Brixmor Property Group Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Brixmor is a REIT focused on owning, leasing, managing and redeveloping open-air retail shopping centers. Its portfolio included 422 centers and approximately 73 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.
Key financial metrics
Amounts are in millions except per-share data and percentages.
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Total revenue | $291.1 | $317.2 | Down $26.0 |
| Net income | $62.9 | $61.0 | Up $1.9 |
| Diluted EPS | $0.21 | $0.20 | Up $0.01 |
| NAREIT FFO | $142.8 | $154.8 | Down $12.0 |
| NAREIT FFO per diluted share | $0.48 | $0.51 | Down $0.03 |
| Same-property NOI | $205.4 | $201.3 | Up $4.1 |
| Cash from operating activities | $96.8 | $124.5 | Down $27.6 |
| Real estate improvements and investments | $77.7 | $76.8 | Up $0.9 |
- At March 31, 2019, total assets were $8.18 billion and debt obligations, net, were $4.87 billion, compared with $4.89 billion at December 31, 2018. Total liabilities were $5.39 billion.
- Cash and restricted cash totaled $3.4 million. The $1.25 billion revolving facility had $954.7 million of undrawn capacity after $4.3 million of letters of credit. Management said expected cash flows and available capital sources should cover anticipated needs for the next 12 months and beyond.
- Interest expense was $46.7 million, down $8.5 million, primarily due to lower debt. No scheduled debt maturities were due in the next 12 months; $500 million matures in 2021. The company reported compliance with debt covenants.
- Quarter-end billed and leased occupancy were 87.5% and 91.1%, respectively. The filing’s portfolio comparison gives 89.8% and 92.1% for March 31, 2018; occupancy also declined in the same-property comparison.
Material changes versus the prior period
- Revenue fell 8.2%, principally because net property dispositions reduced rental income by $28.5 million. The remaining portfolio’s rental income increased $1.7 million, including contractual rent increases and positive leasing spreads.
- Same-property NOI increased about 2.0%. Reported rent spreads for new, renewal and option leases were 9.8%, versus 14.5% in Q1 2018; the new-and-renewal lease spread was 12.3%, versus 16.7%.
- Net income increased despite lower revenue, aided by lower interest expense and reduced impairment charges. FFO declined, reflecting lower income and disposition gains, among other factors.
- Three shopping centers were sold for $44.9 million of net proceeds and a $7.3 million gain. No properties were acquired. In Q1 2018, six centers and one outparcel were sold for $104.2 million of proceeds.
- Operating cash flow declined, which management attributed mainly to disposition-related NOI reductions, working-capital movements, higher G&A cash outflows and lower lease termination fees, partly offset by reduced cash interest and higher same-property NOI.
Outlook, risks and unusual items
- No specific earnings or FFO guidance was provided. Management described its capital structure as flexible, cited investment-grade ratings from all three major credit agencies, and said it expects to continue regular dividends while evaluating the policy quarterly. A $0.28 per-share dividend was declared for Q2 2019.
- The company had 61 reinvestment projects in process with anticipated total costs of $407.6 million; $151.4 million had been incurred by quarter-end. Real estate investment spending in the quarter was $77.7 million.
- ASC 842 lease accounting was adopted on January 1, 2019. The company recorded a $2.0 million cumulative reduction to retained earnings and reported that adoption materially affected the financial statements, including presentation and expensing of certain indirect leasing costs.
- A $3.1 million impairment was recorded on Brice Park following a change in its estimated holding period. Hurricane Michael damage resulted in $13.7 million of accelerated depreciation, offset by an insurance recovery receivable; $10.7 million of that receivable remained outstanding at March 31, 2019, and the company reported no net-income impact.
- The proposed SEC resolution concerning historical financial reporting matters remained subject to final documentation and SEC approval. It contemplated a cease-and-desist order without admission or denial and a $7.0 million civil penalty, accrued at quarter-end. SEC and U.S. Attorney inquiries regarding certain former employees were ongoing. The company also disclosed a $28.0 million class-action settlement funded by insurers, with $19.5 million remaining in escrow and an offsetting receivable.
- Key business risks include retail-sector disruption and tenant credit, e-commerce competition, occupancy and leasing demand, rising property costs, interest rates, local economic conditions, natural disasters and the ability to maintain REIT qualification. The filing reported no material change to previously disclosed risk factors and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether lower occupancy and rent spreads are stabilizing, and whether same-property NOI growth can continue.
- How dispositions, reinvestment spending and the 61 active projects affect future rental income, returns and cash requirements.
- Available revolver capacity, debt maturities and interest-rate exposure; the company had $291 million drawn on the revolving facility and used interest-rate swaps on $800 million of notional debt.
- Collection and timing of the $10.7 million hurricane-insurance receivable, and completion and approval of the proposed SEC resolution.
- The effects of ASC 842 on comparability, G&A expense and reported rental revenue, including the treatment of amounts deemed uncollectible.
- Dividend sustainability relative to recurring cash flow and capital spending; reported cash and restricted cash was only $3.4 million at quarter-end.