuant to Securities Exchange Act  Rules 13a-14(a) and 15d-14(a)                                                                                                                                                                                                                                                                                                                                                                              |
| 32.1 |   | Chief Executive Officer’s Certification Pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The  Sarbanes-Oxley Act of 2003.                                                                                                                                                                                                                                                                                                                                                                                   |
| 32.2 |   | Chief Financial Officer’s Certification Pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The  Sarbanes-Oxley Act of 2003.                                                                                                                                                                                                                                                                                                                                                                                   |

----

(1)          Incorporated byreference to Heritage Property Investment Trust, Inc.’s RegistrationStatement on Form S-11 (File No. 333-69118).

(2)          Incorporated byreference to Heritage Property Investment Trust, Inc.’s Quarterly Reporton Form 10-Q for the quarter ended March 31, 2002

(3)          Incorporated byreference to Heritage Property Investment Trust, Inc.’s and the Registrant’sRegistration Statement on Form S-4 (File No. 333-116298)

(4)          Incorporated byreference to Heritage Property Investment Trust, Inc.’s and the Registrant’sRegistration Statement on Form S-4 (File No. 333-121578)

(5)          Incorporatedby reference to Heritage Property Investment Trust, Inc.’s Current Reporton Form 8-K filed on March 30, 2005.

**Reports on Form 8-K.**

On October 21, 2005, Bradley OP filed a CurrentReport on Form 8-K announcing its plan to restate certain priorfinancial statements.

70

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this Annual Report on Form 10-Kto be signed on its behalf by the undersigned, thereunto duly authorized.

|        | BRADLEY OPERATING LIMITED PARTNERSHIP |
|--------|---------------------------------------|
|   | By:                                   |   | Heritage-Austen  Acquisition, Inc., Its General Partner |
|   | By:                                   |   | /s/ THOMAS C. PRENDERGAST |
|   |                                  |   | Thomas C. Prendergast |
|   |                                  |   | *President and Chief Executive  Officer* |

 

Dated: March 30, 2006

Pursuant to the requirementsof the Securities Act of 1934, this Annual Report on Form 10-K hasbeen signed below by the following persons in the capacities and on the datesindicated:

|                                     | **Signature** | ** **                                                         | ** ** | ** **           | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** | ** ** |
|-------------------------------------|---------------|--------------------------------------------------------------------|------------|----------------------|-----------|------------|------------|------------|----------|------------|------------|
| /s/ THOMAS  C. PRENDERGAST     |          | President and  Chief Executive Officer,                            |       | March 30, 2006  |      |
| Thomas  C. Prendergast              |          | Director  (principal executive officer)                       |       |                 |      |
| /s/ DAVID  G. GAW              |          | Senior Vice  President, Chief Financial                            |       | March 30, 2006  |      |
| David  G. Gaw                       |          | Officer and Treasurer  (principal financial officer)               |       |                 |      |
| /s/ PATRICK H. O’SULLIVAN |          | Vice President,  Finance and                                       |       | March 30, 2006  |      |
| Patrick  H. O’Sullivan         |          | Accounting and Assistant  Treasurer (principal accounting officer) |       |                 |      |
| /s/ JOSEPH L. BARRY            |          | Director                                                           |       | March 30, 2006  |      |
| Joseph L. Barry                     |          |                                                               |       |                 |      |
| /s/ BERNARD CAMMARATA          |          | Director                                                           |       | March 30,  2006 |      |
| Bernard Cammarata                   |          |                                                               |       |                 |      |
| /s/ RICHARD C. GARRISON        |          | Director                                                           |       | March 30,  2006 |      |
| Richard C.  Garrison                |          |                                                               |       |                 |      |

71

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| /s/ MICHAEL  J. JOYCE        |   | Director |   | March 30, 2006 |   |
|-----------------------------------|--------|----------|--------|---------------------|--------|
| Michael  J. Joyce                 |   |     |   |                |   |
| /s/ DAVID  W. LAUGHTON       |   | Director |   | March 30, 2006 |   |
| David  W. Laughton                |   |     |   |                |   |
| /s/ KEVIN  C. PHELAN         |   | Director |   | March 30, 2006 |   |
| Kevin  C. Phelan                  |   |     |   |                |   |
| /s/ KENNETH  K. QUIGLEY, JR. |   | Director |   | March 30, 2006 |   |
| Kenneth  K. Quigley, Jr.     |   |     |   |                |   |
| /s/ RICH  REARDON            |   | Director |   | March 30, 2006 |   |
| Rich  Reardon                     |   |     |   |                |   |
| /s/ WILLIAM  M. VAUGHN III   |   | Director |   | March 30, 2006 |   |
| William  M. Vaughn III            |   |     |   |                |   |
| /s/ ROBERT  J. WATSON        |   | Director |   | March 30, 2006 |   |
| Robert J. Watson                  |   |     |   |                |   |

 

72

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**BRADLEY OPERATING LIMITED PARTNERSHIP**

**Indexto Consolidated Financial Statements and Financial Statement Schedule**
| Report of Independent  Registered Public Accounting Firm                                                                                |   | F-2     |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|---------|--------|
| Consolidated Balance Sheets as of December 31,  2005 and 2004                                                                 |   | F-3     |   |
| Consolidated Statements of Operations for the years  ended December 31, 2005, 2004 and   2003                                 |   | F-4     |   |
| Consolidated Statements of Changes in Partners’  Capital for the years ended December 31, 2005, 2004 and 2003  |   | F-5     |   |
| Consolidated Statements of Cash Flows for the years  ended December 31, 2005, 2004 and   2003                                 |   | F-6     |   |
| Notes to Consolidated Financial Statements                                                                                              |   | F-7     |   |
| Financial  Statement Schedule—Schedule III                                                                                         |   | S-III-1 |   |

 

All other schedules for which a provision is made inthe applicable accounting regulations of the Securities and Exchange Commissionare not required under the related instructions or are inapplicable, andtherefore have been omitted.

F-1

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**Report of Independent Registered Public AccountingFirm**

The Board of Directors and Shareholders of HeritageProperty Investment Trust, Inc.and Unitholders of Bradley Operating Limited Partnership:

We have audited the accompanying consolidated balancesheets of Bradley Operating Limited Partnership and subsidiaries (the OperatingPartnership), a majority-owned subsidiary of Heritage Property Investment Trust, Inc.,as of December 31, 2005 and 2004, and the related consolidated statementsof operations, changes in partners’ capital, and cash flows for each of theyears in the three-year period ended December 31, 2005. In connection withour audits of the consolidated financial statements, we have also audited thefinancial statement schedule III listed in the accompanying index toconsolidated financial statements and financial statement schedule. Theseconsolidated financial statements and financial statement schedule are theresponsibility of the Operating Partnership’s management. Our responsibility isto express an opinion on these consolidated financial statements and financialstatement schedule based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of the Operating Partnership as of December 31,2005 and 2004, and the results of its operations and its cash flows for each ofthe years in the three-year period ended December 31, 2005, in conformitywith U.S. generally accepted accounting principles. Also in our opinion, therelated financial statement schedule, when considered in relation to the basicconsolidated financial statements taken as a whole, presents fairly, in allmaterial respects, the information set forth therein.

/s/ KPMG LLP

Boston, MassachusettsMarch 27, 2006

F-2

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**BRADLEY OPERATING LIMITED PARTNERSHIP Consolidated Balance Sheets (Dollars in thousands, except for unit data)**

|                                                                                                                                              | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                   | ** ** | **2005**              | ** ** | **2004** | ** ** |
| **Assets**                                                                                                                                   |       |                  |       |   |   |
| Real estate  investments, net                                                                                                                |       | $                     | 1,465,599  |   | $ | 1,317,200 |   |
| Cash and cash equivalents                                                                                                                    |       | —                |       | 4,558 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $6,234 and $5,626 at  December 31, 2005 and 2004, respectively          |       | 32,755                |       | 25,609 |   |
| Intercompany  advances                                                                                                                       |       | 78,302                |       | 66,021 |   |
| Prepaids and  other assets                                                                                                                   |       | 11,718                |       | 10,710 |   |
| Investment in  unconsolidated joint venture                                                                                                  |       | 5,211                 |       | 3,406 |   |
| Deferred  financing and leasing costs                                                                                                        |       | 34,730                |       | 20,661 |   |
| Total assets                                                                                                                                 |       | $                     | 1,628,315  |   | $ | 1,448,165 |   |
| **Liabilities and Partners’ Capital**                                                                                                   |       |                  |       |   |   |
| Liabilities:                                                                                                                                 |       |                  |       |   |   |
| Mortgage loans payable                                                                                                                       |       | $                     | 190,956    |   | $ | 178,040 |   |
| Unsecured notes payable                                                                                                                      |       | 101,490               |       | 101,490 |   |
| Line of credit facility                                                                                                                      |       | —                |       | 196,000 |   |
| Related party line of credit facility                                                                                                        |       | 328,000               |       | — |   |
| Related party bridge loan payable                                                                                                            |       | 50,000                |       | — |   |
| Related party notes payable                                                                                                                  |       | 350,000               |       | 350,000 |   |
| Accrued expenses and other liabilities                                                                                                       |       | 49,579                |       | 48,636 |   |
| Accrued distributions                                                                                                                        |       | 18,775                |       | 18,013 |   |
| Intercompany payable                                                                                                                         |       | —                |       | 6,140 |   |
| Total liabilities                                                                                                                            |       | 1,088,800             |       | 898,319 |   |
| Minority interest                                                                                                                            |       | —                |       | 2,425 |   |
| Redeemable common  units; 659,051 and 522,044 common units outstanding at redemption value at  December 31, 2005 and 2004, respectively |       | 22,012                |       | 16,752 |   |
| Partners’ capital:                                                                                                                      |       |                  |       |   |   |
| General partner; 32,568,441 units outstanding at  December 31, 2005 and 2004                                                       |       | 458,234               |       | 513,226 |   |
| Limited partner; 2,533,304 and 1,219,782 units  outstanding at December 31, 2005 and 2004, respectively                                 |       | 59,269                |       | 17,443 |   |
| Total partners’ capital                                                                                                                 |       | 517,503               |       | 530,669 |   |
| Total liabilities  and partners’ capital                                                                                                |       | $                     | 1,628,315  |   | $ | 1,448,165 |   |

 

See accompanying notes to consolidated financial statements.

F-3

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**BRADLEY OPERATING LIMITED PARTNERSHIP Consolidated Statements of Operations (In thousands, except per-unit data)**

|                                                                         | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                              | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| Revenue:                                                                |       |                                       |       |   |   |   |   |
| Rentals and recoveries                                                  |       | $                                          | 205,272    |   | $ | 188,206 |   | $ | 186,061 |   |
| Interest and other                                                      |       | 332                                        |       | 374 |   | 36 |   |
| Total revenue                                                           |       | 205,604                                    |       | 188,580 |   | 186,097 |   |
| Expenses:                                                               |       |                                       |       |   |   |   |   |
| Property operating expenses                                             |       | 28,584                                     |       | 26,765 |   | 26,977 |   |
| Real estate taxes                                                       |       | 32,649                                     |       | 30,596 |   | 29,134 |   |
| Depreciation and amortization                                           |       | 59,124                                     |       | 50,526 |   | 47,973 |   |
| Interest                                                                |       | 49,687                                     |       | 39,048 |   | 33,030 |   |
| General and administrative                                              |       | 19,694                                     |       | 17,617 |   | 14,562 |   |
| Total expenses                                                          |       | 189,738                                    |       | 164,552 |   | 151,676 |   |
| Income before gains on sales of real estate  investments                |       | 15,866                                     |       | 24,028 |   | 34,421 |   |
| Gains on sales of  real estate investments                              |       | —                                     |       | 28 |   | — |   |
| Income before equity in (loss) income from  unconsolidated subsidiaries |       | 15,866                                     |       | 24,056 |   | 34,421 |   |
| Equity in (loss)  income from unconsolidated subsidiaries               |       | (77                                        | )          | 86 |   | — |   |
| Income before discontinued operations                                   |       | 15,789                                     |       | 24,142 |   | 34,421 |   |
| Discontinued operations:                                                |       |                                       |       |   |   |   |   |
| Operating income from discontinued operations                           |       | —                                     |       | 532 |   | 615 |   |
| Gains on sales of discontinued operations                               |       | —                                     |       | 970 |   | — |   |
| Income from discontinued operations                                     |       | —                                     |       | 1,502 |   | 615 |   |
| Net income                                                              |       | 15,789                                     |       | 25,644 |   | 35,036 |   |
| Preferred  distributions                                                |       | —                                     |       | (2,176 | ) | (6,656 | ) |
| Net income attributable to common unitholders                           |       | $                                          | 15,789     |   | $ | 23,468 |   | $ | 28,380 |   |
| Basic and diluted  earnings per common unit:                            |       |                                       |       |   |   |   |   |
| Income available to common unitholders before  discontinued operations  |       | $                                          | 0.46       |   | $ | 0.65 |   | $ | 0.82 |   |
| Income from discontinued operations                                     |       | —                                     |       | 0.04 |   | 0.02 |   |
| Income available to common unitholders                                  |       | $                                          | 0.46       |   | $ | 0.69 |   | $ | 0.84 |   |
| Weighted average  common units outstanding                              |       | 34,364                                     |       | 34,132 |   | 33,787 |   |

 

See accompanying notes to consolidated financial statements.

F-4

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**BRADLEY OPERATING LIMITED PARTNERSHIP Consolidated Statements of Changes in Partners’ CapitalFor the years ended December 31, 2005, 2004, and 2003(In thousands, except per-unit data)**

|                                                                         | ** ** | **General  Partner** | ** ** | **Limited  Partner** | ** ** | **Total** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|-----------|------------|
| Balance at  December 31, 2002                                      |       | $                    | 592,963    |                 | $          | 20,828    |       | $ | 613,791 |   |
| Net income attributable to common unitholders                           |       | 27,149               |       | 1,017                |       | 28,166    |       |
| Capital contributions                                                   |       | 9,877                |       | —               |       | 9,877     |       |
| Distributions ($2.10 per unit)                                          |       | (67,662              | )          | (2,562               | )          | (70,224   | )          |
| Adjustment to reflect redeemable common units at  redemption value      |       | (1,676               | )          | (63                  | )          | (1,739    | )          |
| Balance at  December 31, 2003                                      |       | 560,651              |       | 19,220               |       | 579,871   |       |
| Net income attributable to common unitholders                           |       | 22,422               |       | 840                  |       | 23,262    |       |
| Distributions ($2.10 per unit)                                          |       | (68,382              | )          | (2,561               | )          | (70,943   | )          |
| Conversion of redeemable common units                                   |       | 165                  |       | 6                    |       | 171       |       |
| Adjustment to reflect redeemable common units at  redemption value      |       | (1,630               | )          | (62                  | )          | (1,692    | )          |
| Balance at  December 31, 2004                                      |       | 513,226              |       | 17,443               |       | 530,669   |       |
| Net income attributable to common unitholders                           |       | 14,881               |       | 667                  |       | 15,548    |       |
| Distributions ($2.10 per unit)                                          |       | (68,392              | )          | (3,251               | )          | (71,643   | )          |
| Acquisition of properties in exchange for limited  partner common units |       | —               |       | 44,436               |       | 44,436    |       |
| Adjustment to reflect redeemable common units at  redemption value      |       | (1,481               | )          | (26                  | )          | (1,507    | )          |
| Balance at  December 31, 2005                                      |       | $                    | 458,234    |                 | $          | 59,269    |       | $ | 517,503 |   |

 

See accompanying notes to consolidated financial statements.

