Brixmor Property Group Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Brixmor is a REIT focused on owning, managing, leasing, acquiring, disposing of and redeveloping open-air retail shopping centers. Its portfolio comprised 510 centers and approximately 86 million square feet of GLA. Amounts below are in U.S. dollars; financial figures are rounded to millions unless noted.
Financial and operating performance
| Metric | Q1 2017 | Q1 2016 / prior date |
|---|---|---|
| Total revenue | $325.8 million | $323.1 million |
| Net income attributable to common stockholders | $71.6 million; $0.23 per diluted share | $60.5 million; $0.20 per diluted share |
| Operating cash flow | $108.2 million | $116.1 million |
| NAREIT FFO, diluted | $161.6 million; $0.53 per share/OP unit | $161.3 million; $0.53 per share/OP unit |
| Same-property NOI | $225.9 million; 72.8% NOI margin | $218.9 million; 72.9% margin |
| Debt obligations, net | $5,924.8 million | $5,838.9 million at Dec. 31, 2016 |
| Cash and cash equivalents | $59.9 million | $51.4 million at Dec. 31, 2016 |
| Cash, cash equivalents and restricted cash | $104.4 million | $150.0 million at March 31, 2016 |
- Revenue increased 0.8% year over year. Rental income fell $1.5 million, primarily due to lower lease settlement income and lease-intangible accretion, partly offset by higher base rent and straight-line rent. Expense reimbursements rose $3.5 million.
- Net income rose 18.4%, aided by an $8.8 million property-sale gain and lower depreciation and interest expense; Q1 also included a $5.7 million impairment charge and a $1.3 million debt-extinguishment loss.
- Operating cash flow declined $8.0 million, which management attributed principally to working-capital changes and lower lease settlement income, partly offset by higher NOI and lower interest and corporate cash costs.
- Same-property NOI increased 3.2%. Billed occupancy was 90.4%, unchanged year over year; leased occupancy was 92.5%, versus 92.4%. New and renewal lease spreads were 13.4%, versus 12.0% a year earlier.
- Investing cash outflow was $109.1 million, including $104.8 million for acquisitions and $39.3 million for property improvements and investments; property-sale proceeds were $34.1 million. Financing cash flow was positive $2.5 million.
- Total assets were $9.36 billion at quarter-end. The company had $1.04 billion of undrawn capacity under its $1.25 billion revolving facility. Debt fair value was $6.03 billion, above its $5.92 billion carrying value.
Changes, capital allocation and outlook
- In March, the Operating Partnership issued $400 million of 3.90% senior notes due 2027, primarily to repay debt, including $390 million of an unsecured term loan. The repayment generated a $1.3 million extinguishment loss. Brixmor reported compliance with debt covenants.
- Debt maturities, including scheduled amortization, totaled $306.9 million for the remaining nine months of 2017, $629.5 million in 2018, $620.1 million in 2019 and $976.6 million in 2020. The 2020 amount includes the revolving facility maturity.
- Brixmor acquired one shopping center and two outparcels for $104.8 million and sold three shopping centers for $34.1 million net proceeds. It recorded no properties held for sale at March 31.
- Quarterly dividends were $0.26 per share, up from $0.245 a year earlier. The board declared a $0.26 dividend for Q2 2017. Management said it expects available cash flows and capital sources to meet anticipated needs for the next 12 months, including debt service, capital needs and REIT distributions; this is not specific earnings guidance.
- Management described its strategy as growing cash flow through active property management, reinvestment, leasing, acquisitions and dispositions, while maintaining capital flexibility. Planned anchor repositioning, redevelopment and development projects totaled $217.4 million in anticipated costs, of which $86.5 million had been incurred.
Risks, contingencies and unusual items
- Two properties were impaired by $5.7 million following changes in estimated holding periods. Management cautioned that future impairment charges may occur; valuations rely on assumptions about projected cash flows, capitalization rates and discount rates.
- The company disclosed an SEC investigation and a U.S. Attorney’s Office investigation into prior accounting and financial-reporting conduct. In 2016, the board concluded that certain personnel had shifted income items between periods to smooth reported same-property NOI growth. Brixmor said it is cooperating with both investigations.
- A putative securities class action, amended in February 2017, names the company and former officers as defendants. The company said it believes it has valid defenses and intends to defend the matter. Routine litigation and potential environmental liabilities were also disclosed; management did not expect these to have a material impact.
- Management identified economic and local-market conditions, tenant financial health, rental rates, competition, space demand and tenant sales as factors that could affect results. No material changes to the 2016 Form 10-K risk factors were reported.
- Disclosure controls were assessed as effective, and no material changes in internal control over financial reporting were reported for the quarter. These statements should be considered alongside the disclosed historical accounting matter and ongoing investigations.
Important facts for investors to verify
- Progress and potential outcomes of the SEC and U.S. Attorney investigations and the securities class action, including any developments after the filing.
- Whether same-property NOI and occupancy trends persist, and how leasing spreads translate into reported rental income and cash collections.
- Cash available after property investment and distributions, and the company’s ability to address upcoming maturities, especially the 2020 obligations and revolving facility.
- Assumptions underlying the $5.7 million impairment and the potential for additional property impairments.
- Reconciliation of non-GAAP FFO and same-property NOI to GAAP results; FFO was nearly flat despite higher GAAP net income.
- REIT distribution requirements and the sustainability of the quarterly dividend relative to operating cash flow and capital needs.