UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20172019
or
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from_____ to_____
Commission File Number: 001-36160 (Brixmor Property Group)
Commission File Number: 333-201464-01 (Brixmor Operating Partnership LP)
Brixmor Property Group Inc.
Brixmor Operating Partnership LP
(Exact Name of Registrant as Specified in Its Charter)
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| | | |
Maryland (Brixmor | (Brixmor Property Group Inc.)
| | 45-2433192 |
Delaware (Brixmor | (Brixmor Operating Partnership LP)
| | 80-0831163 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
450 Lexington Avenue, New York, New York10017
(Address of Principal Executive Offices) (Zip Code)
212-869-3000212-869-3000
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | BRX | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Brixmor Property Group Inc. Yesþ☑No ☐Brixmor Operating Partnership LP Yesþ☑No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Brixmor Property Group Inc. Yesþ☑No ☐ Brixmor Operating Partnership LP Yesþ☑No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Brixmor Property Group Inc. | | | Brixmor Operating Partnership LP |
Large accelerated filer | þ☑ | Non-accelerated filer | ☐ | | | Large accelerated filer | ☐ | Non-accelerated filer | þ☑ |
Smaller reporting company | ☐ | Accelerated filer | ☐ | | | Smaller reporting company | ☐ | Accelerated filer | ☐ |
Emerging growth company | ☐ | | | | | Emerging growth company | ☐ | | |
(Do not check if a smaller reporting company) |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Brixmor Property Group Inc. ☐ Brixmor Operating Partnership LP ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Brixmor Property Group Inc. Yes ☐No þ☑ Brixmor Operating Partnership LP Yes ☐No þ☑
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
As of October 1, 2017,2019, Brixmor Property Group Inc. had 304,937,144297,846,251 shares of common stock outstanding.
EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended September 30, 20172019 of Brixmor Property Group Inc. and Brixmor Operating Partnership LP. Unless stated otherwise or the context otherwise requires, references to the “Parent Company” or “BPG” mean Brixmor Property Group Inc. and its consolidated subsidiaries; and references to the “Operating Partnership” mean Brixmor Operating Partnership LP and its consolidated subsidiaries. TheUnless the context otherwise requires, the terms the “Company,” “Brixmor,” “we,” “our” and “us” mean the Parent Company and the Operating Partnership, collectively.
The Parent Company is a real estate investment trust (“REIT”) whichthat owns 100% of the common stock of BPG Subsidiary Inc. (“BPG Sub”), which, in turn, is the sole owner of Brixmor OP GP LLC (the "General Partner"“General Partner”), the sole general partner of the Operating Partnership. As of September 30, 2017,2019, the Parent Company beneficially owned, through its direct and indirect interest in BPG Sub and the General Partner, 100% of the outstanding partnership common units of interest (the “OP Units”) in the Operating Partnership.
The Company believes combining the quarterly reports on Form 10-Q of the Parent Company and the Operating Partnership into this single report provides the following benefits:report:
Enhances investors’ understanding of the Parent Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
Eliminates duplicative disclosure and provides a more streamlined and readable presentation; and
Creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.
Management operates the Parent Company and the Operating Partnership as one business. The management of the Parent Company consists of the same individuals as the management ofBecause the Operating Partnership. These individuals are officers of bothPartnership is managed by the Parent Company, and the Parent Company conducts substantially all of its operations through the Operating Partnership.
Partnership, the Parent Company’s executive officers are the Operating Partnership’s executive officers, and although, as a partnership, the Operating Partnership does not have a board of directors, we refer to the Parent Company’s board of directors as the Operating Partnership’s board of directors.
We believe it is important to understand the few differences between the Parent Company and the Operating Partnership in the context of how the Parent Company and the Operating Partnership operate as a consolidated company. The Parent Company is a REIT, whose only material asset is its indirect interest in the Operating Partnership. As a result, the Parent Company does not conduct business itself other than issuing public equity from time to time. The Parent Company does not incur any material indebtedness. The Operating Partnership holds substantially all of our assets. Except for net proceeds from public equity issuances by the Parent Company, which are contributed to the Operating Partnership in exchange for OP Units, the Operating Partnership generates all remaining capital required by the Company’s business. Sources of this capital include the Operating Partnership’s operations and its direct or indirect incurrence of indebtedness, and the issuance of OP Units.indebtedness.
Stockholders’ equity, partners’Equity, capital, and non-controlling interests are the primary areas of difference between the unaudited condensed consolidated financial statementsCondensed Consolidated Financial Statements of the Parent Company and those of the Operating Partnership. The Operating Partnership’s capital currently includes OP Units owned by the Parent Company through BPG Sub and the General Partner and has in the past and may in the future include OP Units owned by third parties. OP Units owned by third parties, if any, are accounted for in partners’ capital in the Operating Partnership’s financial statements and outside of stockholders’ equity in non-controlling interests in the Parent Company’s financial statements.
The Parent Company consolidates the Operating Partnership for financial reporting purposes, and the Parent Company does not have material assets other than its indirect investment in the Operating Partnership. Therefore, while equity, capital and non-controlling interests may differ as discussed above, the assets and liabilities of the Parent Company and the Operating Partnership are materially the same on their respective financial statements.
In order to highlight the differences between the Parent Company and the Operating Partnership, there are sections in this report that separately discuss the Parent Company and the Operating Partnership, including separate financial statements (but combined footnotes), separate controls and procedures sections, separate certificationcertifications of periodic report under Section 302 of the Sarbanes-Oxley Act of 2002 and separate certificationcertifications pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. In the sections that combine disclosure for the Parent Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company.