F-5

----

**BRADLEY OPERATING LIMITED PARTNERSHIP Consolidated Statements of Cash Flows (In thousands)**

|                                                                                      | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                           | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| Cash flows from operating activities:                                                |       |                                       |       |   |   |   |   |
| Net income                                                                           |       | $                                          | 15,789     |   | $ | 25,644 |   | $ | 35,036 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities:   |       |                                       |       |   |   |   |   |
| Depreciation and  amortization                                                       |       | 59,124                                     |       | 50,840 |   | 48,389 |   |
| Amortization of deferred  financing costs                                            |       | 424                                        |       | 1,240 |   | 1,240 |   |
| Amortization of debt  premiums                                                       |       | (1,399                                     | )          | (641 | ) | (462 | ) |
| Gain on sale of real  estate investments                                             |       | —                                     |       | (998 | ) | — |   |
| Loss (earnings) from  unconsolidated investment in joint   venture                   |       | 77                                         |       | (86 | ) | — |   |
| Changes in operating  assets and liabilities                                         |       | (9,228                                     | )          | (4,843 | ) | 4,951 |   |
| Net cash provided by  operating activities                                           |       | 64,787                                     |       | 71,156 |   | 89,154 |   |
| Cash flows from investing activities:                                                |       |                                       |       |   |   |   |   |
| Net proceeds from sales  of real estate investments                                  |       | —                                     |       | 22,643 |   | — |   |
| Acquisitions of and  additions to real estate investments and   in-place lease value |       | (142,206                                   | )          | (61,000 | ) | (16,215 | ) |
| Expenditures for  investment in unconsolidated joint venture                         |       | (1,882                                     | )          | (3,321 | ) | — |   |
| Investment in mortgage  receivable                                                   |       | —                                     |       | (9,188 | ) | — |   |
| Receipt of mortgage  receivable                                                      |       | —                                     |       | 9,188 |   | — |   |
| Purchase of minority  interest                                                       |       | (2,425                                     | )          | — |   | — |   |
| Expenditures for  capitalized leasing commissions                                    |       | (4,333                                     | )          | (3,065 | ) | (3,035 | ) |
| Net cash used in  investing activities                                               |       | (150,846                                   | )          | (44,743 | ) | (19,250 | ) |
| Cash flows from financing activities:                                                |       |                                       |       |   |   |   |   |
| Repayments of mortgage  loans payable                                                |       | (15,161                                    | )          | (11,898 | ) | (10,121 | ) |
| Repayment of unsecured  notes payable                                                |       | —                                     |       | (100,000 | ) | — |   |
| Proceeds from new  related party line of credit facility                             |       | 448,000                                    |       | — |   | — |   |
| Repayments under new  line of credit facility                                        |       | (120,000                                   | )          | — |   | — |   |
| Proceeds from draws  under prior line of credit facility                             |       | 26,000                                     |       | 413,000 |   | 134,000 |   |
| Repayments of draws  under prior line of credit facility                             |       | (11,000                                    | )          | (460,000 | ) | (125,000 | ) |
| Extinguishment of prior  line of credit facility                                     |       | (211,000                                   | )          | — |   | — |   |
| Proceeds from bridge  loan                                                           |       | 50,000                                     |       | — |   | — |   |
| Proceeds from related  party notes payable                                           |       | —                                     |       | 350,000 |   | — |   |
| Intercompany advances                                                                |       | (26,508                                    | )          | (71,087 | ) | (17,810 | ) |
| Repayments of  intercompany advances                                                 |       | 14,227                                     |       | 5,066 |   | 17,810 |   |
| Capital contributions                                                                |       | —                                     |       | — |   | 9,877 |   |
| Distributions paid to  general partner                                               |       | (68,393                                    | )          | (68,108 | ) | (67,664 | ) |
| Distributions paid to  limited partners                                              |       | (2,560                                     | )          | (2,560 | ) | (2,560 | ) |
| Distributions paid to  redeemable common units                                       |       | (1,096                                     | )          | (807 | ) | (715 | ) |
| Distributions paid to  Series B and C Preferred Units                           |       | —                                     |       | (2,176 | ) | (6,656 | ) |
| Redemption of  Series B and C Preferred Units                                   |       | —                                     |       | (75,000 | ) | — |   |
| Redemption of redeemable  common units                                               |       | (1,008                                     | )          | — |   | — |   |
| Net cash provided by (used  in) financing activities                                 |       | 81,501                                     |       | (23,570 | ) | (68,839 | ) |
| Net increase (decrease)  in cash and cash equivalents                                |       | (4,558                                     | )          | 2,843 |   | 1,065 |   |
| Cash and cash equivalents:                                                           |       |                                       |       |   |   |   |   |
| Beginning of year                                                                    |       | 4,558                                      |       | 1,715 |   | 650 |   |
| End of year                                                                          |       | $                                          | —     |   | $ | 4,558 |   | $ | 1,715 |   |

 

See accompanying notes to consolidated financial statements.

F-6

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**BRADLEY OPERATING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31, 2004, 2003, and 2002**

**(1) Organization**

Bradley Operating Limited Partnership (the OperatingPartnership) is the entity through which Heritage Property Investment Trust, Inc.(Heritage, or the Company) conducts a significant portion of its business.Through a wholly-owned subsidiary, Heritage acquired all of the general partnerunits of Bradley Real Estate Inc., the former general partner of theOperating Partnership, on September 18, 2000. Through the acquisition,Heritage became the general partner of the Operating Partnership and held22,140,487 general partner common units through a wholly-owned subsidiary anddirectly held 1,219,782 limited partner common units from inception untilHeritage’s initial public offering. At December 31, 2005, Heritage held 32,568,441general partner common units through the same wholly-owned subsidiary and 2,533,304limited partner common units. At December 31, 2005 and 2004, the OperatingPartnership owned (either directly or through subsidiaries) 115 and 106neighborhood and community shopping centers, respectively.

Heritage is a Maryland corporation organized as a realestate investment trust (REIT). Heritage was formed on July 1, 1999 andcommenced operations on July 9, 1999 through the contribution of$550 million of real estate investments and related assets, net ofliabilities, by Net Realty Holding Trust, a wholly-owned subsidiary of the NewEngland Teamsters & Trucking Industry Pension Fund (NETT) and$25 million of cash from the Prudential Insurance Company of America(Prudential). Heritage qualifies as a REIT under Sections 856-860 of theInternal Revenue Code of 1986, as amended (the Code).

Heritage, through itssubsidiaries, is a fully-integrated, self-administered, and self-managed REITand is focused on the acquisition, ownership, management, leasing, andredevelopment of primarily grocer- and multi-anchored neighborhood andcommunity shopping centers principally in the Eastern, Midwestern, andSouthwestern United States. At December 31, 2005 and 2004, Heritage owned171 shopping centers and three office buildings and 164 shopping centers andthree office buildings, respectively.

***Issuance of Public Equity***

In December 2003,Heritage completed a secondary public offering of its common stock and sold atotal of 3,932,736 shares, including the underwriter’s over-allotment of432,736 shares, at a net price of $28.27 per share. The net proceeds of$111 million from this offering were used to repay certain indebtedness,including the $60 million bridge loan incurred by the Heritage PropertyInvestment Limited Partnership (“Heritage OP”) and the Operating Partnership inconnection with an acquisition of properties. Heritage, through a wholly-ownedsubsidiary, contributed $9.8 million of the proceeds to the OperatingPartnership in exchange for 347,471 general partner common units.

***Minority Interest***

In July 2005, the Operating Partnership, throughits joint venture with WDG La Vista LLC (“Westwood”), contributed $15.4 millionfor a 50% interest in the joint venture, which utilized such contribution topurchase a parcel of land in La Vista, Nebraska (“La Vista Joint Venture”) whichis to be constructed into a 550,000 square foot lifestyle shopping center. TheLa Vista Joint Venture was deemed to be a variable interest entity and theOperating Partnership was deemed to be the primary beneficiary, in accordancewith Financial Accounting Standards Board (“FASB”) Interpretation No. 46R,*Consolidation of Variable Interest Entities*(“FINNo.* *46R”). Therefore, the financialposition of the La Vista Joint Venture is consolidated in the accompanyingconsolidated financial statements of the Operating Partnership as of December 31,2005. The 50% minority interest owned by Westwood was issued in 

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consideration for locatingthe site and other development work, and has a carrying value of $0 at December 31,2005, as Westwood made no equity investment in the La Vista Joint Venture. Therefore,there is no balance in Other Minority Interest at December 31, 2005 in theaccompanying consolidated balance sheet.

The La Vista Joint Venture has also committed topurchase two additional parcels of land in La Vista, Nebraska. The purchase ofthe remaining two parcels may occur any time up through November 30, 2007for a purchase price of $11 million resulting in a total purchase pricefor all three parcels of $26 million.

The Operating Partnershipalso had a minority interest that participated in earnings of the OperatingPartnership based upon terms specified in the partnership agreement. Thisminority interest amounted to $2.4 million at December 31, 2004.During 2005, the Operating Partnership purchased the outstanding 40% minoritypartnership interest for $2.9 million.

**(2) Restatement Overview**

*Tax OffsetProvision*

On October 17, 2005, Heritage determined that theOperating Partnership’s previously issued financial statements for the fiscalyears ended December 31, 2004 and 2003, and each of the quarterly periodstherein, and the quarterly periods ended March 31, 2005 and June 30,2005, needed to be restated to correct an error. The error pertained to theunrecorded effects of certain previously granted stock options subject to atax-offset provision included in the employment agreement of Thomas C.Prendergast, the Company’s Chairman, President and Chief Executive Officer. Theerror did not require a restatement of the Operating Partnership’s financial statementsfor the year ended December 31, 2002.

In January 2000, Heritage entered into thisemployment agreement with Mr. Prendergast, providing for, among otherthings, annual grants of stock options to be made to Mr. Prendergast. Inaddition, the employment agreement required Heritage to make certain paymentsto Mr. Prendergast to offset any taxes he might have incurred inconnection with the exercise of these stock options. As of December 31,2005, Mr. Prendergast had not exercised any stock options.

Prior to the restatement, Heritage had not recordedany liability with respect to the tax-offset payments that would be required inconnection with Mr. Prendergast’s future exercise of these stock options. Inaddition, as with stock options granted to other employees under the Company’sequity incentive plan, Heritage had accounted for these stock options as fixedawards pursuant to Accounting Principles Board (“APB”) Opinion No. 25, *Accounting for Stock Issued to Employees* (“APBOpinion No. 25”), and related Interpretations.

The liability for the tax-offset payments that wouldhave been made to Mr. Prendergast if he were to have exercised any stockoptions should have been recorded as a liability in Heritage’s financialstatements and that liability was subject to variable accounting treatmentpursuant to FASB Interpretation No. 44, *Accountingfor Certain Transactions Involving Stock Compensation—an Interpretation of APBOpinion No. 25* (“FIN No. 44”). The provision of Mr. Prendergast’semployment agreement requiring the Company to make tax-offset payments inconnection with his exercise of these stock options also required variableaccounting treatment for those options pursuant to FIN No. 44.  As a result, 920,000 and 780,000 of Heritage’sstock options were subject to variable accounting under APB Opinion No. 25at December 31, 2004 and 2003, respectively.

Heritage allocates 100% of its general andadministrative expenses to its subsidiaries, including costs associated withthe Operating Partnership. For costs specifically identifiable to a subsidiary,Heritage performs a direct allocation. Remaining costs are allocated based onthe square footage of properties owned by each subsidiary. During the fiscalyears ended December 31, 2004, 2003 and 2002, Heritage allocatedapproximately 63%, 65% and 66%, respectively, of the remaining general andadministrative 

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costs to the OperatingPartnership. As a result of the discovery of the error, Heritage restated itsfinancial statements for the years ended December 31, 2004 and 2003, andeach of the quarterly periods therein to reflect additional compensationexpense, a component of general and administrative expense, associated with thetax-offset provision. For this reason, Heritage, as sole stockholder of theOperating Partnership’s general partner, determined that the OperatingPartnership was likewise required to amend and restate the financial statementsand other financial information for the years ended December 31, 2004 and2003, and for each of the quarterly periods in the fiscal year ended December 31,2004, to reflect additional general and administrative expense from the amountspreviously reported.

Accordingly, the OperatingPartnership filed on November 14, 2005 an amendment to its Annual Reporton Form 10-K/A for the fiscal year ended December 31, 2004 torestate its previously issued audited financial statements for the fiscal yearsended December 31, 2004 and 2003, and amendments to its Quarterly Reportson Form 10-Q/A for the quarterly periods ended March 31, 2005and June 30, 2005, to restate its unaudited quarterly financial statementsfor those quarterly periods. Those restatements recorded a liability andrecognized compensation expense related to the tax-offset payment provision,and reflected compensation expense for the intrinsic value of the stock optionssubject to the tax-offset feature on a variable basis.

*Elimination of TaxOffset Provision*

On December 30, 2005,Mr. Prendergast’s employment agreement with Heritage was amended toeliminate the tax-offset provision in respect of his stock options. Inconsideration for his agreement to eliminate the provision, Heritage made aone-time cash payment to Mr. Prendergast of $6.4 million. Due to theelimination of the tax-offset provision relating to stock options from Mr. Prendergast’semployment agreement, as of December 31, 2005, Heritage is no longerrequired to record a liability relating to the tax-offset provision and Mr. Prendergast’sstock options are no longer subject to variable accounting treatment pursuantto FIN No. 44.

**(3) Summaryof Significant Accounting Policies**

*Basis ofPresentation*

The consolidated financial statements are prepared onthe accrual basis in accordance with accounting principles generally acceptedin the United States of America (“GAAP”). Management of the OperatingPartnership has made a number of estimates and assumptions relating to thereporting of assets and liabilities and the disclosure of contingent assets andliabilities at the dates of the consolidated financial statements and thereporting of revenue and expenses during the periods presented to prepare theseconsolidated financial statements in conformity with GAAP. The OperatingPartnership bases its estimates on historical experience and other assumptionsbelieved to be reasonable under the circumstances. Actual results could differfrom those estimates under different assumptions or conditions.

Management considers certain estimates and assumptionsto be most important to the portrayal of the Operating Partnership’s financialcondition and results of operations, in that they require management’s mostsubjective judgments, to form the basis for the accounting policies deemed tobe most critical to the Operating Partnership. These critical estimates andassumptions include the useful lives used to calculate depreciation andamortization expense on real estate investments, judgments regarding therecoverability or impairment of each real estate investment, estimatesregarding the recoverability of certain operating expenses, judgments regardingthe ultimate collectibility of accounts receivable.

If the useful lives ofreal estate investments were different, future operating results could beaffected. Future adverse changes in market conditions or poor operating resultscould result in an inability to recover real estate investment carrying valuesthat may not be reflected in current carrying values and could require animpairment charge in the future. Future adverse changes in market conditionscould also 

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impactthe Operating Partnership’s tenants, thereby impacting the recoverability ofcertain operating expenses as well as the adequacy of the allowance fordoubtful accounts receivable.

*Principles ofConsolidation*

The accompanyingconsolidated financial statements of the Operating Partnership include theaccounts and operations of the Operating Partnership and its subsidiaries. Whenthe Operating Partnership obtains an economic interest in an entity, theOperating Partnership evaluates the entity to determine if the entity is avariable interest entity, in accordance with FIN No. 46R. If the entity isdeemed to be a variable interest entity, the Operating Partnership thendetermines which equity interest holder is the primary beneficiary. TheOperating Partnership consolidates the entities that are variable interestentities of which the Operating Partnership is the primary beneficiary and alsoconsolidates entities that are non-variable interest entities and which theOperating Partnership is deemed to have a controlling interest. The portion ofthese entities not owned by the Operating Partnership is presented as minorityinterest as of and during the periods consolidated. All significantintercompany accounts and transactions are eliminated in consolidation. As of December 31,2005, the Operating Partnership had one investment in a joint venture that is avariable interest entity of which the Operating Partnership is the primarybeneficiary and which is consolidated in the accompanying financial statements.

*Real EstateInvestments*

Real estate investments are recorded at cost. The costof buildings and improvements includes the purchase price of property, legalfees, and acquisition costs.

Real estate investments held for sale are carried atthe lower of carrying amount or fair value less costs to sell. Depreciation andamortization are suspended during the period a property is held for sale. Therewere no properties classified as held for sale at December 31, 2005 or2004.

SFAS No. 144, *Accountingfor the Impairment or Disposal of Long-Lived Assets* (“SFAS No. 144”),requires the Operating Partnership to periodically perform reviews of itsproperties to determine if their carrying amounts will be recovered from futureoperating cash flows. If the Operating Partnership determines that animpairment has occurred, those assets are to be reduced to fair value. No suchimpairment losses have been recognized to date.

In addition, SFAS No. 144 retains the basicprovisions of APB Opinion No. 30, *Reporting the Results ofOperations—Reporting the Effects of Disposal of a Segment of a Business, andExtraordinary, Unusual and Infrequently Occurring Events and Transactions*,for presenting discontinued operations in the statement of operations but broadensthat presentation to include a component of an entity (rather than a segment ofa business). The Operating Partnership adopted SFAS No. 144 on January 1,2002 and accordingly, the operating results of real estate sold during theyears ended December 31, 2004 and 2003 have been reclassified and reportedas discontinued operations.

The Operating Partnership applies SFAS No. 141, *Business Combinations* (“SFAS No. 141”),to property acquisitions. Accordingly, under the guidance provided by SFAS No. 141,the fair value of the real estate acquired is allocated to the acquiredtangible assets and identified intangible assets and liabilities. Identifiedintangible assets and liabilities may consist of the value of above-market andbelow-market leases, in-place lease value and value of tenant relationships,based in each case on their fair values.

The fair value of the tangible assets of an acquiredproperty is determined by valuing the property as if it were vacant, and the “as-if-vacant”value is then allocated based on management’s determination of the relativefair values of these assets. Management determines the as-if-vacant fair valueof a property using methods similar to those used by independent appraisers.Factors considered by management in performing these analyses include anestimate of carrying costs during the expected lease-up periods 

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considering current marketconditions and costs to execute similar leases. In estimating carrying costs,management includes real estate taxes, insurance and other operating expensesand estimates of lost rental revenue during the expected lease-up periods basedon current market demand. Management also estimates costs to execute similarleases including leasing commissions, legal and other related costs.

In allocating the fair value of the identifiedintangible assets and liabilities of an acquired property, above-market andbelow-market in-place lease values are recorded based on the present value(using an interest rate that reflects the risks associated with the leasesacquired) of the difference between (i) the contractual amounts to be paidpursuant to the in-place leases and (ii) management’s estimate of fairmarket lease rates for the corresponding in-place leases, measured over aperiod equal to the remaining non-cancelable term of the lease. The capitalizedabove-market lease values are amortized as a reduction of rental income overthe remaining non-cancelable terms of the respective leases. The capitalizedbelow-market lease values are amortized as an increase to rental income overthe initial term and any fixed rate renewal periods in the respective leases.

