Brixmor Property Group Inc. — Q2 2021 Form 10-Q
Business context and reporting period
Quarter and six months ended June 30, 2021; unaudited. Brixmor is a REIT that owns, manages, leases, acquires, sells and redevelops open-air retail shopping centers, primarily community and neighborhood centers. Its portfolio comprised 389 centers and approximately 68 million square feet of gross leasable area. The filing combines Brixmor Property Group Inc. and its operating partnership; their assets and liabilities are materially the same.
Financial performance and position
Amounts below are in millions of dollars except per-share data and where stated otherwise.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $287.0 | $247.6 | $566.8 | $529.9 |
| Net income | $90.4 | $9.0 | $142.8 | $68.8 |
| Diluted EPS | $0.30 | $0.03 | $0.48 | $0.23 |
| NAREIT FFO | $138.6 | $94.1 | $269.2 | $231.6 |
| NAREIT FFO per diluted share | $0.46 | $0.32 | $0.90 | $0.78 |
| Same-property NOI | $200.0 | $175.7 | $392.1 | $371.1 |
For the six months, operating cash flow was $274.9 million, compared with $179.6 million a year earlier; investing activities used $101.0 million and financing activities used $138.5 million. Cash, cash equivalents and restricted cash were $405.4 million at June 30, 2021.
Debt obligations, net, were $5.167 billion, broadly unchanged from year-end 2020. Brixmor reported $1.2 billion of available revolving-facility liquidity and said it had investment-grade ratings from all three major agencies. The weighted-average debt maturity was 5.2 years. Scheduled debt maturities for the next 12 months were $250 million; management said available cash was sufficient to meet them. Debt covenants were in compliance.
Material changes versus the prior comparable period
- Q2 revenue rose $39.4 million year over year; six-month revenue rose $36.8 million. Management attributed rental-income improvement largely to lower uncollectible-revenue amounts and higher straight-line rental income, partly offset by lower base rent and net dispositions.
- Net income increased substantially, but comparisons were affected by real-estate sale gains and prior-year charges. Q2 2021 included a $32.6 million gain on property sales, versus $0.7 million in Q2 2020; Q2 2020 included a $10.4 million debt-extinguishment loss. For the first half, sale gains were $38.4 million versus $9.6 million, while debt-extinguishment losses were $1.2 million versus $10.4 million.
- Six-month same-property NOI increased $21.0 million. Q2 billed and leased occupancy were 88.1% and 91.1%, respectively, versus 88.9% and 92.1% one year earlier. Comparable leasing rent spreads were 10.0% for Q2 and 8.3% for the first half.
- Operating cash flow improved by $95.3 million. Investing cash use declined year over year, while financing cash flow shifted from a $234.9 million inflow in the first half of 2020 to a $138.5 million outflow in 2021, largely because 2020 included substantial revolving-credit borrowings.
Outlook, commentary, risks and unusual items
- No numerical earnings or operating guidance is provided. Management said existing cash flows and capital sources are expected to cover anticipated needs for the next 12 months and beyond, while noting uncertainty around the pandemic’s future effects.
- COVID-19 continued to affect tenants, rent collections and liquidity. As of July 27, 2021, the company had collected 97% of Q2 2021 base rent, 95% of Q1 2021 base rent, and 93% of Q2–Q4 2020 base rent. Rent relief was generally handled case by case. At June 30, COVID-related deferred receivables were $4.1 million.
- Approximately 70% of centers are grocery-anchored; management said grocery and other essential tenants helped partly mitigate pandemic effects. The company had 56 repositioning, redevelopment and outparcel projects underway, with anticipated costs of $432.9 million, of which $258.0 million had been incurred. It also identified a potential future reinvestment pipeline of approximately $1.0 billion.
- During the first half, Brixmor acquired two centers, an outparcel and two land parcels for $66.7 million, and disposed of six centers and nine partial centers for $99.7 million in net proceeds, recognizing $38.3 million in gains and $1.5 million in impairments.
- The company issued $350 million of 2.250% senior notes due 2028 and used the proceeds to repay a $350 million term loan. It terminated $250 million notional of interest-rate swaps, paying $1.1 million; management cited this and prior refinancing as factors in higher six-month interest expense.
- The board declared a $0.215-per-share Q3 2021 dividend, payable October 15, 2021. The dividend will be evaluated quarterly. Brixmor suspended dividends in Q2 and Q3 2020 and resumed them in Q4 2020.
- Key risks include COVID-19 and tenant credit, changing consumer behavior and e-commerce, retail-sector disruption, occupancy and rent pressure, inflation and higher property costs, interest rates, local property-market conditions, and potential uninsured losses. Management stated that it cannot estimate the pandemic’s ultimate impact.
- The filing reports no material ordinary-course litigation exposure. The SEC dismissed its pending civil action against two former employees in July 2021; the company said it believes no additional governmental proceedings relating to the matter will be brought against it. Environmental liabilities were not expected to be material.
Important facts for investors to verify
- Whether rent collection, occupancy and tenant credit continue to recover, and how much deferred rent is ultimately collected or written off.
- How much net income reflects recurring operations versus sale gains, impairments and debt-extinguishment items; assess FFO alongside GAAP results.
- Debt refinancing needs, interest-rate exposure after swap termination, and availability of the stated revolving liquidity.
- Costs, timing and expected returns for the $432.9 million of active projects and the approximately $1.0 billion future reinvestment pipeline.
- Dividend sustainability relative to operating cash generation, capital spending, debt service and REIT distribution requirements.