Brixmor Property Group Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017. Brixmor is a REIT operating a U.S. portfolio of 507 shopping centers totaling approximately 85 million square feet. The Operating Partnership holds substantially all assets and conducts substantially all operations.
Financial performance
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Total revenue | $322.8 million | $310.1 million | $648.6 million | $633.2 million |
| Net income | $75.4 million | $65.5 million | $147.1 million | $127.0 million |
| Common EPS | $0.25 | $0.21 | $0.48 | $0.42 |
| NAREIT FFO | $161.9 million | $152.7 million | $323.4 million | $314.0 million |
| NAREIT FFO per diluted share/unit | $0.53 | $0.50 | $1.06 | $1.03 |
| Same-property NOI | $224.3 million | $221.4 million | $448.4 million | $438.5 million |
| Same-property NOI margin | 74.4% | 76.1% | 73.6% | 74.4% |
For Q2, revenue rose 4.1% and net income rose 15.2% year over year. For the first half, revenue increased 2.4% and net income 15.8%. FFO increased 6.0% in Q2 and 3.0% for the half. Same-property NOI increased about 1.3% in Q2 and 2.3% for the half, while margins declined.
- First-half operating cash flow was $282.2 million, compared with $276.2 million. Investing used $78.9 million and financing used $183.6 million. Cash, cash equivalents and restricted cash totaled $122.6 million at June 30, versus $162.1 million a year earlier.
- Total assets were $9.30 billion; net debt obligations were $5.82 billion. Debt fair value was $5.92 billion. The $1.25 billion revolving facility was undrawn at quarter-end, and the company reported compliance with debt covenants.
- Quarterly common dividend was $0.26 per share; the third-quarter dividend was also declared at $0.26.
Material changes and operating trends
- Rental income increased, supported by contractual rent increases and positive new and renewal lease spreads. The reported six-month rent spread was 13.5%, versus 12.0% in the comparable period.
- Expense reimbursements increased with reimbursable property taxes and operating costs. Real estate taxes and operating costs rose; same-property occupancy also softened: billed occupancy was 89.9% versus 90.5% in the comparable NOI portfolio, and leased occupancy was 92.0% versus 92.7%.
- Four properties incurred $16.3 million of impairment charges in the first half, versus none in 2016; the filing attributes these to changes in estimated holding periods. Gains on property sales were $29.0 million, compared with $7.8 million.
- The company acquired properties for $111.8 million and sold six shopping centers and two outparcel buildings for $107.1 million of net proceeds during the first half.
- Debt was refinanced and extended in part through issuance of $400 million of 3.90% notes due 2027 and $500 million of 3.65% notes due 2024. The company repaid $283.3 million of secured loans and $490 million of an unsecured term loan.
Outlook, risks and unusual items
- Management said expected cash flows and available capital sources should cover anticipated needs for the next 12 months, including debt service, capital spending and REIT distributions. It emphasized leasing, reinvestment, disciplined acquisitions and dispositions, and extending debt maturities. No numerical earnings or FFO guidance was provided.
- After quarter-end, the Operating Partnership entered a $300 million variable-rate term loan maturing in July 2024, using proceeds to prepay $300 million of credit-facility borrowings maturing in 2018.
- The company had a preliminary $28 million settlement agreement for a putative securities class action related to the prior accounting review. It accrued a $28 million liability and an equal insurance receivable; final agreement and court approval were not assured. SEC and U.S. Attorney investigations into prior-period financial reporting remained ongoing, and the company said it was cooperating.
- The prior audit committee review found that certain personnel had smoothed income items between reporting periods to achieve consistent quarterly same-property NOI growth; several senior executives and an accounting employee resigned. Current disclosure controls were assessed as effective, with no material quarterly change in internal control reported.
- Key risks include economic and local-market conditions, rental rates and demand, tenant financial health, competition, interest rates, litigation and the possibility of further property impairments. Management stated there were no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the $28 million settlement is finalized and approved, and whether insurance fully covers the amount and timing of recovery.
- Developments in the SEC and U.S. Attorney investigations and any resulting financial, legal or control consequences.
- Occupancy, same-property NOI growth and margins, leasing spreads, and the effect of rising property taxes and operating costs.
- Debt refinancing costs, variable-rate exposure, upcoming maturities and continued covenant compliance.
- Execution and returns on the $257.5 million of in-process repositioning, redevelopment and development projects.