Theaggregate value of other acquired intangible assets, consisting of in-placeleases and tenant relationships, is measured by the excess of (i) thepurchase price paid for a property after adjusting existing in-place leases tomarket rental rates over (ii) the estimated fair value of the property asif vacant, determined as set forth above. This aggregate value is allocatedbetween in-place lease values and tenant relationships, if any, based onmanagement’s evaluation of the specific characteristics of each tenant’s lease.However, the value of tenant relationships has not been separated from in-placelease value for the additional interests in real estate entities because suchvalue and its consequence to amortization expense is estimated to be immaterialfor these particular acquisitions consummated to date. The value of in-placeleases exclusive of the value of above-market and below-market in-place leasesis amortized to expense over the remaining non-cancelable periods of therespective leases. If a lease were to be terminated prior to its statedexpiration, all unamortized amounts relating to that lease would be writtenoff. For the years ended December 31, 2005 and 2004, the Companyrecognized upon acquisition, additional intangible assets and liabilities asfollows (in thousands): 

| ** **                    | ** ** | **2005** | ** ** | **Weighted Average  Amortization  Period** | ** ** | **2004** | ** ** | **Weighted Average  Amortization  Period** | ** ** |
|-------------------------------|------------|----------|------------|-------------------------------------------------|------------|----------|------------|-------------------------------------------------|------------|
| Assets:                       |       |     |       |                                            |       |     |       |                                            |       |   |   |   |   |
| Acquired in-place lease value |       | $        | 16,259     |                                            |       | 6.63     |       |                                            | $          | 12,615 |   |   | 8.56 |   |   |
| Acquired above market leases  |       | $        | 1,221      |                                            |       | 8.17     |       |                                            | $          | 1,038 |   |   | 10.15 |   |   |
| Liabilities:                  |       |     |       |                                            |       |     |       |                                            |       |   |   |   |   |
| Acquired below  market leases |       | $        | 2,481      |                                            |       | 9.88     |       |                                            | $          | 862 |   |   | 9.02 |   |   |

 

The Operating Partnership incurred amortizationexpense pertaining to acquired in-place lease intangibles of $2.7 million,$0.1 million and $0 during the years ended December 31, 2005, 2004,and 2003, respectively. Amortization of $0.2 million, $0.1 million, and$0, pertaining to acquired above market leases was applied as a reduction ofrental income during the years ended December 31, 2005, 2004, and 2003,respectively. Amortization of $0.2 million, $0, and $0, pertaining toacquired below market leases was applied as an increase to rental income duringthe years ended December 31, 2005, 2004, and 2003, respectively.

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Thetable below presents the expected amortization related to the acquired in-placelease value and acquired above and below market leases at December 31,2005 (in thousands): 

| ** **                       | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|-----------|------------|
| Amortization expense:            |       |     |       |     |       |     |       |     |       |     |       |           |       |      |       |   |   |
| Acquired in-place  lease value   |       | $        | 4,247      |     | $          | 4,159    |       | $        | 3,000      |     | $          | 2,802          |       | $         | 2,538      |   |   | $ | 9,298 |   |   | $ | 26,044 |   |
| Adjustments to  rental income:   |       |     |       |     |       |     |       |     |       |     |       |           |       |      |       |   |   |
| Acquired above market  leases    |       | $        | (265       | )        | $          | (265     | )          | $        | (256       | )        | $          | (239           | )          | $         | (234       | ) |   | $ | (766 | ) |   | $ | (2,025 | ) |
| Acquired below  market leases    |       | 385      |       | 367      |       | 344      |       | 344      |       | 343      |       |           | 1,329      |      |       | 3,112 |   |
| Net adjustment to rental  income |       | $        | 120        |     | $          | 102      |       | $        | 88         |     | $          | 105            |       | $         | 109        |   |   | $ | 563 |   |   | $ | 1,087 |   |

 

Expenditures for maintenance, repairs, and bettermentsthat do not materially extend the useful life of a real estate investment arecharged to operations as incurred and amounted to $3.7 million,$3.7 million, and $3.6 million for the years ended December 31,2005, 2004, and 2003, respectively. Expenditures that substantially extend theuseful life of a real estate investment are capitalized. Upon sale or otherdisposition of the real estate investment, the cost and related accumulateddepreciation and amortization are written off and the resulting gain or loss,if any, is reflected in net income. Interest on significant constructionprojects is capitalized as part of the cost of real estate investments.Interest capitalized amounted to $0, $0.1 million, and $0, for the yearsended December 31, 2005, 2004, and 2003, respectively.

Theprovision for depreciation and amortization has been calculated using thestraight-line method over the following estimated useful lives: 

| Land improvements          |   | 10-15 years                                     |
|----------------------------|--------|-------------------------------------------------|
| Buildings and improvements |   | 20-39 years                                     |
| Tenant improvements        |   | Shorter of useful life or term of related lease |

 

*Cash and CashEquivalents*

Cash and cash equivalentsconsist of cash in banks and short-term investments with maturities at the dateof purchase of three months or less. The majority of the Operating Partnership’scash and cash equivalents are held at major commercial banks. The OperatingPartnership has not experienced any losses on its invested cash.

*Deferred Leasingand Financing Costs and Other Assets*

Deferred leasing and financing costs and other assetsinclude costs incurred in connection with securing financing for, or leasingspace in, the Company’s real estate investments. Such charges are capitalizedand amortized over the terms of the related financing or lease agreements.Unamortized deferred charges are charged to expense upon prepayment of thefinancing or early termination of the related lease.

The Operating Partnershipcapitalizes internal leasing costs in accordance with SFAS No. 91, *Nonrefundable Fees & Costs Associated withOriginating or Acquiring Loans and Initial Direct Costs of Leases*.These costs amounted to $1.7 million during each of the years ended December 31,2005 and 2004.

*Investments inUnconsolidated Joint Ventures*

The Operating Partnership accounts for its investmentsin unconsolidated joint ventures that are not deemed to be variable interestentities pursuant to Statement of Position No. 78-9, *Accounting for Investments in Real Estate Ventures*(“SOP No. 78-9”) and APB No. 18, *The Equity Method of Accounting for Investments in Common Stock.*

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As of December 31,2005, the Operating Partnership had two unconsolidated joint ventures that wereaccounted for under the equity method of accounting because it exercisessignificant influence over, but does not control these entities. Theseinvestments are recorded initially at cost, as Investment in UnconsolidatedJoint Ventures, and are subsequently adjusted for an allocation of equity inearnings, plus cash contributions, and less cash distributions. Under theequity method of accounting, the net equity investment of the OperatingPartnership is reflected on the consolidated balance sheets, and the OperatingPartnership’s allocation of net income or loss from the joint ventures isincluded on the consolidated statements of operations as Equity in (Loss)Income from Unconsolidated Joint Ventures. The Operating Partnership’sallocation of joint venture income or loss follows the joint venture’sdistribution priorities. In accordance with the provisions of SOP No. 78-9,the Operating Partnership recognizes fees received from the joint venturerelating solely to the extent of the outside partner’s interest. Such fees areclassified on the consolidated statements of operations as Interest, Other, andJoint Venture Fee Income.

*Revenue Recognition*

Management has determined that all of the OperatingPartnership’s leases with its various tenants are operating leases. Rentalincome from such leases with scheduled rent increases is recognized using thestraight-line method over the terms of the leases commencing when the tenanttakes possession of the space. The aggregate excess of rental revenuerecognized on a straight-line basis over cash received under applicable leaseprovisions amounted to $13.9 million and $11.5 million at December 31,2005 and 2004, respectively, and is included in accounts receivable, net ofallowance for doubtful accounts. Rental revenue recognized over cash receivedis included in revenue from rental and recoveries for the years ended December 31,2005, 2004 and 2003 and amounted to $2.4 million, $2.9 million and$3.4 million, respectively.

Leases for both retail and office space generallycontain provisions under which the tenants reimburse the Operating Partnershipfor a portion of property operating expenses and real estate taxes incurred bythe Operating Partnership. Such recoveries revenue is recorded based onmanagement’s estimate of its recovery of certain operating expenses and realestate tax expenses pursuant to the terms contained in related leases. Inaddition, certain of the Operating Partnership’s operating leases for retailspace contain contingent rent provisions under which tenants are required topay a percentage of their sales in excess of a specified amount as additionalrent. The Operating Partnership defers recognition of contingent rental incomeuntil such specified targets are met. Reimbursements for both operatingexpenses and real estate taxes as well as contingent rental income during theyears ended December 31, 2005, 2004 and 2003 were $54.6 million,$49.1 million and $47.2 million, respectively. These items areincluded in revenue from rentals and recoveries in the consolidated statementsof operations.

The Operating Partnership makes estimates of theuncollectibility of its accounts receivable related to minimum rent, deferredrent, expense reimbursements and other revenue or income. The OperatingPartnership specifically analyzes accounts receivable and historical bad debts,tenant concentrations, tenant creditworthiness, current economic trends andchanges in tenant payment terms when evaluating the adequacy of the allowancefor doubtful accounts. These estimates have a direct impact on the OperatingPartnership’s net income.

Allowances for uncollectible receivables are chargedagainst revenue from rentals and recoveries and amounted to $2.4 million,$1.8 million and $3.0 million for the years ended December 31,2005, 2004 and 2003, respectively.

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*Sales of RealEstate*

The Operating Partnershipperforms evaluations of each real estate sale to determine if full accrualrecognition is appropriate in accordance with SFAS No. 66, *Accounting for Sales of Real Estate*(“SFAS No. 66”). Theapplication of SFAS No. 66 can be complex and requires the OperatingPartnership to make assumptions including an assessment of whether the risksand rewards of ownership have been transferred, the extent of the purchaser’sinvestment in the property being sold, whether the Operating Partnership’sreceivables, if any, related to the sale are collectible and are subject tosubordination, and the degree of the Operating Partnership’s continuinginvolvement with the real estate asset after the sale. If full accrualrecognition is not appropriate, the Operating Partnership accounts for the saleunder an appropriate deferral method.

*Earnings Per CommonUnit*

Basic earnings per commonunit is computed by dividing net income available to general and limitedpartner (common) unitholders by the weighted average number of general andlimited partner units (including redeemable common units) outstanding duringthe year. Diluted earnings per common unit reflects the potential dilution thatcould occur if securities or other contracts to issue commons units wereexercised or converted into common units or resulted in the issuance of commonunits and then shared in the earnings of the Operating Partnership. For theyears ended December 31, 2005, 2004, and 2003, there were no dilutiveinstruments, and therefore, diluted earnings per common unit and basic earningsper common unit are the same.

*Credit Risk*

The Operating Partnershipoperates in one industry, which is the acquisition, ownership, management,leasing and redevelopment of real estate, and no single tenant accounts formore than 10% of total revenue. Financial instruments potentially subjectingthe Operating Partnership to concentrations of credit risk consist principallyof (1) temporary cash and equivalent instruments, which are held atfinancial institutions of high credit quality; and (2) tenant receivables,whose credit risk is distributed among tenants in different industries andacross several geographical areas.

*Fair Value ofFinancial Instruments*

SFAS No. 107, *Disclosuresabout Fair Value of Financial Instruments*, requires the OperatingPartnership to disclose fair value information about all financial instruments,whether or not recognized in the balance sheets, for which it is practicable toestimate fair value. The Operating Partnership’s financial instruments, otherthan debt, are generally short-term in nature and consist of cash and cashequivalents, rents and other receivables, and accounts payable. The carryingvalues of these assets and liabilities, which are recorded at net realizablevalue in the consolidated balance sheets, are assumed to be at fair value.

The fair value of theOperating Partnership’s fixed rate mortgage loans, unsecured notes payable, andrelated party notes payable, which is based on estimates made by management forrates currently prevailing for comparable loans and notes of comparablematurities, exceeds the aggregate carrying value by approximately $3.8 millionand $13.6 million at December 31, 2005 and 2004, respectively. TheOperating Partnership’s related party line of credit facility and related partybridge loan facility are at variable rates, resulting in a carrying value thatapproximates fair value at December 31, 2005 and 2004.

*Hedging Activities*

From time to time, theOperating Partnership uses derivative financial instruments to limit itsexposure to changes in interest rates. The Operating Partnership was not aparty to any hedging agreement with respect to its floating rate debt as of December 31,2005 or 2004. The Operating Partnership has in 

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the pastused derivative financial instruments to manage, or hedge, interest rate risksrelated to its borrowings, from lines of credit to medium and long-termfinancings. The Operating Partnership requires that hedging derivativeinstruments are effective in reducing the interest rate risk exposure that theyare designed to hedge. The Operating Partnership does not use derivatives fortrading or speculative purposes and only enters into contracts with majorfinancial institutions based on their credit rating and other factors.

*Allocation ofGeneral and Administrative Expenses*

General and administrativeexpenses of Heritage that directly relate to each subsidiary are chargeddirectly to such subsidiary. All other general and administrative expenses of Heritagehave been allocated to each of Heritage’s subsidiaries, including the OperatingPartnership, based on each subsidiary’s pro-rata portion of Heritage’s totalproperty square footage.

*Reclassifications*

Certain prior yearbalances have been reclassified to conform to the current year presentation.

**(4) Real Estate Investments**

Asummary of real estate investments December 31, 2005 and 2004 follows (inthousands): 

| ** **                                 | ** ** | **2005**  | ** ** | **2004**  | ** ** |
|--------------------------------------------|------------|-----------|------------|-----------|------------|
| Land                                       |       | $         | 254,520    |      | $          | 212,704 |   |
| Land improvements                          |       | 135,668   |       | 119,938   |       |
| Buildings and  improvements                |       | 1,259,297 |       | 1,116,081 |       |
| Tenant  improvements                       |       | 52,868    |       | 34,095    |       |
| Improvements in  process                   |       | 5,266     |       | 15,163    |       |
|                                       |       | 1,707,619 |       | 1,497,981 |       |
| Accumulated  depreciation and amortization |       | (242,020  | )          | (180,781  | )          |
| Net carrying  value                        |       | $         | 1,465,599  |      | $          | 1,317,200 |   |

 

*Acquisitions*

During the year ended December 31, 2005, theOperating Partnership completed the acquisition of seven shopping centersaggregating 1.3 million square feet of gross leasable area (“GLA”), ofwhich the Operating Partnership acquired 0.7 million square feet of GLA.The aggregate investment in the shopping centers, including amounts allocatedto acquired in-place lease value and above and below market leases, was$142.8 million, which was funded with borrowings under the Operating Partnership’srelated party line of credit, assumptions of mortgage loans payable at theirestimated fair market value, and the issuance of redeemable units of limitedpartnership interest in the Operating Partnership.

In addition, during the year ended December 31,2005, the Operating Partnership completed the acquisition of the 40% minoritypartnership interest in Williamson Square Shopping Center. As a result, theOperating Partnership owns 100% of the partnership interests in WilliamsonSquare. The investment was $2.9 million, which the Operating Partnership fundedwith borrowings under its unsecured line of credit. The Operating Partnershipalso repaid upon maturity the previously outstanding mortgage indebtednessencumbering the shopping center. As a result, Williamson Square is nowunencumbered.

During the year ended December 31,2004, the Operating Partnership completed the acquisition of three shoppingcenters aggregating 0.7 million square feet of GLA, of which the OperatingPartnership acquired 0.5 million square feet of GLA. The aggregateacquisition price of the shopping centers, including amounts allocated toacquired in-place lease value and above and below market leases, was$90.2 million, 

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whichwas funded with borrowings under the Operating Partnership’s related party lineof credit, assumptions of mortgage loans payable at their estimated fair marketvalue, and the issuance of redeemable units of limited partnership interest.

*Related PartyTransfer of Properties*

On December 29, 2005,Heritage OP completed an intercompany transfer of two shopping centers locatedin North Carolina to the Operating Partnership in exchange for limited partnercommon units of the Operating Partnership. The Operating Partnership accountedfor the transfer on a carryover basis as both Heritage OP and the OperatingPartnership are under the common control of Heritage. The carrying value of theproperties transferred was $44.4 million. Based on the closing price ofHeritage’s common stock of $33.83 on the day prior to the transfer, theOperating Partnership issued 1,313,522 limited partner common units to HeritageOP, which subsequently distributed the units to Heritage.

*Dispositions*

In December 2004, the Operating Partnershipcompleted the disposition of Garden Plaza, an 80,000 square foot shoppingcenter located in Franklin, Wisconsin for $4.8 million, resulting in again of $0.6 million. The results of operations of the Garden Plazashopping center have been reclassified as discontinued operations for allperiods presented in the accompanying financial statements.

In December 2004, the Operating Partnershipcompleted the disposition of a parcel of land located at Madison Plaza locatedin Madison, Wisconsin for $3.5 million, which approximated the OperatingPartnership’s carrying value. The operations and cash flows for the assets soldcould not be clearly distinguished, both operationally and for financialreporting purposes, from the rest of the shopping center. Accordingly, noamounts have been reclassified as discontinued operations in the accompanyingfinancial statements.

