Brixmor Property Group Inc. — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing also provides fourth-quarter results. Brixmor is an internally managed REIT whose Operating Partnership owns and operates substantially all of its assets and business.
Business context and portfolio
Brixmor operated 521 community and neighborhood shopping centers totaling 86.8 million square feet across 38 states; 520 centers were wholly owned and one was held through an unconsolidated joint venture. Grocery-anchored centers represented 71% of the portfolio. Leased occupancy was 92.8% and billed occupancy was 91.3% at year-end. The Parent Company owned approximately 97.5% of the Operating Partnership’s units.
Financial performance and liquidity
| Metric | 2014 | 2013 |
|---|---|---|
| Total revenue | $1,236.6 million | $1,146.4 million |
| Net income attributable to Brixmor Property Group Inc. | $89.0 million | $(93.5) million |
| Net income attributable to common stockholders | $88.9 million | $(93.7) million |
| Diluted earnings per share | $0.36 | $(0.50) |
| Operating cash flow | $479.2 million | $332.0 million |
| Same-property NOI, non-GAAP | $796.0 million | $766.4 million |
| FFO attributable to stockholders and convertible non-controlling interests, non-GAAP | $548.4 million; $1.80 per diluted share/unit | $362.6 million; $1.44 per diluted share/unit |
Fourth-quarter 2014 revenue was $314.6 million and net income attributable to common stockholders was $22.9 million, or $0.08 per diluted share. No clear quarterly cash-flow or margin figures are presented in the filing text.
Same-property NOI increased 3.9%, attributed primarily to higher billed occupancy and expense recoveries, partly offset by weather-related operating costs. Lease spreads were 31.2% for new leases and 12.6% on blended new and renewal leases. GAAP net income turned positive from a prior-year loss; the filing attributes the improvement in part to lower interest expense and general and administrative costs, as well as gains and discontinued-operation items.
Year-end total assets were $9.70 billion and debt obligations, net, were $6.04 billion, compared with $10.17 billion and $5.98 billion, respectively, a year earlier. Cash and cash equivalents were $60.6 million, down from $113.9 million. Brixmor reported $730.5 million of undrawn capacity under its unsecured credit facility and was in compliance with debt covenants. It received investment-grade ratings with stable outlooks from Moody’s, S&P and Fitch.
Cash used in investing activities was $200.8 million, including $214.7 million for real estate improvements and investments. Cash used in financing activities was $331.7 million. Declared common dividends totaled $0.825 per share for 2014; the quarterly dividend rose to $0.225 in the fourth quarter from $0.20 in the first three quarters.
Material changes and notable items
- Revenue rose $90.2 million, or approximately 7.9%, year over year. The increase reflected higher rents and reimbursements, including $46.8 million of annualized base rent from acquired properties, improved occupancy and leasing spreads.
- Operating cash flow increased $147.2 million. Management cited improved same-property NOI, acquired-property contributions, lower interest expense and lower G&A, partly offset by working-capital timing.
- Interest expense declined $80.4 million, primarily following substantial debt repayments and refinancing at lower rates. The Company recorded a $13.8 million net loss on extinguishment of debt.
- During 2014, Brixmor transferred most remaining non-core properties to pre-IPO owners, transferred one property to its lender in satisfaction of its mortgage, and disposed of a shopping center and land parcel. The income statement included $15.2 million of gains on dispositions of operating properties; the 2014 financial results also included a $1.8 million gain on disposition of joint-venture investments.
- In January 2015, the Operating Partnership issued $700 million of 3.850% senior notes due 2025 and used proceeds to repay revolving-credit borrowings. A February 2015 amendment released Parent Company guarantees on the term loan and revolving facility.
Outlook, risks and contingencies
Management said expected operating cash flow, cash, available credit, long-term debt issuance and asset sales were expected to provide adequate capital for anticipated needs over the next 12 months. It planned to fund leasing, maintenance and redevelopment costs, debt service and distributions, and expected to continue its current pace of anchor-space redevelopment. No quantified earnings or FFO guidance was provided.
Management identified near-term leasing opportunity from below-market rents: 11.0% of leased GLA was scheduled to expire in 2015, 14.6% in 2016 and 13.2% in 2017. Key risks include tenant credit and renewals, retail competition and online sales, property operating costs, redevelopment execution, substantial leverage and refinancing, variable interest rates, environmental conditions and REIT qualification. Approximately $623.3 million of mortgage loans were scheduled to mature in 2015, in addition to approximately $29.7 million of scheduled mortgage amortization; management intended to use operating cash and revolving borrowings. Brixmor reported known soil and groundwater contamination at some properties, but did not expect environmental matters to have a material adverse effect. Routine legal proceedings were not expected to have a material financial impact; no material off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Reconcile the 2014 improvement in GAAP earnings with gains on dispositions, discontinued operations, debt-extinguishment losses and other unusual items.
- Review debt maturities, refinancing completed after year-end, undrawn credit availability, variable-rate exposure and interest-rate hedges.
- Assess whether occupancy gains and lease spreads can persist as the 2015–2017 lease expirations roll over, particularly in small-shop space.
- Compare redevelopment spending and targeted yields with realized NOI, leasing costs and operating cash flow; review the definitions and reconciliations of FFO and same-property NOI.
- Consider Blackstone’s influence and potential share sales, tenant concentration and credit quality, environmental exposures, and the Company’s ability to maintain REIT status and dividends.