Brixmor Property Group Inc. — Q1 2015 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2015. Brixmor is a REIT operating a portfolio of grocery-anchored community and neighborhood shopping centers. It owned interests in 520 centers, including 519 wholly owned, and reported as a single segment. The filing combines Brixmor Property Group Inc. and its operating partnership; the parent owned approximately 98.1% of the partnership at quarter-end.
Financial and operating performance
- Revenue: $315.3 million, up 2.5% from $307.6 million. Rental income rose $6.4 million, primarily from higher leasing spreads; expense reimbursements increased $1.2 million.
- Profit: Net income was $31.1 million versus $41.7 million; the prior-year period included $19.3 million of discontinued-operations income, including property-disposition gains. Income from continuing operations increased to $31.1 million from $22.5 million. Net income attributable to common stockholders was $30.4 million, or $0.10 per diluted share, versus $15.4 million, or $0.07.
- Supplemental measures: Same-property NOI, a non-GAAP measure, increased 3.4% to $215.9 million. FFO was $139.2 million versus $138.2 million; diluted FFO per share/OP unit was $0.46 versus $0.44.
- Cash flow: Operating cash flow was $112.9 million, up from $86.6 million. Investing used $31.9 million; financing used $73.5 million. Cash and cash equivalents ended at $68.2 million. Real-estate improvements and investments were $40.4 million.
- Margins and occupancy: The filing does not provide a clear GAAP operating-margin figure. Portfolio billed occupancy was reported as 90.3% and leased occupancy as 92.4%; same-property NOI growth was 3.4%.
- Debt and liquidity: Debt obligations, net, totaled $6.06 billion, compared with $6.04 billion at year-end. The company reported $1.25 billion of undrawn revolving capacity and stated it was in compliance with debt covenants. Scheduled debt maturities were $494.4 million for the remaining nine months of 2015 and $1.26 billion in 2016.
Material changes versus the prior comparable period
- Revenue increased $7.7 million, while interest expense decreased $5.4 million, primarily reflecting debt repayments and lower borrowing costs; this was partly offset by interest on the term loan and 2025 Notes.
- General and administrative expense increased $11.1 million, primarily due to a $10.8 million increase in equity-based compensation, including a $9.9 million charge after a performance condition became probable.
- In January, the operating partnership issued $700 million of 3.850% senior notes due 2025 and used the proceeds to repay revolving-credit borrowings. It also repaid $51.5 million of secured debt and $100 million of unsecured notes during the quarter.
- One shopping center was sold for net proceeds of $9.9 million, with a $0.8 million impairment. No properties were classified as discontinued operations in Q1 2015; the 2014 comparison included 34 centers disposed of during 2014.
- Leasing spreads improved: new leases increased annualized base rent 39.4% over prior tenants; new and renewal leases on comparable space increased it 13.7%, versus 11.3% in Q1 2014.
Outlook, risks, contingencies and unusual items
Management said anticipated cash flows and financing sources should cover the next 12 months of operating needs, scheduled debt payments, tenant improvements and REIT distributions. It expects growth from occupancy gains, rent increases, lease rollovers and anchor-space repositioning and redevelopment. Thirty-two redevelopment projects were underway, with approximately $106.6 million of expected improvements, of which $66.8 million remained to be incurred. The company reported a $0.225 quarterly dividend for Q1, paid April 15, and declared the same amount for Q2, payable July 15.
Key risks identified include economic and local-market conditions, tenant financial health and sales, property demand and competition, market rents and regional demographics. Management cited routine litigation and potential environmental liabilities but did not expect them to have a material adverse effect. The filing reported no material off-balance-sheet arrangements, no material change in risk factors, and no subsequent events through issuance. Interest-rate swaps had a $1.5 billion notional amount; the company estimated $7.1 million would be reclassified from accumulated other comprehensive loss as higher interest expense over the next 12 months.
Important facts for investors to verify
- Confirm the reported occupancy comparisons: the highlights give Q1 2014 billed occupancy as 90.5%, while the same-property table shows 90.6%; the comparable leased-occupancy figures also differ between sections.
- Review the timing and funding of 2015 and 2016 debt maturities, particularly the planned use of operating cash and revolving-credit capacity.
- Assess whether leasing spreads and same-property NOI growth persist, and whether redevelopment spending earns returns sufficient to justify the remaining planned investment.
- Distinguish recurring operating performance from non-GAAP measures and unusual items, including equity-based compensation and prior-year disposition gains.