In October 2004, the Operating Partnershipcompleted the disposition of Camelot, a 151,000 square foot shopping centerlocated in Louisville, Kentucky for $7.4 million, resulting in a gain of$0.3 million. The results of operations of the Camelot shopping centerhave been reclassified as discontinued operations for all periods presented inthe accompanying financial statements.

In September 2004,the Operating Partnership completed the disposition of a parcel of land locatedat Cross Keys located in Turnersville, New Jersey for $7.0 million, whichapproximated the Operating Partnership’s carrying value. The operations andcash flows for the assets sold could not be clearly distinguished, bothoperationally and for financial reporting purposes, from the rest of theshopping center. Accordingly, no amounts have been reclassified as discontinuedoperations in the accompanying financial statements.

**(5) Investmentin Unconsolidated Joint Venture**

*Lakes CrossingShopping Center*

In May 2004, the Operating Partnership acquired a50% interest in a joint venture for the development and construction of a303,000 square foot shopping center, of which the joint venture will ownapproximately 215,000 square feet, located in a suburb of Grand Rapids,Michigan. The Operating Partnership accounts for the joint venture under theequity method of accounting and made an initial equity investment of$3.3 million and subsequently increased that investment with an additional$0.7 million anticipated contribution in the three-month period ended June 30,2005. At the time of the joint venture’s formation, the Operating Partnershipalso provided a short-term bridge loan of approximately $9.2 million tothe joint venture, which was repaid in November 2004. The OperatingPartnership is not the record-keeper of the joint venture, and otherwise doesnot have immediate access to 

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such records. Therefore,the operations of the joint venture, primarily consisting of incidentalactivity related to operating restaurants located on out-parcels, are beingreported on a three-month lag basis. Hence, the operations for the period from October 1,2004 through September 30, 2005 and from the acquisition in May 2004through September 30, 2004 are included in the accompanying 2005consolidated statements of operations for the year ended December 31, 2005and 2004, respectively, and are classified as Equity in (Loss) Income fromUnconsolidated Joint Ventures.

The Operating Partnershiphas fully guaranteed the repayment of a $22 million construction loanobtained by the joint venture from Key Bank, National Association. The Key Bankloan matures in November 2006 (subject to a one-year extension). As of December 31,2005, $17.8 million was outstanding under the construction loan. Such amount isrecorded on the books and records of the joint venture. In the event theOperating Partnership is obligated to repay all or a portion of theconstruction loan pursuant to the guarantee, the Operating Partnership (i) mayremove the manager of the joint venture for cause and terminate all agreementswith the manager, (ii) would receive a promissory note from the jointventure for the amount paid by the Operating Partnership together with a firstpriority mortgage on the property, and (iii) may prohibit alldistributions from the joint venture or payment of fees by the joint ventureuntil the principal and accrued interest on the loan is repaid. The estimatedfair value of the guarantee as of December 31, 2005 is not material to theOperating Partnership’s financial position. Accordingly, no liability oradditional investment has been recorded related to the fair value of the guarantee.

*Skillman AbramsShopping Center*

In April 2005, theOperating Partnership, through its joint venture with Intercontinental RealEstate Investment Fund III, LLC, a fund sponsored and managed byIntercontinental Real Estate Corporation, acquired the Skillman Abrams ShoppingCenter (“Skillman Abrams”), a 133,000 square foot shopping center located inDallas, Texas, for a total purchase price of approximately $19 million,including assumed mortgage debt. The Operating Partnership has a 25% interestin the joint venture and an affiliate is the property manager of SkillmanAbrams pursuant to a property management agreement. The Operating Partnershipaccounts for the joint venture under the equity method of accounting and is therecord-keeper of the joint venture. Therefore, there is no lag in reporting theoperations of the joint venture and the operations for the period from theacquisition in April 2005 through December 31, 2005 are included inthe accompanying 2005 consolidated statement of operations and are classifiedas Equity in (Loss) Income from Unconsolidated Joint Ventures.

**(6) SupplementalCash Flow Information**

During the years ended December 31, 2005, 2004,and 2003 interest paid was $49.7 million, $47.4 million, and$32.3 million, respectively, of which $26.2 million, $5.5, and $0,respectively, were to a related party.

During the years ended December 31, 2005, 2004and 2003, the Operating Partnership assumed $29.5 million,$48.9 million, and $0, respectively, of existing debt in connection withthe acquisition of various shopping centers.

In addition, during the years ended December 31,2005, 2004 and 2003, the Operating Partnership issued redeemable common units of176,509, 189,588, and 0, respectively, with a fair value at date of issuance of$6.1 million , $6.2 million, and $0, respectively in connection withthe acquisition of various shopping centers.

During the year ended December 31, 2004, 7,814redeemable common units were converted to general partner units with a value of$0.2 million.

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Included in accrued expenses and other liabilities at December 31,2005 and 2004 are accrued expenditures for real estate investments of$2.5 million and $4.7 million, respectively.

Only the cash portion ofthe above transactions is reflected in the accompanying consolidated statementsof cash flows.

**(7) Operating Leases**

Scheduledfuture minimum rental payments to be received under the Operating Partnership’snon-cancelable operating leases are as follows at December 31, 2005 (inthousands): 

| **Year Ending December 31** | ** ** | ** ** | ** ** | **Amount** | ** ** |
|--------------------------------------------|------------|------------|------------|------------|------------|
| 2006                                       |       | $          | 156,754    |       |
| 2007                                       |       | 144,650    |       |
| 2008                                       |       | 122,454    |       |
| 2009                                       |       | 102,397    |       |
| 2010                                       |       | 84,139     |       |
| Thereafter                                 |       | 499,752    |       |
| Total minimum future  receipts             |       | $          | 1,110,146  |       |

 

TheOperating Partnership has contractual commitments under non-cancelableoperating leases, primarily ground leases expiring at various dates through2087. Rental expense was $0.2 million in each of the years ended December 31,2005, 2004, and 2003. Committed amounts under non-cancelable operating leasesin effect at December 31, 2005 were as follows: 

| **Year Ending December 31** | ** ** | ** ** | ** ** | **Amount** | ** ** |
|--------------------------------------------|------------|------------|------------|------------|------------|
| 2006                                       |       | $          | 161        |       |
| 2007                                       |       | 161        |       |
| 2008                                       |       | 161        |       |
| 2009                                       |       | 155        |       |
| 2010                                       |       | 148        |       |
| Thereafter                                 |       | 11,377     |       |
| Total minimum future  payments             |       | $          | 12,163     |       |

 

**(8) Debt**

*Mortgage LoansPayable*

Mortgage loans payable consist of various non-recourseissues collateralized by 19 and 16 real estate investments with an aggregatenet carrying value of $293.8 million and $276.6 million at December 31,2005 and 2004, respectively. The loans require monthly payments of principaland interest through 2020 at effective interest rates ranging from 5.11% to10.13% and have a weighted average effective interest rate of 6.63% and 6.73%at December 31, 2005 and 2004, respectively. The loans are generallysubject to prepayment penalties.

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Mortgageloans payable consisted of the following at December 31 (in thousands):

| **Property**                                 | ** ** | ** ** | ** ** | **Effective  Interest  Rate** | ** ** | **Contractual  Interest  Rate** | ** ** | **Maturity** | ** ** | **2005(1)** | ** ** | **2004(2)** | ** ** |
|----------------------------------------------|------------|------------|------------|-------------------------------|------------|---------------------------------|------------|--------------|------------|-------------|------------|-------------|------------|
| Williamson Square                            |       |       | 8.00       | %                             |       |                            | 8.00       | %            |       | Aug-05      |       | $           | —     |   | $ | 10,830 |   |
| Spring Mall                                  |       |       | 9.39       | %                             |       |                            | 9.39       | %            |       | Oct-06      |       | 8,021       |       | 8,141 |   |
| Southport Centre                             |       |       | 6.94       | %                             |       |                            | 6.94       | %            |       | Jul-07      |       | 9,764       |       | 9,924 |   |
| Long Meadow  Commons                         |       |       | 5.11       | %                             |       |                            | 7.98       | %            |       | Jul-07      |       | 9,472       |       | 10,028 |   |
| Southgate  Shopping Center                   |       |       | 8.38       | %                             |       |                            | 8.38       | %            |       | Oct-07      |       | 2,285       |       | 2,395 |   |
| Hale  Road & Northern Hills         |       |       | 5.31       | %                             |       |                            | 5.31       | %            |       | Dec-07      |       | 14,600      |       | — |   |
| Salem Consumer  Square                       |       |       | 10.13      | %                             |       |                            | 10.13      | %            |       | Sep-08      |       | 9,802       |       | 10,284 |   |
| St. Francis Plaza                            |       |       | 8.13       | %                             |       |                            | 8.13       | %            |       | Dec-08      |       | 675         |       | 866 |   |
| Burlington Square                            |       |       | 5.31       | %                             |       |                            | 8.28       | %            |       | Jan-09      |       | 14,522      |       | 15,051 |   |
| Crossroads  III & Slater Street     |       |       | 5.85       | %                             |       |                            | 7.86       | %            |       | Jun-09      |       | 14,762      |       | — |   |
| Montgomery  Commons                          |       |       | 6.38       | %                             |       |                            | 8.48       | %            |       | Jan-10      |       | 8,305       |       | 8,506 |   |
| Warminster Towne  Center                     |       |       | 6.01       | %                             |       |                            | 8.24       | %            |       | Feb-10      |       | 21,201      |       | 21,797 |   |
| The Market of  Wolf Creek III                |       |       | 5.71       | %                             |       |                            | 7.88       | %            |       | Feb-11      |       | 9,407       |       | 9,634 |   |
| The Market of  Wolf Creek I                  |       |       | 5.71       | %                             |       |                            | 7.68       | %            |       | Oct-12      |       | 11,190      |       | 11,475 |   |
| Berkshire  Crossing                          |       |       | 6.29       | %                             |       |                            | 6.29       | %            |       | Nov-12      |       | 14,030      |       | 14,523 |   |
| Grand Traverse  Crossing                     |       |       | 7.42       | %                             |       |                            | 7.42       | %            |       | Jan-13      |       | 12,918      |       | 13,284 |   |
| Salmon Run Plaza                             |       |       | 8.10       | %                             |       |                            | 8.95       | %            |       | Sep-13      |       | 4,603       |       | 4,938 |   |
| Elk Park Center                              |       |       | 7.64       | %                             |       |                            | 7.64       | %            |       | Aug-16      |       | 7,947       |       | 8,244 |   |
| Grand Traverse  Crossing—Wal-Mart       |       |       | 7.75       | %                             |       |                            | 7.75       | %            |       | Oct-16      |       | 4,995       |       | 5,160 |   |
| The Market of  Wolf Creek II                 |       |       | 5.87       | %                             |       |                            | 7.50       | %            |       | Jul-17      |       | 2,164       |       | 2,276 |   |
| Bedford Grove—Wal-Mart                  |       |       | 7.63       | %                             |       |                            | 7.63       | %            |       | Nov-19      |       | 3,915       |       | 4,067 |   |
| Berkshire  Crossing—Home Depot/Wal-Mart |       |       | 7.63       | %                             |       |                            | 7.63       | %            |       | Mar-20      |       | 6,378       |       | 6,617 |   |
| Total/Weighted average                       |       |       | 6.63       | %                             |       |                            | 7.74       | %            |       |        |       | $           | 190,956    |   | $ | 178,040 |   |

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(1)          The principal amountshown for mortgages assumed in the acquisition of a property has been adjustedto reflect the estimated fair value of the mortgage loans payable as of thedate the property was acquired. The stated contractual principal balance at December 31,2005 was $183.9 million.

(2)          Theprincipal amount shown for mortgages assumed in the acquisition of a propertyhas been adjusted to reflect the estimated fair value of the mortgage loanspayable as of the date the property was acquired. The stated contractualprincipal balance at December 31, 2004 was $170.5 million.

*Unsecured NotesPayable*

The Operating Partnership previously issued unsecurednotes payable consisting of a $100 million, 7% fixed-rate issue whichmatured on November 15, 2004; a $100 million, 7.2% fixed-rate issuematuring on January 15, 2008; and $1.5 million of other unsecurednotes payable. On November 15, 2004, the Operating Partnership repaid allof the $100 million 7% fixed-rate issue maturing on that date. The amountof unsecured notes payable outstanding at December 31, 2005 and 2004 was$101.5 million.

F-19

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*Line of CreditFacility*

Prior Line of Credit

Prior to March 29, 2005, the OperatingPartnership and Heritage OP were co-borrowers on a joint and several basis of athree-year $350 million unsecured line of credit with a group of lendersand Fleet National Bank, as agent. Heritage and certain of Heritage’s othersubsidiaries guaranteed this prior line of credit. This line of credit was usedprincipally to fund growth opportunities and for working capital purposes. At December 31,2004, $196.0 million was outstanding on this prior line of credit, all of whichwas carried on the Operating Partnership’s balance sheet.

New Related Party Line of Credit

Under its terms, the Operating Partnership’s priorline of credit would have matured on April 29, 2005. However, on March 29,2005, Heritage refinanced the prior line of credit, entering into a newthree-year $400 million unsecured line of credit with a group of lendersand Wachovia Bank, National Association, as agent, expiring March 28,2008, subject to a one-year extension. At Heritage’s request, subject to theagent’s consent, this new line of credit may be increased to $500 million.Heritage is the borrower under this new line of credit and the OperatingPartnership, Heritage OP and certain of Heritage’s other subsidiaries haveguaranteed the new line of credit. The new line of credit is being usedprincipally to fund growth opportunities and for working capital purposes.

Heritage’s ability to borrow under this new line of creditis subject to the Company’s ongoing compliance with a number of financial andother covenants. The new line of credit, except under some circumstances,limits Heritage’s ability to make distributions in excess of 95% of Heritage’sannual funds from operations. In addition, the new line of credit bearsinterest at either the lender’s base rate or a floating rate based on a spreadover LIBOR ranging from 62.5 basis points to 115 basis points, depending uponHeritage’s debt rating. The new credit facility also includes a competitive bidoption program that allows the Company to hold auctions amongst theparticipating lenders in the facility for up to fifty percent of the facilityamount. The variable rate in effect at December 31, 2005, was 4.98%. Thenew line of credit also has a facility fee based on the amount committedranging from 15 to 25 basis points, depending upon Heritage’s debt rating, andrequires quarterly payments.

Upon entering into thisnew line of credit, Heritage established a related party line of credit withthe Operating Partnership by advancing the proceeds from the new line of creditto the Operating Partnership. The terms of this related party line of creditfacility are substantially identical to Heritage’s line of credit facility andis shown as Related Party Line of Credit Facility on the accompanying December 31,2005 balance sheet. The Operating Partnership used these funds to repay theentire outstanding balance of the Operating Partnership’s prior line of credit.As of December 31, 2005, $328.0 million was outstanding under thisrelated party line of credit facility. Accrued interest payable of $1.3 millionand $0 as of December 31, 2005 and December 31, 2004, respectively,relating to the related party line of credit is included in accrued expensesand other liabilities in the accompanying consolidated balance sheets. Interestexpense incurred for the related party line of credit was $10.5 million and $0for the year ended December 31, 2005 and 2004, respectively.

*Bridge Loan*

On November 28, 2005, Heritage entered into a$100 million term loan or “bridge loan” with Wachovia Capital Markets, LLC, asarranger, Wachovia Investment Holdings, LLC, as agent, and certain otherfinancial institutions, expiring August 28, 2006, subject to a two-yearextension. Heritage’s ability to borrow under the bridge loan is subject to itsongoing compliance with a number of financial and other covenants. This bridgeloan, except under some circumstances, limits Heritage’s ability to makedistributions in excess of 95% of its annual funds from operations. Inaddition, amounts borrowed under 

F-20

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this bridge loan bearinterest at either the lender’s base rate or a floating rate based on a spreadover LIBOR ranging from 55 basis points to 115 basis points, depending uponHeritage’s debt rating. The variable rate in effect at December 31, 2005was 5.09%. This bridge loan also has a facility fee based on the amountcommitted ranging from 12.5 to 25 basis points, depending upon Heritage’s debtrating, and requires quarterly payments. Heritage is the borrower under thisbridge loan, and the Operating Partnership and Heritage OP have guaranteed thisbridge loan. This bridge loan is being used principally to fund growthopportunities and for working capital purposes.

Upon entering into thisbridge loan, Heritage established a related party bridge loan facility with theOperating Partnership by advancing the proceeds from the bridge loan to theOperating Partnership. The terms of this bridge loan facility are substantiallyidentical to Heritage’s bridge loan facility and is shown as Related PartyBridge Loan Payable on the accompanying December 31, 2005 balance sheet. Asof December 31, 2005, $50.0 million had been drawn under this relatedparty bridge loan. Accrued interest payable of $0.2 million and $0 as of December 31,2005 and December 31, 2004, respectively, relating to the related partybridge loan is included in accrued expenses and other liabilities in theaccompanying consolidated balance sheets. Interest expense incurred for therelated party bridge loan was $0.2 million and $0 for the year ended December 31,2005 and 2004, respectively.

