Brixmor Property Group Inc. — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless otherwise noted. Brixmor is a REIT focused on grocery-anchored community and neighborhood shopping centers.
Business context and operating performance
- At June 30, Brixmor owned interests in 522 shopping centers: 521 wholly owned and one held through an unconsolidated joint venture.
- Portfolio billed occupancy was 90.5%, up from 89.9% a year earlier; leased occupancy was 92.5%, up from 91.6%.
- For Q2, the company executed 556 leases covering 3.7 million square feet. Comparable new and renewal lease rents increased 11.2% from prior leases; new leases alone showed a 27.3% increase in annualized base rent versus the prior tenant.
- Same-property NOI, a non-GAAP measure, rose 3.8% to $198.5 million for Q2 and 3.8% to $394.2 million for the first half. Billed occupancy and expense recoveries improved, partly offset by higher property costs.
Financial results and liquidity
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Total revenue | $308.1 million | $278.2 million | $615.8 million | $555.5 million |
| Net income (loss) attributable to common stockholders | $23.5 million | $(43.3) million | $38.9 million | $(62.8) million |
| EPS attributable to common stockholders | $0.10 | $(0.24) | $0.17 | $(0.35) |
| FFO attributable to stockholders and convertible non-controlling interests (non-GAAP) | $140.1 million | $89.0 million | $272.7 million | $181.4 million |
| FFO per diluted share/OP unit (non-GAAP) | $0.46 | $0.37 | $0.90 | $0.75 |
| Cash flow from operating activities | — | $218.6 million | $109.7 million |
- Q2 revenue increased 10.7%; rental income rose $23.8 million, driven by the acquired properties, higher occupancy and positive leasing spreads. Interest expense fell $28.4 million to $66.0 million, principally reflecting debt repayments and lower-cost replacement financing.
- First-half net income included discontinued-operations income of $19.2 million, including gains on property dispositions; the comparable 2013 period included a $42.0 million impairment of real estate held for sale. Q2 2014 had no discontinued-operations income or loss.
- First-half investing cash use was $81.9 million, including $88.8 million of real estate improvements and investments. Financing cash use was $188.9 million. Cash and cash equivalents were $61.8 million at June 30, down from $113.9 million at year-end; restricted cash was $64.9 million.
- Debt obligations, net, were $5.95 billion, compared with $5.98 billion at year-end; financing liabilities were $121.5 million. Total liabilities were $6.74 billion. Scheduled debt maturities were $16.0 million for the remainder of 2014 and $727.0 million in 2015.
- In March, the company entered into a $600 million unsecured term loan maturing in 2019 and used proceeds to repay revolving-credit borrowings. The Operating Partnership’s revolving and term credit facilities had $1.77 billion outstanding, and the separate term loan had $600 million outstanding. Five swaps hedged $1.5 billion of variable-rate debt. A 1% increase in rates was estimated to raise annual interest expense by approximately $8.7 million, including swap effects.
Changes, outlook, and risks
- The company transferred 35 non-core properties to pre-IPO owners during the first half; their carrying value was $179.0 million and fair value $195.2 million. One additional non-core property was transferred to its lender in satisfaction of mortgage debt. These portfolio changes and discontinued-operations items affect comparisons with 2013.
- Management said expected cash, operating cash flow, available revolving-credit borrowings, debt issuance and asset sales should provide adequate capital for anticipated needs over the next 12 months, including debt service, tenant improvements and REIT distributions. No specific earnings or FFO guidance was provided.
- Management cited occupancy growth, positive rent spreads, contractual rent increases and redevelopment as expected NOI drivers. Active repositioning/redevelopment involved 21 centers, with estimated improvements of $66.6 million, of which $40.4 million remained to be incurred at June 30.
- Moody’s assigned the Operating Partnership a Baa3 investment-grade issuer rating with a stable outlook. The company reported compliance with debt covenants.
- Key disclosed risks include economic and real-estate market conditions, tenant credit and lease renewals, leverage and access to financing, variable interest rates, redevelopment returns, environmental liabilities, and maintaining REIT status. Blackstone’s control and related-party relationships are also relevant. The filing reported no material change to the prior annual report’s risk factors, no material off-balance-sheet arrangements, and no material litigation expected to affect results or financial condition.
- The company reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Reconcile reported GAAP earnings with FFO and same-property NOI, which are non-GAAP measures and may not be comparable with similarly named measures at other REITs.
- Assess debt maturities, revolving-facility availability, covenant headroom and the sensitivity of interest costs to rates; the filing does not state a clear available borrowing balance.
- Track leasing spreads, occupancy, tenant credit, expense recoveries and redevelopment spending against management’s stated growth drivers.
- Review the earnings and balance-sheet effects of non-core property transfers, debt extinguishments, discontinued operations and distributions to non-controlling owners.
- Consider the sustainability of distributions alongside cash needs, REIT distribution requirements, Blackstone-related ownership and governance, and the company’s stated 12-month liquidity assessment.