Brixmor Property Group Inc. — Q2 2022 Form 10-Q
Business context and period. Quarterly report for the three and six months ended June 30, 2022. Brixmor is a REIT operating 379 open-air shopping centers totaling approximately 67 million square feet, primarily in U.S. metropolitan areas. The report combines the parent and operating partnership; their operating results are materially the same.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $306.1 million | $287.0 million | $604.8 million | $566.8 million |
| Net income | $87.8 million | $90.4 million | $167.3 million | $142.8 million |
| Diluted EPS | $0.29 | $0.30 | $0.56 | $0.48 |
| Nareit FFO per diluted share | $0.49 | $0.46 | $0.98 | $0.90 |
| Same-property NOI | $206.2 million | $193.3 million | $406.1 million | $377.4 million |
At June 30, 2022, net real estate was $7.94 billion, total assets were $8.47 billion, and debt obligations, net, were $5.15 billion. Cash and cash equivalents plus restricted cash totaled $28.8 million. Management reported $1.24 billion of available liquidity, including $1.2 billion available under the unsecured credit facility. Operating cash flow was $274.1 million for the first half, versus $274.9 million a year earlier. Investing cash use was $416.6 million, including $409.7 million of property acquisitions; financing cash use was $126.5 million.
Changes and operating performance
- Q2 revenue rose about 6.7%, while net income declined about 2.9%; the lower quarterly gain on property sales was a significant offset to operating growth. First-half net income increased, supported in part by higher property-sale gains.
- First-half rental income increased $40.9 million year over year. Management attributed the increase to higher base rent, reimbursements, occupancy, percentage rents, and reduced COVID-related uncollectible-rent effects; net acquisition and disposition activity also contributed.
- Same-property NOI increased about 6.7% in Q2 and 7.6% for the first half. Billed and leased occupancy at June 30 were 89.0% and 92.5%, respectively, compared with 88.1% and 91.1% a year earlier. First-half comparable new, renewal, and option leases had a 12.8% rent spread.
- Operating costs increased, primarily from repairs and maintenance, utilities, and insurance. First-half depreciation and amortization and general and administrative costs also increased.
- The company acquired seven shopping centers, one outparcel, and one land parcel for $409.7 million and sold ten shopping centers and four partial shopping centers for $140.0 million of net proceeds in the first half. Dispositions generated $44.8 million in gains and $4.6 million in impairments.
Debt, liquidity, outlook, and risks
- In April, Brixmor amended and restated its unsecured credit facilities: the $1.25 billion revolving facility now matures in June 2026, with two six-month extension options, and term-loan maturities were extended to July 2027. The company repaid $250 million of 2022 notes and had $240 million outstanding under the revolver at June 30. It reported compliance with debt covenants and no scheduled debt maturities in the following 12 months.
- Four interest-rate swaps covered $300 million of variable-rate debt; the company converted the facility and swaps from LIBOR to SOFR. Management stated that swaps mitigate, but do not eliminate, rate exposure. Debt carrying value was $5.15 billion versus estimated fair value of $4.83 billion.
- Management expects operating cash flow, available credit, dispositions, and access to debt and equity markets to provide adequate capital for anticipated needs for the next 12 months and beyond. No specific earnings or FFO guidance was provided. The quarterly dividend declared for Q2 was $0.24 per share.
- There were 55 active repositioning, redevelopment, and outparcel projects with anticipated total costs of $398.2 million; $215.3 million had been incurred. Management identified a further pipeline of approximately $900 million of potential redevelopment investment over several years.
- Management highlighted elevated inflation and possible further increases, rising interest rates, higher non-reimbursable property costs, tenant and retail-sector pressures, competition including e-commerce, and economic and real-estate-market conditions as risks. Long-term leases often provide rent escalations and expense reimbursements, but do not fully offset these exposures.
- No material litigation, environmental fines, subsequent events, or material changes to previously disclosed risk factors were reported. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether occupancy, rent spreads, rent collections, and same-property NOI remain strong, particularly as inflation and tenant operating costs evolve.
- How much of reported earnings and FFO depends on gains from property sales, and the effect of further dispositions or impairments.
- Liquidity after substantial acquisition and redevelopment spending, and the financing plan for committed projects and the additional redevelopment pipeline.
- Floating-rate debt exposure, swap coverage and terms, and the effect of interest-rate changes on borrowing costs.
- Whether property operating-cost increases can be recovered through tenant reimbursements and rent escalations.