Brixmor Property Group Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; filing dated February 29, 2016. This combined filing covers Brixmor Property Group Inc. and Brixmor Operating Partnership LP. The parent is a REIT; the Operating Partnership holds substantially all assets and conducts substantially all operations.
Business context and reporting period
Brixmor owns and operates a U.S. portfolio of community and neighborhood shopping centers, principally grocery-anchored. At year-end, it reported 518 centers, 86.6 million square feet of GLA, and 72% grocery-anchored centers; 517 centers were wholly owned. The portfolio was 92.6% leased and 91.0% billed, across 38 states.
Financial and operating highlights
| Metric | FY2015 / year-end | Prior comparable period |
|---|---|---|
| Total revenue | $1,266.0 million | $1,236.6 million in 2014 |
| Net income | $197.5 million | $132.9 million in 2014 |
| Net income attributable to common stockholders | $193.6 million; $0.65 per diluted share | $88.9 million; $0.36 per diluted share in 2014 |
| NAREIT FFO, non-GAAP | $600.2 million; $1.97 per diluted share/OP Unit | $554.8 million; $1.80 in 2014 |
| Cash provided by operating activities | $534.0 million | $479.2 million in 2014 |
| Cash used in investing activities | $189.1 million | $200.8 million in 2014 |
| Cash used in financing activities | $336.0 million | $331.7 million in 2014 |
| Cash and cash equivalents | $69.5 million | $60.6 million at December 31, 2014 |
| Debt obligations, net carrying value | $5,974.3 million | $6,022.5 million at December 31, 2014 |
- Revenue increased 2.4%; rental income rose $23.8 million, primarily from contractual rent increases and leasing spreads. Total operating expenses fell $4.7 million to $837.3 million. Interest expense declined $17.8 million to $245.0 million, mainly after refinancing higher-cost debt.
- Reported portfolio leased occupancy eased to 92.6% from 92.8%; billed occupancy declined to 91.0% from 91.3%. Small-shop occupancy (spaces under 10,000 square feet) increased to 84.3% from 82.6%.
- For 2015 new and renewal leases on comparable space, blended rent spreads were 14.9%; new-lease spreads were 41.6%. The company executed 2,018 leases covering 13.4 million square feet.
- Cash dividends declared were $0.92 per common share for 2015, versus $0.825 in 2014. The fourth-quarter dividend was $0.245 per share, paid January 15, 2016.
Debt, liquidity, and investment
- Year-end cash included $41.5 million of restricted cash. The company reported $834.0 million of undrawn capacity on its $1.25 billion revolving facility. It also had a $1.5 billion term loan facility and a $600 million unsecured term loan; debt covenants were reported in compliance.
- 2015 financing included $700 million of 3.850% senior notes due 2025 and $500 million of 3.875% senior notes due 2022. The company repaid $868.9 million of mortgage and secured debt and $225 million of unsecured notes.
- Scheduled 2016 debt maturities were $877.7 million in the contractual-obligations table; management separately cited $855.6 million of mortgage maturities and $22.1 million of scheduled mortgage amortization. Management intended to fund these payments with operating cash and revolving-credit borrowings.
- Cash from operations increased by $54.8 million year over year. The company spent $189.9 million on real-estate improvements and investments, acquired two centers and a retail building for $59.2 million including assumed debt, and sold five centers and three outparcels for $54.2 million in net proceeds.
- There were 44 active anchor repositioning, redevelopment, or outparcel projects, with expected aggregate cost of $104.6 million; $58.3 million remained to be spent at year-end. The company reported 16% average targeted NOI yields for 41 projects completed in 2015; these are targets, not realized results.
Material changes, outlook, risks, and unusual items
- Accounting review and governance: An Audit Committee review concluded that certain accounting and financial-reporting personnel had shifted income items between periods, both upward and downward, to produce more consistent quarterly same-property NOI growth. The Board said the actual financial-statement misstatement was not significant, but concluded the control override created a material weakness. The filing does not provide a clear value for any revised same-property NOI growth measure.
- Controls and audit opinions: Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2015. Deloitte issued an adverse opinion on internal control because of the material weakness, while issuing an unqualified opinion on the financial statements. Remediation steps included personnel departures, added ethics and compliance training, and review of organizational roles and responsibilities.
- Management and legal exposure: The CEO, President, CFO, Treasurer/Chief Accounting Officer, and an accounting employee resigned following the review; interim officers were appointed. The company voluntarily reported the matter to the SEC, which opened an investigation; the company said it was cooperating. Potential securities class actions and derivative actions were also identified. Potential costs, damages, sanctions, and capital-market effects were uncertain.
- Outlook: No quantified earnings, FFO, or occupancy guidance is provided in the supplied filing text. Management expected cash flows and available funding sources to cover anticipated uses over the next 12 months. Its strategy emphasized lease mark-to-market, occupancy gains, redevelopment, and maintaining financing flexibility.
- Other risks and items: Major risks include retail tenant failures and bankruptcies, competition and e-commerce, lease rollover, property and redevelopment costs, leverage and refinancing needs, interest-rate exposure, and environmental conditions. Soil or groundwater contamination was known at some properties. FY2015 included $1.0 million of real-estate impairment, $11.7 million of property-sale gains, $2.5 million of Audit Committee review expenses, and a $13.9 million increase in equity-based compensation expense.
Important facts for investors to verify
- Follow SEC investigation developments, any litigation, insurance coverage, and any resulting financial or regulatory exposure.
- Track whether management remediates the material weakness on time and whether subsequent filings report effective controls or identify further deficiencies.
- Confirm whether the review results in restatements, adjustments, or changes to reported same-property NOI; the filing says actual financial-statement misstatement was not significant but does not quantify same-property NOI effects.
- Assess refinancing of 2016 maturities, revolver usage, liquidity after debt service and dividends, and any rating or borrowing-cost changes.
- Compare future occupancy, leasing spreads, redevelopment spending and realized yields with the company’s stated targets; distinguish non-GAAP FFO and NOI measures from GAAP results and cash flow.