The Parent Company consolidates the Operating Partnership for financial reporting purposes, and the Parent Company does not have material assets other than its indirect investment in the Operating Partnership. Therefore, while stockholders’ equity, partners’ capital and non-controlling interests may differ as discussed above, the assets and liabilities of the Parent Company and the Operating Partnership are materially the same on their respective financial statements.i
TABLE OF CONTENTS
| | Item No. | | Page | | Page |
Part I - FINANCIAL INFORMATION | 1. | Financial Statements | | Financial Statements | |
| Brixmor Property Group Inc. (unaudited) | | Brixmor Property Group Inc. (unaudited) | |
| Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016 | | Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 | |
| Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 2016 | | Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018 | |
| Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016 | | Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018 | |
| Condensed Consolidated Statements of Changes in Equity for the Nine Months Ended September 30, 2017 and 2016 | | Condensed Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, 2019 and 2018 | |
| Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016 | | Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 | |
| Brixmor Operating Partnership LP (unaudited) | | Brixmor Operating Partnership LP (unaudited) | |
| Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016 | | Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 | |
| Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 2016 | | Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018 | |
| Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016 | | Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018 | |
| Condensed Consolidated Statements of Changes in Capital for the Nine Months Ended September 30, 2017 and 2016 | | Condensed Consolidated Statements of Changes in Capital for the Three and Nine Months Ended September 30, 2019 and 2018 | |
| Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016 | | Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 | |
| Brixmor Property Group Inc. and Brixmor Operating Partnership LP (unaudited) | | Brixmor Property Group Inc. and Brixmor Operating Partnership LP (unaudited) | |
| Notes to Condensed Consolidated Financial Statements | | Notes to Condensed Consolidated Financial Statements | |
2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
3. | Quantitative and Qualitative Disclosures about Market Risk | | Quantitative and Qualitative Disclosures about Market Risk | |
4. | Controls and Procedures | | Controls and Procedures | |
Part II - OTHER INFORMATION | 1. | Legal Proceedings | | Legal Proceedings | |
1A. | Risk Factors | | Risk Factors | |
2. | Unregistered Sales of Equity Securities and Use of Proceeds | | Unregistered Sales of Equity Securities and Use of Proceeds | |
3. | Defaults Upon Senior Securities | | Defaults Upon Senior Securities | |
4. | Mine Safety Disclosures | | Mine Safety Disclosures | |
5. | Other Information | | Other Information | |
6. | Exhibits | | Exhibits | |
Forward-Looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” “targets” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under the section entitled “Risk Factors” in our Form 10-K for the year ended December 31, 2016,2018, as such factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission (the “SEC”), which are accessible on the SEC’s website at http://www.sec.gov. These factors include (1) changes in national, regional orand local economic climates;climates or demographics; (2) local market conditions, including an oversupply of space in, or a reduction in demand for, properties similar to those in our Portfolio; (3) changes in market rental rates; (4) changes in the regional demographics surrounding our properties; (5) competition from other available properties and e-commerce, and the attractiveness of properties in our Portfolio to our tenants; (6)(4) ongoing disruption and/or consolidation in the retail sector, the financial stability of our tenants and the overall financial condition of large retailing companies, including thetheir ability of tenants to pay rent and expense reimbursements; (7)(5) in the case of percentage rent,rents, the sales volume of our tenants; (6) increases in property operating expenses, including common area expenses, utilities, insurance and real estate taxes, which are relatively inflexible and generally do not decrease if revenue or occupancy decrease; (7) increases in the costs to repair, renovate and re-lease space; (8) earthquakes, tornadoes, hurricanes, damage from rising sea levels due to climate change, other natural disasters, civil unrest, terrorist acts or acts of war, which may result in uninsured or underinsured losses; (9) changes in laws and governmental regulations, including those governing usage, zoning, the environment and taxes; and (10) new developments in the litigation and governmental investigations discussed under the heading “Legal Matters” in Note 13 -15 – Commitments and Contingencies to our unaudited Condensed Consolidated Financial Statements in this report. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our other periodic filings. The forward-looking statements speak only as of the date of this report, and we expressly disclaim any obligation or undertaking to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except to the extent otherwise required by law.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
| | BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES | CONDENSED CONSOLIDATED BALANCE SHEETS | (Unaudited, in thousands, except share information) | | September 30, 2017 | | December 31, 2016 | September 30, 2019 | | December 31, 2018 |
Assets | | | | | | |
Real estate | | | | | | |
Land | $ | 1,985,781 |
| | $ | 2,006,655 |
| $ | 1,779,161 |
| | $ | 1,804,504 |
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Buildings and improvements | 8,944,738 |
| | 9,002,403 |
| 8,342,194 |
| | 8,294,273 |
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| 10,930,519 |
| | 11,009,058 |
| 10,121,355 |
| | 10,098,777 |
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Accumulated depreciation and amortization | (2,320,090 | ) | | (2,167,054 | ) | (2,452,678 | ) | | (2,349,127 | ) |
Real estate, net | 8,610,429 |
| | 8,842,004 |
| 7,668,677 |
| | 7,749,650 |
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Investments in and advances to unconsolidated joint venture | — |
| | 7,921 |
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Cash and cash equivalents | 29,978 |
| | 51,402 |
| 29,072 |
| | 41,745 |
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Restricted cash | 112,040 |
| | 51,467 |
| 2,409 |
| | 9,020 |
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Marketable securities | 28,840 |
| | 25,573 |
| 19,109 |
| | 30,243 |
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Receivables, net of allowance for doubtful accounts of $16,177 and $16,756 | 219,873 |
| | 178,216 |
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Receivables, net | | 223,323 |
