Brixmor Property Group Inc. — Q2 2015 Form 10-Q
Business context and reporting period. The filing covers the quarter and six months ended June 30, 2015. Brixmor owns, manages, leases, acquires and develops grocery-anchored community and neighborhood shopping centers. At quarter-end it held interests in 519 centers; the Parent Company owned 98.1% of the Operating Partnership. Unless noted, amounts below are in U.S. dollars.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Total revenue | $312.1 million | $307.9 million | $627.4 million | $615.5 million |
| Net income attributable to common stockholders | $54.1 million | $23.5 million | $84.5 million | $38.9 million |
| Diluted EPS | $0.18 | $0.10 | $0.28 | $0.17 |
| Same-property NOI (non-GAAP) | $218.1 million | $210.5 million | $432.8 million | $418.2 million |
| FFO attributable to stockholders and convertible non-controlling interests (non-GAAP) | $149.1 million; $0.49 per diluted share/unit | $140.1 million; $0.46 | $288.2 million; $0.95 | $272.7 million; $0.90 |
Q2 revenue rose 1.4% year over year; six-month revenue rose 1.9%. Same-property NOI increased 3.6% for Q2 and 3.5% for the first half. Results benefited from higher base rents and leasing spreads, while lower interest expense and a $9.2 million Q2 property-sale gain supported reported earnings. FFO and NOI are non-GAAP measures and should be considered alongside GAAP results.
Cash flow, debt and liquidity
- First-half operating cash flow was $271.4 million, up from $218.6 million; investing cash outflow was $107.2 million and financing cash outflow was $182.0 million.
- Cash and cash equivalents were $42.7 million at June 30, 2015, versus $60.6 million at year-end 2014; restricted cash was an additional $61.2 million.
- Debt obligations, net, totaled $6.00 billion, down from $6.02 billion at year-end. The company reported $953 million of undrawn capacity under its revolving credit facility and said it was in compliance with debt covenants.
- In January, the Operating Partnership issued $700 million of 3.85% senior notes due 2025, principally to repay revolver borrowings. First-half interest expense declined to $124.7 million from $133.9 million.
- Scheduled debt maturities include $1.26 billion in 2016 and $1.52 billion in 2018. Management expects operating cash flow, available credit, debt issuance and asset sales to fund anticipated needs over the next 12 months.
- First-half property improvements and investments were $97.9 million; acquisitions were $52.3 million and property-sale proceeds were $41.8 million. The company reported 36 active redevelopment/repositioning projects, with approximately $54.0 million of anticipated project costs remaining.
Operating trends and material changes
- Portfolio billed occupancy was 90.3%, compared with 90.5% a year earlier; leased occupancy was unchanged at 92.5%.
- For comparable Q2 leases, new and renewal rents increased 16.1% over prior rents. For the first half, comparable new and renewal leasing spreads were 14.9%; new-lease spreads alone were 45.3%.
- First-half general and administrative expense increased $11.4 million, primarily reflecting a $10.8 million increase in share-based compensation, including a $9.9 million charge after a performance condition became probable. Depreciation and amortization declined $9.8 million year over year.
- The company acquired two shopping centers and a retail building for $59.2 million, including $7.0 million of assumed mortgage debt. It disposed of four shopping centers and two outparcels in the first half, recording a $9.2 million gain and a $0.8 million impairment charge. No properties were held for sale at quarter-end.
- The quarterly common dividend was $0.225 per share; the same amount was declared for Q3, payable October 15, 2015. The filing does not provide quantified full-year earnings or FFO guidance.
Outlook, risks and contingencies
Management expects growth to come primarily from rent increases, lease rollover, occupancy gains, anchor-space repositioning and redevelopment. It stated that anticipated cash sources should cover scheduled debt service, tenant improvements, distributions and other needs for the next 12 months. This is not a guarantee of future results. Key risks include local economic conditions, competing retail space, tenant creditworthiness and sales, rental-rate changes, demographics, and interest-rate exposure. The company uses swaps to manage rate risk; approximately $6.3 million of accumulated hedge losses was expected to be reclassified as higher interest expense over the following 12 months.
The company reported no material off-balance-sheet arrangements, no material litigation outside the ordinary course, and no material expected adverse effect from environmental matters or routine legal proceedings. It reported effective disclosure controls and no material change in internal control over financial reporting. It early adopted the debt-issuance-cost presentation standard; management said adoption had no material impact on financial position or results.
Important facts for investors to verify
- Whether rent spreads translate into sustained same-property NOI growth and improved billed occupancy.
- The timing and financing of the $1.26 billion 2016 and $1.52 billion 2018 debt maturities, and continued access to the revolver and capital markets.
- Actual costs, returns and delivery timing for the 36 redevelopment projects and remaining $54.0 million of anticipated spending.
- The sustainability of dividends relative to operating cash flow, capital spending and debt obligations.
- How much reported earnings growth reflects recurring property operations versus the property-sale gain and elevated share-based compensation.
- Potential tenant-credit, leasing, economic and interest-rate developments that could affect rent collections, occupancy or financing costs.