Brixmor Property Group Inc. annual report, FY2019

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Brixmor Property Group Inc. — 2019 Form 10-K

Reporting period: Fiscal year ended December 31, 2019. The filing also reports fourth-quarter results. Brixmor is a REIT whose operating partnership owns and operates a U.S. portfolio of community and neighborhood shopping centers.

Business context

At year-end, the portfolio comprised 403 centers and 70.6 million square feet of gross leasable area; 68% of centers were grocery-anchored. The largest tenants by annualized base rent were TJX, Kroger and Dollar Tree. Management’s strategy centers on leasing and occupancy growth, property reinvestment, selective acquisitions and dispositions, and maintaining capital flexibility.

Financial and operating metrics

  • Revenue: $1.168 billion, down 5.4% from $1.234 billion in 2018. Rental income fell $66.7 million, primarily because dispositions reduced revenue by $86.7 million, partly offset by $20.0 million of growth in the remaining portfolio.
  • Net income and EPS: Net income attributable to common stockholders was $274.8 million, or $0.92 per diluted share, versus $366.3 million and $1.21 in 2018. 2019 included $54.8 million of real estate sale gains, compared with $209.2 million in 2018.
  • FFO: NAREIT FFO increased to $572.9 million, or $1.91 per diluted share, from $558.3 million, or $1.85. Same-property NOI rose 3.4% to $803.4 million from $776.7 million. These are supplemental non-GAAP measures.
  • Occupancy and leasing: Year-end leased occupancy was 92.4% and billed occupancy 89.3%, versus 91.9% and 88.4% a year earlier. Comparable new-and-renewal lease spreads were 13.1%; new-lease spreads were 31.7%.
  • Cash flow and investment: Operating cash flow was $528.7 million, down from $541.7 million. Investing cash outflow was $172.1 million, versus $669.6 million of inflow in 2018, reflecting substantially lower disposition proceeds and higher property investment. Improvements and investments in real estate totaled $395.1 million.
  • Debt and liquidity: Net debt obligations were $4.861 billion, compared with $4.886 billion at year-end 2018. Available revolving-facility liquidity was $1.24 billion under a $1.25 billion facility. Cash, cash equivalents and restricted cash totaled $21.5 million. The filing reports no scheduled maturities before 2022; $750 million is scheduled in 2022. Investment-grade ratings were reported from all three major agencies.
  • Distributions: Common dividends declared were $1.125 per share for 2019, versus $1.105 in 2018; cash dividends paid totaled $334.9 million. The fourth-quarter dividend was $0.285 per share.
  • Margins: The filing does not provide a clear headline operating-margin measure. Same-property NOI is the principal property-level performance metric reported.

Fourth-quarter results

Fourth-quarter 2019 revenue was $293.1 million and net income attributable to common stockholders was $62.1 million, or $0.21 per share. In fourth-quarter 2018, revenue was $297.7 million and net income was $77.6 million, or $0.26 per share.

Material changes, outlook and risks

  • Dispositions were much lower than in 2018: Brixmor sold 24 centers and three partial centers for $288.5 million of net proceeds in 2019, compared with $957.5 million from 62 centers, two partial centers and one land parcel in 2018. Acquisitions totaled $79.6 million in 2019.
  • Management expects available sources, including operating cash flow and revolving-facility borrowings, to cover anticipated uses for the next 12 months and beyond, including debt service, capital improvements and REIT distributions. No specific earnings or FFO guidance is provided.
  • Management reported 55 reinvestment projects in process, with anticipated costs of $413.0 million and expected weighted-average incremental NOI yield of 10%; $199.8 million had been incurred by year-end. A future project pipeline exceeds $1.0 billion.
  • In 2019, the company issued $750 million of 4.125% senior notes due 2029 and used proceeds primarily to repay credit-facility debt and for general corporate purposes. A 100-basis-point rate increase was estimated to raise annual interest expense by approximately $1.1 million after swaps; $800 million of variable-rate debt was hedged.
  • Key risks include tenant financial distress and retail-sector disruption, e-commerce and leasing competition, property operating-cost increases, execution and cost risks in redevelopment, leverage and refinancing, interest-rate and LIBOR-transition exposure, and potential uninsured property or environmental losses. Approximately 9.5% of leased GLA was scheduled to expire in 2020.
  • Real estate impairment charges were $24.4 million in 2019, down from $53.3 million in 2018; management tied impairments primarily to changes in anticipated hold periods and capital recycling. The auditor identified impairment estimates, particularly property hold periods, as a critical audit matter.
  • The company finalized an SEC settlement in August 2019, including a $7.0 million civil penalty accrued in 2018 and paid in 2019, and agreed to engage an independent consultant on certain non-GAAP policies. It may also have indemnification costs for former officers that exceed insurance coverage.
  • ASC 842 was adopted January 1, 2019; the company recorded a $2.0 million cumulative reduction to retained earnings and changed presentation of lease-related revenue and uncollectible amounts. Management and the auditor reported effective disclosure controls and internal control over financial reporting.

Important facts for investors to verify

  • Whether same-property NOI growth, leasing spreads and occupancy gains persist as leases roll and tenant demand changes.
  • Whether dispositions, lower rental revenue and the 2020 lease-expiration schedule affect cash flow and portfolio occupancy.
  • Actual funding, completion timing and realized yields for the $413.0 million of projects in process and the larger reinvestment pipeline.
  • Debt covenants, refinancing needs beginning in 2022, variable-rate exposure, hedge terms and the transition of LIBOR-linked contracts.
  • Tenant credit exposure, potential indemnification expenses, and any new developments in legal, environmental or insurance matters.
  • Subsequent capital actions: a new $400 million share-repurchase authorization and a new at-the-market equity program of up to $400 million, both established in January 2020.