| | 228,297 |
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Deferred charges and prepaid expenses, net | 143,140 |
| | 122,787 |
| 151,125 |
| | 145,662 |
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Real estate assets held for sale | | 6,186 |
| | 2,901 |
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Other assets | 51,920 |
| | 40,315 |
| 60,260 |
| | 34,903 |
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Total assets | $ | 9,196,220 |
| | $ | 9,319,685 |
| $ | 8,160,161 |
| | $ | 8,242,421 |
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Liabilities | | | | | | |
Debt obligations, net | $ | 5,713,688 |
| | $ | 5,838,889 |
| $ | 4,852,510 |
| | $ | 4,885,863 |
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Accounts payable, accrued expenses and other liabilities | 561,191 |
| | 553,636 |
| 548,288 |
| | 520,459 |
|
Total liabilities | 6,274,879 |
| | 6,392,525 |
| 5,400,798 |
| | 5,406,322 |
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Commitments and contingencies (Note 13) |
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Commitments and contingencies (Note 15) | | — |
| | — |
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Equity | | | | | | |
Common stock, $0.01 par value; authorized 3,000,000,000 shares; 304,937,144 and 304,343,141 shares outstanding | 3,049 |
| | 3,043 |
| |
Common stock, $0.01 par value; authorized 3,000,000,000 shares; 305,323,128 and 305,130,472 shares issued and 297,846,251 and 298,488,516 shares outstanding | | 2,978 |
| | 2,985 |
|
Additional paid-in capital | 3,333,696 |
| | 3,324,874 |
| 3,226,531 |
| | 3,233,329 |
|
Accumulated other comprehensive income | 20,054 |
| | 21,519 |
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Accumulated other comprehensive income (loss) | | (13,207 | ) | | 15,973 |
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Distributions in excess of net income | (435,458 | ) | | (426,552 | ) | (456,939 | ) | | (416,188 | ) |
Total stockholders’ equity | 2,921,341 |
| | 2,922,884 |
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Non-controlling interests | — |
| | 4,276 |
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Total equity | 2,921,341 |
| | 2,927,160 |
| 2,759,363 |
| | 2,836,099 |
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Total liabilities and equity | $ | 9,196,220 |
| | $ | 9,319,685 |
| $ | 8,160,161 |
| | $ | 8,242,421 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
| | BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | (Unaudited, in thousands, except per share data) | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
Revenues | | | | | | | | | | | | | | |
Rental income | $ | 246,578 |
| | $ | 247,859 |
| | $ | 749,976 |
| | $ | 744,580 |
| $ | 292,732 |
| | $ | 306,172 |
| | $ | 873,424 |
| | $ | 935,689 |
|
Expense reimbursements | 66,489 |
| | 69,469 |
| | 206,718 |
| | 200,944 |
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Other revenues | 1,429 |
| | 1,249 |
| | 6,426 |
| | 6,214 |
| 233 |
| | 308 |
| | 1,685 |
| | 996 |
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Total revenues | 314,496 |
| | 318,577 |
| | 963,120 |
| | 951,738 |
| 292,965 |
| | 306,480 |
| | 875,109 |
| | 936,685 |
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Operating expenses | | | | | | | | | | | | | | |
Operating costs | 30,505 |
| | 31,041 |
| | 100,955 |
| | 97,507 |
| 29,573 |
| | 31,969 |
| | 90,138 |
| | 101,340 |
|
Real estate taxes | 45,076 |
| | 47,812 |
| | 135,607 |
| | 130,886 |
| 43,688 |
| | 44,711 |
| | 130,203 |
| | 135,383 |
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Depreciation and amortization | 94,239 |
| | 98,337 |
| | 285,040 |
| | 294,634 |
| 82,837 |
| | 85,183 |
| | 249,825 |
| | 266,900 |
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Provision for doubtful accounts | 1,216 |
| | 2,218 |
| | 4,023 |
| | 6,579 |
| — |
| | 3,094 |
| | — |
| | 6,458 |
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Impairment of real estate assets | 11,065 |
| | 1,971 |
| | 27,383 |
| | 1,971 |
| 8,170 |
| | 16,372 |
| | 17,468 |
| | 44,201 |
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General and administrative | 22,838 |
| | 21,787 |
| | 67,043 |
| | 69,709 |
| 24,550 |
| | 21,209 |
| | 75,168 |
| | 64,955 |
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Total operating expenses | 204,939 |
| | 203,166 |
| | 620,051 |
| | 601,286 |
| 188,818 |
| | 202,538 |
| | 562,802 |
| | 619,237 |
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Other income (expense) | | | | | | | | | | | | | | |
Dividends and interest | 76 |
| | 89 |
| | 234 |
| | 481 |
| 128 |
| | 156 |
| | 575 |
| | 356 |
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Interest expense | (57,410 | ) | | (57,855 | ) | | (170,584 | ) | | (171,482 | ) | (47,698 | ) | | (55,364 | ) | | (142,839 | ) | | (165,735 | ) |
Gain on sale of real estate assets | 25,942 |
| | 2,450 |
| | 54,920 |
| | 10,232 |
| 25,621 |
| | 119,333 |
| | 46,266 |
| | 159,043 |
|
Gain (loss) on extinguishment of debt, net | 1,828 |
| | (1,042 | ) | | 488 |
| | (949 | ) | |
Loss on extinguishment of debt, net | | (943 | ) | | (19,759 | ) | | (1,620 | ) | | (20,182 | ) |
Other | (1,200 | ) | | (1,370 | ) | | (2,591 | ) | | (4,258 | ) | (401 | ) | | (962 | ) | | (1,975 | ) | | (2,200 | ) |
Total other expense | (30,764 | ) | | (57,728 | ) | | (117,533 | ) | | (165,976 | ) | |
| | | | | | | | |
Income before equity in income of unconsolidated joint venture | 78,793 |
| | 57,683 |
| | 225,536 |
| | 184,476 |
| |
Equity in income of unconsolidated joint venture | 31 |
| | 122 |
| | 381 |
| | 348 |
| |
Gain on disposition of unconsolidated joint venture interest | 4,556 |
| | — |
| | 4,556 |
| | — |
| |
Total other income (expense) | | (23,293 | ) | | 43,404 |
| | (99,593 | ) | | (28,718 | ) |
| | | | | | | | | | | | | | |
Net income | 83,380 |
| | 57,805 |
| | 230,473 |
|
| 184,824 |
| $ | 80,854 |
| | $ | 147,346 |
| | $ | 212,714 |
| | $ | 288,730 |
|
| | | | | | | | |
Net income attributable to non-controlling interests | — |
| | (313 | ) | | (76 | ) | | (2,399 | ) | |
| | | | | | | | |
Net income attributable to Brixmor Property Group Inc. | 83,380 |
| | 57,492 |
| | 230,397 |
| | 182,425 |
| |
Preferred stock dividends | — |
| | — |
| | (39 | ) | | — |
| |
Net income attributable to common stockholders | $ | 83,380 |
| | $ | 57,492 |
| | $ | 230,358 |
| | $ | 182,425 |
| |
Per common share: | | | | | | | | | | | | | | |
Net income attributable to common stockholders: | | | | | | | | |
Net income: | | | | | | | | |
Basic | $ | 0.27 |
| | $ | 0.19 |
| | $ | 0.76 |
| | $ | 0.61 |
| $ | 0.27 |
| | $ | 0.49 |
| | $ | 0.71 |
| | $ | 0.95 |
|
Diluted | $ | 0.27 |
| | $ | 0.19 |
| | $ | 0.75 |
| | $ | 0.61 |
| $ | 0.27 |
| | $ | 0.49 |
| | $ | 0.71 |
| | $ | 0.95 |
|
Weighted average shares: | | | | | | | | | | | | | | |
Basic | 304,936 |
| | 303,013 |
| | 304,810 |
| | 300,697 |
| 298,031 |
| | 302,170 |
| | 298,257 |
| | 303,031 |
|
Diluted | 305,176 |
| | 303,521 |
| | 305,175 |
| | 301,146 |
| 298,879 |
| | 302,382 |
| | 298,927 |
| | 303,213 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
| | BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES | CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | (Unaudited, in thousands) | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
Net income | $ | 83,380 |
| | $ | 57,805 |
| | 230,473 |
| | 184,824 |
| $ | 80,854 |
| | $ | 147,346 |
| | $ | 212,714 |
| | $ | 288,730 |
|
Other comprehensive income (loss) | | | | | | | | | | | | | | |
Change in unrealized gain (loss) on interest rate swaps, net (Note 6) | (962 | ) | | 1,321 |
| | (1,434 | ) | | 2,413 |
| (5,332 | ) | | (1,242 | ) | | (29,373 | ) | | 2,950 |
|
Change in unrealized gain (loss) on marketable securities | (11 | ) | | (54 | ) | | (31 | ) | | 81 |
| 12 |
| | — |
| | 193 |
| | (40 | ) |
Total other comprehensive income (loss) | (973 | ) | | 1,267 |
| | (1,465 | ) | | 2,494 |
| (5,320 | ) | | (1,242 | ) | | (29,180 | ) | | 2,910 |
|
Comprehensive income | 82,407 |
| | 59,072 |
| | 229,008 |
| | 187,318 |
| $ | 75,534 |
| | $ | 146,104 |
| | $ | 183,534 |
| | $ | 291,640 |
|
Comprehensive income attributable to non-controlling interests | — |
| | (313 | ) | | (76 | ) | | (2,399 | ) | |
Comprehensive income attributable to common stockholders | $ | 82,407 |
| | $ | 58,759 |
| | $ | 228,932 |
| | $ | 184,919 |
| |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
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BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
(Unaudited, in thousands)
|
| Common Stock | | | | | | | | | | |
| Number | | Amount | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Distributions in Excess of Net Income | | Non-controlling Interests | | Total |
Beginning balance, January 1, 2016 | 299,138 |
| | $ | 2,991 |
| | $ | 3,270,246 |
| | $ | (2,509 | ) | | $ | (400,945 | ) | | $ | 50,519 |
| | $ | 2,920,302 |
|
Common stock dividends ($0.735 per common share) | — |
| | — |
| | — |
| | — |
| | (221,828 | ) | | — |
| | (221,828 | ) |
Distributions to non-controlling interests | — |
| | — |
| | — |
| | — |
| | — |
| | (2,304 | ) | | (2,304 | ) |
Equity based compensation expense | — |
| | — |
| | 7,954 |
| | — |
| | — |
| | 87 |
| | 8,041 |
|
Issuance of common stock and OP Units | 207 |
| | 2 |
| | (1,395 | ) | | — |
| | — |
| | 1,604 |
| | 211 |
|
Other comprehensive income | — |
| | — |
| | — |
| | 2,494 |
| | — |
| | — |
| | 2,494 |
|
Conversion of Operating Partnership units into common stock | 4,976 |
| | 50 |
| | 47,876 |
| | — |
| | — |
| | (47,926 | ) | | — |
|
Shared-based awards retained for taxes | — |
| | — |
| | (3,206 | ) | | — |
| | — |
| | — |
| | (3,206 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 182,425 |
| | 2,399 |
| | 184,824 |
|
Ending balance, September 30, 2016 | 304,321 |
| | $ | 3,043 |
| | $ | 3,321,475 |
| | $ | (15 | ) | | $ | (440,348 | ) | | $ | 4,379 |
| | $ | 2,888,534 |
|
| | | | | | | | | | | | | |
Beginning balance, January 1, 2017 | 304,343 |
| | $ | 3,043 |
| | $ | 3,324,874 |
| | $ | 21,519 |
| | $ | (426,552 | ) | | $ | 4,276 |
| | $ | 2,927,160 |
|
Common stock dividends ($0.78 per common share) | — |
| | — |
| | — |
| | — |
| | (238,662 | ) | | — |
| | (238,662 | ) |
Equity based compensation expense | — |
| | — |
| | 7,835 |
| | — |
| | — |
| | 3 |
| | 7,838 |
|
Preferred stock redemptions/dividends | — |
| | — |
| | — |
| | — |
| | (641 | ) | | (648 | ) | | (1,289 | ) |
Issuance of common stock and OP Units | 191 |
| | 6 |
| | — |
| | — |
| | — |
| | (6 | ) | | — |
|
Other comprehensive loss | — |
| | — |
| | — |
| | (1,465 | ) | | — |
| | — |
| | (1,465 | ) |
Conversion of Operating Partnership units into common stock | 403 |
| | — |
| | 3,701 |
| | — |
| | — |
| | (3,701 | ) | | — |
|
Shared-based awards retained for taxes | — |
| | — |
| | (2,714 | ) | | — |
| | — |
| | — |
| | (2,714 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 230,397 |
| | 76 |
| | 230,473 |
|
Ending balance, September 30, 2017 | 304,937 |
| | $ | 3,049 |
| | $ | 3,333,696 |
| | $ | 20,054 |
| | $ | (435,458 | ) | | $ | — |
| | $ | 2,921,341 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
|
| | | | | | | | | | | | | | | | | | | | | | |
BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
(Unaudited, in thousands, except per share data)
|
| Common Stock | | | | | | | | |
| Number | | Amount | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Distributions in Excess of Net Income | | Total |
Beginning balance, January 1, 2019 | 298,489 |
| | $ | 2,985 |
| | $ | 3,233,329 |
| | $ | 15,973 |
| | $ | (416,188 | ) | | $ | 2,836,099 |
|
ASC 842 cumulative adjustment | — |
| | — |
| | — |
| | — |
| | (1,974 | ) | | (1,974 | ) |
Common stock dividends ($0.28 per common share) | — |
| | — |
| | — |
| | — |
| | (83,839 | ) | | (83,839 | ) |
Equity based compensation expense | — |
| | — |
| | 2,641 |
| | — |
| | — |
| | 2,641 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | (9,925 | ) | | — |
| | (9,925 | ) |
Issuance of common stock and OP Units | 158 |
| | 2 |
| | — |
| | — |
| | — |
| | 2 |
|
Repurchases of common stock | (660 | ) | | (7 | ) | | (11,579 | ) | | — |
| | — |
| | (11,586 | ) |
Share-based awards retained for taxes | — |
| | — |
| | (1,547 | ) | | — |
| | — |
| | (1,547 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 62,900 |
| | 62,900 |
|
Ending balance, March 31, 2019 | 297,987 |
| | 2,980 |
| | 3,222,844 |
| | 6,048 |
| | (439,101 | ) | | 2,792,771 |
|
Common stock dividends ($0.28 per common share) | — |
| | — |
| | — |
| | — |
| | (83,827 | ) | | (83,827 | ) |
Equity based compensation expense | — |
| | — |
| | 3,353 |
| | — |
| | — |
| | 3,353 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | (13,935 | ) | | — |
| | (13,935 | ) |
Issuance of common stock and OP Units | 34 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Repurchases of common stock | (175 | ) | | (2 | ) | | (2,975 | ) | | — |
| | — |
| | (2,977 | ) |
Share-based awards retained for taxes | — |
| | — |
| | (164 | ) | | — |
| | — |
| | (164 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 68,960 |
| | 68,960 |
|
Ending balance, June 30, 2019 | 297,846 |
| | 2,978 |
| | 3,223,058 |
| | (7,887 | ) | | (453,968 | ) | | 2,764,181 |
|
Common stock dividends ($0.28 per common share) | — |
| | — |
| | — |
| | — |
| | (83,825 | ) | | (83,825 | ) |
Equity based compensation expense | — |
| | — |
| | 3,473 |
| | — |
| | — |
| | 3,473 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | (5,320 | ) | | — |
| | (5,320 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 80,854 |
| | 80,854 |
|
Ending balance, September 30, 2019 | 297,846 |
| | $ | 2,978 |
| | $ | 3,226,531 |
| | $ | (13,207 | ) | | $ | (456,939 | ) | | $ | 2,759,363 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
| | | | | | | | | | | |
|
| | | | | | | |
BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited, in thousands) |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Operating activities: | | | |
Net income | $ | 230,473 |
| | $ | 184,824 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 285,040 |
| | 294,634 |
|
Debt premium and discount amortization | (4,371 | ) | | (10,630 | ) |
Deferred financing cost amortization | 5,283 |
| | 5,827 |
|
Above- and below-market lease intangible amortization | (23,012 | ) | | (29,471 | ) |
Provisions for impairment | 27,383 |
