Brixmor Property Group Inc. — Q3 2013 Form 10-Q
Reporting period: Three and nine months ended September 30, 2013. Unless stated otherwise, amounts below are in U.S. dollars. The financial statements precede the November 4, 2013 IPO and related property transactions.
Business context
Brixmor is an internally managed REIT focused on grocery-anchored neighborhood and community shopping centers. At September 30, 2013, it owned interests in 523 centers, including 519 wholly owned centers. Consolidated portfolio billed occupancy was 88.7%, unchanged from December 31, 2012; leased occupancy was 90.5%, up from 90.0%.
Financial and operating performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Total revenue | $293.4 million | $280.5 million | $863.9 million | $835.1 million |
| Net loss attributable to common stockholders | $(18.8) million | $(28.3) million | $(81.6) million | $(100.4) million |
| Operating cash flow | Not separately presented | Not separately presented | $214.6 million | $185.3 million |
| Adjusted FFO, a non-GAAP measure | $85.3 million | $89.6 million | $269.1 million | $257.7 million |
| Same-property NOI, a non-GAAP measure | $193.0 million | $186.5 million | $572.7 million | $550.6 million |
Revenue increased 4.6% for the quarter and 3.4% for the nine-month period. Same-property NOI grew 3.5% and 4.0%, respectively, driven by occupancy and leasing gains and higher tenant expense recoveries. Adjusted FFO declined 4.8% in Q3 but rose 4.4% for the nine months. Management attributes the lower quarterly FFO partly to the period’s results; the filing’s FFO reconciliation excludes specified gains and other items, so it should be considered alongside GAAP results.
For the nine months, investing activities used $76.9 million and financing activities used $103.4 million. Cash and cash equivalents were $137.4 million at September 30, versus $103.1 million at year-end 2012; restricted cash was $82.1 million. Total assets were $9.4 billion and total equity was $2.1 billion.
Debt obligations were $6.48 billion at September 30, slightly below $6.50 billion at December 31, 2012. The company had drawn $2.38 billion under a new unsecured credit facility comprising a $1.25 billion revolver and a $1.50 billion term loan. The filing reports compliance with debt covenants. Scheduled debt maturities were $58.5 million for the remainder of 2013, $419.7 million in 2014, $782.2 million in 2015, $1.31 billion in 2016 and $1.21 billion in 2017.
Material changes and unusual items
- Rental income increased $8.5 million in Q3 and $17.6 million year to date. Billed occupancy in the consolidated portfolio rose from 88.2% at September 30, 2012 to 88.7%; comparable new and renewal lease spreads were 12.1% in Q3 and 9.7% year to date.
- Interest expense fell $11.3 million in Q3 and $14.4 million year to date, mainly following repayment or refinancing of secured debt. This benefit was partly offset by interest on the new credit facility.
- Other expense included debt issuance cost and debt premium/discount write-offs associated with debt repayments. The cash flow reconciliation reports a $17.8 million loss on debt extinguishment for the nine-month period.
- The company recorded $29.1 million of continuing-operations real estate impairment for the nine months, reflecting a shortened expected holding period for properties selected for disposition. Discontinued operations included $15.7 million of impairments on properties sold or held for sale.
- After quarter-end, the IPO sold approximately 47.4 million shares at $20 per share, generating approximately $891.3 million in net proceeds. The company reported using $824.7 million to repay revolver borrowings; other disclosed uses included $66.6 million to repay Sponsor-related property debt and transaction and transfer costs. It also acquired interests in 43 Sponsor-affiliated properties for OP units and planned a transfer of 47 non-core properties to pre-IPO owners in January 2014.
Outlook, risks and contingencies
Management expected cash, operating cash flow, credit availability, debt issuance and asset sales to fund anticipated requirements for the next 12 months, including debt service, tenant improvements, redevelopment and REIT distributions. It expected to use the unsecured credit facility for scheduled debt repayments, including certain 2014 maturities. At quarter-end, 21 centers were undergoing anchor-space repositioning or redevelopment, with approximately $84.9 million of anticipated improvements, of which $52.2 million remained to be spent.
Interest-rate risk remains relevant: approximately $2.4 billion of credit-facility borrowings and $227 million of mortgage debt were floating-rate at September 30. Swaps covered $1.5 billion of facility borrowings and caps applied to floating-rate mortgages. Management estimated that a 1 percentage-point increase in rates would raise annual interest expense by approximately $10.7 million, after hedges, assuming debt balances stayed constant. Key risks include tenant credit and lease renewals, regional real estate conditions, leverage and refinancing needs, variable rates, redevelopment returns, asset values, and maintaining REIT qualification.
The company disclosed routine litigation and environmental matters, but did not expect them to have a material adverse effect. It reported no material off-balance-sheet arrangements, no material litigation outside the ordinary course, and no material change in risk factors from its IPO prospectus. Management concluded disclosure controls were effective at the reasonable-assurance level.
Important facts for investors to verify
- Post-IPO debt balances, use of proceeds and the effect of the 43-property acquisition and planned 47-property transfer on the ongoing portfolio.
- Debt maturities, especially the 2014 obligations and the $104.6 million of notes subject to a January 2014 holder put, and the company’s refinancing plan.
- Whether occupancy and leasing spreads continue to improve, and whether growth in real estate taxes and other property costs offsets rental and recovery gains.
- The assumptions and potential further effects of the $29.1 million continuing-operations impairment and the properties held for sale.
- Adjusted FFO and same-property NOI reconciliations, which are non-GAAP measures and may not be comparable with similarly named measures at other REITs.