HERITAGE PROPERTY INVESTMENT TRUST, INC.

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE TRANSITION PERIOD FROM __________ TO __________

COMMISSION FILE NUMBER: 001-31297

HERITAGE PROPERTY INVESTMENT TRUST, INC.
(Exact name of registrant as specified in its charter)

MARYLAND 04-3474810
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

535 BOYLSTON STREET, BOSTON, MA 02116
(Address of principal executive offices) (Zip Code)

(617) 247-2200
(Registrant's telephone number, including area code)

NONE
(Former name, former address and former
fiscal year, if changed since last report)

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

As of August 6, 2002, there were 41,504,208 shares of the Company's $0.001
par value common stock outstanding.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

INDEX TO FORM 10-Q

PART I........................................................................................................2

ITEM 1. FINANCIAL STATEMENTS................................................................................2
CONSOLIDATED BALANCE SHEETS............................................................................2
CONSOLIDATED STATEMENTS OF INCOME......................................................................3
CONSOLIDATED STATEMENTS OF CASH FLOWS..................................................................4
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY..............................................5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............................................................6
1. MANAGEMENT STATEMENT AND GENERAL...............................................................6
2. INITIAL PUBLIC OFFERING........................................................................6
3. INCOME TAXES...................................................................................6
4. EARNINGS PER SHARE.............................................................................7
5. REAL ESTATE INVESTMENTS........................................................................7
6. INVESTMENTS IN JOINT VENTURES..................................................................8
7. DEBT...........................................................................................8
8. RELATED PARTY TRANSACTIONS.....................................................................9
9. DERIVATIVES AND HEDGING INSTRUMENTS...........................................................10
10. SEGMENT REPORTING..........................................................................10
11. NEW ACCOUNTING PRONOUNCEMENTS..............................................................13
12. STOCK-BASED COMPENSATION...................................................................13

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........15

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....................................30

PART II -- OTHER INFORMATION................................................................................31

ITEM 1. LEGAL PROCEEDINGS..................................................................................31

ITEM 2. CHANGES IN SECURITIES..............................................................................31

ITEM 3. DEFAULTS UPON SENIOR SECURITIES....................................................................32

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................................32

ITEM 5. OTHER INFORMATION..................................................................................33

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................................................33

SIGNATURES...................................................................................................34

HERITAGE PROPERTY INVESTMENT TRUST, INC.

PART I

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND DECEMBER 31, 2001
(IN THOUSANDS OF DOLLARS)

JUNE 30, DECEMBER 31,
2002 2001
---- ----
(unaudited)

Assets
Real estate investments, net.................................................... $1,966,923 1,845,168
Cash and cash equivalents....................................................... 3,888 6,146
Accounts receivable, net of allowance for doubtful accounts of
$7,328 in 2002 and $7,473 in 2001.......................................... 22,510 23,639
Prepaids and other assets....................................................... 11,075 13,628
Deferred financing and leasing costs............................................ 15,050 18,684
---------- ---------

Total assets............................................................ $2,019,446 1,907,265
========== =========

Liabilities, Redeemable Equity and Shareholders' Equity
Liabilities:
Mortgage loans payable....................................................... $540,423 492,289
Unsecured notes payable...................................................... 201,490 201,490
Line of credit facility...................................................... 210,000 343,000
Subordinated debt............................................................ -- 100,000
Accrued expenses and other liabilities....................................... 64,875 69,931
Accrued distributions........................................................ 18,553 12,041
---------- ---------

Total liabilities....................................................... 1,035,341 1,218,751
---------- ---------

Series B Preferred Units........................................................ 50,000 50,000
Series C Preferred Units........................................................ 25,000 25,000
Exchangeable limited partnership units.......................................... 8,268 527
---------
Other minority interest......................................................... 2,425 2,425
---------- ---------
Total minority interests................................................ 85,693 77,952
---------- ---------

Redeemable equity:
Series A 8.5% Cumulative Convertible Participating Preferred Stock, $.001 par
value, 3,743,315 shares issued and outstanding at December 31, 2001; and
common stock, $.001 par value, 1,256,685 shares issued and outstanding at
December 31, 2001.......................................................... -- 123,094
---------- ---------
Shareholders' equity:
Series A 8.5% Cumulative Convertible Participating Preferred Stock, $.001 par
value; 0 and 25,000,000 shares authorized at June 30, 2002 and December 31,
2001, respectively; 0 and 16,598,452 shares issued and outstanding at
June 30, 2002 and December 31, 2001........................................ -- 16

Common stock, $.001 par value; 200,000,000 and 70,000,000 shares authorized
at June 30, 2002 and December 31, 2001, respectively; 41,349,208 and
5,561,635 shares issued and outstanding at June 30, 2002 and
December 31, 2001, respectively............................................ 41 6

Additional paid-in capital................................................... 1,002,341 551,623

Cumulative distributions in excess of net income............................. (103,970) (55,435)
Accumulated other comprehensive loss......................................... -- (8,742)
---------- ---------
Total shareholders' equity.............................................. 898,412 487,468
---------- ---------
Total liabilities, redeemable equity and shareholders' equity........... $2,019,446 1,907,265
========== =========

See accompanying notes to consolidated financial statements.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED AND IN THOUSANDS OF DOLLARS, EXCEPT PER-SHARE DATA)

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
2002 2001 2002 2001
---- ---- ---- ----

Income:
Rentals and recoveries.............................. $69,301 63,602 135,768 128,857
Interest and other.................................. 25 66 40 193
--------- --------- --------- ---------
Total income................................... 69,326 63,668 135,808 129,050
--------- --------- --------- ---------
Expenses:
Property operating expenses......................... 9,537 8,232 19,469 18,740
Real estate taxes................................... 9,871 9,796 19,395 18,841
Depreciation and amortization....................... 17,138 15,473 34,518 30,810
Interest............................................ 17,633 21,878 38,754 43,954
Interest-related party.............................. -- 763 -- 2,027
General and administrative.......................... 10,404 2,917 13,650 6,081
--------- --------- --------- ---------
Total expenses................................. 64,583 59,059 125,786 120,453
--------- --------- --------- ---------
Income before net gains (losses)............... 4,743 4,609 10,022 8,597
Net gains on sales of real estate investments.......... -- 4 1,374 2,343
Net derivative (losses) gains.......................... (7,616) (81) (7,766) 431
--------- --------- --------- ---------
(Loss) income before allocation to minority
interests................................... (2,873) 4,532 3,630 11,371
Income allocated to Series B & C Preferred Units....... (1,664) (1,664) (3,328) (3,328)
--------- --------- --------- ---------
(Loss) income before discontinued operations
and extraordinary item...................... (4,537) 2,868 302 8,043
Income from discontinued operations 79 63 142 122
--------- --------- --------- ---------
(Loss) income before extraordinary item........ (4,458) 2,931 444 8,165
Extraordinary loss on prepayment of debt......... (6,749) -- (6,749) --
--------- --------- --------- ---------
Net (loss) income.............................. (11,207) 2,931 (6,305) 8,165
Preferred stock distributions.......................... (3,452) (10,925) (14,302) (21,733)
Accretion of redeemable equity......................... (79) (249) (328) (498)
--------- --------- --------- ---------
Net loss attributable to common shareholders... $(14,738) (8,243) (20,935) (14,066)
========= ========= ========= =========
Basic and diluted per-share data:
Loss before discontinued operations and
extraordinary item............................... $(0.26) (1.21) (0.76) (2.08)

Income from discontinued operations................. -- -- 0.01 0.02

Extraordinary loss on prepayment of debt............ (0.22) -- (0.36) --
--------- --------- --------- ---------

Loss attributable to common shareholders............ $(0.48) (1.21) (1.11) (2.06)
========= ========= ========= =========

Weighted average common shares outstanding.......... 30,710,540 6,827,616 18,843,926 6,827,616
========== ========= ========= =========

See accompanying notes to consolidated financial statements.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED AND IN THOUSANDS OF DOLLARS)

SIX MONTHS ENDED
JUNE 30,
--------
2002 2001
---- ----

Cash flows from operating activities:
Net (loss) income...................................................... $(6,305) 8,165
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
Depreciation and amortization..................................... 34,518 30,810
Amortization of deferred debt financing costs..................... 1,968 2,256
Stock-based compensation.......................................... 5,156 734
Net gains on sales of real estate investments and equipment....... (1,374) (2,343)
Net derivative losses (gains)..................................... 7,766 (431)
Income allocated to Series B & C Preferred Units.................. 3,328 3,328
Extraordinary loss on prepayment of debt.......................... 6,749 --
Changes in operating assets and liabilities, net of
effect of Bradley acquisition.................................. 4,383 (7,953)
-------- --------
Net cash provided by operating activities................... 56,189 34,567
-------- --------
Cash flows from investing activities:
Net cash used for acquisition of Bradley............................... (117) (400)
Acquisitions and additions to real estate investments.................. (87,694) (11,390)
Net proceeds from sales of real estate investments..................... 4,209 9,594
Expenditures for capitalized leasing commissions....................... (1,893) (1,826)
Expenditures for furniture, fixtures and equipment..................... (200) (366)
-------- --------
Net cash used by investing activities....................... (85,695) (4,388)
-------- --------
Cash flows from financing activities:
Proceeds from mortgage loans payable................................... -- 7,000
Repayments of mortgage loans payable................................... (14,865) (5,528)
Repayments of unsecured notes payable.................................. -- (475)
Proceeds from draws under line of credit facility...................... 289,000 30,000
Repayments of draws under line of credit facility...................... (33,000) (32,000)
Payoff of prior line of credit facility................................ (389,000) --
Interest rate collar termination payment............................... (6,788) --
Proceeds from subordinated debt........................................ -- 50,000
Repayment of subordinated debt ........................................ (100,000) --
Repayment of subordinated debt to related party........................ -- (50,000)
Distributions paid to minority interests............................... (3,338) (3,336)
Preferred stock distributions paid..................................... (21,657) (21,547)
Common stock distributions paid........................................ (14,153) (1,235)
Expenditures for deferred debt financing costs......................... (3,925) (1,829)
Proceeds from issuance of common stock................................. 352,014 --
Expenditures for equity issuance costs................................. (27,040) --
-------- --------
Net cash provided (used) by financing activities............ 27,248 (28,950)
-------- --------
Net (decrease) increase in cash and cash equivalents...................... (2,258) 1,229
Cash and cash equivalents:
Beginning of period.................................................... 6,146 4,086
-------- --------
End of period.......................................................... $3,888 5,315
======== ========

See accompanying notes to consolidated financial statements.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2002
(UNAUDITED AND IN THOUSANDS OF DOLLARS, EXCEPT PER-SHARE DATA)

SERIES A
CUMULATIVE CUMULATIVE
CONVERTIBLE DISTRIBUTIONS ACCUMULATED
PARTICIPATING ADDITIONAL IN EXCESS OTHER
PREFERRED COMMON PAID-IN OF NET COMPREHENSIVE
STOCK STOCK CAPITAL INCOME LOSS TOTAL
------------- ------ ----------- ------------- ------------- -----