| | 1,971 |
|
Gain on disposition of operating properties | (54,920 | ) | | (10,232 | ) |
Gain on disposition of unconsolidated joint venture interest | (4,556 | ) | | — |
|
Equity based compensation | 7,838 |
| | 8,041 |
|
Other | 1,836 |
| | 797 |
|
(Gain) loss on extinguishment of debt, net | (494 | ) | | 937 |
|
Changes in operating assets and liabilities: | | | |
Receivables | (15,675 | ) | | 4,042 |
|
Deferred charges and prepaid expenses | (41,760 | ) | | (33,101 | ) |
Other assets | (3,753 | ) | | 350 |
|
Accounts payable, accrued expenses and other liabilities | 11,801 |
| | 3,202 |
|
Net cash provided by operating activities | 421,113 |
| | 421,191 |
|
| | | |
Investing activities: | | | |
Improvements to and investments in real estate assets | (140,036 | ) | | (135,868 | ) |
Acquisitions of real estate assets | (111,790 | ) | | (6,733 | ) |
Proceeds from sales of real estate assets | 228,680 |
| | 31,068 |
|
Proceeds from sale of unconsolidated joint venture interest | 12,369 |
| | — |
|
Purchase of marketable securities | (23,998 | ) | | (35,172 | ) |
Proceeds from sale of marketable securities | 20,640 |
| | 31,622 |
|
Net cash used in investing activities | (14,135 | ) | | (115,083 | ) |
| | | |
Financing activities: | | | |
Repayment of debt obligations and financing liabilities | (396,356 | ) | | (865,918 | ) |
Repayment of borrowings under unsecured revolving credit facility | (548,000 | ) | | (805,000 | ) |
Proceeds from borrowings under unsecured revolving credit facility | 426,000 |
| | 481,000 |
|
Proceeds from unsecured term loan and notes | 1,193,916 |
| | 1,094,648 |
|
Repayment of borrowings under unsecured term loan | (790,000 | ) | | — |
|
Deferred financing costs | (11,179 | ) | | (17,698 | ) |
Distributions to common stockholders | (238,106 | ) | | (220,627 | ) |
Distributions to non-controlling interests | (1,390 | ) | | (3,492 | ) |
Repurchase of common shares in conjunction with equity award plans | (2,714 | ) | | (3,206 | ) |
Net cash used in financing activities | (367,829 | ) | | (340,293 | ) |
| | | |
Change in cash, cash equivalents and restricted cash | 39,149 |
| | (34,185 | ) |
Cash, cash equivalents and restricted cash at beginning of period | 102,869 |
| | 110,990 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 142,018 |
| | $ | 76,805 |
|
| | | |
Reconciliation to consolidated balance sheets | | | |
Cash and cash equivalents | $ | 29,978 |
| | $ | 31,143 |
|
Restricted cash | 112,040 |
| | 45,662 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 142,018 |
| | $ | 76,805 |
|
| | | |
Supplemental disclosure of cash flow information: | | | |
Cash paid for interest, net of amount capitalized of $2,268 and $1,918 | $ | 176,524 |
| | $ | 183,505 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
|
| | | | | | | | | | | | | | | | | | | | | | |
BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
(Unaudited, in thousands, except per share data)
|
| Common Stock | | | | | | | | |
| Number | | Amount | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income | | Distributions in Excess of Net Income | | Total |
Beginning balance, January 1, 2018 | 304,620 |
| | $ | 3,046 |
| | $ | 3,330,466 |
| | $ | 24,211 |
| | $ | (449,375 | ) | | $ | 2,908,348 |
|
Common stock dividends ($0.275 per common share) | — |
| | — |
| | — |
| | — |
| | (83,479 | ) | | (83,479 | ) |
Equity based compensation expense | — |
| | — |
| | 2,484 |
| | — |
| | — |
| | 2,484 |
|
Other comprehensive income | — |
| | — |
| | — |
| | 4,687 |
| | — |
| | 4,687 |
|
Issuance of common stock and OP Units | 128 |
| | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
Repurchases of common stock | (1,922 | ) | | (19 | ) | | (29,746 | ) | | — |
| | — |
| | (29,765 | ) |
Share-based awards retained for taxes | — |
| | — |
| | (1,722 | ) | | — |
| | — |
| | (1,722 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 61,022 |
| | 61,022 |
|
Ending balance, March 31, 2018 | 302,826 |
| | 3,028 |
| | 3,301,482 |
| | 28,898 |
| | (471,832 | ) | | 2,861,576 |
|
Common stock dividends ($0.275 per common share) | — |
| | — |
| | — |
| | — |
| | (83,584 | ) | | (83,584 | ) |
Equity based compensation expense | — |
| | — |
| | 2,784 |
| | — |
| | — |
| | 2,784 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | (535 | ) | | — |
| | (535 | ) |
Issuance of common stock and OP Units | 42 |
| | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
Repurchases of common stock | (241 | ) | | (3 | ) | | (3,497 | ) | | — |
| | — |
| | (3,500 | ) |
Share-based awards retained for taxes | — |
| | — |
| | (133 | ) | | — |
| | — |
| | (133 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 80,362 |
| | 80,362 |
|
Ending balance, June 30, 2018 | 302,627 |
| | 3,026 |
| | 3,300,636 |
| | 28,363 |
| | (475,054 | ) | | 2,856,971 |
|
Common stock dividends ($0.275 per common share) | — |
| | — |
| | — |
| | — |
| | (82,872 | ) | | (82,872 | ) |
Equity based compensation expense | — |
| | — |
| | 2,738 |
| | — |
| | — |
| | 2,738 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | (1,242 | ) | | — |
| | (1,242 | ) |
Issuance of common stock and OP Units | 2 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Repurchases of common stock | (2,737 | ) | | (27 | ) | | (48,643 | ) | | — |
| | — |
| | (48,670 | ) |
Share-based awards retained for taxes | — |
| | — |
| | (9 | ) | | — |
| | — |
| | (9 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 147,346 |
| | 147,346 |
|
Ending balance, September 30, 2018 | 299,892 |
| | $ | 2,999 |
| | $ | 3,254,722 |
| | $ | 27,121 |
| | $ | (410,580 | ) | | $ | 2,874,262 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
|
| | | | | | | |
BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(Unaudited, in thousands, except unit information) |
| September 30, 2017 | | December 31, 2016 |
Assets | | | |
Real estate | | | |
Land | $ | 1,985,781 |
| | $ | 2,006,655 |
|
Buildings and improvements | 8,944,738 |
| | 9,002,403 |
|
| 10,930,519 |
| | 11,009,058 |
|
Accumulated depreciation and amortization | (2,320,090 | ) | | (2,167,054 | ) |
Real estate, net | 8,610,429 |
| | 8,842,004 |
|
| | | |
Investments in and advances to unconsolidated joint venture | — |
| | 7,921 |
|
Cash and cash equivalents | 29,948 |
| | 51,368 |
|
Restricted cash | 112,040 |
| | 51,467 |
|
Marketable securities | 28,622 |
| | 25,356 |
|
Receivables, net of allowance for doubtful accounts of $16,177 and $16,756 | 219,873 |
| | 178,216 |
|
Deferred charges and prepaid expenses, net | 143,140 |
| | 122,787 |
|
Other assets | 51,920 |
| | 40,315 |
|
Total assets | $ | 9,195,972 |
| | $ | 9,319,434 |
|
| | | |
| | | |
Liabilities | | | |
Debt obligations, net | $ | 5,713,688 |
| | $ | 5,838,889 |
|
Accounts payable, accrued expenses and other liabilities | 561,191 |
| | 553,636 |
|
Total liabilities | 6,274,879 |
| | 6,392,525 |
|
| | | |
Commitments and contingencies (Note 13) |
|
| |
|
|
| | | |
Capital | | | |
Partnership common units; 304,937,144 and 304,720,842 units issued and outstanding | 2,901,026 |
| | 2,905,378 |
|
Accumulated other comprehensive income | 20,067 |
| | 21,531 |
|
Total capital | 2,921,093 |
| | 2,926,909 |
|
Total liabilities and capital | $ | 9,195,972 |
