Brixmor Property Group Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Brixmor is a REIT owning and operating open-air retail shopping centers; its portfolio comprised 398 centers and approximately 70 million square feet. Results were materially affected by COVID-19 and related tenant disruptions.
Key financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $247.6 million | $291.0 million | $529.9 million | $582.1 million |
| Net income | $9.0 million | $69.0 million | $68.8 million | $131.9 million |
| Diluted EPS | $0.03 | $0.23 | $0.23 | $0.44 |
| NAREIT FFO | $94.1 million | $142.7 million | $231.6 million | $285.5 million |
| NAREIT FFO per diluted share | $0.32 | $0.48 | $0.78 | $0.96 |
| Same-property NOI | $179.8 million | $197.6 million | $382.3 million | $394.0 million |
| Cash from operating activities | Not separately stated | Not separately stated | $179.6 million | $251.0 million |
Q2 revenue fell about 15% year over year and net income about 87%; six-month revenue declined about 9% and net income about 48%. Q2 operating income was approximately $69.4 million, or 28% of revenue, versus approximately $105.6 million, or 36% a year earlier. Rental income decreased $43.3 million in Q2, including a $25.3 million increase in revenue deemed uncollectible and lower straight-line rent, primarily attributable to COVID-19. Cost reductions partly offset the revenue decline.
For the six months, investing cash outflow was $116.0 million, including $158.1 million for real estate improvements and investments. Financing provided $234.9 million. Cash, cash equivalents and restricted cash ended the period at $320.0 million for Brixmor Property Group Inc. ($310.0 million for the Operating Partnership).
Balance sheet, debt and liquidity
- At June 30, 2020, total assets were $8.42 billion, debt obligations net were $5.31 billion, and total equity was $2.68 billion. Debt increased from $4.86 billion at December 31, 2019.
- Cash and cash equivalents were $318.5 million; the company reported approximately $1.1 billion of availability under its $1.25 billion revolving facility. Management reported no scheduled debt maturities for the following 12 months; scheduled maturities begin in 2022.
- In June, the Operating Partnership issued $500 million of 4.050% senior notes due 2030. Proceeds supported a tender offer for $182.5 million of 3.875% notes due 2022, revolving-facility repayment and general corporate purposes. The refinancing and secured-loan repayment produced a $10.4 million extinguishment loss, including $9.7 million of prepayment fees.
- The company was in compliance with debt covenants at June 30. Seven interest-rate swaps covered $800 million of notional debt; the reported net derivative liability was $34.4 million.
Operating changes, outlook and risks
- As of July 29, the company had collected approximately 98% of Q2 billed base rent from essential retailers, 78% from hybrid retailers and 58% from other retailers and services. Approximately 6% of portfolio ABR was represented by tenants then closed.
- COVID-19 rent relief was primarily deferrals. The filing reports $14.9 million of Q2 deferred lease payments and $0.2 million of abatements; $10.9 million of deferred receivables remained at June 30 after amounts deemed uncollectible and received. Billed and leased occupancy at June 30 was 88.9% and 92.1%, respectively.
- Leasing execution slowed notably after March, despite a pipeline described as generally consistent with prior periods. Comparable new, renewal and option lease rent spreads were 6.5% in Q2, down from 11.7% a year earlier; six-month spreads were 8.1%, versus 10.9%.
- Management said COVID-19 would continue to adversely affect results for at least the remainder of 2020, but could not estimate the pandemic’s ultimate impact. No numerical earnings or FFO guidance was provided. The company deferred approximately $100 million of planned 2020 capital expenditures and temporarily suspended its quarterly cash dividend; the board said it would reevaluate the dividend quarterly, considering factors including REIT taxable income.
- Management cited grocery and other essential tenants—approximately 70% of centers are grocery-anchored—as a partial offset. It also warned that further closures, tenant distress or bankruptcies, rent defaults, reduced leasing demand, consumer shifts, capital-market constraints and covenant pressure could materially hurt results and liquidity.
- Other notable items: $10.6 million of first-half real estate impairments, principally related to dispositions or changed hold periods; continuing indemnification advances for former officers in connection with prior SEC-related matters, potentially above insurance coverage, with uncertain recovery. Management reported effective disclosure controls and no material change in internal control.
Investor verification priorities
- Track subsequent rent collections, deferred-rent recoveries, tenant credit losses and the treatment of concessions.
- Confirm dividend decisions, REIT distribution requirements and the effect of suspended distributions on liquidity.
- Monitor cash generation against debt service, covenant headroom, revolving-facility availability and debt maturities beginning in 2022.
- Assess whether leasing volume, rent spreads, occupancy and same-property NOI recover as tenants reopen.
- Review future capital-spending deferrals, redevelopment commitments and impairment or disposition activity.