Brixmor Property Group Inc. — 2020 Form 10-K
Business context and reporting period. Annual report for the fiscal year ended December 31, 2020, covering Brixmor Property Group Inc. and its operating partnership. Brixmor is a REIT focused on U.S. community and neighborhood shopping centers. At year-end, its portfolio comprised 393 centers and 68.9 million square feet; approximately 69% of centers were grocery-anchored.
Key financial and operating metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $1,053.3 million | $1,168.3 million |
| Net income | $121.2 million | $274.8 million |
| Diluted earnings per share | $0.41 | $0.92 |
| NAREIT FFO | $437.8 million; $1.47 per diluted share | $572.9 million; $1.91 per diluted share |
| Same-property NOI | $742.9 million | $785.2 million |
| Cash from operating activities | $443.1 million | $528.7 million |
| Capital improvements and real estate investment | $284.8 million | $395.1 million |
| Debt obligations, net, at year-end | $5,167.3 million | $4,861.2 million |
| Cash, cash equivalents and restricted cash | $370.1 million | $21.5 million |
Year-end billed and leased occupancy were 87.8% and 90.7%, respectively, down from 89.3% and 92.4%. New lease rent spreads were 20.2%; blended new and renewal spreads were 7.3% excluding options (7.2% including options). The filing reports $1.2 billion of available capacity under the $1.25 billion revolving facility. No debt maturities were scheduled before 2022; the 2021 maturity table shows none.
For the fourth quarter, revenue was $269.4 million and net income was $24.4 million, compared with $293.1 million and $62.1 million, respectively, in fourth-quarter 2019.
Material changes versus the prior comparable period
- Revenue declined $115.0 million (9.8%) year over year. Rental income fell $115.4 million, including a $55.9 million increase in revenue deemed uncollectible and a $35.1 million decrease in straight-line rental income, primarily related to COVID-19.
- Net income decreased $153.6 million. Results included $28.1 million of debt-extinguishment loss, reflecting $26.2 million of prepayment fees and $1.9 million of accelerated financing costs and discounts, and lower gains on property sales.
- Same-property NOI declined $42.2 million (5.4%); cash from operations decreased $85.6 million. The company cited reduced collections, dispositions and higher cash interest outflows.
- Debt increased by approximately $306 million net. Brixmor issued $800 million of 4.050% notes due 2030 and repurchased all $500 million of its 3.875% notes due 2022, extending debt duration but incurring tender/redemption costs.
- The company disposed of 10 centers, six partial centers and one land parcel for net proceeds of $121.4 million, versus $288.5 million of proceeds in 2019. Acquisitions in 2020 were limited to two land parcels totaling $3.4 million.
- Annual declared dividends were $0.50 per share versus $1.125 in 2019. The quarterly cash dividend was suspended in the second and third quarters, then resumed at $0.215 for fourth-quarter 2020; the board declared the same quarterly rate for first-quarter 2021.
Outlook, risks and unusual items
- Management expected COVID-19 and the related economic slowdown to continue adversely affecting 2021 results, but said the ultimate impact could not be estimated and provided no quantified earnings or FFO guidance in the supplied filing text.
- As of February 5, 2021, Brixmor reported approximately $330 million of cash and restricted cash and $1.2 billion of remaining revolver availability. Management expected available resources to cover anticipated needs, while warning that weaker collections or operating performance could pressure liquidity, dividends and debt covenant compliance.
- Rent collections improved across 2020: fourth-quarter billed base rent collected was 93% overall, compared with 85% for the second quarter. As of February 5, 2021, 3% of portfolio ABR related to stores then closed. Rent relief was primarily deferrals, with some abatements; deferred rent receivables remained subject to collection risk.
- Value-enhancing redevelopment remains a capital commitment: 60 projects were in process at year-end, with anticipated cost of $402.6 million, of which $207.2 million had been incurred. Management cited a further approximately $900 million potential project pipeline. Project returns, timing and costs are uncertain.
- Interest-rate exposure included $900 million of variable-rate debt, partly hedged by swaps on $800 million. A 100-basis-point rate increase was estimated to increase annual interest expense by $1 million after swaps; $500 million of swaps were scheduled to expire in 2021. LIBOR transition risks also remain.
- The company finalized an SEC settlement in 2019 relating to prior reporting matters. It reported that the SEC and U.S. Attorney’s Office were pursuing actions involving former employees; Brixmor continued advancing legal fees beyond its insurance coverage and might not recover all amounts. Routine litigation and environmental obligations were not expected by management to have a material impact.
- 2020 property impairments were $19.6 million. Deloitte issued unqualified opinions on the financial statements and internal controls; impairment estimates and tenant receivable collectability were identified as critical audit matters.
Most important facts for investors to verify
- Whether rent collection, deferred receivable recovery and tenant credit quality continue improving, and whether COVID-related concessions or uncollectible revenue rise again.
- Whether occupancy and same-property NOI stabilize, particularly for smaller spaces, and whether leasing spreads translate into collected rent and commenced leases.
- Whether the $402.6 million project-in-process budget and projected yields are achieved without material cost overruns or delays, while balancing other capital needs.
- Debt covenant headroom, refinancing needs beginning in 2022, interest-rate swap expirations and LIBOR transition arrangements.
- Dividend sustainability relative to operating cash flow, required REIT distributions, capital expenditures and debt service.
- Further developments and potential company-funded costs related to former-employee legal matters, along with future impairment assumptions and charges.