*Guaranty ofUnsecured Debt*

On April 1, 2004, Heritage issued$200 million aggregate principal unsecured senior notes at an interestrate of 5.125% due April 15, 2014 with interest payable semiannuallycommencing on October 15, 2004. On October 15, 2004, Heritage issued$150 million aggregate principal unsecured notes (collectively, with the$200 million notes, the “Notes”) at in interest rate of 4.5% notes due October 15,2009 with interest payable semiannually commencing on April 15, 2005.Heritage used the proceeds of the Notes, net of original issue discount andestimated offering costs, to repay a portion of the outstanding balance underthe Operating Partnership’s and Heritage OP’s then existing line of credit. TheOperating Partnership has provided Heritage with intercompany notes in exchangefor the proceeds used to pay down the line of credit at terms substantiallyidentical to the Notes. These intercompany notes are classified as relatedparty notes payable in the accompanying 2005 and 2004 consolidated balancesheet. Accrued interest payable of $3.5 million as of December 31, 2005and 2004, relating to the related party unsecured notes payable is included inaccrued expenses and other liabilities in the accompanying consolidated balancesheets. Interest expense incurred for these related party unsecured notes was$17.0 million, $9.1 million, and $0 for the years ended December 31,2005, 2004 and 2003, respectively. The Notes may be redeemed at any time at theoption of Heritage, in whole or in part, at a redemption price equal to the sumof (1) the principal amount of the notes being redeemed plus accruedinterest on the notes to the redemption date and (2) a make-whole amount,if any, with respect to the notes that is designed to provide yield maintenanceprotection to the holders of these notes.

The Notes are senior unsecured obligations of Heritageand are guaranteed jointly and severally by the Operating Partnership andHeritage OP. Such guarantees are unsecured senior obligations of the OperatingPartnership and Heritage OP and rank equally with all existing and futureunsecured senior indebtedness of the Operating Partnership and Heritage OP. TheNotes also contain certain financial and operating covenants, includinglimitations on the amount and type of indebtedness that may be incurred byHeritage, the Operating Partnership, and Heritage OP.

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Selectedfinancial information of Heritage OP, the co-guarantor of the new line ofcredit, the bridge loan and the unsecured debt, is as follows as of and for theyears ended December 31, 2005 and 2004 (in thousands):  

| ** **                                         | ** ** | **December 31,** | ** ** |
|----------------------------------------------------|------------|-----------------------|------------|
| **Description**                                    | ** ** | ** **            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Real estate investments,  net                      |       | $                     | 839,804    |   | $ | 905,438 |   |
| Other assets                                       |       | $                     | 64,455     |   | $ | 61,783 |   |
| Total assets                                       |       | $                     | 904,259    |   | $ | 967,221 |   |
| Indebtedness(1)                                    |       | $                     | 439,861    |   | $ | 537,021 |   |
| Other liabilities                                  |       | $                     | 53,563     |   | $ | 57,685 |   |
| Partners’ capital                             |       | $                     | 332,533    |   | $ | 372,515 |   |
| Total revenue  (excluding discontinued operations) |       | $                     | 159,074    |   | $ | 138,460 |   |
| Net income                                         |       | $                     | 15,509     |   | $ | 16,511 |   |
|                                                    |            |                       |            |  |  |  |  |  |  |

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(1)          TheOperating Partnership and the Heritage OP are co-guarantors under the line ofcredit, bridge loan, and unsecured debt; however, for purposes of the abovefootnote, amounts due under the line of credit, bridge loan, and unsecured debtare not included as the entire outstanding balances have been included on theaccompanying Operating Partnership’s balance sheets. Indebtedness includes$78,302 and $66,021 of intercompany advances payable to the OperatingPartnership at December 31, 2005 and 2004, respectively.

*Scheduled PrincipalRepayments*

Scheduledprincipal repayments on aggregate outstanding debt at December 31, 2005are as follows (in thousands):

| ** **                     | ** ** | **Amount due** | ** ** |
|--------------------------------|------------|---------------------|------------|
| Year ending  December 31: |       |                |       |
| 2006                           |       | $                   | 64,124     |   |
| 2007                           |       | 39,389              |       |
| 2008                           |       | 440,762             |       |
| 2009                           |       | 179,621             |       |
| 2010                           |       | 28,924              |       |
| Thereafter                     |       | 260,559             |       |
| Total due(1)                   |       | $                   | 1,013,379  |   |

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(1)          Theaggregate principal repayment amount of $1,013,379 does not reflect theunamortized adjustment of $7,067 to increase the carrying amount to fair valuefor ten mortgages assumed as of December 31, 2005.

**(9) Income Taxes**

The Operating Partnership is not liable for Federalincome taxes as each partner reports its allocable share of income anddeductions on its respective return; accordingly, no provision for Federalincome taxes is reported in the accompanying consolidated financial statements.

The unaudited tax basis ofthe Operating Partnership’s assets and liabilities was approximately $1.6 billionand $1.1 billion, respectively, as of December 31, 2005 and $1.5 billionand $0.9 billion, respectively, as of December 31, 2004.

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**(10) Related Party Transactions**

In July 1999, BernardCammarata became a member of Heritage’s board of directors. Until September 2005,Mr. Cammarata was non-executive Chairman of the Board of TJX Companies, Inc.,Bradley OP’s largest tenant. In September 2005, Mr. Cammarata becamePresident and Chief Executive Officer of TJX, positions he previously held. In October 2005,TJX appointed a new President, with Mr. Cammarata continuing to serve asChief Executive Officer. Annualized base rent from the TJX Companies representsapproximately 3.0% of Bradley OP’s total annualized base rent for all leases inwhich tenants were in occupancy at December 31, 2005. In addition, as of December 31,2005, Bradley OP had outstanding accounts receivable for contractual andstraight-line rent of $0.7 million. TJX pays Bradley OP rent in accordance with20 leases at its properties.

**(11) Commitments and Contingencies**

The Operating Partnership is subject to legal andother claims incurred in the normal course of business. Based on its review andconsultation with counsel of such matters known to exist, management does notbelieve that the ultimate outcome of these claims would materially affect theOperating Partnership’s financial position or results of operations.

The Company has enteredinto construction contracts related to tenant improvements, out parceldevelopment and re-development of various shopping centers. Unexpended butcommitted amounts under construction contracts amounted to $6.3 million asof December 31, 2005.

**(12) Capital Structure**

At December 31, 2005 and 2004, Heritage, througha wholly-owned subsidiary, owned approximately 98.2% and 98.5%, respectively,of the voting interests in the Operating Partnership, and through thissubsidiary, is the sole general partner of the Operating Partnership. Thisstructure is commonly referred to as an umbrella partnership REIT, or “UPREIT.”

At December 31, 2005, interests in the OperatingPartnership are evidenced by two partner classes: general partner common unitsowned by Heritage’s wholly-owned subsidiary, and limited partner common unitsowned by Heritage and outside parties.

On February 23, 2004, the Operating Partnershipredeemed all outstanding 8.875% Series B Cumulative Redeemable PerpetualPreferred Units of the Operating Partnership. The Operating Partnershipredeemed all 2,000,000 of the outstanding Series B Preferred Units at aredemption price of $25.00 per unit, plus approximately $0.3266 of accrued andunpaid distributions, for an aggregate redemption price of approximately$25.3266 per unit. There were no unamortized issuance costs associated with theSeries B Preferred Units; therefore, the Operating Partnership did notincur a charge in connection with this redemption.

On September 7, 2004, the Operating Partnershipredeemed all outstanding 8.875% Series C Cumulative Redeemable PerpetualPreferred Units of the Operating Partnership. The Operating Partnershipredeemed all 1,000,000 of the outstanding Series C Preferred Units at aredemption price of $25.00 per unit, plus approximately $0.413 of accrued andunpaid distributions for an aggregate redemption price of approximately $25.413per unit. There were no unamortized issuance costs associated with the Series CPreferred Units, therefore, the Operating Partnership did not incur a charge inconnection with this redemption.

Pursuant to the Operating Partnership Agreement,outside limited partners in the Operating Partnership have the right to redeemall or any portion of their common units for cash from the OperatingPartnership. However, Heritage may elect to acquire their interest by issuingcommon stock of Heritage in exchange for common units on a one-for-one basis.The amount of cash to be paid to the limited partner if 

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the redemption right isexercised and the cash option is elected by Heritage is based on the tradingprice of Heritage’s common stock at the conversion date. Due to the redemptionoption existing outside the control of the Operating Partnership, such limitedpartners’ redeemable common units are not included in Partners’ Capital and arestated at their redemption value.

Thefollowing table reflects the activity for redeemable common and preferred unitsfor the years ended December 31, 2005, 2004, and 2003 (in thousands): 

| ** **                                                              | ** ** | **Redeemable  Common  Units** | ** ** | **Series B  Preferred  Units** | ** ** | **Series C  Preferred  Units** | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|
| Balance at  December 31, 2002                                      |       |                          | $          | 8,497                               |       |                                | $          | 50,000 |   | $ | 25,000 |   |
| Net income  allocable to redeemable common units                        |       |                          | 214        |                                |       | 4,438                               |       | 2,218 |   |
| Distributions to  redeemable common units                               |       |                          | (769       | )                                   |       | (4,438                              | )          | (2,218 | ) |
| Adjustment to  reflect redeemable common units at redemption value      |       |                          | 1,739      |                                |       | —                              |       | — |   |
| Balance at  December 31, 2003                                      |       |                          | 9,681      |                                |       | 50,000                              |       | 25,000 |   |
| Net income  allocable to redeemable common units                        |       |                          | 206        |                                |       | 99                                  |       | 2,077 |   |
| Acquisition of  properties in exchange for limited partner common units |       |                          | 6,152      |                                |       | —                              |       | — |   |
| Conversion of  redeemable common units                                  |       |                          | (171       | )                                   |       | —                              |       | — |   |
| Distributions to  redeemable common units                               |       |                          | (808       | )                                   |       | (99                                 | )          | (2,077 | ) |
| Adjustment to  reflect redeemable common units at redemption value      |       |                          | 1,692      |                                |       | —                              |       | — |   |
| Redemption of  Series B and C Preferred Units                      |       |                          | —     |                                |       | (50,000                             | )          | (25,000 | ) |
| Balance at  December 31, 2004                                      |       |                          | 16,752     |                                |       | —                              |       | — |   |
| Net income  allocable to redeemable common units                        |       |                          | 241        |                                |       | —                              |       | — |   |
| Acquisition of  properties in exchange for limited partner common units |       |                          | 6,052      |                                |       | —                              |       | — |   |
| Purchase of  limited partner common units                               |       |                          | (1,372     | )                                   |       | —                              |       | — |   |
| Distributions to  redeemable common units                               |       |                          | (1,168     | )                                   |       | —                              |       | — |   |
| Adjustment to  reflect redeemable common units at redemption value      |       |                          | 1,507      |                                |       | —                              |       | — |   |
| Balance at  December 31, 2005                                      |       |                          | $          | 22,012                              |       |                                | $          | — |   | $ | — |   |

 

**(13) Segment Reporting**

The Operating Partnershippredominantly operates in one industry segment—real estate ownership andmanagement of retail properties. Management reviews operating and financialdata for each property separately and independently from all other propertieswhen making resource allocation decisions and measuring performance. TheOperating Partnership defines operating segments as individual properties withno segment representing more than 10% of rental revenue.

**(14)Newly Issued Accounting Standards**

In March 2005, the FASB issued FASB Interpretation No. 47, *Accounting for Conditional Asset RetirementObligations, an interpretation of FASB Statement No. 143*(“FIN No. 47”).FIN No. 47 clarifies that conditional asset retirement obligationsmeet the definition of liabilities and should be recognized when incurred iftheir fair values can be reasonably estimated. FIN No. 47 is effective forthe fiscal year ended December 31, 2005. The adoption of FIN No. 47did not have a material effect on the Operating Partnership’s consolidatedresults of operations, financial position, or liquidity.

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In May 2005, the FASB issued Statement ofFinancial Accounting Standard No. 154, *Accounting Changes andError Corrections* (“SFAS No. 154”). SFAS No. 154 replacesAPB Opinion No. 20, *Accounting Changes*,and SFAS No. 3, *Reporting AccountingChanges in Interim Financial Statements*,**andchanges the requirements for the accounting for and reporting of a change inaccounting principle. APB Opinion No. 20 previously required that mostvoluntary changes in accounting principle be recognized by including in netincome of the period of the change the cumulative effect of changing to the newaccounting principle. SFAS No. 154 requires retrospective application toprior periods’ financial statements of changes in accounting principle, unlessit is impracticable to determine either the period-specific effects or thecumulative effect of the change. SFAS No. 154 is effective for accountingchanges and corrections of errors made in fiscal years beginning after December 15, 2005.The Operating Partnership does not expect the adoption of SFAS No. 154 tohave a material impact on the Operating Partnership’s financial condition andresults of operations, financial position, or liquidity.

In September 2005,the Emerging Issues Task Force issued Issue No. 04-5, *Investor’s Accounting for an Investment in a Limited Partnership Whenthe Investor is the Sole General Partner and the Limited Partners Have CertainRights*, (“EITF No. 04-5”). At issue is what rightsheld by the limited partner(s) preclude consolidation in circumstances inwhich the sole general partner would consolidate the limited partnership inaccordance with U.S. generally accepted accounting principles. The assessmentof limited partners’ rights and their impact on the presumption of control ofthe limited partnership by the sole general partner should be made when aninvestor becomes the sole general partner and should be reassessed if (i) thereis a change to the terms or in the exercisability of the rights of the limitedpartners, (ii) the sole general partner increases or decreases itsownership of limited partnership interests, or (iii) there is an increaseor decrease in the number of outstanding limited partnership interests. Thisissue is effective no later than for fiscal years beginning after December 15,2005 and as of June 29, 2005 for new or modified arrangements. Theadoption of EITF No. 04-5 did not have a material effect on theOperating Partnership’s consolidated results of operations, financial position,or liquidity.

**(15) Subsequent Events**

In late January 2006, the Operating Partnershipfinalized an agreement to sell eight of its shopping centers, consisting of 0.8million square feet of GLA owned by the Operating Partnership. The shoppingcenters are being sold as a portfolio to a single buyer and constitute all ofthe Operating Partnership’s centers in Nebraska and South Dakota. Thetransaction is expected to be completed by the end of the first quarter of2006. The carrying amount of the associated assets and liabilities at December 31,2005 were $52.5 million and $0.8 million, respectively. It isexpected that the results of operations of these shopping centers will bereclassified to discontinued operations in the Operating Partnership’sprospective financial statements.

In late March 2006, the Operating Partnershipfinalized an agreement to sell one of its shopping centers in Trotwood, OH,consisting of 0.3 million square feet of GLA owned by the OperatingPartnership. The transaction is expected to be completed by the end of thesecond quarter of 2006. The carrying amount of the associated assets andliabilities at December 31, 2005 were $22.2 million and $10.4 million,respectively. It is expected that the results of operations of this shoppingcenter will be reclassified to discontinued operations in the OperatingPartnership’s prospective financial statements.

