Brixmor Property Group Inc. — Q3 2014 Form 10-Q
Reporting period: Three and nine months ended September 30, 2014; comparisons are with the corresponding 2013 periods. Brixmor is a REIT operating grocery-anchored community and neighborhood shopping centers. At quarter-end it had interests in 522 centers, including 521 wholly owned properties.
Financial and operating performance
- Revenue: Q3 revenue was $306.6 million, up $20.5 million from $286.1 million. Nine-month revenue was $922.4 million, up $80.7 million from $841.6 million.
- Profit and EPS: Q3 net income attributable to common stockholders was $27.0 million, or $0.11 per diluted share, versus a loss of $18.8 million, or $0.10 per share, in Q3 2013. For nine months, attributable net income was $65.9 million, or $0.28 per diluted share, versus a loss of $81.6 million, or $0.45 per share.
- Operating metrics: Same-property NOI, a non-GAAP measure, rose 3.9% to $200.5 million in Q3 and 3.8% to $594.6 million for nine months. Total portfolio billed occupancy was 90.8% and leased occupancy 92.7%, each 0.6 percentage points above the reported year-earlier levels. Comparable new and renewal lease spreads were 13.9% in Q3 and 12.2% for nine months.
- FFO: FFO attributable to stockholders and convertible non-controlling interests was $144.2 million, or $0.47 per diluted share/OP unit, in Q3; nine-month FFO was $416.9 million, or $1.37. These are non-GAAP measures.
- Cash flow: Nine-month operating cash flow was $372.3 million, compared with $214.6 million in 2013. Investing used $135.0 million and financing used $258.4 million. Cash and cash equivalents were $92.8 million at September 30, down from $113.9 million at year-end 2013.
- Debt and liquidity: Debt obligations, net, totaled $5.93 billion, versus $5.98 billion at December 31, 2013; total liabilities were $6.73 billion. The company had $2.37 billion outstanding under its unsecured credit facility and term loan, including a $600 million term loan due 2019. Scheduled debt maturities included $726.3 million in 2015 and $1.26 billion in 2016. Management said expected cash, operating cash flow, revolving-credit availability, debt issuance and asset sales should provide adequate capital for anticipated needs over the next 12 months. The operating partnership received a Baa3 investment-grade rating with stable outlook from Moody’s.
Material changes and unusual items
- Revenue growth reflected higher occupancy, positive leasing spreads, acquired-property contributions and improved tenant expense recoveries. Same-property NOI growth was partly offset over nine months by weather-related, utility, repair and maintenance costs.
- Interest expense fell $19.1 million in Q3 and $71.4 million for nine months, primarily following debt repayments and refinancing at lower rates. Comparisons also benefited from substantially lower prior-year debt-extinguishment losses and, for nine months, the absence of the prior-year $43.3 million discontinued-property impairment.
- During the first nine months, Brixmor distributed 35 non-core properties to pre-IPO owners; their $179.0 million carrying value and $195.2 million fair value produced a $16.2 million gain. Another non-core property was transferred to its lender in satisfaction of its mortgage. No properties were held for sale at September 30.
- The company repaid $684.4 million of mortgages and secured loans and $60.0 million of unsecured notes during the nine months. It also entered a $600 million term loan, primarily to repay revolving-credit borrowings. A tender offer completed October 17, after quarter-end, purchased $50.2 million principal amount of notes at premiums to par.
- In October, Brixmor exercised its option to acquire Inland’s preferred interest, with closing expected in December 2014. The filing reports a $121.5 million carrying value for that interest.
Outlook, risks and contingencies
- Management emphasized growth opportunities from occupancy gains, rent increases, lease rollover and anchor-space repositioning/redevelopment. It reported 27 active projects with approximately $99.4 million of anticipated improvements, of which $71.0 million remained to be incurred at quarter-end. No quantified earnings or FFO guidance was provided.
- Key risks include economic and real-estate conditions, tenant financial health and lease renewals, competition, significant leverage, variable-rate debt and financing access, redevelopment returns, property impairments, environmental and regulatory obligations, cybersecurity, and maintaining REIT qualification. A 1% rise in rates on variable-rate debt was estimated to increase annual interest expense by approximately $8.7 million, including swaps.
- The company reported compliance with debt covenants, no material off-balance-sheet arrangements, and no material change to previously disclosed risk factors. Management did not expect environmental matters or ordinary-course litigation to materially affect financial position, results or liquidity. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Reconcile reported GAAP earnings with FFO and same-property NOI, including the effects of property transfers, discontinued operations and debt-extinguishment items.
- Review debt maturities, revolver availability, covenant headroom and the post-quarter-end note tender and Inland transaction terms.
- Assess whether leasing spreads, occupancy and expense recoveries can continue to support NOI growth, and whether redevelopment spending delivers expected returns.
- Confirm the cash-flow and distribution outlook against REIT distribution requirements and planned capital spending.