Balance at December 31, 2001 $16 6 551,623 (55,435) (8,742) 487,468
Net loss -- -- -- (6,305) -- (6,305)
Other comprehensive income:

Unrealized derivative gains:
Effective portion of interest
rate collar for the period
from January 1, 2002 through
April 29, 2002 -- -- -- -- 1,177 1,177

Reclassification adjustment to
earnings for realized loss on
termination of interest rate
collar -- -- -- -- 7,565 7,565
------------- ------ ---------- ------------- ------------- ---------
Total other comprehensive income -- -- -- -- 8,742 8,742
------------- ------ ---------- ------------- ------------- ---------

Comprehensive income 2,437
------------- ------ ---------- ------------- ------------- ---------

Issuance of common stock -- 14 352,000 -- -- 352,014
Equity issuance costs -- -- (29,527) -- -- (29,527)
Conversion of preferred stock to
common stock (16) 16 -- -- -- --
Accretion of redeemable equity -- -- (328) -- -- (328)
Conversion of redeemable equity to
common stock -- 5 123,417 -- -- 123,422
Preferred stock distributions
($0.70 per share) -- -- -- (14,302) -- (14,302)
Common stock distributions
($0.84 per share) -- -- -- (27,928) -- (27,928)
Stock-based compensation -- -- 5,156 -- -- 5,156
------------- ------ ---------- ------------- ------------ ---------
Balance at June 30, 2002 $-- 41 1,002,341 (103,970) -- 898,412
============= ====== ========== ============= ============ =========

See accompanying notes to consolidated financial statements.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. MANAGEMENT STATEMENT AND GENERAL

The consolidated financial statements of Heritage Property Investment
Trust, Inc. (Heritage or the Company) contained in this report were
prepared from the books and records of the Company without audit and in the
opinion of management include all adjustments (consisting of only normal
recurring accruals) necessary to present a fair statement of results for
the interim periods presented. However, amounts presented in the
consolidated balance sheet as of December 31, 2001 are derived from the
audited financial statements of the Company at that date. Interim results
are not necessarily indicative of results for a full year. Certain
reclassifications of 2001 amounts have been made to conform to the 2002
presentation. Readers of this quarterly report should refer to the audited
consolidated financial statements of the Company for the year ended
December 31, 2001, which are included in the registration statement on Form
S-11, dated April 23, 2002, filed with the Securities and Exchange
Commission under the Securities Act of 1933 (File No. 333-69118) for the
Company's initial public offering of its common stock (the Registration
Statement).

The consolidated financial statements of the Company include the accounts
and operations of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.

2. INITIAL PUBLIC OFFERING

On April 23, 2002, the Securities and Exchange Commission simultaneously
declared effective the Company's registration statement on Form S-11 filed
under the Securities Act of 1933 and its registration statement on Form
8-A, filed under the Securities Exchange Act of 1934, for an initial public
offering (IPO) of its common stock. On April 29, 2002, the Company
completed its IPO and sold 14,000,000 shares of its common stock in the IPO
at a price of $25.00 per share.

The net proceeds from the IPO, after deducting the underwriters' discount
and offering expenses, were $320.6 million and were used by the Company to
repay $213.8 million of the outstanding indebtedness under its prior line
of credit facility, to repay in full the $100.0 million of subordinated
debt then outstanding, and to pay the $6.8 million fee associated with
terminating the collar previously in place with respect to the $150.0
million term loan under the prior line of credit facility.

In connection with the IPO, all 20,341,767 shares of Series A Cumulative
Convertible Preferred Stock and redeemable equity outstanding converted
automatically into shares of the Company's common stock on a one for one
basis.

On May 21, 2002, the Underwriters of the IPO exercised their option,
granted under the terms of an Underwriting Agreement with the Company, to
purchase an additional 80,556 shares of common stock solely to cover
overallotments. On May 24, 2002, upon the closing of the sale of the
over-allotment shares, the Company received additional net proceeds of $1.9
million from the Underwriters. These additional net proceeds were used to
repay outstanding indebtedness of the Company.

3. INCOME TAXES

The Company has elected to be taxed as a real estate investment trust (REIT)
under the Internal Revenue Code and believes it is operating so as to qualify as
a REIT. In order to qualify as a REIT for income tax purposes, the Company must,
among other things, distribute to shareholders at least 90% of its taxable
income. It is the Company's policy to distribute 100% of its taxable income to
shareholders; accordingly, no provision has been made for federal income taxes.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

4. EARNINGS PER SHARE

In accordance with SFAS No. 128, EARNINGS PER SHARE, basic earnings per
common share is computed by dividing net income attributable to common
shareholders (defined as net income less paid and accrued preferred stock
distributions and accretion of redeemable equity) by the weighted average
number of common shares outstanding during the period. Diluted earnings per
share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock and then shared in
the earnings of the Company.

At June 30, 2002, outstanding options and warrants to purchase 2,050,352
shares of common stock at $25.00 per share and the assumed conversion of
exchangeable units of limited partnership interest into shares of common
stock were not included in the computation of diluted loss per common share
because the impact on basic loss per common share was anti-dilutive.

For the three and six months ended June 30, 2001, preferred stock
distributions, and the effect of the assumed conversion of convertible
preferred stock and exchangeable units of limited partnership interest
outstanding into shares of common stock were not included in the
computation of diluted loss per common share because the impact on basic
loss per common share was anti-dilutive. At June 30, 2001, outstanding
options and warrants to purchase 1,293,200 shares of common stock at $25.00
per share were outstanding but were not included in the computation of
diluted loss per common share because their exercise price was not below
the estimated fair value of the common shares and would therefore not
dilute basic loss per common share.

5. REAL ESTATE INVESTMENTS

(a) SUMMARY

A summary of real estate investments follows (in thousands of dollars):

JUNE 30, 2002 DECEMBER 31, 2001

Land.......................................... $313,958 290,758
Land improvements............................. 161,372 149,072
Buildings and improvements.................... 1,586,308 1,474,058
Tenant improvements........................... 29,171 24,420
Improvements in process....................... 11,897 10,660
------- ------
2,102,706 1,948,968
Accumulated depreciation and amortization..... (135,783) (103,800)
---------- ---------
Net carrying value......................... $1,966,923 1,845,168
=========== =========

(b) 2ND QUARTER ACQUISITION ACTIVITY

On May 7, 2002, the Company acquired 144,000 square feet of gross leasable
area at Montgomery Towne Center, a 267,000 square foot grocer-anchored
shopping center located in Alabama. On May 31, 2002, the Company completed
the acquisition of an additional 32,000 square feet at Montgomery Towne
Center. The combined purchase prices for these transactions was $18.7
million and was funded with a combination of the Company's assumption of an
$7.9 million mortgage loan payable and borrowings under the Company's new
line of credit facility.

On May 17, 2002, the Company acquired four shopping centers (the "Pioneer
Properties"), located in Michigan, Massachusetts, New Hampshire and New
York, with an aggregate of 1,114,000 square feet of company-owned gross
leasable area. The purchase price for this transaction was approximately
$78.1 million and was funded with a combination of the issuance of units of
limited

HERITAGE PROPERTY INVESTMENT TRUST, INC.

partnership interest in the Bradley Operating Limited Partnership, a
subsidiary of the Company, in the amount of $7.9 million, the Company's
assumption of $55.1 million of mortgage loans payable, and borrowings under
the Company's new line of credit facility.

On May 21, 2002, the Company acquired Marketplace at Independence, a
grocer-anchored shopping center located in Missouri, with an aggregate of
242,000 square feet of total and company-owned gross leaseable area. The
purchase price for this transaction was $20.1 million and was funded with
borrowings under the Company's new line of credit facility.

As of June 30, 2002, 11 single-tenant properties were classified as real
estate investments held for sale. Such properties had an aggregate net book
value of $1.7 million at June 30, 2002. See Note 11 for further discussion
of real estate held for sale.

6. INVESTMENTS IN JOINT VENTURES

At June 30, 2002, the Company had an ownership interest in a joint venture
which owned a grocer-anchored shopping center located in Tennessee. The
Company has a 60% interest in the joint venture consisting of a general
partnership interest and consolidates this joint venture for financial
reporting purposes.

In addition, in November 1999, the Company and its largest stockholder,
NETT, entered into a joint venture for the acquisition and development of a
365,000 square foot commercial office tower in Boston, Massachusetts. The
Company has a 6% interest in the joint venture and accounts for its
interest using the cost method. The Company was issued this interest as
part of a management arrangement the Company entered into with the joint
venture partners. Under this arrangement, through a subsidiary of the
Company, the Company is providing management services to the joint venture,
for which the Company is entitled to receive 6% of all cash and capital
transaction proceeds received by the joint venture. The Company has no
ongoing capital contribution requirements with respect to the development
of the office tower, which is expected to be completed in October 2002.

7. DEBT

(a) NEW LINE OF CREDIT

On April 29, 2002, the Company entered into a $350 million unsecured line
of credit with a group of lenders and Fleet National Bank, as agent. This
new line of credit replaced the Company's prior $425 million senior
unsecured credit facility, which was repaid primarily with proceeds of the
IPO. Heritage Property Investment Limited Partnership and Bradley Operating
Limited Partnership (Bradley OP), subsidiaries of Heritage, are the
borrowers under this new line of credit, and Heritage and substantially all
of Heritage's other subsidiaries have guaranteed this new line of credit.
This new line of credit is being used principally to fund growth
opportunities and for working capital purposes. At June 30, 2002, $210
million was outstanding under the new line of credit.

This new line of credit bears interest at a floating rate based on a spread
over LIBOR ranging from 80 basis points to 135 basis points, depending upon
the Company's debt rating, and requires monthly payments of interest. The
variable rate in effect at June 30, 2002, including the lender's margin of
135 basis points, was 3.29%. In addition, this new line of credit has a
facility fee based on the amount committed ranging from 15 basis points to
25 basis points, depending upon the Company's debt rating, and requires
quarterly payments.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

This new line of credit requires the Company to maintain certain financial
ratios and restricts the incurrence of certain indebtedness and the making
of certain investments. This new line of credit also, except under some
circumstances, including as necessary to maintain the Company's status as a
REIT, limits the Company's ability to make distributions in excess of 90%
of annual funds from operations.

Upon entering into this new line of credit and repayment of the prior
senior unsecured credit facility, the Company wrote off unamortized
deferred financing costs and recognized an extraordinary loss of $4.2
million on this transaction. Also, as described in note 9, the Company
terminated its interest rate collar.

(b) SUBORDINATED DEBT

The Company used $100.0 million of the net proceeds from the IPO to repay
in full the $100.0 million of subordinated debt outstanding that was
scheduled to mature on March 18, 2004. In connection with the full
repayment, the Company wrote off unamortized deferred financing costs and
recognized an extraordinary loss of $2.5 million.

