Brixmor Property Group Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. Brixmor is a REIT owning and operating grocery-anchored community and neighborhood shopping centers. It reported one operating segment and interests in 522 shopping centers at quarter-end.
Financial performance
| Metric | Q1 2014 | Q1 2013 | Change / context |
|---|---|---|---|
| Total revenue | $307.7 million | $277.3 million | Up $30.4 million, or about 11% |
| Operating expenses | $215.1 million | $208.7 million | Up $6.4 million |
| Income (loss) from continuing operations | $22.5 million | $(21.7) million | Improved year over year |
| Net income (loss) attributable to common stockholders | $15.4 million | $(19.5) million | Includes disposition-related items |
| Diluted EPS | $0.07 | $(0.11) | Improved year over year |
| Net cash from operating activities | $86.6 million | $33.6 million | Up $52.9 million |
| FFO, a non-GAAP measure | $132.7 million | $92.5 million | Up 43.5%; diluted FFO per share/unit was $0.44 vs. $0.38 |
| Same-property NOI, a non-GAAP measure | $195.6 million | $188.4 million | Up 3.8% |
Revenue growth reflected higher rental income and expense reimbursements, including contribution from properties acquired in connection with the 2013 IPO. The company cited higher occupancy and leasing spreads. Same-property NOI growth was partly offset by weather-related costs, utilities, and repairs.
Balance sheet, debt and liquidity
- At March 31, 2014, total assets were $9.85 billion, total liabilities $6.76 billion, and total equity $3.07 billion.
- Debt obligations, net, were $5.976 billion, approximately level with $5.981 billion at year-end 2013. Cash and cash equivalents were $55.7 million, down from $113.9 million; restricted cash was $65.4 million.
- Quarter-end debt included $3.421 billion of mortgages and secured loans, $281.9 million of unsecured notes, $1.673 billion under the unsecured credit facility, and a new $600 million unsecured term loan due in 2019. The term-loan proceeds were used to repay credit-facility borrowings.
- The company repaid $569.6 million of mortgage and secured loans and $60.0 million of unsecured notes during the quarter. It reported compliance with debt covenants. Scheduled debt maturities were $72.2 million for the remaining nine months of 2014, $728.9 million in 2015, and $1.319 billion in 2016.
- Management said expected cash flows and financing sources should cover anticipated uses for the next 12 months. Sources include operating cash flow, available revolver borrowings, long-term debt issuance, and asset sales. The filing text does not provide a clear quarter-end amount of unused revolving capacity.
- Cash used in investing activities was $39.8 million; cash used in financing activities was $105.0 million. The company declared common dividends of $0.20 per share for the quarter.
Material changes, outlook and risks
- Billed occupancy for the total portfolio increased to 90.5% from 89.6% a year earlier; leased occupancy rose to 92.3% from 91.2%. Comparable new and renewal leases had an 11.3% increase in average annualized base rent over prior tenants’ rents.
- Interest expense fell $23.9 million year over year, primarily reflecting debt repayments and lower-cost financing, partly offset by increased credit-facility and term-loan interest. The quarter included a $2.3 million net loss on debt extinguishment and a $1.4 million litigation-settlement expense.
- Non-core property transfers and dispositions were significant: 35 properties were distributed to pre-IPO owners, generating a reported $16.2 million gain, and another property was transferred to its lender in satisfaction of its mortgage. Discontinued operations also included disposition gains; no properties were held for sale at quarter-end.
- The company planned approximately $89.8 million of improvements for anchor-space repositioning and redevelopment at 20 centers, of which $58.6 million remained to be incurred at quarter-end. No acquisitions were made during the quarter.
- Management’s growth strategy depends on occupancy gains, rent increases, lease renewals, contractual escalators, and redevelopment. The filing warns of risks from economic and real-estate conditions, tenant credit and lease rollover, significant leverage, financing access and interest-rate changes, redevelopment returns, Blackstone’s control, REIT qualification, environmental matters, and other factors. A 1% rise in market rates was estimated to increase annual interest expense by approximately $7.7 million, including hedge effects.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. It reported no material change to the risk factors in the prior Form 10-K and no material off-balance-sheet arrangements.
Investor facts to verify
- How much of reported earnings and FFO growth reflects recurring property operations versus property transfers, dispositions, discontinued operations, and debt-related items.
- Whether occupancy and leasing spreads continue to improve, and how they translate into rental income and same-property NOI after tenant improvement and leasing costs.
- Quarter-end revolver availability, future refinancing needs, and the company’s capacity to meet the 2015–2016 maturities while funding redevelopment and distributions.
- Progress, costs, and expected returns on the $89.8 million redevelopment program, including the $58.6 million remaining commitment.
- Interest-rate exposure, hedge effectiveness, and the impact of variable-rate borrowings and debt covenants on future cash flows.