Brixmor Property Group Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Brixmor is a REIT operating 400 open-air shopping centers with approximately 70 million square feet of gross leasable area. Results are compared with Q1 2019 unless otherwise noted. Dollar amounts below are in millions unless stated otherwise.
Financial and operating performance
| Metric | Q1 2020 | Q1 2019 / prior period | Change |
|---|---|---|---|
| Total revenue | $282.3 | $291.1 | Down 3.0% |
| Net income | $59.8 | $62.9 | Down 5.0% |
| Diluted EPS | $0.20 | $0.21 | Down $0.01 |
| Net cash from operations | $95.1 | $96.8 | Down $1.8 |
| NAREIT FFO (non-GAAP) | $137.5; $0.46 per diluted share | $142.8; $0.48 per diluted share | Down 3.7% in total |
| Same-property NOI (non-GAAP) | $202.6 | $196.7 | Up 3.0% |
| Net debt obligations | $5,494.2 | $4,861.2 at Dec. 31, 2019 | Up $633.0 |
| Cash and cash equivalents | $584.8 | $19.1 at Dec. 31, 2019 | Up $565.7 |
GAAP net margin was approximately 21.2%, versus 21.6% a year earlier. Q1 investing cash outflow was $46.6 million, including $86.7 million of property improvements and investments, partly offset by sale proceeds. The large financing cash inflow reflected revolving-credit-facility borrowings, not operating cash generation. At March 31, the Company reported $598.8 million of available revolving-facility liquidity; no scheduled debt maturities were due in the next 12 months, and it was in compliance with debt covenants.
Changes and key drivers
- Rental income declined $9.6 million, primarily from dispositions and weaker remaining-portfolio items, including lower straight-line rent and percentage rent and higher uncollectible revenue. Management attributed $2.6 million of uncollectible revenue and a $3.8 million reduction in straight-line rental income to COVID-19.
- Same-property NOI increased $5.9 million, supported by higher base rent, expense reimbursements and occupancy. Billed and leased occupancy at March 31 were 89.1% and 92.2%, respectively, compared with 87.5% and 91.1% a year earlier.
- Operating expenses fell $5.1 million, led by lower G&A and depreciation; impairment expense rose to $4.6 million from $3.1 million. Interest expense increased $0.7 million to $47.4 million.
- Q1 disposals generated $40.5 million in net proceeds and $7.5 million in gains; the Company also acquired a land parcel for $2.0 million. The Company recorded a $4.6 million real-estate impairment, principally related to Spring Mall.
COVID-19, outlook, and risks
- Management said the pandemic had significantly affected tenants and the business, but its ultimate impact could not be estimated. As of April 30, approximately 38% of ABR related to stores or service uses that were closed. Grocery and other essential tenants represented approximately 35% of ABR and generally remained open.
- The filing warns that Q2 and Q3 2020 results could be more adversely affected than Q1. Rent deferrals were expected to increase receivables and reduce near-term operating cash flow; lease execution slowed in April. The filing provides no reliable quantified full-year outlook.
- To preserve liquidity, Brixmor drew $550 million more than originally anticipated on its revolving facility during Q1 and deferred approximately $110 million of planned 2020 capital expenditures. As of April 30 it reported approximately $510 million of cash and $600 million of remaining revolver availability.
- After quarter-end, the Board temporarily suspended the quarterly cash dividend, with quarterly reevaluation. The Q1 dividend of $0.285 per share had been paid on April 15.
- Other risks include tenant defaults or bankruptcies, recession and reduced consumer spending, retail disruption and e-commerce, covenant pressure, and reduced access to debt or equity markets. The Company also remains obligated to indemnify former officers in connection with previously disclosed matters; management expects related legal and professional fees to likely exceed insurance coverage.
Important facts for investors to verify
- Subsequent rent collections, deferrals, delinquencies and tenant defaults, especially for the closed-store portion of ABR.
- Updated cash, revolver availability, covenant headroom and debt balances, including the consequences of the substantial Q1 revolver draw.
- The duration of the dividend suspension and the Board’s REIT distribution considerations.
- Revised capital-spending plans and the status, costs and expected returns of the 50 in-process redevelopment and repositioning projects.
- Future occupancy, leasing spreads, same-property NOI and impairment charges as pandemic effects become clearer.