Brixmor Property Group Inc. — Q2 2018 Form 10-Q
Business context and reporting period
Quarter and six months ended June 30, 2018. Brixmor is a REIT whose operating partnership owns and operates a U.S. portfolio of 471 open-air shopping centers totaling approximately 80 million square feet, plus one land parcel under development. The combined filing presents the parent and operating partnership, which management operates as one business.
Financial performance and liquidity
- Q2 revenue: $313.0 million, down 3.0% from $322.8 million. Rental income fell $9.8 million, mainly from property dispositions; rent in the remaining portfolio increased.
- Q2 earnings: Net income was $80.4 million versus $75.4 million; diluted EPS was $0.26 versus $0.25. Results included a $28.3 million gain on real estate sales and $11.9 million of real estate impairment.
- First-half results: Revenue was $630.2 million versus $648.6 million; net income was $141.4 million versus $147.1 million; diluted EPS was $0.47 versus $0.48. NAREIT FFO was $309.1 million ($1.02 per diluted share/unit), down from $323.4 million ($1.06).
- Same-property operations: Q2 same-property NOI increased 1.4% to $218.2 million; first-half NOI increased 1.1% to $432.1 million. NOI margin was 73.7% in Q2 versus 74.3%; first-half margin was 73.3% versus 73.6%. Billed occupancy was 89.4% versus 89.9% a year earlier; leased occupancy was reported at 92.5% at quarter-end.
- Cash flow: First-half operating cash flow was $280.4 million, slightly below $282.2 million. Real estate improvements and investments used $120.6 million; sales of real estate generated $239.4 million. Financing activities used $397.5 million, including $167.6 million of distributions and $33.3 million of share repurchases.
- Balance sheet and debt: At June 30, net real estate was $8.25 billion and net debt was $5.48 billion, down from $5.68 billion at year-end 2017. Scheduled debt maturities include $618.7 million in 2019, $672.7 million in 2020, and $686.2 million in 2021; $3.03 billion is due thereafter. The company reported covenant compliance.
- Liquidity: Cash and cash equivalents were $53.4 million, with another $48.2 million restricted. The $1.25 billion revolving credit facility was undrawn, subject to $5.2 million of letters of credit. Management said expected cash sources should cover anticipated needs for the next 12 months and beyond.
Material changes, outlook, risks, and unusual items
- First-half dispositions generated $238.9 million of net proceeds from 15 shopping centers, one partial center, and one outparcel; gains were $39.2 million and impairments were $12.9 million. Acquisitions totaled $7.5 million, compared with $111.8 million in the prior-year period.
- Leasing spreads remained positive: first-half rent spreads were 12.6% across new, renewal, and option leases, compared with 13.5% a year earlier. The company had 56 repositioning, redevelopment, and other projects in process, with anticipated aggregate cost of $329.7 million; $133.8 million had been incurred.
- Management intends to continue regular dividends and declared $0.275 per share for Q3 2018. No quantified full-year earnings or FFO guidance is provided in the filing.
- Material legal matters include continuing SEC and U.S. Attorney investigations into previously disclosed prior-period accounting practices, and a June 2018 fraud complaint by 13 investors who opted out of the securities class settlement. The $28.0 million class settlement is covered by insurance; $19.5 million remained in escrow and was matched by an accrued insurance receivable at quarter-end.
- Management reported disclosure controls effective and no material change in internal control over financial reporting during the quarter. It reported no material changes to the risk factors from the 2017 Form 10-K. Property values remain exposed to impairment risk; management gave no assurance that further material impairments would not occur.
Important facts for investors to verify
- How much of revenue and NOI trends reflects dispositions versus organic leasing, occupancy, and rent growth.
- The timing and refinancing plan for the 2019–2021 debt maturities, and available revolver capacity after letters of credit.
- Whether redevelopment spending and leasing costs generate expected returns, given $120.6 million of first-half property investment.
- Potential outcomes and insurance coverage for the opt-out investor litigation and government investigations.
- How further asset sales, impairments, and share repurchases affect recurring earnings, FFO, and dividend coverage.