F-25

----

**SCHEDULE III**

**BRADLEYOPERATING LIMITED PARTNERSHIPREAL ESTATE AND ACCUMULATED DEPRECIATIONDecember 31, 2005(In thousands)**

Thefollowing table sets forth detail with respect to the properties, and relatedencumbrances, owned by the Company at December 31, 2005.

| ** **                                    | ** ** | ** ** | ** ** | **Initial Cost to the Company** | ** ** | **Capitalized**        | ** ** | **Gross Amount Carried at December 31, 2005** | ** ** | **Date**          | ** ** | **Lives on Which** | ** ** |
|-----------------------------------------------|------------|------------|------------|-----------------------------------------------------|------------|------------------------|------------|-----------------------------------------------------------------------------|------------|-------------------|------------|------------------------------|------------|
| ** **                                    | ** ** | ** ** | ** ** | **Land and**                                   | ** ** | **Buildings and** | ** ** | **Subsequent to**                                                      | ** ** | **Land and** | ** ** | **Buildings and**       | ** ** | ** ** | ** ** | **Accumulated** | ** ** | **Acquired** | ** ** | **Depreciation is** | ** ** |
| **Property Name and Location** | ** ** | ** ** | ** ** | **Encumbrances**                                    | ** ** | **Improvements**       | ** ** | **Improvements**                                                            | ** ** | **Acquisition**   | ** ** | **Improvements**             | ** ** | **Improvements** | ** ** | **Total** | ** ** | **Depreciation** | ** ** | **by Company** | ** ** | **Computed** | ** ** |
| **RETAIL SHOPPING CENTERS**                   |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ALABAMA                                       |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                               |            |            |            |                                                     |            |                        |            |                                                                             |            |                   |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

| Montgomery Commons  Montgomery, AL               |   |   | $      | 8,305  |   |   |   | $      | 2,527  |   |   |   | $      | 8,459  |   |   |   | $      | 175    |   |   |   | $      | 2,527  |   |   |   | $      | 8,634  |   |   | $      | 11,161 |   |   | $      | 963     |   |   |   | 2002 |   |   |   | 3 - 39 |   |   |
|--------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|------|--------|--------|--------|--------|--------|--------|
| CONNECTICUT                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |   |
| Crossroads  I & II  Manchester, CT      |   |   | — |   |   |   | 5,758  |   |   |   | 19,276 |   |   |   | — |   |   |   | 5,758  |   |   |   | 19,276 |   |   | 25,034 |   |   | 241    |   |   |   | 2005   |   |   |   | 15 - 39 |   |   |
| Crossroads III  Manchester, CT                   |   |   | 14,762 | (1)    |   |   | 2,733  |   |   |   | 9,150  |   |   |   | — |   |   |   | 2,733  |   |   |   | 9,150  |   |   | 11,883 |   |   | 86     |   |   |   | 2005   |   |   |   | 15 - 39 |   |   |
| Hale Road  Manchester, CT                        |   |   | 14,600 | (2)    |   |   | 4,036  |   |   |   | 13,512 |   |   |   | — |   |   |   | 4,036  |   |   |   | 13,512 |   |   | 17,548 |   |   | 126    |   |   |   | 2005   |   |   |   | 15 - 39 |   |   |
| Northern Hills  Manchester, CT                   |   |   |   | (2)    |   |   | 1,025  |   |   |   | 3,433  |   |   |   | — |   |   |   | 1,025  |   |   |   | 3,433  |   |   | 4,458  |   |   | 32     |   |   |   | 2005   |   |   |   | 15 - 39 |   |   |
| Slater Street  Manchester, CT                    |   |   |   | (1)    |   |   | 2,521  |   |   |   | 8,438  |   |   |   | — |   |   |   | 2,521  |   |   |   | 8,438  |   |   | 10,959 |   |   | 79     |   |   |   | 2005   |   |   |   | 15 - 39 |   |   |
| GEORGIA                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |   |
| Shenandoah Plaza  Newnan, GA                     |   |   | — |   |   |   | 1,352  |   |   |   | 4,530  |   |   |   | 71     |   |   |   | 1,353  |   |   |   | 4,600  |   |   | 5,953  |   |   | 994    |   |   |   | 2000   |   |   |   | 4 - 39  |   |   |
| ILLINOIS                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |   |
| Bartonville Square  Bartonville, IL              |   |   | — |   |   |   | 572    |   |   |   | 1,914  |   |   |   | 227    |   |   |   | 572    |   |   |   | 2,141  |   |   | 2,713  |   |   | 459    |   |   |   | 2000   |   |   |   | 10 - 39 |   |   |
| Butterfield Square  Libertyville, IL             |   |   | — |   |   |   | 3,328  |   |   |   | 11,139 |   |   |   | 179    |   |   |   | 3,344  |   |   |   | 11,302 |   |   | 14,646 |   |   | 2,510  |   |   |   | 2000   |   |   |   | 5 - 39  |   |   |
| The Commons of  Chicago Ridge  Chicago Ridge, IL |   |   | — |   |   |   | 9,254  |   |   |   | 30,982 |   |   |   | 2,359  |   |   |   | 9,273  |   |   |   | 33,322 |   |   | 42,595 |   |   | 7,685  |   |   |   | 2000   |   |   |   | 4 - 39  |   |   |
| The Commons of  Crystal Lake  Crystal Lake, IL   |   |   | — |   |   |   | 7,193  |   |   |   | 24,079 |   |   |   | 888    |   |   |   | 7,455  |   |   |   | 24,705 |   |   | 32,160 |   |   | 5,470  |   |   |   | 2000   |   |   |   | 4 - 39  |   |   |
| Crossroads Centre  Fairview Heights, IL          |   |   | — |   |   |   | 3,614  |   |   |   | 12,099 |   |   |   | 755    |   |   |   | 3,802  |   |   |   | 12,666 |   |   | 16,468 |   |   | 2,744  |   |   |   | 2000   |   |   |   | 5 - 39  |   |   |
| Fairhills Shopping  Center  Springfield, IL      |   |   | — |   |   |   | 1,369  |   |   |   | 4,583  |   |   |   | 443    |   |   |   | 1,369  |   |   |   | 5,026  |   |   | 6,395  |   |   | 1,036  |   |   |   | 2000   |   |   |   | 10 - 39 |   |   |
| Heritage Square  Naperville, IL                  |   |   | — |   |   |   | 5,554  |   |   |   | 18,593 |   |   |   | 721    |   |   |   | 5,625  |   |   |   | 19,243 |   |   | 24,868 |   |   | 4,294  |   |   |   | 2000   |   |   |   | 3 - 39  |   |   |
| High Point Centre  Lombard, IL                   |   |   | — |   |   |   | 5,621  |   |   |   | 18,817 |   |   |   | 1,037  |   |   |   | 5,736  |   |   |   | 19,739 |   |   | 25,475 |   |   | 4,312  |   |   |   | 2000   |   |   |   | 3 - 39  |   |   |
| Long Meadow  Commons  Mundelein, IL              |   |   | 9,472  |   |   |   | 3,507  |   |   |   | 11,741 |   |   |   | 117    |   |   |   | 3,597  |   |   |   | 11,768 |   |   | 15,365 |   |   | 749    |   |   |   | 2004   |   |   |   | 3 - 39  |   |   |
| Parkway Pointe  Springfield, IL                  |   |   | — |   |   |   | 1,059  |   |   |   | 3,546  |   |   |   |   | (1)    |   |   | 1,059  |   |   |   | 3,545  |   |   | 4,604  |   |   | 773    |   |   |   | 2000   |   |   |   | 10 - 39 |   |   |

 

S-III-1

 

----

**SCHEDULE III**

**BRADLEYOPERATING LIMITED PARTNERSHIPREAL ESTATE AND ACCUMULATED DEPRECIATIONDecember 31, 2005(In thousands)**

Thefollowing table sets forth detail with respect to the properties, and relatedencumbrances, owned by the Company at December 31, 2005.

|                                           | ** ** | ** ** | ** ** | **Initial Cost to the Company** | ** ** | **Capitalized**        | ** ** | **Gross Amount Carried at December 31, 2005** | ** ** | ** **        | ** ** | **Lives on Which** | ** ** |
|-------------------------------------------|------------|------------|------------|-----------------------------------------------------|------------|------------------------|------------|-----------------------------------------------------------------------------|------------|-------------------|------------|------------------------------|------------|
| ** **                                | ** ** | ** ** | ** ** | **Land and**                                   | ** ** | **Buildings and** | ** ** | **Subsequent to**                                                      | ** ** | **Land and** | ** ** | **Buildings and**       | ** ** | ** ** | ** ** | **Accumulated** | ** ** | **Date Acquired** | ** ** | **Depreciation is** | ** ** |
| Property Name and Location | ** ** | ** ** | ** ** | **Encumbrances**                                    | ** ** | **Improvements**       | ** ** | **Improvements**                                                            | ** ** | **Acquisition**   | ** ** | **Improvements**             | ** ** | **Improvements** | ** ** | **Total** | ** ** | **Depreciation** | ** ** | **by Company** | ** ** | **Computed** | ** ** |
| Rivercrest                                |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Crestwood, IL                             |       |       | —     |                                                |       |                   | 10,043     |                                                                        |       |              | 33,620     |                         |       |   | 909 |   |   |   | 10,042 |   |   |   | 34,530 |   |   | 44,572 |   |   | 7,568 |   |   |   | 2000 |   |   |   | 3 - 39 |   |   |
| Rollins Crossing                          |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Round Lake Beach,  IL                     |       |       | —     |                                                |       |                   | 3,839      |                                                                        |       |              | 12,852     |                         |       |   | 136 |   |   |   | 3,839 |   |   |   | 12,988 |   |   | 16,827 |   |   | 2,823 |   |   |   | 2000 |   |   |   | 1 - 39 |   |   |
| Sangamon Center North                     |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Springfield, IL                           |       |       | —     |                                                |       |                   | 2,450      |                                                                        |       |              | 8,204      |                         |       |   | 132 |   |   |   | 2,450 |   |   |   | 8,336 |   |   | 10,786 |   |   | 1,817 |   |   |   | 2000 |   |   |   | 10 - 39 |   |   |
| Sheridan Village                          |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Peoria, IL                                |       |       | —     |                                                |       |                   | 5,293      |                                                                        |       |              | 17,716     |                         |       |   | 1,867 |   |   |   | 5,660 |   |   |   | 19,216 |   |   | 24,876 |   |   | 4,249 |   |   |   | 2000 |   |   |   | 3 - 39 |   |   |
| Sterling Bazaar                           |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Peoria, IL                                |       |       | —     |                                                |       |                   | 1,619      |                                                                        |       |              | 5,419      |                         |       |   | 235 |   |   |   | 1,779 |   |   |   | 5,494 |   |   | 7,273 |   |   | 1,250 |   |   |   | 2000 |   |   |   | 5 - 39 |   |   |
| Twin Oaks Centre                          |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Silvis, IL                                |       |       | —     |                                                |       |                   | 1,832      |                                                                        |       |              | 6,131      |                         |       |   | 295 |   |   |   | 1,841 |   |   |   | 6,417 |   |   | 8,258 |   |   | 1,495 |   |   |   | 2000 |   |   |   | 5 - 39 |   |   |
| Wardcliffe Shopping Center                |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Peoria, IL                                |       |       | —     |                                                |       |                   | 503        |                                                                        |       |              | 1,682      |                         |       |   | 257 |   |   |   | 566 |   |   |   | 1,876 |   |   | 2,442 |   |   | 434 |   |   |   | 2000 |   |   |   | 5 - 39 |   |   |
| Westview Center                           |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Hanover Park, IL                          |       |       | —     |                                                |       |                   | 6,527      |                                                                        |       |              | 21,852     |                         |       |   | 1,014 |   |   |   | 6,944 |   |   |   | 22,449 |   |   | 29,393 |   |   | 4,994 |   |   |   | 2000 |   |   |   | 5 - 39 |   |   |
| INDIANA                                   |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Apple Glen Crossing                       |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fort Wayne, IN                            |       |       | —     |                                                |       |                   | 4,337      |                                                                        |       |              | 14,518     |                         |       |   | 88 |   |   |   | 4,337 |   |   |   | 14,606 |   |   | 18,943 |   |   | 1,690 |   |   |   | 2002 |   |   |   | 5 - 39 |   |   |
| County Line Mall                          |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Indianapolis, IN                          |       |       | —     |                                                |       |                   | 4,616      |                                                                        |       |              | 15,451     |                         |       |   | 2,785 |   |   |   | 4,629 |   |   |   | 18,223 |   |   | 22,852 |   |   | 3,733 |   |   |   | 2000 |   |   |   | 3 - 39 |   |   |
| Double Tree Plaza                         |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Winfield, IN                              |       |       | —     |                                                |       |                   | 1,404      |                                                                        |       |              | 4,703      |                         |       |   | 36 |   |   |   | 1,420 |   |   |   | 4,723 |   |   | 6,143 |   |   | 1,041 |   |   |   | 2000 |   |   |   | 10 - 39 |   |   |
| Germantown Shopping Center                |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Jasper, IN                                |       |       | —     |                                                |       |                   | 1,829      |                                                                        |       |              | 6,124      |                         |       |   | 1,781 |   |   |   | 1,899 |   |   |   | 7,835 |   |   | 9,734 |   |   | 1,898 |   |   |   | 2000 |   |   |   | 3 - 39 |   |   |
| King’s Plaza                         |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Richmond, IN                              |       |       | —     |                                                |       |                   | 983        |                                                                        |       |              | 3,290      |                         |       |   | 498 |   |   |   | 1,111 |   |   |   | 3,660 |   |   | 4,771 |   |   | 881 |   |   |   | 2000 |   |   |   | 10 - 39 |   |   |
| Lincoln Plaza                             |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| New Haven, IN                             |       |       | —     |                                                |       |                   | 1,241      |                                                                        |       |              | 4,155      |                         |       |   | 425 |   |   |   | 1,241 |   |   |   | 4,580 |   |   | 5,821 |   |   | 993 |   |   |   | 2000 |   |   |   | 9 - 39 |   |   |
| Martin’s Bittersweet Plaza           |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mishawaka, IN                             |       |       | —     |                                                |       |                   | 1,110      |                                                                        |       |              | 3,717      |                         |       |   | 946 |   |   |   | 1,110 |   |   |   | 4,663 |   |   | 5,773 |   |   | 874 |   |   |   | 2000 |   |   |   | 3 - 39 |   |   |
| Rivergate Shopping Center                 |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shelbyville, IN                           |       |       | —     |                                                |       |                   | 1,299      |                                                                        |       |              | 4,350      |                         |       |   | 385 |   |   |   | 1,299 |   |   |   | 4,735 |   |   | 6,034 |   |   | 1,007 |   |   |   | 2000 |   |   |   | 5 - 39 |   |   |
| Sagamore Park Centre                      |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| West Lafayette, IN                        |       |       | —     |                                                |       |                   | 1,768      |                                                                        |       |              | 5,919      |                         |       |   | 888 |   |   |   | 1,768 |   |   |   | 6,807 |   |   | 8,575 |   |   | 1,416 |   |   |   | 2000 |   |   |   | 5 - 39 |   |   |
| Speedway SuperCenter                      |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Indianapolis, IN                          |       |       | —     |                                                |       |                   | 11,446     |                                                                        |       |              | 38,322     |                         |       |   | 4,756 |   |   |   | 11,677 |   |   |   | 42,847 |   |   | 54,524 |   |   | 9,297 |   |   |   | 2000 |   |   |   | 3 - 39 |   |   |
| The Village                               |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gary, IN                                  |       |       | —     |                                                |       |                   | 2,649      |                                                                        |       |              | 8,871      |                         |       |   | 5,436 |   |   |   | 2,678 |   |   |   | 14,278 |   |   | 16,956 |   |   | 3,164 |   |   |   | 2000 |   |   |   | 2 - 39 |   |   |
| Washington Lawndale Commons               |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Evansville, IN                            |       |       | —     |                                                |       |                   | 4,757      |                                                                        |       |              | 15,924     |                         |       |   | 2,391 |   |   |   | 5,524 |   |   |   | 17,548 |   |   | 23,072 |   |   | 3,979 |   |   |   | 2000 |   |   |   | 4 - 39 |   |   |
|                                           |            |            |            |                                                     |            |                        |            |                                                                             |            |                   |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

S-III-2

 

----

**SCHEDULEIII**

**BRADLEYOPERATING LIMITED PARTNERSHIPREAL ESTATE AND ACCUMULATED DEPRECIATIONDecember 31, 2005(In thousands)**

Thefollowing table sets forth detail with respect to the properties, and relatedencumbrances, owned by the Company at December 31, 2005.