| | $ | 9,319,434 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
|
| | | | | | | |
BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited, in thousands) |
| Nine Months Ended September 30, |
| 2019 | | 2018 |
Operating activities: | | | |
Net income | $ | 212,714 |
| | $ | 288,730 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 249,825 |
| | 266,900 |
|
Debt premium and discount amortization | 1,053 |
| | (2,804 | ) |
Deferred financing cost amortization | 5,299 |
| | 4,909 |
|
Accretion of above- and below-market leases, net | (14,125 | ) | | (20,644 | ) |
Impairment of real estate assets | 17,468 |
| | 44,201 |
|
Gain on sale of real estate assets | (46,266 | ) | | (159,043 | ) |
Equity based compensation, net | 8,847 |
| | 8,006 |
|
Other | 2,694 |
| | 2,587 |
|
Loss on extinguishment of debt, net | 1,620 |
| | 20,182 |
|
Changes in operating assets and liabilities: | | | |
Receivables, net | (13,532 | ) | | 1,416 |
|
Deferred charges and prepaid expenses | (30,138 | ) | | (35,840 | ) |
Other assets | (74 | ) | | 3,637 |
|
Accounts payable, accrued expenses and other liabilities | 4,548 |
| | (22,055 | ) |
Net cash provided by operating activities | 399,933 |
| | 400,182 |
|
| | | |
Investing activities: | | | |
Improvements to and investments in real estate assets | (282,211 | ) | | (185,048 | ) |
Acquisitions of real estate assets | (79,634 | ) | | (8,994 | ) |
Proceeds from sales of real estate assets | 239,838 |
| | 676,959 |
|
Purchase of marketable securities | (36,045 | ) | | (27,923 | ) |
Proceeds from sale of marketable securities | 47,509 |
| | 25,076 |
|
Net cash provided by (used in) investing activities | (110,543 | ) | | 480,070 |
|
| | | |
Financing activities: | | | |
Repayment of secured debt obligations | — |
| | (518,308 | ) |
Repayment of borrowings under unsecured revolving credit facility | (541,000 | ) | | (74,000 | ) |
Proceeds from borrowings under unsecured revolving credit facility | 235,000 |
| | 215,000 |
|
Proceeds from unsecured notes | 771,623 |
| | 250,000 |
|
Repayment of borrowings under unsecured term loans | (500,000 | ) | | (435,000 | ) |
Deferred financing and debt extinguishment costs | (6,689 | ) | | (29,017 | ) |
Distributions to common stockholders | (251,334 | ) | | (250,886 | ) |
Repurchases of common shares | (14,563 | ) | | (81,935 | ) |
Repurchases of common shares in conjunction with equity award plans | (1,711 | ) | | (1,864 | ) |
Net cash used in financing activities | (308,674 | ) | | (926,010 | ) |
| | | |
Net change in cash, cash equivalents and restricted cash | (19,284 | ) | | (45,758 | ) |
Cash, cash equivalents and restricted cash at beginning of period | 50,765 |
| | 110,777 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 31,481 |
| | $ | 65,019 |
|
| | | |
Reconciliation to consolidated balance sheets: | | | |
Cash and cash equivalents | $ | 29,072 |
| | $ | 19,607 |
|
Restricted cash | 2,409 |
| | 45,412 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 31,481 |
| | $ | 65,019 |
|
| | | |
Supplemental disclosure of cash flow information: | | | |
Cash paid for interest, net of amount capitalized of $2,401 and $1,798 | $ | 134,507 |
| | $ | 173,079 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
|
| | | | | | | | | | | | | | | |
BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
(Unaudited, in thousands, except per unit data) |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenues | | | | | | | |
Rental income | $ | 246,578 |
| | $ | 247,859 |
| | $ | 749,976 |
| | $ | 744,580 |
|
Expense reimbursements | 66,489 |
| | 69,469 |
| | 206,718 |
| | 200,944 |
|
Other revenues | 1,429 |
| | 1,249 |
| | 6,426 |
| | 6,214 |
|
Total revenues | 314,496 |
| | 318,577 |
| | 963,120 |
| | 951,738 |
|
| | | | | | | |
Operating expenses | | | | | | | |
Operating costs | 30,505 |
| | 31,041 |
| | 100,955 |
| | 97,507 |
|
Real estate taxes | 45,076 |
| | 47,812 |
| | 135,607 |
| | 130,886 |
|
Depreciation and amortization | 94,239 |
| | 98,337 |
| | 285,040 |
| | 294,634 |
|
Provision for doubtful accounts | 1,216 |
| | 2,218 |
| | 4,023 |
| | 6,579 |
|
Impairment of real estate assets | 11,065 |
| | 1,971 |
| | 27,383 |
| | 1,971 |
|
General and administrative | 22,838 |
| | 21,787 |
| | 67,043 |
| | 69,709 |
|
Total operating expenses | 204,939 |
| | 203,166 |
| | 620,051 |
| | 601,286 |
|
| | | | | | | |
Other income (expense) | | | | | | | |
Dividends and interest | 76 |
| | 89 |
| | 234 |
| | 481 |
|
Interest expense | (57,410 | ) | | (57,855 | ) | | (170,584 | ) | | (171,482 | ) |
Gain on sale of real estate assets | 25,942 |
| | 2,450 |
| | 54,920 |
| | 10,232 |
|
Gain (loss) on extinguishment of debt, net | 1,828 |
| | (1,042 | ) | | 488 |
| | (949 | ) |
Other | (1,200 | ) | | (1,370 | ) | | (2,591 | ) | | (4,258 | ) |
Total other expense | (30,764 | ) | | (57,728 | ) | | (117,533 | ) | | (165,976 | ) |
| | | | | | | |
Income before equity in income of unconsolidated joint venture | 78,793 |
| | 57,683 |
| | 225,536 |
| | 184,476 |
|
Equity in income of unconsolidated joint venture | 31 |
| | 122 |
| | 381 |
| | 348 |
|
Gain on disposition of unconsolidated joint venture interest | 4,556 |
| | — |
| | 4,556 |
| | — |
|
| | | | | | | |
Net income attributable to Brixmor Operating Partnership LP | $ | 83,380 |
| | $ | 57,805 |
| | $ | 230,473 |
| | $ | 184,824 |
|
Per common unit: | | | | | | | |
Net income attributable to partnership common units: | | | | | | | |
Basic | $ | 0.27 |
| | $ | 0.19 |
| | $ | 0.76 |
| | $ | 0.61 |
|
Diluted | $ | 0.27 |
| | $ | 0.19 |
| | $ | 0.76 |
| | $ | 0.61 |
|
Weighted average number of partnership common units: | | | | | | | |
Basic | 304,936 |
| | 304,659 |
| | 304,914 |
| | 304,577 |
|
Diluted | 305,176 |
| | 305,167 |
| | 305,175 |
| | 305,026 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
|
| | | | | | | |
BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(Unaudited, in thousands, except unit information) |
| September 30, 2019 | | December 31, 2018 |
Assets | | | |
Real estate | | | |
Land | $ | 1,779,161 |
| | $ | 1,804,504 |
|
Buildings and improvements | 8,342,194 |
| | 8,294,273 |
|
| 10,121,355 |
| | 10,098,777 |
|
Accumulated depreciation and amortization | (2,452,678 | ) | | (2,349,127 | ) |
Real estate, net | 7,668,677 |
| | 7,749,650 |
|
| | | |
Cash and cash equivalents | 29,054 |
| | 41,619 |
|
Restricted cash | 2,409 |
| | 9,020 |
|
Marketable securities | 18,886 |
| | 30,023 |
|
Receivables, net | 223,323 |
| | 228,297 |
|
Deferred charges and prepaid expenses, net | 151,125 |
| | 145,662 |
|
Real estate assets held for sale | 6,186 |
| | 2,901 |
|
Other assets | 60,260 |
| | 34,903 |
|
Total assets | $ | 8,159,920 |
| | $ | 8,242,075 |
|
| | | |
| | | |
Liabilities | | | |
Debt obligations, net | $ | 4,852,510 |
| | $ | 4,885,863 |
|
Accounts payable, accrued expenses and other liabilities | 548,288 |
| | 520,459 |
|
Total liabilities | 5,400,798 |
| | 5,406,322 |
|
| | | |
Commitments and contingencies (Note 15) | — |
| | — |
|
| | | |
Capital | | | |
Partnership common units; 305,323,128 and 305,130,472 units issued and 297,846,251 and 298,488,516 units outstanding | 2,772,321 |
| | 2,819,770 |
|
Accumulated other comprehensive income (loss) | (13,199 | ) | | 15,983 |