In April 2002, the Company signed a commitment to refinance its $7.7
million mortgage loan payable secured by Southport Center, which loan
matured in April 2002. The refinancing of the mortgage loan payable closed
on July 1, 2002. The new mortgage loan is in the amount of $10.0 million,
bears interest at a rate of 6.94%, and matures on July 1, 2007. The new
mortgage loan will require interest only payments for the first two years.

In April 2002, the Company repaid in full its approximately $4.8 million
mortgage loan payable secured by Fox River Plaza with borrowings under the
Company's line of credit facility. In addition, in May 2002, the Company
repaid in full its approximately $6.4 million mortgage loan payable secured
by Edgewood Shopping Center with borrowings under the Company's new line of
credit facility.

8. RELATED PARTY TRANSACTIONS

(a) TRANSACTIONS WITH PRUDENTIAL INSURANCE COMPANY OF AMERICA (PRUDENTIAL -
AN 11.9% SHAREHOLDER AT JUNE 30, 2002)

Preferred and common distributions paid to Prudential for the six months
ended June 30, 2002 and 2001 were $6.6 million and $4.2 million,
respectively. At June 30, 2002 and December 31, 2001, distributions payable
to Prudential were $2.4 million and $2.2 million, respectively.

Prudential received advisory and other fees totaling $3.4 million in
connection with the IPO. This fee was incurred in the three months ended
June 30, 2002.

On April 30, 2001, in conjunction with the modification of its now repaid
$100.0 million subordinated debt, the Company used the proceeds of a $50.0
million loan from a lender to repay the $50.0 million of subordinated debt
held by Prudential. Interest expense paid to Prudential for this issue for
the six months ended June 30, 2001 was $2.0 million.

A portion of redeemable equity, representing costs associated with prior
equity transactions with Prudential, is reclassified as a charge to
earnings for each quarter over the redemption period. As a result of the
IPO, all redeemable equity outstanding converted automatically into shares
of the Company's common stock on a one for one basis. This charge, which is
recorded as accretion of redeemable equity in the accompanying consolidated
statements of income, amounted to $0.3 million and $0.5 million for the six
months ended June 30, 2002 and 2001, respectively.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

(b) TRANSACTIONS WITH NEW ENGLAND TEAMSTERS AND TRUCKING INDUSTRY PENSION
FUND (NETT - AN 43.4% SHAREHOLDER AT JUNE 30, 2002)

Preferred and common distributions paid to NETT for the six months ended
June 30, 2002 and 2001 were approximately $28.9 million and $18.5 million,
respectively. At June 30, 2002 and December 31, 2001, distributions payable
to NETT were approximately $9.3 million and $9.8 million, respectively.

In connection with the formation of Heritage in July 1999, environmental
studies were not completed for all of the contributed properties. NETT has
agreed to indemnify the Company for environmental costs up to $50.0
million. The environmental costs include completing environmental studies
and any required remediation.

9. DERIVATIVES AND HEDGING INSTRUMENTS

The Company is exposed to the effect of changes in interest rates. The
Company has limited this risk by following established risk management
policies and procedures including the use of derivatives.

From time to time, the Company uses interest rate caps, floors, swaps and
locks to limit its exposure to changes in interest rates on its floating
rate debt and to hedge interest rates in anticipation of issuing unsecured
debt at a time when management believes interest rates are favorable, or at
least at a time when management believes it advisable given the anticipated
consequences of not hedging an interest rate while the Company is exposed
to increases in interest rates. The Company requires that hedging
derivative instruments are effective in reducing the interest rate risk
exposure that they are designed to hedge. Instruments that meet the hedging
criteria are formally designated as hedges at the inception of the
derivative contract. The Company does not use derivatives for trading or
speculative purposes and only enters into contracts with major financial
institutions based on their credit rating and other factors. To determine
the fair values of its derivative instruments, the Company uses methods and
assumptions based on market conditions and risks existing at each balance
sheet date. Such methods incorporate standard market conventions and
techniques such as discounted cash flow analysis and option pricing models
to determine fair value. All methods of estimating fair value result in
general approximation of value, and such value may or may not actually be
realized.

On April 29, 2002, the Company entered into a $350.0 million unsecured line
of credit with a group of lenders and Fleet National Bank, as agent. This
new line of credit replaced the Company's prior $425.0 million senior
unsecured credit facility. Upon entering into this new line of credit, the
Company paid $6.8 million to terminate the interest rate collar that was
then in place with respect to the $150.0 million term loan under the prior
senior unsecured credit facility. As a result of this termination, the
Company reclassified $7.6 million of accumulated other comprehensive loss,
a component of shareholders' equity, to earnings during the three months
ended June 30, 2002.

10. SEGMENT REPORTING

The Company, which has internal property management, leasing, and
redevelopment capabilities, owns and seeks to acquire primarily
grocer-anchored neighborhood and community shopping centers in the Eastern
and Midwestern United States. Such shopping centers are typically anchored
by grocers complemented with stores providing a wide range of other goods
and services to shoppers. Since substantially all of the Company's shopping
centers exhibit similar economic characteristics, cater to the day-to-day
living needs of their respective surrounding communities, and offer similar
degrees of risk and opportunities for growth, the shopping centers have
been aggregated and reported as one operating segment. The Company also
owns office buildings and single-tenant properties. Because these
properties require a different operating strategy

HERITAGE PROPERTY INVESTMENT TRUST, INC.

and management expertise than all other properties in the portfolio, they
are considered separate reportable segments.

The Company assesses and measures operating results on an individual
property basis within each segment, based on net operating income, and then
converts such amounts in the aggregate to a performance measure referred to
as Funds From Operations (FFO).

FFO, computed in accordance with the October 1999 "White Paper" on FFO
published by the National Association of Real Estate Investment Trusts
(NAREIT) and as followed by the Company, represents income before
allocation to minority interests (computed in accordance with GAAP),
excluding gains or losses from debt restructuring and sales of property,
plus depreciation and amortization of real estate-related assets, and, as
applicable, after preferred stock distributions and adjustments for
unconsolidated partnerships and joint ventures. FFO does not represent cash
generated from operating activities in accordance with GAAP and should not
be considered an alternative to cash flow as a measure of liquidity. Since
the NAREIT White Paper only provides guidelines for computing FFO, the
computation of FFO may vary from one REIT to another. FFO is not
necessarily indicative of cash available to fund cash needs.

The accounting policies of the segments are the same as those followed by
the Company as a whole and are described in the Company's audited
consolidated financial statements for the year ended December 31, 2001
included in the Registration Statement. The revenue and net operating
income for the three months and six months ended June 30, 2002 and 2001 and
assets as of June 30, 2002 and December 31, 2001 for each of the reportable
segments are summarized in the following tables. Non-segment assets
necessary to reconcile to total assets include cash and cash equivalents,
deferred financing and leasing costs and other assets.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

The computation of FFO for the Company and a reconciliation to net income
attributable to common shareholders are as follows (in thousands of
dollars):

THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2002 2001 2002 2001
-------------------------------------------------------

Total property income:
Shopping centers............................................... $69,125 63,274 134,558 122,513
Office buildings............................................... 176 328 1,210 6,271
Single-tenant properties....................................... 79 63 142 195
--------- ------- -------- --------
$69,380 63,665 135,910 128,979
========= ======= ======== ========
Total property net operating income:
Shopping centers............................................... $49,794 45,393 96,253 87,584
Office buildings............................................... 99 181 651 3,636
Single-tenant properties....................................... 79 63 142 178
--------- ------- -------- --------
Net Operating Income.............................................. 49,972 45,637 97,046 91,398
--------- ------- -------- --------
Non-property (income) expenses:
Interest and other income...................................... (25) (66) (40) (193)
Net derivative losses (gains).................................. 7,616 81 7,766 (431)
Interest expense............................................... 17,633 21,878 38,754 43,954
Interest expense-related party................................. -- 763 -- 2,027
General and administrative..................................... 10,404 2,917 13,650 6,081
Amortization of non-real estate related costs.................. 119 73 229 130
Income allocated to minority interests......................... 1,664 1,664 3,328 3,328
Preferred stock distributions.................................. 3,452 10,925 14,302 21,733
Accretion of redeemable equity................................. 79 249 328 498
--------- ------- -------- --------
40,942 38,484 78,317 77,127
--------- ------- -------- --------
Funds from Operations............................................. $9,030 7,153 18,729 14,271
========= ======= ======== ========
Reconciliation to net loss attributable to common shareholders:
Funds from operations.......................................... $9,030 7,153 18,729 14,271
Depreciation of real estate assets and amortization
of tenant improvements...................................... (16,665) (15,152) (33,458) (30,266)
Amortization of deferred leasing commissions................... (354) (248) (831) (414)
Net gains on sales of real estate investments
and equipment............................................... -- 4 1,374 2,343
Extraordinary loss on prepayment of debt....................... (6,749) -- (6,749) --
--------- ------- -------- --------
Net loss attributable to common shareholders...................... $ (14,738) (8,243) (20,935) 14,066
========= ======= ======== ========

As of
--------------------------------------------
June 30, 2002 December 31, 2001
--------------------------------------------

Total Assets:
Shopping centers........................... $1,952,750 1,828,135
Office buildings........................... 52,488 56,003
Single-tenant properties................... 1,658 1,678
Non-segment assets......................... 12,550 21,449
---------- ---------
$2,019,446 1,907,265
========== =========

HERITAGE PROPERTY INVESTMENT TRUST, INC.

11. NEW ACCOUNTING PRONOUNCEMENTS

SFAS NO. 145

In April 2002, the Financial Accounting Standards Board issued SFAS No.
145, RESCISSION OF FASB STATEMENTS NO. 4, 44 AND 64, AMENDMENT OF FASB
STATEMENT NO. 13, AND TECHNICAL CORRECTIONS. SFAS No. 145 eliminates the
requirement that all gains and losses from the extinguishment of debt be
aggregated and, if material, classified as an extraordinary item. However,
a company could continue to classify transactions as extraordinary items if
they meet the criteria described in paragraph 20 of APB No. 30, REPORTING
THE RESULTS OF OPERATIONS - REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT
OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS
AND TRANSACTIONS. Paragraph 20 of APB 30 requires that the event or
transaction be both unusual in nature and infrequent in occurrence.

SFAS No. 145 is effective for fiscal years beginning after May 15, 2002.
However, any gain or loss on extinguishment of debt that was classified as
an extraordinary item in prior periods presented that does not meet the
criteria of APB 30 shall be reclassified. The Company has elected to adopt
SFAS No. 145 for its fiscal year beginning January 1, 2003, and therefore
has classified its losses associated with its prepayment of its prior
senior unsecured credit facility and subordinated debt during the three
months ended June 30, 2002 as an extraordinary item.

