Brixmor Property Group Inc. — Q3 2017 Form 10-Q
Business context and reporting period. For the quarter and nine months ended September 30, 2017. Brixmor is a REIT operating primarily through Brixmor Operating Partnership LP. Its portfolio comprised 498 wholly owned shopping centers totaling approximately 84 million square feet, plus one land parcel under development. Unless otherwise noted, financial amounts below are in millions.
Financial performance and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Total revenue | $314.5 | $318.6 | $963.1 | $951.7 |
| Net income | $83.4 | $57.8 | $230.5 | $184.8 |
| Diluted EPS | $0.27 | $0.19 | $0.75 | $0.61 |
| NAREIT FFO per diluted share/unit | $0.52 | $0.51 | $1.58 | $1.54 |
| Same-property NOI | $220.3 | $217.0 | $662.6 | $649.3 |
| Same-property NOI margin | 74.4% | 73.4% | 73.8% | 74.0% |
- Cash flow: Nine-month operating cash flow was $421.1, essentially unchanged year over year. Investing activities used $14.1, versus $115.1 in 2016; financing activities used $367.8, versus $340.3.
- Debt and liquidity: Debt obligations, net, were $5.714 billion at September 30, down from $5.839 billion at year-end 2016. Cash and cash equivalents were $30.0; restricted cash was $112.0. The $1.25 billion revolving facility was fully undrawn. Management said expected cash sources would cover anticipated uses over the next 12 months. Debt covenants were met.
- Capital returns: Common dividends were $0.26 per share for Q3; a $0.275 Q4 dividend was declared, payable in January 2018. Nine-month common distributions were $238.1.
Material changes and notable items
- Q3 revenue decreased 1.3%, while nine-month revenue increased 1.2%. Nine-month net income rose about 25%, but included $54.9 of gains on real estate sales and a $4.6 gain on sale of the joint-venture interest. Q3 net income likewise benefited from $25.9 of property-sale gains.
- Same-property NOI grew 1.5% in Q3 and 2.0% for the nine-month period. Occupancy softened: billed occupancy was 89.6% versus 90.5%–90.6% in the prior-year comparison; leased occupancy was 91.6% versus 92.5%–92.6%. Comparable new and renewal lease rent spreads remained positive: 12.7% in Q3 and 15.2% year to date.
- Impairment charges increased to $11.1 in Q3 and $27.4 year to date, versus $2.0 for the comparable 2016 periods. The company attributed 2017 impairments mainly to changed expected holding periods tied to its capital-recycling program.
- The company sold 14 shopping centers and two outparcel buildings for $228.7 net proceeds year to date, and acquired assets for $111.8. It also issued $400 of 3.90% notes due 2027 and $500 of 3.65% notes due 2024, and entered into a $300 variable-rate term loan due 2024, refinancing other borrowings.
Outlook, risks, and contingencies
- Management expects operating cash flow, dispositions, cash balances, debt and equity access, and the undrawn revolver to fund scheduled debt service, property investment, distributions, and other anticipated needs for 12 months. No quantitative earnings or FFO guidance is provided in this filing.
- Key operating risks include economic and local-market conditions, demand and rental rates, competition, tenant credit and occupancy. Management also cautioned that future material property impairments cannot be ruled out.
- The SEC and U.S. Attorney’s Office for the Southern District of New York were investigating aspects of prior-period financial reporting after an Audit Committee review found instances of income smoothing. The company said it was cooperating. A $28.0 million securities class-action settlement was accrued with an equal insurance receivable; court approval remained pending. The company reported disclosure controls effective and no material quarterly changes in internal control over financial reporting.
- An unusual related-party matter: the company purchased its CEO’s former residence for $4.4 in July under an employment-agreement contingency; an August appraisal valued it at $3.9, and the company intended to sell it.
Important facts for investors to verify
- Whether occupancy and same-property NOI stabilize, and whether rent spreads translate into sustained cash-flow growth.
- How much reported earnings growth depends on asset-sale gains, and whether elevated impairments continue as properties are recycled.
- Debt maturities, variable-rate exposure, and the availability of the stated revolver capacity; note that $112.0 of reported cash was restricted.
- Insurance coverage and court approval for the class-action settlement, and developments in the government investigations.
- Whether the CEO-residence sale proceeds align with the appraisal and carrying value; the filing does not provide a clear sale outcome.