Brixmor Property Group Inc. — FY2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. The filing also provides unaudited fourth-quarter results. Brixmor is a REIT whose operating partnership owns and operates its shopping-center portfolio; the company reported one business segment.
Business context and operating performance
At year-end, Brixmor had interests in 512 shopping centers totaling approximately 86 million square feet, primarily community and neighborhood centers. 69% of centers were grocery-anchored. The largest tenants were Kroger, TJX, Dollar Tree and Publix.
- Leased occupancy was 92.8%, up from 92.6% a year earlier; billed occupancy was 90.7%, down from 91.0%.
- 2016 blended new and renewal rent spreads were 16.5% excluding options and 12.0% including options. Small-shop leased occupancy reached 85.1%, versus 84.3% in 2015.
- The company completed 41 repositioning, redevelopment and outparcel projects at an average stated NOI yield of 12%; 33 projects remained in process, with expected cost of $190.4 million and expected average NOI yield of approximately 10%.
Key financial metrics
| Metric | FY2016 | FY2015 |
|---|---|---|
| Total revenue | $1,275.8 million | $1,266.0 million |
| Net income attributable to common stockholders | $275.5 million; $0.91 per diluted share | $193.6 million; $0.65 per diluted share |
| NAREIT FFO | $632.0 million; $2.07 per diluted share/OP unit | $600.2 million; $1.97 per diluted share/OP unit |
| Cash flow from operating activities | $567.2 million | $534.0 million |
| Cash flow used in investing activities | $151.6 million | $189.1 million |
| Cash flow used in financing activities | $433.7 million | $336.0 million |
| Cash and cash equivalents at year-end | $51.4 million | $69.5 million |
| Debt obligations, net, at year-end | $5,838.9 million | $5,974.3 million |
Revenue increased 0.8% year over year. Rental income rose $13.6 million, while expense reimbursements fell $5.5 million. Operating expenses declined $35.5 million, including lower depreciation and real estate taxes; interest expense fell $18.3 million. The filing does not provide a single headline operating-margin measure.
Annual common dividends declared rose to $0.995 per share from $0.92. The fourth-quarter dividend was $0.26 per share. The year-end balance sheet also included $51.5 million of restricted cash. The amended $2.75 billion unsecured credit facility had approximately $1.13 billion of undrawn capacity; the company reported investment-grade ratings from all three major agencies.
Material changes, outlook and risks
- FY2016 net income included a $35.6 million gain on real estate sales and $5.2 million of real estate impairment charges. Dispositions generated $102.9 million of net proceeds; acquisitions totaled $48.0 million.
- The company issued $600 million of 4.125% senior notes due 2026 and $500 million of 3.250% senior notes due 2023, and repaid $892.4 million of secured loans. Management cited extending maturities and expanding unencumbered assets as priorities.
- Management expected cash, operating cash flow, available credit, debt and equity markets, and dispositions to provide adequate capital for anticipated uses over the next 12 months. It planned to continue regular dividends, with the board reviewing the policy quarterly; no specific full-year 2017 earnings or FFO guidance is provided in the supplied filing text.
- In 2016, the Audit Committee review found that certain accounting and financial-reporting personnel had shifted income items between periods to produce consistent quarterly same-property NOI growth. Former senior executives resigned; the SEC and U.S. Attorney’s Office investigations were ongoing, and a securities class action was pending. The company said it would defend the action; the filing does not provide a clear estimate of potential losses.
- A material weakness disclosed in 2015 was reported as remediated by year-end 2016, and management and the auditor concluded internal control over financial reporting was effective. This follows the prior-period reporting-control issue and warrants continued scrutiny.
- Principal risks include retail-sector and e-commerce competition, tenant credit and lease renewals, leasing and redevelopment execution, debt refinancing and interest-rate exposure, environmental conditions, and litigation. A 100-basis-point rate increase was estimated to raise annual interest expense by $8.2 million after swaps.
Most important facts for investors to verify
- Progress and outcomes of the SEC and DOJ investigations and the securities class action, including any quantified exposure or insurance coverage.
- Durability of occupancy gains and rent spreads, particularly small-shop leasing and upcoming expirations (9.7% of leased GLA in 2017).
- Whether redevelopment spending and the 33 active projects deliver expected costs, timing and NOI yields.
- Debt maturity and refinancing plans, covenant headroom, liquidity after scheduled debt service, and the effect of changing interest rates.
- Cash available for dividends and the relationship between GAAP earnings, FFO, operating cash flow and capital spending.