SFAS NO. 144

In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, which
supersedes both SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, and the accounting and
reporting provisions of APB Opinion No. 30, REPORTING THE RESULTS OF
OPERATIONS--REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF BUSINESS, AND
EXTRAORDINARY, UNUSUAL, AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS,
for the disposal of a segment of a business (as previously defined in that
Opinion). SFAS No. 144 retains the fundamental provisions in SFAS No. 121
for recognizing and measuring impairment losses on long-lived assets held
for use and long-lived assets to be disposed of by sale, while also
resolving implementation issues associated with SFAS No. 121. In addition,
SFAS No. 144 retains the basic provisions of Opinion 30 for presenting
discontinued operations in the income statement but broadens that
presentation to include a component of an entity (rather than a segment of
a business).

The Company adopted SFAS No. 144 on January 1, 2002. The Company had one
property disposition during the six months ended June 30, 2002 that was
classified as held for sale as of December 31, 2001. As the property was
classified as held for sale as of December 31, 2001, it was exempt from the
provisions of SFAS No. 144. In addition, the Company has classified 11
single-tenant properties as real estate held for sale as June 30, 2002.
Accordingly, the operating results of the real estate held for sale have
been reclassified and reported as discontinued operations for the three and
six months ended June 30, 2002 and 2001.

12. STOCK-BASED COMPENSATION

In January 2002, options to purchase 614,352 shares of common stock were
granted to certain employees relating to 2001 performance. The options have
an exercise price of $25.00 per share, which was equal to the fair value
per share of the Company's common stock at the grant date. The options have
a contractual life of 10 years and, at the date of grant, were to vest
ratably over three years. In addition, in April 2002, options to purchase
430,000 shares of common stock were granted to members of senior management
in connection with the Company's initial public offering. These options
have an exercise price of $25.00 per share, which was equal to the fair
value per share of the Company's common stock at the grant date. The
options have a contractual life of 10 years and vest ratably over five
years.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

In January 2002, the Company issued 108,565 shares of restricted stock with
no performance-based conditions and no exercise price to certain employees
relating to 2001 performance. At the date of issuance, these shares were
subject to transfer restrictions and risk of forfeiture.

Upon completion of the Company's initial public offering, the vesting of
all stock options previously granted to employees (other than the 430,000
options granted in April 2002) accelerated and all contractual restrictions
on transfer and forfeiture provisions that existed on restricted shares
previously granted to members of our senior management and other key
employees terminated. As a result, the Company incurred compensation
expense, including with respect to the reimbursement of a portion of the
taxes paid by two employees, of $6.8 million on the restricted shares in
the second quarter of 2002, which is comprised of $4.3 million of stock
compensation expense and $2.5 million for the reimbursement of a portion of
such taxes.

In July 2002, following completion of the IPO, the Board of Directors
approved the issuance over five years of an aggregate of 775,000 shares of
restricted stock with no exercise price to members of senior management of
the Company. The first installment of 155,000 shares was issued in July
2002. These shares are subject to risk of forfeiture and transfer
restrictions, which terminate on March 1, 2003, subject to the continued
employment of such individuals with the Company. The remaining installments
of this special share grant will be issued to these individuals ratably
over a four-year period beginning in 2003, subject to the satisfaction of
certain performance milestones and other conditions during the four-year
period. Upon issuance, the remaining installments will also be subject to
risk of forfeiture and transfer restrictions, which will terminate upon the
first anniversary of the date of each installment, subject to the continued
employment of such individuals with the Company. The Company will recognize
compensation expense over the service and vesting periods.

With respect to the quarter ended June 30, 2002, the Company has also
accrued $0.5 million of compensation expense, including for the
reimbursement of a portion of the taxes to be paid by one employee, related
to restricted stock anticipated to be issued by the Company in 2003 for
2002 performance. This accrual is an estimate of the compensation expense
that will be required to be recognized in the event that this restricted
stock is actually issued. For all periods after the IPO, the Company will
recognize compensation expense with respect to performance-based stock
grants ratably over the performance and vesting periods. The Company has
not restated any prior period amounts because it does not believe that such
restatement would be material to the financial condition or results of
operations of the Company.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

CAUTIONARY LANGUAGE

Some of the statements contained in MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF Operations constitute forward-looking
statements. Forward-looking statements relate to expectations, beliefs,
projections, future plans and strategies, anticipated events or trends and
similar expressions concerning matters that are not historical facts. The
forward-looking statements reflect our current views about future events
and are subject to risks, uncertainties, assumptions and changes in
circumstances that may cause our actual results to differ significantly
from those expressed in any forward-looking statement. You should not rely
on forward-looking statements since they involve known and unknown risks,
uncertainties and other factors which are, in some cases, beyond the
Company's control and which could materially affect actual results. The
factors that could cause actual results to differ materially from current
expectations include financial performance and operations of our shopping
centers, including of our tenants, real estate conditions, future
bankruptcies of our tenants, execution of shopping center redevelopment
programs, our ability to finance our operations, successful completion of
renovations, completion of pending acquisitions, the availability of
additional acquisitions, changes in economic, business, competitive market
and regulatory conditions, acts of terrorism or war and other risks
detailed from time to time in filings with the Securities and Exchange
Commission, including those risks and uncertainties discussed in the
Company's Final Prospectus, dated April 23, 2002, in the section entitled
"Risk Factors." The forward-looking statements contained herein represent
the Company's judgment as of the date of this report, and the Company
cautions readers not to place undue reliance on such statements.

OVERVIEW

We are a fully integrated, self-administered and self-managed REIT that
acquires, owns, manages, leases and redevelops primarily grocer-anchored
neighborhood and community shopping centers in the Eastern and Midwestern
United States. As of June 30, 2002, we had a portfolio of 149 shopping
centers totaling approximately 29.6 million square feet of total gross
leaseable, of which 25.4 million square feet is company-owned gross
leasable area, located in 26 states. Our shopping center portfolio was
approximately 93% leased as of June 30, 2002. We also own four office
buildings and 11 single-tenant properties. We currently intend to dispose
of one of our remaining four office buildings and substantially all of our
single-tenant properties in the foreseeable future. As our net operating
income from these properties constituted only approximately 1% of our total
net operating income for the six months ended June 30, 2002, we do not
expect the sale of these properties to have a significant or adverse impact
on our future operations or cash flows.

As of June 30, 2002, we had approximately $952 million of indebtedness.
This indebtedness will require balloon payments starting in November 2002.
We anticipate that we will not have sufficient funds on hand to repay these
balloon amounts at maturity. Therefore, we expect to refinance our debt
either through unsecured private or public debt offerings, additional debt
financings secured by individual properties or groups of properties or by
additional equity offerings. We may also finance those payments through
borrowings under our new line of credit facility.

We derive substantially all of our revenues from rentals and recoveries
received from tenants under existing leases on each of our properties. Our
operating results therefore depend materially on the ability of our tenants
to make required rental payments. We believe that the nature of the
properties that we primarily own and invest in - grocer-anchored
neighborhood and community shopping centers - provides a more stable
revenue flow in uncertain economic times, as they are more resistant to
economic down cycles. This is because consumers still need to purchase food
and other goods found at grocers, even in difficult economic times.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

During 2001, 15 of our tenants filed for bankruptcy protection. These
tenants contributed approximately 2.7% of our annualized base rent for all
leases in which tenants were in occupancy at December 31, 2001. In
addition, during 2002, three of our tenants have filed for bankruptcy
protection, the largest of which is Kmart Corporation. Kmart Corporation
contributed approximately 1.5% of our annualized base rent for all leases
in which tenants were in occupancy at June 30, 2002. As a general matter,
the Company believes that these bankruptcy filings and the current economic
downturn have not had a material impact on our operating results. However,
continuation of the current downturn or a recession could materially
negatively impact our operating results in 2002.

In the future, we intend to focus on increasing our internal growth, and we
expect to continue to pursue targeted acquisitions of primarily
grocer-anchored neighborhood and community shopping centers in attractive
markets with strong economic and demographic characteristics. We currently
expect to incur additional debt in connection with any future acquisitions
of real estate.

INITIAL PUBLIC OFFERING AND RELATED TRANSACTIONS

On April 23, 2002, the Securities and Exchange Commission simultaneously
declared effective our registration statement on Form S-11 filed under the
Securities Act of 1933 and our registration statement on Form 8-A, filed
under the Securities Exchange Act of 1934 for an initial public offering
(IPO) of our common stock, and on April 29, 2002, we completed our IPO. We
sold 14,000,000 shares of our common stock in the IPO at a price of $25.00
per share.

The net proceeds from our IPO, after deducting the underwriters' discount
and offering expenses, were approximately $321 million. The net proceeds
from our IPO were used for the following:

o To repay approximately $214 million of the outstanding indebtedness
under our prior senior unsecured credit facility;

o To fully repay the $100 million of subordinated debt outstanding;

o To pay the approximately $7 million fee associated with terminating
the hedge then in place with respect to the $150 million term loan
under prior existing senior unsecured credit facility.

In connection with our IPO, all 20,341,767 shares of Series A Cumulative
Convertible Preferred Stock and redeemable equity outstanding converted
automatically into shares of the Company's common stock on a one for one
basis.

On May 21, 2002, the Underwriters of the IPO exercised their option,
granted under the terms of an Underwriting Agreement with the Company, to
purchase an additional 80,556 shares of common stock from the Company
solely to cover overallotments. On May 24, 2002, upon the closing of the
sale of the over-allotment shares, the Company received additional net
proceeds of approximately $1.9 million from the Underwriters. These
additional net proceeds were used to repay outstanding indebtedness of the
Company.

Upon completion of the IPO, the vesting of all stock options previously
granted to our employees (other than 430,000 stock options granted in April
2002 in connection with the IPO) accelerated and all contractual
restrictions on transfer and forfeiture provisions that existed on
restricted shares previously granted to members of our senior management
and other key employees terminated. As a result, we incurred compensation
expense, including with respect to the reimbursement of a portion of the
taxes paid by two individuals, of $6.8 million on the restricted shares in
the second quarter of 2002, which is comprised of $4.3 million of stock
compensation expense and $2.5 million for the reimbursement of a portion of
such taxes payable.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

CRITICAL ACCOUNTING POLICIES

In response to recent guidance of the Securities and Exchange Commission,
we have identified the following critical accounting policies that affect
our more significant judgments and estimates used in the preparation of our
consolidated financial statements. The preparation of our consolidated
financial statements in conformity with accounting principles generally
accepted in the United States of America requires us to make estimates and
judgments that affect the reported amounts of assets and liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities. Our estimates are based on information that is currently
available to us and on various other assumptions that we believe are
reasonable under the circumstances. On an ongoing basis, we evaluate our
estimates based upon historical experience and various other factors and
circumstances. We believe that our estimates are reasonable for our current
circumstances; however, actual results could vary from those estimates and
those estimates could be different under different assumptions or
conditions.

We believe that the estimates and judgments that are most important to the
portrayal of our financial condition and results of operations, in that
they require our most subjective judgments, form the basis for the
accounting policies deemed to be most critical. These critical accounting
policies include those related to revenue recognition and the allowance for
doubtful accounts receivable, real estate investments and asset impairment,
and derivatives used to hedge interest-rate risks. We state these
accounting policies in the notes to our consolidated financial statements
and at relevant sections in this discussion and analysis. Our estimates are
based on information that is currently available to us and on various other
assumptions that we believe are reasonable under the circumstances.

