Brixmor Property Group Inc. — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015. Brixmor is a REIT operating a U.S. portfolio of grocery-anchored community and neighborhood shopping centers; it owned interests in 519 centers at quarter-end. The figures below are consolidated and in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance and key metrics
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $313.0 | $306.5 | $940.4 | $922.0 |
| Net income | $54.8 | $33.9 | $141.1 | $106.9 |
| Net income attributable to BPG common stockholders | $53.8 | $27.0 | $138.3 | $65.9 |
| Diluted EPS | $0.18 | $0.11 | $0.46 | $0.28 |
| Same-property NOI (non-GAAP) | $219.6 | $211.9 | $652.4 | $630.1 |
| FFO per diluted share/OP unit (non-GAAP) | $0.51 | $0.47 | $1.46 | $1.37 |
- Operating trends: Same-property NOI increased 3.6% for Q3 and 3.5% year to date, primarily from higher base rents and improved expense recoveries. Portfolio billed occupancy was 90.9% versus 90.8% a year earlier; leased occupancy was 92.6% versus 92.7%.
- Leasing: Q3 comparable new and renewal leases achieved a 15.2% increase in annualized base rent over prior leases; the new-lease spread was 49.0%. Year-to-date comparable leasing spread was 15.0%; new leases alone were 46.2% above prior tenant rent.
- Cash flow: Operating cash flow was $411.9 million for the nine months, up from $372.3 million. Investing outflow was $160.0 million, including $147.4 million for real estate improvements and $52.3 million for acquisitions; financing outflow was $274.5 million. Cash and cash equivalents ended at $38.0 million, compared with $60.6 million at December 31, 2014.
- Balance sheet and liquidity: Total assets were $9.53 billion; net debt obligations were $5.97 billion, down from $6.02 billion at year-end 2014. Restricted cash was $52.8 million and marketable securities were $24.6 million. The company reported $1.23 billion of undrawn revolving capacity and said it was in compliance with debt covenants.
- Margins and expenses: Same-property NOI margin, calculated as same-property NOI divided by same-property revenue, was approximately 74.2% in Q3 versus 73.6%; year-to-date it was approximately 73.5% versus 72.8%. These are derived ratios, not company-reported GAAP margins. Interest expense fell to $61.6 million in Q3 from $65.5 million and to $186.3 million year to date from $199.5 million.
Changes versus comparable periods
- Revenue rose 2.1% in Q3 and 2.0% year to date, led by rental income and expense reimbursements. Year-to-date rental income increased $15.5 million, with contractual increases and leasing spreads cited as drivers.
- Q3 net income attributable to common stockholders increased to $53.8 million from $27.0 million; year-to-date it rose to $138.3 million from $65.9 million. Comparisons are affected by prior-year discontinued operations and non-controlling interests. Current-year results also included $3.9 million of income related to federal and state tax contingencies.
- Year-to-date general and administrative expense increased $13.8 million, including a $12.4 million rise in equity-based compensation. Depreciation and amortization declined $18.5 million, mainly due to tenant lease expirations and terminations; doubtful-account expense also declined.
- For the nine months, Brixmor sold four shopping centers and two outparcels for $41.8 million net proceeds, recording a $9.2 million gain and a $0.8 million impairment. It acquired two centers and a retail building for $59.2 million, including assumed debt.
Outlook, risks, and unusual items
- Management expected cash flows, available credit and other capital sources to meet anticipated needs for the next 12 months, including debt service, tenant improvements, redevelopment and distributions. No specific earnings or NOI guidance was provided in the filing.
- Management identified below-market rents, lease rollover, occupancy improvements, contractual rent increases, anchor repositioning and redevelopment as potential growth drivers. Forty-eight active repositioning/redevelopment/outparcel projects were expected to require approximately $110.6 million in total improvements, of which $60.9 million remained to be spent at September 30.
- The Operating Partnership issued $700 million of 3.850% notes due 2025 and $500 million of 3.875% notes due 2022 during 2015, principally to refinance debt. Scheduled debt maturities include $1.26 billion in 2016 and $1.52 billion in 2018. Management intends to ladder and extend debt maturities and maintain access to capital.
- The declared fourth-quarter dividend was $0.245 per common share and OP unit, payable January 15, 2016. Management said the board reviews dividend policy quarterly and aims to balance distributions with investment and debt needs.
- Key risks include local economic conditions, property-level supply and demand, tenant financial health and sales, competition, market rents, demographics, operating-cost increases and interest-rate changes. The filing reported no material change to previously disclosed risk factors, no material off-balance-sheet arrangements, and no material litigation outside the ordinary course. Management considered environmental and routine legal matters not expected to materially affect financial position, results or liquidity.
- Interest-rate swaps had $1.5 billion notional amount and a $6.3 million fair-value liability; approximately $6.3 million was expected to be reclassified to interest expense over the next 12 months. The company warned that default under debt could trigger default under derivative agreements.
Important facts for investors to verify
- Whether the 3.5% year-to-date same-property NOI growth and leasing spreads translate into durable rent and occupancy gains.
- How much of reported profit improvement reflects ongoing operations versus the $3.9 million tax-contingency income, asset-sale gains and changes in discontinued operations or non-controlling interests.
- The company’s ability to refinance or repay the significant 2016 and 2018 maturities while funding redevelopment, tenant costs and dividends.
- Actual spending and returns on the 48 repositioning and redevelopment projects, and whether occupancy and recoveries continue to improve.
- That FFO and same-property NOI are non-GAAP measures; review the filing’s reconciliations and definitions when comparing with other REITs.