Brixmor Property Group Inc. — Q3 2020 Form 10-Q
Business context and reporting period. Brixmor is a REIT that owns, leases, manages and redevelops open-air retail shopping centers, primarily community and neighborhood centers. At September 30, 2020, its portfolio comprised 395 centers and approximately 69 million square feet. This combined filing covers the three and nine months ended September 30, 2020; financial figures below are consolidated and generally in millions of dollars.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $253.9 | $293.0 | $783.9 | $875.1 |
| Net income | $27.9 | $80.9 | $96.8 | $212.7 |
| Diluted earnings per share | $0.09 | $0.27 | $0.32 | $0.71 |
| NAREIT FFO | $106.6 | $145.3 | $338.1 | $430.8 |
| Same-property NOI | $182.0 | $200.7 | $561.6 | $591.5 |
| Cash flow from operations | Not presented quarterly | Not presented quarterly | $323.6 | $399.9 |
- Q3 revenue fell 13.3% year over year and nine-month revenue fell 10.4%. Net income declined 65.4% for Q3 and 54.5% for the nine-month period. Q3 and nine-month FFO fell 26% and 21%, respectively; same-property NOI declined 9.3% and 5.1%.
- Rental income was $253.8 million in Q3 and $781.6 million for the nine months. Management attributed much of the decrease to COVID-19-related uncollectible revenue and reversals of straight-line rent receivables, as well as property dispositions and rent relief.
- Operating cash flow decreased 19.1% year over year to $323.6 million for the nine months. Investing used $140.3 million; financing provided $406.3 million, principally reflecting debt issuance and refinancing activity.
- At September 30, cash and cash equivalents were $609.8 million; debt obligations, net, were $5.482 billion, versus $4.861 billion at year-end 2019. Debt fair value was $5.776 billion. The company reported $1.2 billion of available revolving-credit liquidity and said it had no scheduled debt maturities in the next 12 months; scheduled maturities begin in 2022.
- Interest expense was $51.0 million in Q3 and $148.2 million for the nine months, up $3.3 million and $5.4 million, respectively, year over year, primarily due to higher debt balances. The company reported compliance with debt covenants at quarter-end.
Material changes and operating developments
- The company issued $800 million principal amount of 4.050% senior notes due 2030 in June and August. Proceeds funded purchases of $183.2 million face amount of 3.875% notes due 2022, revolving-credit repayments and general purposes. The refinancing contributed to a $10.4 million nine-month loss on extinguishment of debt.
- Nine-month property sales generated $81.9 million of net proceeds and $21.3 million of gains; the company also recorded $6.0 million of disposition-related impairment. It acquired two land parcels for $3.4 million. There were no properties held for sale at September 30.
- At September 30, billed and leased occupancy were 88.0% and 91.2%, compared with 88.6% and 91.9% a year earlier. For comparable new and renewal leases, reported rent spreads were 7.1% for the nine months, versus 13.3% in 2019.
- For rent billed in Q3, 88% had been collected as of October 30, compared with 81% for Q2. As of that date, 3% of portfolio ABR related to retailers or services then closed. The company reported $18.5 million of COVID-related deferred rent receivables at September 30, after amounts deemed uncollectible and collections.
Outlook, risks and unusual items
- Management said COVID-19 significantly affected operations and expected adverse effects on 2020 and 2021 results, but stated that the duration and ultimate financial impact could not be estimated. The filing provides no quantitative earnings or FFO guidance.
- Liquidity measures included deferring approximately $100 million of planned 2020 capital expenditures and suspending the Q2 and Q3 dividends. In October, the board declared a Q4 dividend of $0.215 per share, payable January 15, 2021; future dividends were to be reviewed quarterly.
- COVID-19 risks include further tenant closures, defaults or bankruptcies, rent concessions and collection shortfalls, reduced leasing demand, lower occupancy and rental rates, weaker consumer spending, and constrained access to debt or equity financing. Grocery anchors and other essential tenants remained open; approximately 70% of centers were grocery-anchored.
- Other notable items included $16.3 million of nine-month real estate impairment charges, attributed to changed hold periods and disposition activity, and increased Q3 litigation and other non-routine legal expense. The company remains obligated to advance legal expenses for certain former officers in connection with previously disclosed matters; advances exceed insurance coverage and recovery is uncertain.
- The company stated that it had no material off-balance-sheet arrangements and that disclosure controls were effective at quarter-end.
Important facts for investors to verify
- Whether rent collections, deferred-rent recoveries and tenant credit quality continued to improve after the October 30 collection update, and how much deferred receivables may ultimately be collected.
- Whether occupancy, leasing volume and rent spreads stabilized, and whether reported rent spreads translate into cash rent and NOI growth.
- Liquidity and covenant headroom under continued pandemic stress, including the cost and availability of refinancing and the 2022 debt maturities.
- The sustainability of the restored $0.215 quarterly dividend relative to operating cash flow, REIT distribution requirements and capital needs.
- How recurring property performance compares with GAAP net income and supplemental FFO and same-property NOI, including the effects of impairments, dispositions and rent collectability judgments.