REVENUE RECOGNITION

Rental income with scheduled rent increases is recognized using the
straight-line method over the term of the leases. Deferred rent receivable
represents the aggregate excess of rental revenue recognized on a
straight-line basis over cash received under applicable lease provisions,
which we generally recognize over the remaining term unless the tenant
files for bankruptcy or provides other indications that it will not fulfill
the remainder of the lease term. In these cases, we write off the remaining
deferred balance upon such bankruptcy filing or other event. Leases for
both retail and office space generally contain provisions under which the
tenants reimburse us for a portion of property operating expenses and real
estate taxes incurred by us. In addition, certain of our operating leases
for retail space contain contingent rent provisions under which tenants are
required to pay a percentage of their sales in excess of a specified amount
as additional rent. We defer recognition of contingent rental income until
those specified targets are met.

We must make estimates of the uncollectibility of our accounts receivable
related to minimum rent, deferred rent, expense reimbursements and other
revenue or income, and we record this provision ( or recovery) as a
reduction of (or addition to) rental income. We specifically analyze
accounts receivable and historical bad debts, tenant concentrations, tenant
credit worthiness, current economic trends and changes in our tenant
payment terms when evaluating the adequacy of the allowance for doubtful
accounts receivable. These estimates have a direct impact on our net
income, because a higher bad debt allowance would result in lower net
income.

The Securities and Exchange Commission's Staff Accounting Bulletin (SAB)
No. 101, REVENUE RECOGNITION, provides guidance on the application of
generally accepted accounting principles to selected revenue recognition
issues. We believe that our revenue recognition policy is appropriate and
in accordance with generally accepted accounting principles and
SAB No. 101.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

REAL ESTATE INVESTMENTS

Contributed real estate investments at our formation in July 1999 were
recorded at the carry-over basis of our predecessor, which was fair market
value of the assets in conformity with GAAP applicable to pension funds.
Subsequent acquisitions of real estate investments, including those
acquired in connection with our acquisition of Bradley Real Estate, Inc. in
September 2000 and other acquisitions since our formation, are recorded at
cost. Expenditures that substantially extend the useful life of a real
estate investment are capitalized. Expenditures for maintenance, repairs
and betterments that do not materially extend the useful life of a real
estate investment are charged to operations as incurred.

The provision for depreciation and amortization has been calculated using
the straight-line method over the following estimated useful lives:

Land improvements 15 years
Buildings and improvements 20-39 years
Tenant improvements Term of related lease

We are required to make subjective assessments as to the useful lives of
our properties for purposes of determining the amount of depreciation 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 to
shorten the expected useful life of our properties or improvements, we
would depreciate them over fewer years, resulting in more depreciation
expense and lower net income on an annual basis during these periods.

We apply Statement of Financial Accounting Standards (SFAS) No. 144,
ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, to
recognize and measure impairment of long-lived assets. We review each real
estate investment for impairment whenever events or circumstances indicate
that the carrying value of a real estate investment may not be recoverable.
The review of recoverability is based on an estimate of the future
undiscounted cash flows, excluding interest charges, expected to result
from the real estate investment's use and eventual disposition. These cash
flows consider factors such as expected future operating income, trends and
prospects, as well as the effects of leasing demand, competition and other
factors. If impairment exists due to the inability to recover the carrying
value of a real estate investment, an impairment loss is recorded to the
extent that the carrying value exceeds estimated fair market value.

Real estate investments held for sale are carried at the lower of carrying
amount or fair value, less estimated costs to sell. Depreciation and
amortization are suspended during the period held for sale, and operating
results for all periods presented are presented as discontinued operations.

We are required to make subjective assessments as to whether there are
impairments in the value of our real estate properties. These assessments
have a direct impact on our net income, because taking an impairment loss
results in an immediate negative adjustment to net income.

HEDGING ACTIVITIES

From time to time, we use certain derivative financial instruments to limit
our exposure to changes in interest rates. We were not a party to any
hedging agreements with respect to our floating rate debt as of June 30,
2002. We have in the past used derivative financial instruments to manage,
or hedge, interest rate risks related to our borrowings, from lines of
credit to medium- and long-term financings. We require that hedging
derivative instruments are effective in reducing the interest rate risk
exposure that they are designed to hedge. We do not use derivatives for
trading or speculative purposes and only enter into contracts with major
financial institutions based on their credit rating and other factors.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

If interest rate assumptions and other factors used to estimate a
derivatives fair value or methodologies used to determine hedge
effectiveness were different, amounts reported in earnings and other
comprehensive income and losses expected to be reclassified into earnings
in the future could be affected. Furthermore, future changes in market
interest rates and other relevant factors could increase the fair value of
a liability for a derivative, increase future interest expense, and result
in lower net income.

RESULTS OF OPERATIONS

The discussion of our results of operations set forth below focuses on our
neighborhood and community shopping centers and does not separately address
our results attributable to our office buildings and single-tenant
properties. For the six months ended June 30, 2002, our shopping centers
represented approximately 99% of our total revenue and net operating
income. In addition, during the first quarter of 2002, we sold one of our
office buildings and we intend to dispose of one of our remaining four
office buildings and substantially all of our single-tenant properties in
the foreseeable future. As a result, we expect that revenues and net
operating income from these properties will continue to decline in
comparison to revenue and net operating income from our shopping center
properties, and therefore we believe that a separate presentation of those
items is not meaningful.

COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2002 TO THE THREE MONTHS
ENDED JUNE 30, 2001

Rental and recovery income increased approximately $5.7 million, or 9.0%,
to approximately $69.3 million for the three months ended June 30, 2002, as
compared with approximately $63.6 million for the three months ended June
30, 2001. Rental income increased approximately $3.3 million, or 6.6%, to
approximately $53.6 million for the three months ended June 30, 2002, as
compared with approximately $50.3 million for the three months ended June
30, 2001. This increase resulted from the combined effect of:

o seven property acquisitions in 2002, three property acquisitions in
2001, one property disposition in 2002 and five property
dispositions in 2001, providing an additional $3.0 million of rental
income for the three months ended June 30, 2002.

o an additional $0.3 million of rental income from same store
properties, representing a 0.6% increase for the three months ended
June 30, 2002.

The average base rental rate on leases signed during the six months ended
June 30, 2002, which measures the first twelve months of base rent payable
under new and renewed leases signed during a period divided by the total
square footage represented by those leases, was $10.78, as compared to
$10.72 for the year ended December 31, 2001.

Recoveries from tenants of property operating expenses and real estate
taxes, increased approximately $2.4 million, or 18.1%, to approximately
$15.7 million for the three months ended June 30, 2002, as compared with
approximately $13.3 million for the three months ended June 30, 2001.
Recoveries from tenants of property operating expenses and real estate
taxes were 80% and 73% for the three months ended June 30, 2002 and 2001,
respectively. The increase in recoveries from tenants resulted from the net
effect of:

o seven property acquisitions in 2002, three property acquisitions in
2001, one property disposition in 2002 and five property
dispositions in 2001, providing an additional $0.8 million of
recoveries from tenants for the three months ended June 30, 2002.

o an additional $1.6 million of recoveries from tenants from same
store properties, representing a 12.4% increase for the three months
ended June 30, 2002. The increase at same store properties is
primarily attributable to an increase in operating expenses for the

HERITAGE PROPERTY INVESTMENT TRUST, INC.

three months ended June 30, 2002, and leasing activity for the six
months ended June 30, 2002.

Operating expenses, which are comprised of property operating expenses and
real estate taxes, increased approximately $1.4 million, or 7.7%, to
approximately $19.4 million for the three months ended June 30, 2002, as
compared with approximately $18.0 million for the three months ended June
30, 2001. The increase in operating expenses resulted from the net effect
of:

o seven property acquisitions in 2002, three property acquisitions in
2001, one property disposition in 2002 and five property
dispositions in 2001, providing an additional $.5 million of
operating expenses for the three months ended June 30, 2002.

o an additional $.9 million of operating expenses from same store
properties, representing a 5.2% increase for the three months ended
June 30, 2002. The increase at same store properties primarily
resulted from an increase in parking lot related work during the
three months ended June 30, 2002.

Net operating margin percentage, defined as rental and recovery income less
property operating expenses, divided by rental and recovery income, was
approximately 72% for each of the three months ended June 30, 2002 and
2001.

Depreciation and amortization expense increased approximately $1.6 million,
or 10.8%, to approximately $17.1 million for the three months ended June
30, 2002, as compared with approximately $15.5 million for the three months
ended June 30, 2001. This increase resulted primarily from the net effect
of seven property acquisitions in 2002, three property acquisitions in
2001, one property disposition in 2002, five property dispositions in 2001,
capital and tenant improvements made during 2001 and the six months ended
June 30, 2002 and a writeoff of approximately $.2 million of tenant
improvements during the three months ended June 30, 2002 related to vacated
tenants.

Interest expense, which is comprised of interest expense and interest
expense-related party, decreased approximately $5.0 million, or 22.1%, to
approximately $17.6 million for the three months ended June 30, 2002, as
compared with approximately $22.6 million for the three months ended June
30, 2001. This decrease resulted primarily from the net effect of:

o the repayment of approximately $213.8 million of the outstanding
indebtedness under our prior line of credit facility;

o the full repayment of the $100 million of subordinated debt
previously outstanding;

o a reduction in the LIBOR component of our borrowing cost under our
floating rate debt;

o the termination of the interest rate collar associated with the $150
term loan under our prior senior unsecured credit facility; and

o additional indebtedness incurred primarily to finance acquired
properties.

General and administrative expenses increased approximately $7.5 million,
or 256.7%, to approximately $10.4 million for the three months ended June
30, 2002, as compared with approximately $2.9 million for the three months
ended June 30, 2001. This increase was primarily attributable to the effect
of accelerated stock compensation expense in connection with the IPO. Upon
completion of the IPO, all contractual restrictions on transfer and
forfeiture provisions that existed on restricted shares previously granted
to members of our senior management and other key employees terminated. As
a result, compensation expense, including with respect to the reimbursement
of a portion of the taxes paid by two of these individuals, of $6.8 million
on the

HERITAGE PROPERTY INVESTMENT TRUST, INC.

restricted shares was incurred during the three months ended June 30, 2002,
which is comprised of $4.3 million of stock compensation expense and $2.5
million for the reimbursement of a portion of the taxes to be paid by
certain senior officers. In addition, included in general and
administrative expenses was a $0.5 million accrual for compensation
expense, including the reimbursement of a portion of the taxes to be paid
by one employee, related to restricted stock anticipated to be issued by
the Company in 2003 for 2002 performance. This accrual is an estimate of
the compensation expense that will be required to be recognized in the
event that this restricted stock is actually issued. For all periods after
the IPO, the Company will recognize compensation expense with respect to
performance-based stock grants ratably over the performance and vesting
periods. The Company has not restated any prior period amounts because it
does not believe that such restatement would be material to the financial
condition or results of operations of the Company.