|
Total capital | 2,759,122 |
| | 2,835,753 |
|
Total liabilities and capital | $ | 8,159,920 |
| | $ | 8,242,075 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
|
| | | | | | | | | | | | | | | |
BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
(Unaudited, in thousands) |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income attributable to Brixmor Operating Partnership LP | $ | 83,380 |
| | $ | 57,805 |
| | $ | 230,473 |
| | $ | 184,824 |
|
Other comprehensive income (loss) | | | | | | | |
Change in unrealized gain (loss) on interest rate swaps, net (Note 6) | (962 | ) | | 1,321 |
| | (1,434 | ) | | 2,413 |
|
Change in unrealized gain (loss) on marketable securities | (10 | ) | | (54 | ) | | (30 | ) | | 76 |
|
Total other comprehensive income (loss) | (972 | ) | | 1,267 |
| | (1,464 | ) | | 2,489 |
|
Comprehensive income attributable to Brixmor Operating Partnership LP | $ | 82,408 |
| | $ | 59,072 |
| | $ | 229,009 |
| | $ | 187,313 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
|
| | | | | | | | | | | | | | | |
BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
(Unaudited, in thousands, except per share data) |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Revenues | | | | | | | |
Rental income | $ | 292,732 |
| | $ | 306,172 |
| | $ | 873,424 |
| | $ | 935,689 |
|
Other revenues | 233 |
| | 308 |
| | 1,685 |
| | 996 |
|
Total revenues | 292,965 |
| | 306,480 |
| | 875,109 |
| | 936,685 |
|
| | | | | | | |
Operating expenses | | | | | | | |
Operating costs | 29,573 |
| | 31,969 |
| | 90,138 |
| | 101,340 |
|
Real estate taxes | 43,688 |
| | 44,711 |
| | 130,203 |
| | 135,383 |
|
Depreciation and amortization | 82,837 |
| | 85,183 |
| | 249,825 |
| | 266,900 |
|
Provision for doubtful accounts | — |
| | 3,094 |
| | — |
| | 6,458 |
|
Impairment of real estate assets | 8,170 |
| | 16,372 |
| | 17,468 |
| | 44,201 |
|
General and administrative | 24,550 |
| | 21,209 |
| | 75,168 |
| | 64,955 |
|
Total operating expenses | 188,818 |
| | 202,538 |
| | 562,802 |
| | 619,237 |
|
| | | | | | | |
Other income (expense) | | | | | | | |
Dividends and interest | 128 |
| | 156 |
| | 575 |
| | 356 |
|
Interest expense | (47,698 | ) | | (55,364 | ) | | (142,839 | ) | | (165,735 | ) |
Gain on sale of real estate assets | 25,621 |
| | 119,333 |
| | 46,266 |
| | 159,043 |
|
Loss on extinguishment of debt, net | (943 | ) | | (19,759 | ) | | (1,620 | ) | | (20,182 | ) |
Other | (401 | ) | | (962 | ) | | (1,975 | ) | | (2,200 | ) |
Total other income (expense) | (23,293 | ) | | 43,404 |
| | (99,593 | ) | | (28,718 | ) |
| | | | | | | |
Net income | $ | 80,854 |
| | $ | 147,346 |
| | $ | 212,714 |
| | $ | 288,730 |
|
Per common unit: | | | | | | | |
Net income: | | | | | | | |
Basic | $ | 0.27 |
| | $ | 0.49 |
| | $ | 0.71 |
| | $ | 0.95 |
|
Diluted | $ | 0.27 |
| | $ | 0.49 |
| | $ | 0.71 |
| | $ | 0.95 |
|
Weighted average units: | | | | | | | |
Basic | 298,031 |
| | 302,170 |
| | 298,257 |
| | 303,031 |
|
Diluted | 298,879 |
| | 302,382 |
| | 298,927 |
| | 303,213 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
|
| | | | | | | | | | | |
BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL |
(Unaudited, in thousands)
|
| | | | | |
| Partnership Common Units | | Accumulated Other Comprehensive Income (Loss) | | Total |
Beginning balance, January 1, 2016 | $ | 2,922,565 |
| | $ | (2,495 | ) | | $ | 2,920,070 |
|
Distributions to partners | (224,148 | ) | | — |
| | (224,148 | ) |
Equity based compensation expense | 8,041 |
| | — |
| | 8,041 |
|
Other comprehensive income | — |
| | 2,489 |
| | 2,489 |
|
Issuance of OP Units | 211 |
| | — |
| | 211 |
|
Share-based awards retained for taxes | (3,206 | ) | | — |
| | (3,206 | ) |
Net income attributable to Brixmor Operating Partnership LP | 184,824 |
| | — |
| | 184,824 |
|
Ending balance, September 30, 2016 | $ | 2,888,287 |
| | $ | (6 | ) | | $ | 2,888,281 |
|
| | | | | |
Beginning balance, January 1, 2017 | $ | 2,905,378 |
| | $ | 21,531 |
| | $ | 2,926,909 |
|
Distributions to partners | (239,949 | ) | | — |
| | (239,949 | ) |
Equity based compensation expense | 7,838 |
| | — |
| | 7,838 |
|
Other comprehensive loss | — |
| | (1,464 | ) | | (1,464 | ) |
Share-based awards retained for taxes | (2,714 | ) | | — |
| | (2,714 | ) |
Net income attributable to Brixmor Operating Partnership LP | 230,473 |
| | — |
| | 230,473 |
|
Ending balance, September 30, 2017 | $ | 2,901,026 |
| | $ | 20,067 |
| | $ | 2,921,093 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
|
| | | | | | | | | | | | | | | |
BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
(Unaudited, in thousands) |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Net income | $ | 80,854 |
| | $ | 147,346 |
| | $ | 212,714 |
| | $ | 288,730 |
|
Other comprehensive income (loss) | | | | | | | |
Change in unrealized gain (loss) on interest rate swaps, net (Note 6) | (5,332 | ) | | (1,242 | ) | | (29,373 | ) | | 2,950 |
|
Change in unrealized gain (loss) on marketable securities | 11 |
| | (4 | ) | | 191 |
| | (42 | ) |
Total other comprehensive income (loss) | (5,321 | ) | | (1,246 | ) | | (29,182 | ) | | 2,908 |
|
Comprehensive income | $ | 75,533 |
| | $ | 146,100 |
| | $ | 183,532 |
| | $ | 291,638 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
|
| | | | | | | |
BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited, in thousands) |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Operating activities: | | | |
Net income attributable to Brixmor Operating Partnership LP | $ | 230,473 |
| | $ | 184,824 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 285,040 |
| | 294,634 |
|
Debt premium and discount amortization | (4,371 | ) | | (10,630 | ) |
Deferred financing cost amortization | 5,283 |
| | 5,827 |
|
Above- and below-market lease intangible amortization | (23,012 | ) | | (29,471 | ) |
Provisions for impairment | 27,383 |
| | 1,971 |
|
Gain on disposition of operating properties | (54,920 | ) | | (10,232 | ) |
Gain on disposition of unconsolidated joint venture interest | (4,556 | ) | | — |
|
Equity based compensation | 7,838 |
| | 8,041 |
|
Other | 1,836 |
| | 797 |
|
(Gain) loss on extinguishment of debt, net | (494 | ) | | 937 |
|
Changes in operating assets and liabilities: | | | |
Receivables | (15,675 | ) | | 4,042 |
|
Deferred charges and prepaid expenses | (41,760 | ) | | (33,101 | ) |
Other assets | (3,753 | ) | | 350 |
|
Accounts payable, accrued expenses and other liabilities | 11,801 |
| | 3,202 |
|
Net cash provided by operating activities | 421,113 |
| | 421,191 |
|
| | | |
Investing activities: | | | |
Improvements to and investments in real estate assets | (140,036 | ) | | (135,868 | ) |
Acquisitions of real estate assets | (111,790 | ) | | (6,733 | ) |
Proceeds from sales of real estate assets | 228,680 |
| | 31,068 |
|
Proceeds from sale of unconsolidated joint venture interest | 12,369 |
| | — |
|
Purchase of marketable securities | (23,995 | ) | | (35,163 | ) |
Proceeds from sale of marketable securities | 20,640 |
| | 31,622 |
|
Net cash used in investing activities | (14,132 | ) | | (115,074 | ) |
| | | |
Financing activities: | | | |
Repayment of debt obligations and financing liabilities | (396,356 | ) | | (865,918 | ) |