| ** **                                    | ** ** | ** ** | ** ** | **Initial Cost to the Company** | ** ** | **Capitalized**        | ** ** | **Gross Amount Carried at December 31, 2005** | ** ** | ** **        | ** ** | **Lives on Which** | ** ** |
|-----------------------------------------------|------------|------------|------------|-----------------------------------------------------|------------|------------------------|------------|-----------------------------------------------------------------------------|------------|-------------------|------------|------------------------------|------------|
| ** **                                    | ** ** | ** ** | ** ** | **Land and**                                   | ** ** | **Buildings and** | ** ** | **Subsequent to**                                                      | ** ** | **Land and** | ** ** | **Buildings and**       | ** ** | ** ** | ** ** | **Accumulated** | ** ** | **Date Acquired** | ** ** | **Depreciation is** | ** ** |
| **Property Name and Location** | ** ** | ** ** | ** ** | **Encumbrances**                                    | ** ** | **Improvements**       | ** ** | **Improvements**                                                            | ** ** | **Acquisition**   | ** ** | **Improvements**             | ** ** | **Improvements** | ** ** | **Total** | ** ** | **Depreciation** | ** ** | **by Company** | ** ** | **Computed** | ** ** |
| IOWA                                          |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Burlington Plaza West  Burlington, IA         |       |       | —     |                                                |       |                   | 1,409      |                                                                        |       |              | 4,719      |                         |       |   | 560 |   |   |   | 1,544 |   |   |   | 5,144 |   |   | 6,688 |   |   | 1,095 |   |   |   | 2000 |   |   |   | 2  - 39 |   |   |
| Davenport Retail Center  Davenport, IA        |       |       | —     |                                                |       |                   | 1,355      |                                                                        |       |              | 4,539      |                         |       |   | 1 |   |   |   | 1,356 |   |   |   | 4,539 |   |   | 5,895 |   |   | 990 |   |   |   | 2000 |   |   |   | 10  - 39 |   |   |
| Kimberly West  Davenport, IA                  |       |       | —     |                                                |       |                   | 1,380      |                                                                        |       |              | 4,623      |                         |       |   | 407 |   |   |   | 1,442 |   |   |   | 4,968 |   |   | 6,410 |   |   | 1,072 |   |   |   | 2000 |   |   |   | 5  - 39 |   |   |
| Parkwood Plaza  Urbandale, IA                 |       |       | —     |                                                |       |                   | 1,950      |                                                                        |       |              | 6,527      |                         |       |   | 123 |   |   |   | 1,950 |   |   |   | 6,650 |   |   | 8,600 |   |   | 1,480 |   |   |   | 2000 |   |   |   | 4  - 39 |   |   |
| Southgate Shopping Center  Des Moines, IA     |       |       | 2,285      |                                                |       |                   | 994        |                                                                        |       |              | 3,327      |                         |       |   | 664 |   |   |   | 1,200 |   |   |   | 3,785 |   |   | 4,985 |   |   | 848 |   |   |   | 2000 |   |   |   | 7  - 39 |   |   |
| Spring Village  Davenport, IA                 |       |       | —     |                                                |       |                   | 673        |                                                                        |       |              | 2,255      |                         |       |   | 566 |   |   |   | 798 |   |   |   | 2,696 |   |   | 3,494 |   |   | 675 |   |   |   | 2000 |   |   |   | 5  - 39 |   |   |
| Warren Plaza  Dubuque, IA                     |       |       | —     |                                                |       |                   | 1,439      |                                                                        |       |              | 4,818      |                         |       |   | 168 |   |   |   | 1,590 |   |   |   | 4,835 |   |   | 6,425 |   |   | 1,088 |   |   |   | 2000 |   |   |   | 5  - 39 |   |   |
| KANSAS                                        |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mid State Plaza  Salina, KS                   |       |       | —     |                                                |       |                   | 1,718      |                                                                        |       |              | 5,752      |                         |       |   | 3,641 |   |   |   | 2,343 |   |   |   | 8,768 |   |   | 11,111 |   |   | 1,637 |   |   |   | 2000 |   |   |   | 2  - 39 |   |   |
| Santa Fe Square  Olathe, KS                   |       |       | —     |                                                |       |                   | 2,465      |                                                                        |       |              | 8,252      |                         |       |   | 984 |   |   |   | 2,786 |   |   |   | 8,915 |   |   | 11,701 |   |   | 1,975 |   |   |   | 2000 |   |   |   | 3  - 39 |   |   |
| Shawnee Parkway Plaza  Shawnee, KS            |       |       | —     |                                                |       |                   | 1,176      |                                                                        |       |              | 3,936      |                         |       |   | 337 |   |   |   | 1,298 |   |   |   | 4,151 |   |   | 5,449 |   |   | 1,024 |   |   |   | 2000 |   |   |   | 4  - 39 |   |   |
| Westchester Square  Lenexa, KS                |       |       | —     |                                                |       |                   | 3,128      |                                                                        |       |              | 10,473     |                         |       |   | 506 |   |   |   | 3,246 |   |   |   | 10,861 |   |   | 14,107 |   |   | 2,521 |   |   |   | 2000 |   |   |   | 3  - 39 |   |   |
| West Loop Shopping Center  Manhattan, KS      |       |       | —     |                                                |       |                   | 3,285      |                                                                        |       |              | 10,997     |                         |       |   | 568 |   |   |   | 3,456 |   |   |   | 11,394 |   |   | 14,850 |   |   | 2,478 |   |   |   | 2000 |   |   |   | 2  - 39 |   |   |
| KENTUCKY                                      |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dixie Plaza  Louisville, KY                   |       |       | —     |                                                |       |                   | 719        |                                                                        |       |              | 2,406      |                         |       |   | 21 |   |   |   | 719 |   |   |   | 2,427 |   |   | 3,146 |   |   | 538 |   |   |   | 2000 |   |   |   | 5  - 39 |   |   |
| Midtown Mall  Ashland, KY                     |       |       | —     |                                                |       |                   | 1,924      |                                                                        |       |              | 6,444      |                         |       |   | 497 |   |   |   | 1,925 |   |   |   | 6,940 |   |   | 8,865 |   |   | 1,636 |   |   |   | 2000 |   |   |   | 3  - 39 |   |   |
| Plainview Village Center  Louisville, KY      |       |       | —     |                                                |       |                   | 2,701      |                                                                        |       |              | 9,044      |                         |       |   | 1,018 |   |   |   | 2,738 |   |   |   | 10,025 |   |   | 12,763 |   |   | 2,209 |   |   |   | 2000 |   |   |   | 3  - 39 |   |   |
| Stony Brook  Louisville, KY                   |       |       | —     |                                                |       |                   | 3,319      |                                                                        |       |              | 11,110     |                         |       |   | 615 |   |   |   | 3,428 |   |   |   | 11,616 |   |   | 15,044 |   |   | 2,534 |   |   |   | 2000 |   |   |   | 3  - 39 |   |   |
| MASSACHUSETTS                                 |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Berkshire Crossing  Pittsfield, MA            |       |       | 20,408     |                                                |       |                   | 6,964      |                                                                        |       |              | 23,313     |                         |       |   | 1,277 |   |   |   | 6,989 |   |   |   | 24,565 |   |   | 31,554 |   |   | 3,265 |   |   |   | 2002 |   |   |   | 3 - 39 |   |   |
|                                               |            |            |            |                                                     |            |                        |            |                                                                             |            |                   |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

S-III-3

 

----

**SCHEDULE III**

**BRADLEYOPERATING LIMITED PARTNERSHIPREAL ESTATE AND ACCUMULATED DEPRECIATIONDecember 31, 2005(In thousands)**

Thefollowing table sets forth detail with respect to the properties, and relatedencumbrances, owned by the Company at December 31, 2005.

| ** **                                    | ** ** | ** ** | ** ** | **Initial Cost to the Company** | ** ** | **Capitalized**        | ** ** | **Gross Amount Carried at December 31, 2005** | ** ** | ** **        | ** ** | **Lives on Which** | ** ** |
|-----------------------------------------------|------------|------------|------------|-----------------------------------------------------|------------|------------------------|------------|-----------------------------------------------------------------------------|------------|-------------------|------------|------------------------------|------------|
| ** **                                    | ** ** | ** ** | ** ** | **Land and**                                   | ** ** | **Buildings and** | ** ** | **Subsequent to**                                                      | ** ** | **Land and** | ** ** | **Buildings and**       | ** ** | ** ** | ** ** | **Accumulated** | ** ** | **Date Acquired** | ** ** | **Depreciation is** | ** ** |
| **Property Name and Location** | ** ** | ** ** | ** ** | **Encumbrances**                                    | ** ** | **Improvements**       | ** ** | **Improvements**                                                            | ** ** | **Acquisition**   | ** ** | **Improvements**             | ** ** | **Improvements** | ** ** | **Total** | ** ** | **Depreciation** | ** ** | **by Company** | ** ** | **Computed** | ** ** |
| Burlington Square  Burlington, MA             |       |       | 14,522     |                                                |       |                   | 5,930      |                                                                        |       |              | 19,853     |                         |       |   | 95 |   |   |   | 5,930 |   |   |   | 19,948 |   |   | 25,878 |   |   | 789 |   |   |   | 2004 |   |   |   | 4  - 39 |   |   |
| MICHIGAN                                      |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cherry Hill Marketplace  Westland, MI         |       |       | —     |                                                |       |                   | 2,639      |                                                                        |       |              | 4,113      |                         |       |   | 6,525 |   |   |   | 2,640 |   |   |   | 10,637 |   |   | 13,277 |   |   | 2,349 |   |   |   | 2000 |   |   |   | 4  - 39 |   |   |
| Grand Traverse Crossing  Traverse City, MI    |       |       | 17,913     |                                                |       |                   | 5,375      |                                                                        |       |              | 17,993     |                         |       |   | 360 |   |   |   | 5,453 |   |   |   | 18,275 |   |   | 23,728 |   |   | 2,501 |   |   |   | 2002 |   |   |   | 4  - 39 |   |   |
| The Courtyard  Burton, MI                     |       |       | —     |                                                |       |                   | 2,039      |                                                                        |       |              | 6,831      |                         |       |   | 294 |   |   |   | 2,040 |   |   |   | 7,124 |   |   | 9,164 |   |   | 1,523 |   |   |   | 2000 |   |   |   | 4  - 39 |   |   |
| Redford Plaza  Redford, MI                    |       |       | —     |                                                |       |                   | 5,520      |                                                                        |       |              | 18,482     |                         |       |   | 961 |   |   |   | 5,521 |   |   |   | 19,442 |   |   | 24,963 |   |   | 4,254 |   |   |   | 2000 |   |   |   | 4  - 39 |   |   |
| MINNESOTA                                     |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Austin Town Center  Austin, MN                |       |       | —     |                                                |       |                   | 2,096      |                                                                        |       |              | 7,015      |                         |       |   | 139 |   |   |   | 2,095 |   |   |   | 7,155 |   |   | 9,250 |   |   | 1,613 |   |   |   | 2000 |   |   |   | 4  - 39 |   |   |
| Brookdale Square  Brooklyn Center, MN         |       |       | —     |                                                |       |                   | 2,191      |                                                                        |       |              | 7,335      |                         |       |   | 504 |   |   |   | 2,220 |   |   |   | 7,810 |   |   | 10,030 |   |   | 1,654 |   |   |   | 2000 |   |   |   | 10  - 39 |   |   |
| Burning Tree Plaza  Duluth, MN                |       |       | —     |                                                |       |                   | 3,355      |                                                                        |       |              | 11,230     |                         |       |   | 1,488 |   |   |   | 3,462 |   |   |   | 12,611 |   |   | 16,073 |   |   | 2,600 |   |   |   | 2000 |   |   |   | 5  - 39 |   |   |
| Central Valu Center  Columbia Heights, MN     |       |       | —     |                                                |       |                   | 2,144      |                                                                        |       |              | 7,176      |                         |       |   | 57 |   |   |   | 2,193 |   |   |   | 7,184 |   |   | 9,377 |   |   | 1,580 |   |   |   | 2000 |   |   |   | 10  - 39 |   |   |
| Elk Park Center  Elk River, MN                |       |       | 7,947      |                                                |       |                   | 4,440      |                                                                        |       |              | 14,866     |                         |       |   | 302 |   |   |   | 4,446 |   |   |   | 15,162 |   |   | 19,608 |   |   | 3,409 |   |   |   | 2000 |   |   |   | 5  - 39 |   |   |
| Har Mar Mall  Roseville, MN                   |       |       | —     |                                                |       |                   | 10,281     |                                                                        |       |              | 34,418     |                         |       |   | 4,881 |   |   |   | 10,383 |   |   |   | 39,197 |   |   | 49,580 |   |   | 8,518 |   |   |   | 2000 |   |   |   | 3  - 39 |   |   |
| Hub West/Richfield Hub  Richfield, MN         |       |       | —     |                                                |       |                   | 3,269      |                                                                        |       |              | 10,948     |                         |       |   | 1,441 |   |   |   | 3,270 |   |   |   | 12,388 |   |   | 15,658 |   |   | 2,883 |   |   |   | 2000 |   |   |   | 3  - 39 |   |   |
| Marketplace at 42  Savage, MN                 |       |       | —     |                                                |       |                   | 5,070      |                                                                        |       |              | 16,973     |                         |       |   | 535 |   |   |   | 5,094 |   |   |   | 17,484 |   |   | 22,578 |   |   | 3,786 |   |   |   | 2000 |   |   |   | 5  - 39 |   |   |
| Roseville Center  Roseville, MN               |       |       | —     |                                                |       |                   | 1,571      |                                                                        |       |              | 5,257      |                         |       |   | 1,249 |   |   |   | 1,570 |   |   |   | 6,507 |   |   | 8,077 |   |   | 1,340 |   |   |   | 2000 |   |   |   | 4  - 39 |   |   |
| Southport Centre  Apple Valley, MN            |       |       | 9,764      |                                                |       |                   | 3,915      |                                                                        |       |              | 13,106     |                         |       |   | 498 |   |   |   | 3,945 |   |   |   | 13,574 |   |   | 17,519 |   |   | 2,900 |   |   |   | 2000 |   |   |   | 5  - 39 |   |   |
| Sun Ray Shopping Center  St. Paul, MN         |       |       | —     |                                                |       |                   | 4,669      |                                                                        |       |              | 15,628     |                         |       |   | 5,869 |   |   |   | 4,725 |   |   |   | 21,441 |   |   | 26,166 |   |   | 3,965 |   |   |   | 2000 |   |   |   | 5  - 39 |   |   |
| Ten Acres Center  West St. Paul, MN           |       |       | —     |                                                |       |                   | 2,368      |                                                                        |       |              | 7,930      |                         |       |   | 595 |   |   |   | 2,344 |   |   |   | 8,549 |   |   | 10,893 |   |   | 1,918 |   |   |   | 2000 |   |   |   | 4  - 39 |   |   |
| Terrace Mall  Robbinsdale, MN                 |       |       | —     |                                                |       |                   | 2,030      |                                                                        |       |              | 6,799      |                         |       |   | 678 |   |   |   | 2,031 |   |   |   | 7,476 |   |   | 9,507 |   |   | 1,578 |   |   |   | 2000 |   |   |   | 4 - 39 |   |   |
|                                               |            |            |            |                                                     |            |                        |            |                                                                             |            |                   |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

S-III-4

 

----

**SCHEDULE III**

**BRADLEYOPERATING LIMITED PARTNERSHIPREAL ESTATE AND ACCUMULATED DEPRECIATIONDecember 31, 2005(In thousands)**

Thefollowing table sets forth detail with respect to the properties, and relatedencumbrances, owned by the Company at December 31, 2005.

| ** **                                     | ** ** | ** ** | ** ** | **Initial Cost to the Company** | ** ** | **Capitalized**        | ** ** | **Gross Amount Carried at December 31, 2005** | ** ** | ** **        | ** ** | **Lives on Which** | ** ** |
|------------------------------------------------|------------|------------|------------|-----------------------------------------------------|------------|------------------------|------------|-----------------------------------------------------------------------------|------------|-------------------|------------|------------------------------|------------|
| ** **                                     | ** ** | ** ** | ** ** | **Land and**                                   | ** ** | **Buildings and** | ** ** | **Subsequent to**                                                      | ** ** | **Land and** | ** ** | **Buildings and**       | ** ** | ** ** | ** ** | **Accumulated** | ** ** | **Date Acquired** | ** ** | **Depreciation is** | ** ** |
| **Property Name and Location**  | ** ** | ** ** | ** ** | **Encumbrances**                                    | ** ** | **Improvements**       | ** ** | **Improvements**                                                            | ** ** | **Acquisition**   | ** ** | **Improvements**             | ** ** | **Improvements** | ** ** | **Total** | ** ** | **Depreciation** | ** ** | **by Company** | ** ** | **Computed** | ** ** |
| Westwind Plaza  Minnetonka, MN                 |       |       | —     |                                                |       |                   | 2,511      |                                                                        |       |              | 8,409      |                         |       |   | 1,351 |   |   |   | 2,676 |   |   |   | 9,595 |   |   | 12,271 |   |   | 2,263 |   |   |   | 2000 |   |   |   | 4 - 39 |   |   |
| White Bear Hills  White Bear Lake, MN          |       |       | —     |                                                |       |                   | 1,412      |                                                                        |       |              | 4,732      |                         |       |   | 110 |   |   |   | 1,413 |   |   |   | 4,841 |   |   | 6,254 |   |   | 1,067 |   |   |   | 2000 |   |   |   | 5 - 39 |   |   |
| MISSOURI                                       |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ellisville Square  Ellisville, MO              |       |       | —     |                                                |       |                   | 2,577      |                                                                        |       |              | 8,627      |                         |       |   | 875 |   |   |   | 2,827 |   |   |   | 9,252 |   |   | 12,079 |   |   | 2,069 |   |   |   | 2000 |   |   |   | 5 - 39 |   |   |
| Grandview Plaza  Florissant, MO                |       |       | —     |                                                |       |                   | 3,555      |                                                                        |       |              | 11,902     |                         |       |   | 1,587 |   |   |   | 3,974 |   |   |   | 13,070 |   |   | 17,044 |   |   | 2,831 |   |   |   | 2000 |   |   |   | 5 - 39 |   |   |
| Hub Shopping  Center  Independence, MO         |       |       | —     |                                                |       |                   | 1,578      |                                                                        |       |              | 5,281      |                         |       |   | 673 |   |   |   | 1,709 |   |   |   | 5,823 |   |   | 7,532 |   |   | 1,355 |   |   |   | 2000 |   |   |   | 5 - 39 |   |   |
| Liberty Corners  Liberty, MO                   |       |       | —     |                                                |       |                   | 1,904      |                                                                        |       |              | 6,375      |                         |       |   | 712 |   |   |   | 2,039 |   |   |   | 6,952 |   |   | 8,991 |   |   | 1,549 |   |   |   | 2000 |   |   |   | 4 - 39 |   |   |
| Maplewood Square  Maplewood, MO                |       |       | —     |                                                |       |                   | 1,080      |                                                                        |       |              | 3,616      |                         |       |   | 87 |   |   |   | 1,080 |   |   |   | 3,703 |   |   | 4,783 |   |   | 850 |   |   |   | 2000 |   |   |   | 5 - 39 |   |   |
| Marketplace at  Independence  Independence, MO |       |       | —     |                                                |       |                   | 4,612      |                                                                        |       |              | 15,441     |                         |       |   | 523 |   |   |   | 4,758 |   |   |   | 15,818 |   |   | 20,576 |   |   | 2,128 |   |   |   | 2002 |   |   |   | 2 - 39 |   |   |
| Prospect Plaza  Gladstone, MO                  |       |       | —     |                                                |       |                   | 3,479      |                                                                        |       |              | 11,647     |                         |       |   | 501 |   |   |   | 3,479 |   |   |   | 12,148 |   |   | 15,627 |   |   | 2,943 |   |   |   | 2000 |   |   |   | 5 - 39 |   |   |
| Watts Mill Plaza  Kansas City, MO              |       |       | —     |                                                |       |                   | 3,180      |                                                                        |       |              | 10,645     |                         |       |   | 283 |   |   |   | 3,348 |   |   |   | 10,760 |   |   | 14,108 |   |   | 2,412 |   |   |   | 2000 |   |   |   | 5 - 39 |   |   |
| NEBRASKA                                       |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Bishop Heights  Lincoln, NE                    |       |       | —     |                                                |       |                   | 318        |                                                                        |       |              | 1,062      |                         |       |   | 118 |   |   |   | 370 |   |   |   | 1,128 |   |   | 1,498 |   |   | 250 |   |   |   | 2000 |   |   |   | 5 - 39 |   |   |
| Cornhusker Plaza  South Sioux City, NE         |       |       | —     |                                                |       |                   | 1,122      |                                                                        |       |              | 3,754      |                         |       |   | 98 |   |   |   | 1,190 |   |   |   | 3,784 |   |   | 4,974 |   |   | 846 |   |   |   | 2000 |   |   |   | 5 - 39 |   |   |
| Eastville Plaza  Fremont, NE                   |       |       | —     |                                                |       |                   | 1,137      |                                                                        |       |              | 3,805      |                         |       |   | 78 |   |   |   | 1,162 |   |   |   | 3,858 |   |   | 5,020 |   |   | 849 |   |   |   | 2000 |   |   |   | 2 - 39 |   |   |
| Edgewood Shopping  Center  Lincoln, NE         |       |       | —     |                                                |       |                   | 2,890      |                                                                        |       |              | 9,674      |                         |       |   | 1,220 |   |   |   | 2,982 |   |   |   | 10,802 |   |   | 13,784 |   |   | 2,249 |   |   |   | 2000 |   |   |   | 3 - 39 |   |   |
| La Vista  La Vista, NE                         |       |       | —     |                                                |       |                   | 15,433     |                                                                        |       |              | —     |                         |       |   | 66 |   |   |   | 15,433 |   |   |   | 66 |   |   | 15,499 |   |   | — |   |   |   | 2005 |   |   |   | N/A |   |   |
| The Meadows  Lincoln, NE                       |       |       | —     |                                                |       |                   | 1,037      |                                                                        |       |              | 3,471      |                         |       |   | 24 |   |   |   | 1,037 |   |   |   | 3,495 |   |   | 4,532 |   |   | 776 |   |   |   | 2000 |   |   |   | 4 - 39 |   |   |
| Miracle Hills Park  Omaha, NE                  |       |       | —     |                                                |       |                   | 1,739      |                                                                        |       |              | 5,824      |                         |       |   | 488 |   |   |   | 1,761 |   |   |   | 6,290 |   |   | 8,051 |   |   | 1,406 |   |   |   | 2000 |   |   |   | 3 - 39 |   |   |
| Stockyards Plaza  Omaha, NE                    |       |       | —     |                                                |       |                   | 2,122      |                                                                        |       |              | 7,102      |                         |       |   | 214 |   |   |   | 2,180 |   |   |   | 7,258 |   |   | 9,438 |   |   | 1,604 |   |   |   | 2000 |   |   |   | 3 - 39 |   |   |
| NEW HAMPSHIRE                                  |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Bedford Grove  Bedford, NH                     |       |       | 3,915      |                                                |       |                   | 3,595      |                                                                        |       |              | 12,037     |                         |       |   | 152 |   |   |   | 3,602 |   |   |   | 12,182 |   |   | 15,784 |   |   | 1,659 |   |   |   | 2002 |   |   |   | 5 - 39 |   |   |
|                                                |            |            |            |                                                     |            |                        |            |                                                                             |            |                   |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