Net derivative loss for the three months ended June 30, 2002 was
approximately $7.6 million. This loss was attributable to the termination
of an interest rate collar. On April 29, 2002, the Company entered into a
$350 million unsecured line of credit with a group of lenders and Fleet
National Bank, as agent. Upon entering into this new line of credit, the
Company paid approximately $6.8 million to terminate the interest rate
collar that was in place with respect to the $150 million term loan under
the prior senior unsecured credit facility. As a result of this
termination, the Company reclassified approximately $7.6 million of
accumulated other comprehensive loss, a component of shareholders' equity,
to earnings during the three months ended June 30, 2002.

Operating income from discontinued operations represents income associated
with the 11 single-tenant properties, which are classified as real estate
held for sale as of June 30, 2002.

Extraordinary loss on the prepayment of debt for the three months ended
June 30, 2002 was approximately $6.7 million. Upon entering into this new
line of credit, the Company wrote off unamortized deferred financing costs
with respect to the prior $425 million senior unsecured credit facility.
This write-off amounted to approximately $4.2 million during the three
months ended June 30, 2002. In addition, the Company used $100,000,000 of
the net proceeds from the IPO to repay in full the $100,000,000 of
subordinated debt previously outstanding that was scheduled to mature on
March 18, 2004. In connection with the full repayment, the Company wrote
off unamortized deferred financing costs with respect to the subordinated
debt. This write-off amounted to approximately $2.5 million during the
three months ended June 30, 2002.

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2002 TO THE SIX MONTHS ENDED
JUNE 30, 2001

Rental and recovery income increased approximately $6.9 million, or 5.4%,
to approximately $135.8 million for the six months ended June, 2002, as
compared with approximately $128.9 million for the six months ended June
30, 2001. Rental income increased approximately $3.8 million, or 3.8%, to
approximately $105.3 million for the six months ended June 30, 2002, as
compared with approximately $101.5 million for the six months ended June
30, 2001. This increase resulted from the combined effect of:

o seven property acquisitions in 2002, three property acquisitions in
2001, one property disposition in 2002 and five property
dispositions in 2001, providing an additional $3.5 million of rental
income for the six months ended June 30, 2002.

o an additional $0.3 million of rental income from same store
properties, representing a .4% increase for the six months ended
June 30, 2002.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

Recoveries from tenants of property operating expenses and real estate
taxes increased approximately $3.1 million, or 11.0%, to approximately
$30.5 million for the six months ended June 30, 2002, as compared with
approximately $27.4 million for the six months ended June 30, 2001.
Recoveries from tenants of property operating expenses and real estate
taxes were 78% and 73% for the six months ended June 30, 2002 and 2001,
respectively. The increase in the recovery rate for the six months ended
June 30, 2002 as compared to the six months ended June 30, 2001 was
primarily the result of recovery income from bankrupt tenants, primarily
Kmart Corporation, being recorded during the three months ended June 30,
2002, as these amounts are now recognizable under the Company's revenue
recognition policy. This increase resulted from the net effect of:

o seven property acquisitions in 2002, three property acquisitions in
2001, one property disposition in 2002 and five property
dispositions in 2001, providing an additional $.9 million of
recoveries from tenants for the six months ended June 30, 2002.

o an additional $2.2 million of recoveries from tenants from same
store properties, representing a 7.7% increase for the six months
ended June 30, 2002. The increase at same store properties is
primarily attributable to an increase in operating expenses for the
six months ended June 30, 2002, and leasing activity for the six
months ended June 30, 2002.

Operating expenses, which are comprised of property operating expenses and
real estate taxes, increased approximately $1.3 million, or 3.4%, to
approximately $38.9 million for the six months ended June 30, 2002, as
compared with approximately $37.6 million for the six months ended June 30,
2001. The increase in operating expenses resulted from the net effect of:

o an additional $.8 million of operating expenses from same store
properties, representing a 2.3% increase for the six months ended
June 30, 2002. The increase at same store properties primarily
resulted from an increase in parking lot related work during the six
months ended June 30, 2002.

Net operating margin percentage, defined as rental and recovery income less
property operating expenses, divided by rental and recovery income, was
approximately 71% for each of the six months ended June 30, 2002 and 2001.

Depreciation and amortization expense increased approximately $3.7 million,
or 12.0%, to approximately $34.5 million for the six months ended June 30,
2002, as compared with approximately $30.8 million for the six months ended
June 30, 2001. This increase resulted primarily from the net effect of
seven property acquisition in 2002, three property acquisitions in 2001,
one property disposition in 2002, five property dispositions in 2001,
capital and tenant improvements made during 2001 and the six months ended
June 30, 2002 and a writeoff of approximately $1.2 million of tenant
improvements during the six months ended June 30, 2002 related to vacated
tenants.

Interest expense, which is comprised of interest expense and interest
expense-related party, decreased approximately $7.2 million, or 15.7%, to
approximately $38.8 million for the six months ended June 30, 2002, as
compared with approximately $46.0 million for the six months ended June 30,
2001. This decrease resulted primarily from the net effect of:

o the repayment of approximately $213.8 million of the outstanding
indebtedness under our prior line of credit facility;

o the full repayment of the $100 million of subordinated debt
previously outstanding;

HERITAGE PROPERTY INVESTMENT TRUST, INC.

o a reduction in the LIBOR component of our borrowing cost under our
floating rate debt;

o the termination of the interest rate collar associated with the $150
term loan under our prior senior unsecured credit facility; and

o additional indebtedness incurred primarily to finance acquired
properties.

General and administrative expenses increased approximately $7.6 million,
or 124.5%, to approximately $13.7 million for the six months ended June 30,
2002, as compared with approximately $6.1 million for the six months ended
June 30, 2001. This increase was primarily attributable to the effect of
accelerated stock compensation expense in connection with the IPO. Upon
completion of the IPO, all contractual restrictions on transfer and
forfeiture provisions that existed on restricted shares previously granted
to members of our senior management and other key employees terminated. As
a result, compensation expense, including with respect to the reimbursement
of a portion of the taxes paid by two of these individuals, of $6.8 million
on the restricted shares was incurred during the three months ended June
30, 2002, which is comprised of $4.3 million of stock compensation expense
and $2.5 million for the reimbursement of a portion of the taxes to be paid
by certain senior officers. In addition, included in general and
administrative expenses was a $0.5 million accrual for compensation
expense, including the reimbursement of a portion of the taxes to be paid
by one employee, related to restricted stock anticipated to be issued by
the Company in 2003 for 2002 performance. This accrual is an estimate of
the compensation expense that will be required to be recognized in the
event that this restricted stock is actually issued. For all periods after
the IPO, the Company will recognize compensation expense with respect to
performance-based stock grants ratably over the performance and vesting
periods. The Company has not restated any prior period amounts because it
does not believe that such restatement would be material to the financial
condition or results of operations of the Company.

During the six months ended June 30, 2002, we sold one office building,
resulting in a net gain on sale of real estate investments of approximately
$1.4 million. During the six months ended June 30, 2001, we sold two
single-tenant properties resulting in a net gain on sale of real estate
investments of $2.3 million.

Net derivative loss for the six months ended June 30, 2002 was
approximately $7.6 million as compared to a net derivate gain of
approximately $.4 million for the six months ended June 30, 2001 . This
loss was attributable to the termination of an interest rate collar. On
April 29, 2002, the Company entered into a $350 million unsecured line of
credit with a group of lenders and Fleet National Bank, as agent. Upon
entering into this new line of credit, the Company paid approximately $6.8
million to terminate the interest rate collar that was then in place with
respect to the $150 million term loan under the prior senior unsecured
credit facility. As a result of this termination, the Company reclassified
approximately $7.6 million of accumulated other comprehensive loss, a
component of shareholders' equity, to earnings during the six months ended
June 30, 2002.

Operating income from discontinued operations represents income associated
with the 11 single-tenant properties, which are classified as real estate
held for sale as of June 30, 2002.

Extraordinary loss on the prepayment of debt for the six months ended June
30, 2002 was approximately $6.7 million. Upon entering into this new line
of credit, the Company wrote off unamortized deferred financing costs with
respect to the prior $425 million senior unsecured credit facility. This
write-off amounted to approximately $4.2 million during the six months
ended June 30, 2002. In addition, the Company used $100.0 million of the
net proceeds from the IPO to repay in full the $100,000,000 of subordinated
debt previously outstanding that was scheduled to mature on March 18, 2004.
In connection with the full repayment, the Company wrote off unamortized
deferred financing costs with respect to the subordinated debt. This
write-off amounted to approximately $2.5 million during the six months
ended June 30, 2002.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2002, we had approximately $3.9 million in available cash
and cash equivalents. As a REIT, we are required to distribute at least 90%
of our taxable income to our stockholders on an annual basis. Therefore, as
a general matter, it is unlikely that we will have any substantial cash
balances that could be used to meet our liquidity needs. Instead, these
needs must be met from cash generated from operations and external sources
of capital.

SHORT-TERM LIQUIDITY REQUIREMENTS

Our short-term liquidity requirements consist primarily of funds necessary
to pay for operating expenses and other expenditures directly associated
with our properties, including:

o recurring maintenance capital expenditures necessary to properly
maintain our properties;

o interest expense and scheduled principal payments on outstanding
indebtedness;

o capital expenditures incurred to facilitate the leasing of space at
our properties, including tenant improvements and leasing
commissions; and

o future distributions to be paid to our stockholders.

Historically, we have satisfied our short-term liquidity requirements
through our existing working capital and cash provided by our operations.
We believe that our existing working capital and cash provided by
operations will continue to be sufficient to meet our short-term liquidity
requirements. Cash flows provided by operations increased to approximately
$56.2 million for the six months ended June 30, 2002, as compared to $34.6
million for the six months ended June 30, 2001. The increase in cash flows
from operations is attributable to the combined effect of a $7.2 million
decrease in interest expense for the six months ended June 30, 2002 and a
decrease in accounts receivable and prepaids and other assets.

There are a number of factors that could adversely affect our cash flow. An
economic downturn in one or more of our markets may impede the ability of
our tenants to make lease payments and may impact our ability to renew
leases or re-let space as leases expire. In addition, an economic downturn
or recession could also lead to an increase in tenant bankruptcies,
increases in our overall vacancy rates or declines in rents we can charge
to re-lease properties upon expiration of current leases. In all of these
cases, our cash flow would be adversely affected.

During 2001, 15 of our tenants filed for bankruptcy protection. These
tenants contributed approximately 2.7% of our annualized base rent for all
leases in which tenants were in occupancy at December 31, 2001. In
addition, during 2002, threeof our tenants have filed for bankruptcy
protection, the largest of which was Kmart Corporation. Kmart Corporation
contributed approximately 1.5% of our annualized base rent for all leases
in which tenants were in occupancy at June 30, 2002. As a general matter,
the Company believes that these bankruptcies and the current economic
downturn has not had a material impact on our operating results. However,
continuation of the current downturn or a recession could materially
negatively impact our operating results in 2002.