S-III-5

 

----

**SCHEDULE III**

**BRADLEY OPERATINGLIMITED PARTNERSHIPREAL ESTATE AND ACCUMULATED DEPRECIATIONDecember 31, 2005(In thousands)**

Thefollowing table sets forth detail with respect to the properties, and relatedencumbrances, owned by the Company at December 31, 2005.

| ** **                                     | ** ** | ** ** | ** ** | **Initial Cost to the Company** | ** ** | **Capitalized**        | ** ** | **Gross Amount Carried at December 31, 2005** | ** ** | ** **        | ** ** | **Lives on Which** | ** ** |
|------------------------------------------------|------------|------------|------------|-----------------------------------------------------|------------|------------------------|------------|-----------------------------------------------------------------------------|------------|-------------------|------------|------------------------------|------------|
| ** **                                     | ** ** | ** ** | ** ** | **Land and**                                   | ** ** | **Buildings and** | ** ** | **Subsequent to**                                                      | ** ** | **Land and** | ** ** | **Buildings and**       | ** ** | ** ** | ** ** | **Accumulated** | ** ** | **Date Acquired** | ** ** | **Depreciation is** | ** ** |
| **Property Name and Location**  | ** ** | ** ** | ** ** | **Encumbrances**                                    | ** ** | **Improvements**       | ** ** | **Improvements**                                                            | ** ** | **Acquisition**   | ** ** | **Improvements**             | ** ** | **Improvements** | ** ** | **Total** | ** ** | **Depreciation** | ** ** | **by Company** | ** ** | **Computed** | ** ** |
| NEW JERSEY                                     |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cross Keys Commons  Washington Township, NJ    |       |       | —     |                                                |       |                   | 6,150      |                                                                        |       |              | 20,589     |                         |       |   | 4,028 |   |   |   | 5,800 |   |   |   | 24,967 |   |   | 30,767 |   |   | 1,754 |   |   |   | 2002 |   |   |   | 5 - 39 |   |   |
| Old Bridge Gateway  Old Bridge Township, NJ    |       |       | —     |                                                |       |                   | 8,589      |                                                                        |       |              | 28,753     |                         |       |   | 256 |   |   |   | 8,589 |   |   |   | 29,009 |   |   | 37,598 |   |   | 449 |   |   |   | 2005 |   |   |   | 15 - 39 |   |   |
| NEW MEXICO                                     |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| St. Francis Plaza  Santa Fe, NM                |       |       | 675        |                                                |       |                   | 891        |                                                                        |       |              | 2,989      |                         |       |   | 55 |   |   |   | 946 |   |   |   | 2,989 |   |   | 3,935 |   |   | 661 |   |   |   | 2000 |   |   |   | 10 - 39 |   |   |
| NEW YORK                                       |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Salmon Run Plaza  Watertown, NY                |       |       | 4,603      |                                                |       |                   | 2,096      |                                                                        |       |              | 7,015      |                         |       |   | 166 |   |   |   | 2,103 |   |   |   | 7,174 |   |   | 9,277 |   |   | 945 |   |   |   | 2002 |   |   |   | 15 - 39 |   |   |
| NORTH CAROLINA                                 |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The Commons at  Chancellor Park  Charlotte, NC |       |       | —     |                                                |       |                   | 4,922      |                                                                        |       |              | 16,502     |                         |       |   | 2,828 |   |   |   | 4,922 |   |   |   | 19,330 |   |   | 24,252 |   |   | 4,657 |   |   |   | 1999 |   |   |   | 5 - 39 |   |   |
| Franklin Square  Gastonia, NC                  |       |       | —     |                                                |       |                   | 6,084      |                                                                        |       |              | 20,369     |                         |       |   | 725 |   |   |   | 6,235 |   |   |   | 20,943 |   |   | 27,178 |   |   | 3,361 |   |   |   | 2001 |   |   |   | 5 - 39 |   |   |
| OHIO                                           |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 30th Street Plaza  Canton, OH                  |       |       | —     |                                                |       |                   | 3,071      |                                                                        |       |              | 10,279     |                         |       |   | 64 |   |   |   | 3,098 |   |   |   | 10,316 |   |   | 13,414 |   |   | 2,249 |   |   |   | 2000 |   |   |   | 8 - 39 |   |   |
| Clock Tower Plaza  Lima, OH                    |       |       | —     |                                                |       |                   | 3,409      |                                                                        |       |              | 11,409     |                         |       |   | 349 |   |   |   | 3,552 |   |   |   | 11,615 |   |   | 15,167 |   |   | 2,655 |   |   |   | 2000 |   |   |   | 2 - 39 |   |   |
| Salem Consumer  Square  Trotwood, OH           |       |       | 9,802      |                                                |       |                   | 5,964      |                                                                        |       |              | 19,965     |                         |       |   | 378 |   |   |   | 6,053 |   |   |   | 20,254 |   |   | 26,307 |   |   | 4,489 |   |   |   | 2000 |   |   |   | 5 - 39 |   |   |
| PENNSYLVANIA                                   |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Warminster Towne  Center  Warminster, PA       |       |       | 21,201     |                                                |       |                   | 7,677      |                                                                        |       |              | 25,703     |                         |       |   | 266 |   |   |   | 7,677 |   |   |   | 25,969 |   |   | 33,646 |   |   | 2,960 |   |   |   | 2002 |   |   |   | 6 - 39 |   |   |
| SOUTH CAROLINA                                 |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fairview Corners  Simpsonville, SC             |       |       | —     |                                                |       |                   | 4,726      |                                                                        |       |              | 15,821     |                         |       |   | — |   |   |   | 4,726 |   |   |   | 15,821 |   |   | 20,547 |   |   | 296 |   |   |   | 2005 |   |   |   | 15 - 39 |   |   |
| SOUTH DAKOTA                                   |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Baken Park  Rapid City, SD                     |       |       | —     |                                                |       |                   | 3,119      |                                                                        |       |              | 10,440     |                         |       |   | 803 |   |   |   | 3,119 |   |   |   | 11,243 |   |   | 14,362 |   |   | 2,641 |   |   |   | 2000 |   |   |   | 3 - 39 |   |   |
| TENNESSEE                                      |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Williamson Square  Franklin, TN                |       |       | —     |                                                |       |                   | 4,779      |                                                                        |       |              | 15,994     |                         |       |   | 2,671 |   |   |   | 4,874 |   |   |   | 18,570 |   |   | 23,444 |   |   | 4,224 |   |   |   | 2000 |   |   |   | 3 - 39 |   |   |
| The Market of  Wolfcreek  Memphis, TN          |       |       | 22,761     |                                                |       |                   | 8,357      |                                                                        |       |              | 27,977     |                         |       |   | 133 |   |   |   | 8,357 |   |   |   | 28,110 |   |   | 36,467 |   |   | 1,061 |   |   |   | 2004 |   |   |   | 10 - 39 |   |   |
| WISCONSIN                                      |       |       |       |                                                |       |                   |       |                                                                        |       |              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fairacres Shopping  Center  Oshkosh, WI        |       |       | —     |                                                |       |                   | 1,563      |                                                                        |       |              | 5,230      |                         |       |   | 223 |   |   |   | 1,612 |   |   |   | 5,404 |   |   | 7,016 |   |   | 1,155 |   |   |   | 2000 |   |   |   | 10 - 39 |   |   |
|                                                |            |            |            |                                                     |            |                        |            |                                                                             |            |                   |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

S-III-6

 

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**SCHEDULE III**

**BRADLEY OPERATINGLIMITED PARTNERSHIPREAL ESTATE AND ACCUMULATED DEPRECIATION**December 31,2005(In thousands)

Thefollowing table sets forth detail with respect to the properties, and relatedencumbrances, owned by the Company at December 31, 2005.

| ** **                                    | ** ** | ** ** | ** **     | **Initial Cost to the Company** | ** ** | **Capitalized**        | ** **     | **Gross Amount Carried at December 31, 2005** | ** ** | ** **        | ** **       | **Lives on Which** | ** ** |
|-----------------------------------------------|------------|------------|----------------|-----------------------------------------------------|------------|------------------------|----------------|-----------------------------------------------------------------------------|------------|-------------------|------------------|------------------------------|------------|
| ** **                                    | ** ** | ** ** | ** **     | **Land and**                                   | ** ** | **Buildings and** | ** **     | **Subsequent to**                                                      | ** ** | **Land and** | ** **       | **Buildings and**       | ** ** | ** ** | ** ** | **Accumulated** | ** ** | **Date Acquired** | ** ** | **Depreciation is** | ** ** |
| **Property Name and Location** | ** ** | ** ** | ** **     | **Encumbrances**                                    | ** ** | **Improvements**       | ** **     | **Improvements**                                                            | ** ** | **Acquisition**   | ** **       | **Improvements**             | ** ** | **Improvements** | ** ** | **Total** | ** ** | **Depreciation** | ** ** | **by Company** | ** ** | **Computed** | ** ** |
| Fitchburg Ridge  Madison, WI                  |       |       | —         |                                                |       |                   | 481            |                                                                        |       |              | 1,611            |                         |       |   | 946 |   |   |   | 531 |   |   |   | 2,507 |   |   | 3,038 |   |   | 529 |   |   |   | 2000 |   |   |   | 5  - 39 |   |   |
| Fox River Plaza  Burlington, WI               |       |       | —         |                                                |       |                   | 1,654          |                                                                        |       |              | 5,536            |                         |       |   | 156 |   |   |   | 1,654 |   |   |   | 5,692 |   |   | 7,346 |   |   | 1,298 |   |   |   | 2000 |   |   |   | 3  - 39 |   |   |
| Madison Plaza  Madison, WI                    |       |       | —         |                                                |       |                   | 904            |                                                                        |       |              | 3,026            |                         |       |   | 310 |   |   |   | 904 |   |   |   | 3,336 |   |   | 4,240 |   |   | 853 |   |   |   | 2000 |   |   |   | 4  - 39 |   |   |
| Mequon Pavilions  Mequon, WI                  |       |       | —         |                                                |       |                   | 6,296          |                                                                        |       |              | 21,075           |                         |       |   | 2,684 |   |   |   | 6,443 |   |   |   | 23,612 |   |   | 30,055 |   |   | 5,175 |   |   |   | 2000 |   |   |   | 3  - 39 |   |   |
| Moorland Square  New Berlin, WI               |       |       | —         |                                                |       |                   | 1,881          |                                                                        |       |              | 6,299            |                         |       |   | 79 |   |   |   | 1,912 |   |   |   | 6,347 |   |   | 8,259 |   |   | 1,392 |   |   |   | 2000 |   |   |   | 4  - 39 |   |   |
| Oak Creek Centre  Oak Creek, WI               |       |       | —         |                                                |       |                   | 1,357          |                                                                        |       |              | 4,546            |                         |       |   | 995 |   |   |   | 1,380 |   |   |   | 5,518 |   |   | 6,898 |   |   | 1,047 |   |   |   | 2000 |   |   |   | 4  - 39 |   |   |
| Park Plaza  Manitowoc, WI                     |       |       | —         |                                                |       |                   | 1,586          |                                                                        |       |              | 5,305            |                         |       |   | 734 |   |   |   | 1,693 |   |   |   | 5,932 |   |   | 7,625 |   |   | 1,314 |   |   |   | 2000 |   |   |   | 4  - 39 |   |   |
| Spring Mall  Greenfield, WI                   |       |       | 8,021          |                                                |       |                   | 3,136          |                                                                        |       |              | 10,499           |                         |       |   | 4,341 |   |   |   | 3,243 |   |   |   | 14,733 |   |   | 17,976 |   |   | 2,921 |   |   |   | 2000 |   |   |   | 5  - 39 |   |   |
| Taylor Heights  Sheboygan, WI                 |       |       | —         |                                                |       |                   | 1,976          |                                                                        |       |              | 6,618            |                         |       |   | 43 |   |   |   | 1,976 |   |   |   | 6,661 |   |   | 8,637 |   |   | 1,447 |   |   |   | 2000 |   |   |   | 7  - 39 |   |   |
| **TOTAL**                                     |       |       | $ 190,956 |                                                |       |                   | $ 382,018 |                                                                        |       |              | $ 1,222,553 |                         |       |   | $ 103,048 |   |   |   | $ 390,188 |   |   |   | $ 1,317,431 |   |   | $ 1,707,619 |   |   | $ 242,020 |   |   |   |   |   |   |   |   |   |   |
|                                               |            |            |                |                                                     |            |                        |                |                                                                             |            |                   |                  |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

(1)          Noted properties arecross collateralized securing total mortgage indebtedness with a balance of$14,762,000 at December 31, 2005.

(2)          Noted properties arecross collateralized securing total mortgage indebtedness with a balance of$14,600,000 at December 31, 2005.

S-III-7

 

----

**SCHEDULEIII**

| ** **                               | ** ** | **Years ended December 31,** | ** ** |
|------------------------------------------|------------|---------------------------------------------|------------|
| ** **                               | ** ** | **2005**                                    | ** ** | **2004** | ** ** |
| **Cost:**                                |       |                                        |       |   |   |
| Balance,  beginning of year              |       | $                                           | 1,497,981  |   | 1,420,548 |   |
| Acquisitions and  other additions        |       | 210,278                                     |       | 111,415 |   |
| Sale of  properties and other deductions |       | (640                                        | )          | (33,982 | ) |
| Balance, end of  year                    |       | $                                           | 1,707,619  |   | 1,497,981 |   |
| **Accumulated  Depreciation:**           |       |                                        |       |   |   |
| Balance,  beginning of year              |       | $                                           | 180,781    |   | 137,559 |   |
| Depreciation  provided                   |       | 61,418                                      |       | 48,233 |   |
| Sale of  properties and other deductions |       | (179                                        | )          | (5,011 | ) |
| Balance, end of year                     |       | $                                           | 242,020    |   | 180,781 |   |

 

S-III-8

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