We currently lease space to Kmart at seven of our shopping centers. These
locations were all physically occupied at June 30, 2002. In addition, Kmart
owns store locations at three of our shopping centers and subleases space
from third party tenants at two of our other locations. On March 8, 2002,
Kmart announced that it intends to close 284 store locations as part of its
bankruptcy reorganization. None of the twelve store locations described
above were included in the list of announced store closings. However, we
have agreed with Kmart to a rent reduction at one of our shopping centers
of approximately $290,000 on an annualized basis.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

Although Kmart has announced its current intended store closings, we are
not able to fully predict the impact on our business of Kmart's bankruptcy
filing at this time. For instance, Kmart could decide to close additional
stores, including our locations, terminate a substantial number of leases
with us, or request additional rent reductions or deferrals. Any of these
actions could adversely affect our rental revenues, and the impact may be
material. In addition, Kmart's termination of leases or closure of stores
could result in lease terminations or reductions in rent by other tenants
in the same shopping centers which could materially harm our business.

Any future bankruptcies of tenants in our portfolio, particularly major or
anchor tenants, may negatively impact our operating results.

We incur maintenance capital expenditures at our properties, which include
such expenses as parking lot improvements, roof repairs and replacements
and other non-revenue enhancing capital expenditures. Maintenance capital
expenditures were approximately $1.3 million for the six months ended June
30, 2002. We expect total maintenance capital expenditures to be
approximately $7.4 million, or approximately $.32 per square foot, in 2002.
We also expect to incur revenue enhancing capital expenditures such as
tenant improvements and leasing commissions in connection with the leasing
or re-leasing of retail space. We believe that our existing working capital
and cash provided by operations will be sufficient to fund our maintenance
capital expenditures for the next twelve months.

We believe that we qualify and we intend to continue to qualify as a REIT
under the Internal Revenue Code. As a REIT, we are allowed to reduce
taxable income by all or a portion of our distributions paid to
shareholders. We believe that our existing working capital and cash
provided by operations will be sufficient to allow us to pay distributions
necessary to enable us to continue to qualify as a REIT.

LONG-TERM LIQUIDITY REQUIREMENTS

Our long-term liquidity requirements consist primarily of funds necessary
to pay for scheduled debt maturities, renovations, expansions and other
non-recurring capital expenditures that need to be made periodically to our
properties, and the costs associated with acquisitions of properties that
we pursue. Historically, we have satisfied our long-term liquidity
requirements through various sources of capital, including our existing
working capital, cash provided by operations, long-term property mortgage
indebtedness, lines of credit and through the issuance of additional equity
securities. We believe that these sources of capital will generally
continue to be available to us in the future to fund our long-term
liquidity requirements. However, certain factors may have a material
adverse effect on our access to these capital sources.

Our ability to incur additional debt is dependent upon a number of factors,
including our degree of leverage, the value of our unencumbered assets, our
credit rating and borrowing restrictions imposed by existing lenders.
Currently, we have a credit rating from two major rating agencies -
Standard & Poor's, which on August 1, 2002 raised our rating to BBB-, and
Moody's Investor Service, which has given us a rating of Ba2. On May 17,
2002, Moody's announced that it had placed the rating of Bradley Operating
Limited Partnership under review for a possible upgrade. A downgrade in
outlook or rating by a rating agency can occur at any time if the agency
perceives an adverse change in our financial condition, results of
operations or ability to service our debt. If our credit rating is
upgraded, it would decrease the spread over LIBOR currently payable by us
under our new line of credit.

Based on our internal evaluation of our properties, the estimated value of
our properties exceeds the outstanding amount of mortgage debt encumbering
those properties as of June 30, 2002. Therefore, at this time, we believe
that additional funds could be obtained, either in the form of mortgage
debt or additional unsecured borrowings. In addition, we believe that we
could obtain additional

HERITAGE PROPERTY INVESTMENT TRUST, INC.

financing without violating the financial covenants contained in our new
line of credit or unsecured public notes.

Our ability to raise funds through the issuance of equity securities is
dependent upon, among other things, general market conditions for REITs and
market perceptions about us. We will continue to analyze which source of
capital is most advantageous to us at any particular point in time, but the
equity markets may not be consistently available on terms that are
attractive or at all.

COMMITMENTS

We currently do not have any capital lease obligations or operating lease
commitments. The following table summarizes our repayment obligations under
our indebtedness outstanding as of June 30, 2002.

AMOUNT
YEAR ENDING DECEMBER 31, (IN THOUSANDS)

2002 Remainder............................ $18,866
2003...................................... 12,001
2004...................................... 125,206
2005...................................... 253,080
2006...................................... 17,540
Thereafter................................ 525,220
--------
Total due.............................. $951,913
========

The indebtedness described in the table above will require balloon
payments, including approximately $3.2 million due in November 2002. It is
likely that we will not have sufficient funds on hand to repay additional
balloon amounts at maturity. We currently expect to refinance this debt
through unsecured private or public debt offerings, additional debt
financings secured by individual properties or groups of properties or
additional equity offerings. We may also refinance balloon payments through
borrowings under our new line of credit.

NEW LINE OF CREDIT

On April 29, 2002, the Company entered into a $350 million unsecured line
of credit with a group of lenders and Fleet National Bank, as agent. This
new line of credit replaced the Company's prior senior unsecured credit
facility, which was repaid primarily with proceeds of the IPO. Heritage
Property Investment Limited Partnership and Bradley Operating Limited
Partnership are borrowers under the new line of credit and we, and
substantially all of our other subsidiaries, have guaranteed this new line
of credit. This new line of credit is being used principally to fund growth
opportunities and for working capital purposes. At June 30, 2002, $210
million was outstanding under the new line of credit.

Our ability to borrow under this new line of credit is subject to our
ongoing compliance with a number of financial and other covenants. This new
line of credit, except under some circumstances, limits our ability to make
distributions in excess of 90% of our annual funds from operations. In
addition, this new line of credit bears interest at a floating rate based
on a spread over LIBOR ranging from 80 basis points to 135 basis points,
depending upon our debt rating, and requires monthly payments of interest.
The variable rate in effect at June 30, 2002, including the lender's margin
of 135 basis points, was 3.29%. In addition, this new line of credit has a
facility fee based on the amount committed ranging from 15 to 25 basis
points, depending upon our debt rating, and requires quarterly payments.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

Upon entering into this new line of credit, we paid $6.8 million to
terminate the collar which was then in place with respect to the $150
million term loan under our prior senior unsecured credit facility. As a
result of the termination of the collar, we reclassified $7.6 million of
accumulated other comprehensive loss, a component of shareholders' equity,
to earnings in the second quarter ended June 30, 2002.

In addition, upon entering into this new line of credit, the Company wrote
off unamortized deferred financing costs with respect to the existing $425
million senior unsecured credit facility. This write-off amounted to
approximately $4.2 million during the six months ended June 30, 2002.

FUNDS FROM OPERATIONS

The White Paper on Funds from Operations approved by NAREIT in March 1995
defines Funds from Operations as net income (loss) computed in accordance
with generally accepted accounting principles, excluding gains (or losses)
from debt restructuring and sales of properties, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. In November 1999, NAREIT issued a National
Policy Bulletin effective January 1, 2000 clarifying the definition of
Funds from Operations to include all operating results, both recurring and
non-recurring, except those defined as extraordinary under GAAP.

We believe that Funds from Operations is helpful as a measure of the
performance of a REIT because, along with cash flow from operating
activities, financing activities and investing activities, it provides an
indication of our ability to incur and service debt, to make capital
expenditures and to fund other cash needs. We compute Funds from Operations
in accordance with standards established by NAREIT, which may not be
comparable to Funds from Operations reported by other REITs that do not
define the term in accordance with the current NAREIT definition or that
interpret the current NAREIT definition differently than we do. Funds from
Operations does not represent cash generated from operating activities in
accordance with GAAP, nor does it represent cash available to pay
distributions and should not be considered as an alternative to net income,
financial performance or to cash flow from operating activities, determined
in accordance with GAAP, as a measure of our liquidity, nor is it
indicative of funds available to fund our cash needs, including our ability
to pay cash distributions.

The following table reflects the calculation of Funds from Operations:

FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
------------------------------------------------------
(in thousands)

Net (loss) income.......................... $(11,207) 2,931 (6,305) 8,165
Add (deduct):
Depreciation and amortization
(real-estate related)................ 17,019 15,400 34,289 30,680

Net gains on sales of real estate
investments and equipment.......... -- (4) (1,374) (2,343)

Extraordinary loss on debt
prepayment......................... 6,749 -- 6,749 --

Preferred stock distributions...... (3,452) (10,925) (14,302) (21,733)
Accretion of redeemable equity..... (79) (249) (328) (498)
-------- -------- -------- --------
Funds from Operations........... $ 9,030 7,153 18,729 14,271
======== ======== ======== ========

HERITAGE PROPERTY INVESTMENT TRUST, INC.

RELATED PARTY TRANSACTIONS

We have in the past engaged in and currently engage in a number of
transactions with related parties. The following is a summary of ongoing
transactions with related parties that may impact our future operating
results.

THE TJX COMPANIES

In July 1999, Bernard Cammarata became a member of our board of directors.
Mr. Cammarata is Chairman of the Board of TJX Companies, Inc., our largest
tenant, and was President and Chief Executive Officer of TJX until June
1999. Annualized base rent from the TJX Companies represents approximately
5.2% of our total annualized base rent for all leases in which tenants were
in occupancy at June 30, 2002. TJX pays us rent in accordance with written
leases with respect to several of our properties.

ADVISORY FEE

The Prudential Insurance Company of America, our second largest
stockholder, received advisory and other fees totaling approximately $3.4
million in connection with our IPO. This fee was incurred in the three
months ended June 30, 2002.

131 DARTMOUTH STREET JOINT VENTURE

In November 1999, we entered into a joint venture for the acquisition and
development of a 365,000 square foot commercial office tower at 131
Dartmouth Street, Boston, Massachusetts. In addition to an unaffiliated
third party, NETT, our largest stockholder, is also participating in this
project. Specifically, NETT, Heritage and DFS Dartmouth, LLC have formed an
entity to own this project. This entity is owned 74% by NETT, 20% by DFS
Dartmouth, LLC and 6% by us. We were issued this interest as part of a
management arrangement we entered into with the new entity. Under this
arrangement, through our subsidiary, we are providing management services
to this project, for which we are entitled to receive 6% of all cash and
capital transaction proceeds received by the project. We have no ongoing
capital contribution requirements with respect to this project, which we
expect will be completed in October 2002. We account for our interest in
this joint venture using the cost method and we have not expensed any
amounts through June 30, 2002.

BOSTON OFFICE LEASE

One of the properties contributed to us by Net Realty Holding Trust was our
headquarters building at 535 Boylston Street, Boston, Massachusetts. In
1974, NETT and Net Realty Holding Trust entered into a lease providing for
the lease of 14,400 square feet of space in this office building to NETT
for its Boston offices. The current term of this lease expires on March 31,
2005 and, under this lease, NETT pays us $648,000 per year in rent.

CONTINGENCIES

LEGAL AND OTHER CLAIMS

We are subject to legal and other claims incurred in the normal course of
business. Based on our review and consultation with counsel of those
matters known to exist, we do not believe that the ultimate outcome of
these claims would materially affect our financial position or results of
operations.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

NON-RECOURSE LOAN GUARANTEES

In connection with the Bradley acquisition, we entered into a special
securitized facility with Prudential Mortgage Capital Corporation pursuant
to which $244 million of collateralized mortgage-backed securities were
issued by a trust created by PMCC. The trust consists of a single mortgage
loan due from a subsidiary we created, Heritage SPE LLC, to which we
contributed 29 of our properties. This loan is secured by all 29 properties
we contributed to the borrower.

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

We also have agreed to indemnify other mortgage lenders for bad acts and
environmental liabilities in connection with other mortgage loans that we
have obtained.

INFLATION

Inflation has had a minimal impact on the operating performance of our
properties. However, many of our leases contain provisions designed to
mitigate the adverse impact of inflation. These provisions include clauses
enabling us to receive payment of additional rent calculated as a
percentage of tenants' gross sales above pre-determined thresholds, which
generally increase as prices rise, and/or escalation clauses, which
generally increase rental rates during the terms of the leases. These
escalation clauses often are at fixed rent increases or indexed escalations
(based on the consumer price index or other measures). Many of our leases
are also for terms of less than ten years, which permits us to seek to
increase rents to market rates upon renewal. In addition, most of our
leases require the tenant to pay an allocable share of operating expenses,
including common area maintenance costs, real estate taxes and insurance.
This reduces our exposure to increases in costs and operating expenses
resulting from inflation.

NEW ACCOUNTING STANDARDS AND ACCOUNTING CHANGES

SFAS NO. 145

HERITAGE PROPERTY INVESTMENT TRUST, INC.

SFAS NO. 144

In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, which
supersedes both SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, and the accounting and
reporting provisions of APB Opinion No. 30, REPORTING THE RESULTS OF
OPERATIONS--REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF BUSINESS, AND
EXTRAORDINARY, UNUSUAL, AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS,
for the disposal of a segment of a business (as previously defined in that
Opinion). SFAS No. 144 retains the fundamental provisions in SFAS No. 121
for recognizing and measuring impairment losses on long-lived assets held
for use and long-lived assets to be disposed of by sale, while also
resolving significant implementation issues associated with SFAS No. 121.
In addition, SFAS No. 144 retains the basic provisions of Opinion 30 for
presenting discontinued operations in the income statement but broadens
that presentation to include a component of an entity (rather than a
segment of a business).

The Company adopted SFAS No. 144 on January 1, 2002. The Company had one
property disposition during the six months ended June 30, 2002, which was
classified as held for sale as of December 31, 2001. As the property was
classified as held for sale as of December 31, 2001, it was exempt from the
provisions of SFAS No. 144. In addition, the Company has classified 11
single-tenant properties as real estate held for sale as June 30, 2002.
Accordingly, the operating results of the real estate held for sale has
been reclassified and reported as discontinued operations for the three and
six months ended June 30, 2002 and 2001.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the exposure to loss resulting from adverse changes in
market prices, interest rates, foreign currency exchange rates, commodity
prices and equity prices. The primary market risk to which we are exposed
is interest rate risk, which is sensitive to many factors, including
governmental monetary and tax policies, domestic and international economic
and political considerations and other factors that are beyond our control.
Our future income, cash flows and fair values relevant to financial
instruments are dependent upon prevalent market interest rates.

As of June 30, 2002, our total outstanding debt was approximately $952
million, of which approximately $210 million, or 22%, was variable rate
debt under our line of credit facility. We were not a party to any hedging
agreements with respect to our floating rate debt as of June 30, 2002. We
have in the past used derivative financial instruments to manage, or hedge,
interest rate risks related to our borrowings, from lines of credit to
medium- and long-term financings. We require that hedging derivative
instruments are effective in reducing the interest rate risk exposure that
they are designed to hedge. We do not use derivatives for trading or
speculative purposes and only enter into contracts with major financial
institutions based on their credit rating and other factors. We do not
believe that the interest rate risk represented by our floating rate debt
is material as of June 30, 2002 in relation to total assets and our total
market capitalization.

The majority of our outstanding debt as of June 30, 2002 has a fixed
interest rate, which minimizes the risk of fluctuating interest rates. We
do not believe that our weighted average interest rate of 7.76% on our
fixed rate debt is materially different from current fair market interest
rates for debt instruments with similar risks and maturities.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On October 31, 2001, a complaint was filed against the Company in the
Superior Court of Suffolk County of the Commonwealth of Massachusetts by
Weston Associates and its president, Paul Donahue, alleging that the
Company owes Mr. Donahue and his firm a fee in connection with services he
claims he performed on the Company's behalf in connection with the
acquisition of Bradley. Through his personal relationships with the parties
involved, Mr. Donahue introduced the Company to Bradley and its senior
management team. Mr. Donahue alleges, however, that he played an
instrumental role in the negotiation and completion of the acquisition of
Bradley beyond merely introducing the parties. For these alleged efforts,
Mr. Donahue demands that he receive a fee equal to 2% of the aggregate
consideration the Company paid to acquire Bradley, or a fee of
approximately $24 million. In addition, Mr. Donahue also seeks treble
damages based on alleged unfair or deceptive business practices under
Massachusetts law.

On December 30, 2001, the Company filed a motion to dismiss all of Mr.
Donahue's claims. Mr. Donahue filed an opposition to our motion and on
March 22, 2002, a hearing was held by the court. The court has not yet
rendered a decision with respect to our motion to dismiss. It is not
possible at this time to predict the outcome of this litigation and the
Company intends to vigorously defend against these claims.

Except as set forth above, the Company is not involved in any material
litigation nor, to its knowledge, is any material litigation threatened
against the Company, other than routine litigation arising in the ordinary
course of business, which is expected to be covered by insurance. In the
opinion of management, after consultation with counsel, this litigation is
not expected to have a material adverse effect on the Company's business,
financial condition or results of operations.

ITEM 2. CHANGES IN SECURITIES

On April 23, 2002, the Securities and Exchange Commission simultaneously
declared effective the Company's registration statement on Form S-11
(Registration No. 333-69118) filed under the Securities Act of 1933, and
its registration statement on Form 8-A, filed under the Securities Exchange
Act of 1934, for an initial public offering (IPO) of its common stock. On
April 24, 2002, the Company also filed a registration statement on Form
S-11 (Registration No. 333-86836), pursuant to Rule 462(b) promulgated by
the Securities and Exchange Commission. The registration statements
provided for the registration of an aggregate of 20,700,000 shares of the
Company's common stock, of which, 15,500,000 shares were registered on
behalf of the Company, 4,000,000 shares were registered on behalf of NETT,
the Company's largest stockholder, and 1,200,000 shares were registered on
behalf of The Prudential Insurance Company of America, our second largest
stockholder. On April 29, 2002, the Company completed its IPO, of which,
Merrill Lynch & Co. acted as managing underwriter, and sold 14,000,000
shares of common stock and NETT sold 4,000,000 shares of its common stock
in the IPO at a price of $25.00 per share. The net proceeds from the IPO
were approximately $321 million, after deducting the underwriters'
discounts and commissions of approximately $22 million and offering
expenses payable by us of approximately $7.1 million. In connection with
the IPO, the Company paid an affiliate of The Prudential Insurance Company
of America an advisory fee of $3.375 million.

All of the proceeds of the IPO were used to repay then outstanding
indebtedness of the Company. The Company used approximately $100 million of
these net proceeds to fully repay all of the outstanding principal and
interest on the subordinated loan the Company entered into with Fleet

HERITAGE PROPERTY INVESTMENT TRUST, INC.

National Bank in September 2000 and approximately $214 million of the net
proceeds of this offering was used to repay a portion of the outstanding
indebtedness under the Company's senior unsecured credit facility with
Fleet and other financial institutions. In addition, the Company used
approximately $7 million to pay the fee associated with terminating the
hedge then in place with respect to the $150 million term loan under the
prior existing senior unsecured credit facility.

On May 21, 2002, the Underwriters of the IPO notified the Company of their
exercise of their option, granted under the terms of an Underwriting
Agreement with the Company, to purchase 145,000 additional shares of common
stock, including 80,556 shares from the Company and 64,444 shares from The
Prudential Insurance Company of America, solely to cover overallotments,
and on May 24, 2002, upon the closing of the sale of the over-allotment
shares, the Company received additional net proceeds of approximately $1.9
million from the Underwriters after deducting the underwriters' discounts
and commissions of $.1 million. These net proceeds were used to repay
outstanding indebtedness.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At a special meeting of the Company's stockholders held on April 4, 2002 in
lieu of the Company's 2002 Annual Meeting, the Company's stockholders
approved the following three proposals:

(i) To elect eleven persons to the Board of Directors of the Company for
staggered terms to be effective upon completion of the IPO as follows--

Class 1 (To Serve Until 2003)
Paul V. Walsh
William M. Vaughn
Robert J. Watson
Kenneth K. Quigley, Jr.

Class 2 (To Serve Until 2004)
David W. Laughton
Joseph L. Barry
Kevin C. Phelan
Richard C. Garrison

Class 3 (To Serve Until 2005)
Thomas C. Prendergast
Bernard Cammarata
Robert Falzon

(ii) To adopt Articles of Amendment and Restatement (Third) of the Company,
providing for the amendment and restatement of the Company's current
charter, and

(iii) To ratify the amendment and restatement of the Heritage Property
Investment Trust, Inc. 2000 Equity Incentive Plan to, among other things,
increase the number of shares authorized for issuance under the Plan.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

Each of these proposals was adopted by a vote of 20,272,852 shares of
Series A Cumulative Convertible Preferred Stock, or approximately 99% of
the total outstanding shares, in favor, with no shares voting against or
abstaining, and 6,802,197 shares of common stock, or approximately 99% of
the total outstanding shares, in favor, with no shares voting against or
abstaining.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

99.1 Amendment, dated as of July 24, 2002, to Employment Agreement, by and
between the Company and Thomas C. Prendergast

99.2 Certification of Chief Executive Officer of the Company pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

99.3 Certification of Chief Financial Officer of the Company pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K

On June 5, 2002, the Company filed a Current Report on Form 8-K with
respect to its financial results for the quarter ended March 31, 2002.

HERITAGE PROPERTY INVESTMENT TRUST, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.

HERITAGE PROPERTY INVESTMENT TRUST, INC.
Dated: August 6, 2002

/s/ THOMAS C. PRENDERGAST
-----------------------------------
Thomas C. Prendergast
Chairman, President and Chief Executive Officer

/s/ DAVID G. GAW
----------------------------------
David G. Gaw
Senior Vice President, Chief Financial Officer
and Treasurer