Repayment of borrowings under unsecured revolving credit facility | (548,000 | ) | | (805,000 | ) |
Proceeds from borrowings under unsecured revolving credit facility | 426,000 |
| | 481,000 |
|
Proceeds from unsecured term loan and notes | 1,193,916 |
| | 1,094,648 |
|
Repayment of borrowings under unsecured term loan | (790,000 | ) | | — |
|
Deferred financing costs | (11,179 | ) | | (17,698 | ) |
Partner distributions | (242,209 | ) | | (227,348 | ) |
Net cash used in financing activities | (367,828 | ) | | (340,316 | ) |
| | | |
Change in cash, cash equivalents and restricted cash | 39,153 |
| | (34,199 | ) |
Cash, cash equivalents and restricted cash at beginning of period | 102,835 |
| | 110,968 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 141,988 |
| | $ | 76,769 |
|
| | | |
Reconciliation to consolidated balance sheets | | | |
Cash and cash equivalents | $ | 29,948 |
| | $ | 31,107 |
|
Restricted cash | 112,040 |
| | 45,662 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 141,988 |
| | $ | 76,769 |
|
| | | |
Supplemental disclosure of cash flow information: | | | |
Cash paid for interest, net of amount capitalized of $2,268 and $1,918 | $ | 176,524 |
| | $ | 183,505 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
|
| | | | | | | | | | | |
BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
|
(Unaudited, in thousands)
|
| | | | | |
| Partnership Common Units | | Accumulated Other Comprehensive Income (Loss) | | Total |
Beginning balance, January 1, 2019 | $ | 2,819,770 |
| | $ | 15,983 |
| | $ | 2,835,753 |
|
ASC 842 cumulative adjustment | (1,974 | ) | | — |
| | (1,974 | ) |
Distributions to partners | (83,964 | ) | | — |
| | (83,964 | ) |
Equity based compensation expense | 2,641 |
| | — |
| | 2,641 |
|
Other comprehensive loss | — |
| | (9,925 | ) | | (9,925 | ) |
Issuance of OP Units | 2 |
| | — |
| | 2 |
|
Repurchases of OP Units | (11,586 | ) | | — |
| | (11,586 | ) |
Share-based awards retained for taxes | (1,547 | ) | | — |
| | (1,547 | ) |
Net income | 62,900 |
| | — |
| | 62,900 |
|
Ending balance, March 31, 2019 | 2,786,242 |
| | 6,058 |
|
| 2,792,300 |
|
Distributions to partners | (83,597 | ) | | — |
| | (83,597 | ) |
Equity based compensation expense | 3,353 |
| | — |
| | 3,353 |
|
Other comprehensive loss | — |
| | (13,936 | ) | | (13,936 | ) |
Issuance of OP Units | — |
| | — |
| | — |
|
Repurchases of OP Units | (2,977 | ) | | — |
| | (2,977 | ) |
Share-based awards retained for taxes | (164 | ) | | — |
| | (164 | ) |
Net income | 68,960 |
| | — |
| | 68,960 |
|
Ending balance, June 30, 2019 | 2,771,817 |
| | (7,878 | ) | | 2,763,939 |
|
Distributions to partners | (83,823 | ) | | — |
| | (83,823 | ) |
Equity based compensation expense | 3,473 |
| | — |
| | 3,473 |
|
Other comprehensive loss | — |
| | (5,321 | ) | | (5,321 | ) |
Net income | 80,854 |
| | — |
| | 80,854 |
|
Ending balance, September 30, 2019 | $ | 2,772,321 |
| | $ | (13,199 | ) | | $ | 2,759,122 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
| | | | | |
|
| | | | | | | | | | | |
BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
|
(Unaudited, in thousands)
|
| | | | | |
| Partnership Common Units | | Accumulated Other Comprehensive Income | | Total |
Beginning balance, January 1, 2018 | $ | 2,883,875 |
| | $ | 24,224 |
| | $ | 2,908,099 |
|
Distributions to partners | (83,479 | ) | | — |
| | (83,479 | ) |
Equity based compensation expense | 2,484 |
| | — |
| | 2,484 |
|
Other comprehensive income | — |
| | 4,688 |
| | 4,688 |
|
Issuance of OP Units | 1 |
| | — |
| | 1 |
|
Repurchases of OP Units | (29,765 | ) | | — |
| | (29,765 | ) |
Share-based awards retained for taxes | (1,722 | ) | | — |
| | (1,722 | ) |
Net income | 61,022 |
| | — |
| | 61,022 |
|
Ending balance, March 31, 2018 | 2,832,416 |
| | 28,912 |
| | 2,861,328 |
|
Distributions to partners | (83,584 | ) | | — |
| | (83,584 | ) |
Equity based compensation expense | 2,784 |
| | — |
| | 2,784 |
|
Other comprehensive loss | — |
| | (534 | ) | | (534 | ) |
Issuance of OP Units | 1 |
| | — |
| | 1 |
|
Repurchases of OP Units | (3,500 | ) | | — |
| | (3,500 | ) |
Share-based awards retained for taxes | (133 | ) | | — |
| | (133 | ) |
Net income | 80,362 |
| | — |
| | 80,362 |
|
Ending balance, June 30, 2018 | 2,828,346 |
| | 28,378 |
| | 2,856,724 |
|
Distributions to partners | (82,865 | ) | | — |
| | (82,865 | ) |
Equity based compensation expense | 2,738 |
| | — |
| | 2,738 |
|
Other comprehensive loss | — |
| | (1,246 | ) | | (1,246 | ) |
Repurchases of OP Units | (48,670 | ) | | — |
| | (48,670 | ) |
Share-based awards retained for taxes | (9 | ) | | — |
| | (9 | ) |
Net income | 147,346 |
| | — |
| | 147,346 |
|
Ending balance, September 30, 2018 | $ | 2,846,886 |
| | $ | 27,132 |
| | $ | 2,874,018 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
|
| | | | | | | |
BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited, in thousands) |
| Nine Months Ended September 30, |
| 2019 | | 2018 |
Operating activities: | | | |
Net income | $ | 212,714 |
| | $ | 288,730 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 249,825 |
| | 266,900 |
|
Debt premium and discount amortization | 1,053 |
| | (2,804 | ) |
Deferred financing cost amortization | 5,299 |
| | 4,909 |
|
Accretion of above- and below-market leases, net | (14,125 | ) | | (20,644 | ) |
Impairment of real estate assets | 17,468 |
| | 44,201 |
|
Gain on sale of real estate assets | (46,266 | ) | | (159,043 | ) |
Equity based compensation, net | 8,847 |
| | 8,006 |
|
Other | 2,694 |
| | 2,587 |
|
Loss on extinguishment of debt, net | 1,620 |
| | 20,182 |
|
Changes in operating assets and liabilities: | | | |
Receivables, net | (13,532 | ) | | 1,416 |
|
Deferred charges and prepaid expenses | (30,138 | ) | | (35,840 | ) |
Other assets | (74 | ) | | 3,637 |
|
Accounts payable, accrued expenses and other liabilities | 4,548 |
| | (22,055 | ) |
Net cash provided by operating activities | 399,933 |
| | 400,182 |
|
| | | |
Investing activities: | | | |
Improvements to and investments in real estate assets | (282,211 | ) | | (185,048 | ) |
Acquisitions of real estate assets | (79,634 | ) | | (8,994 | ) |
Proceeds from sales of real estate assets | 239,838 |
| | 676,959 |
|
Purchase of marketable securities | (36,042 | ) | | (27,922 | ) |
Proceeds from sale of marketable securities | 47,509 |
| | 25,076 |
|
Net cash provided by (used in) investing activities | (110,540 | ) | | 480,071 |
|
| | | |
Financing activities: | | | |
Repayment of secured debt obligations | — |
| | (518,308 | ) |
Repayment of borrowings under unsecured revolving credit facility | (541,000 | ) | | (74,000 | ) |
Proceeds from borrowings under unsecured revolving credit facility | 235,000 |
| | 215,000 |
|
Proceeds from unsecured notes | 771,623 |
| | 250,000 |
|
Repayment of borrowings under unsecured term loans | (500,000 | ) | | (435,000 | ) |
Deferred financing and debt extinguishment costs | (6,689 | ) | | (29,017 | ) |
Partner distributions and repurchases of OP Units | (267,503 | ) | | (334,681 | ) |
Net cash used in financing activities | (308,569 | ) | | (926,006 | ) |
| | | |
Net change in cash, cash equivalents and restricted cash | (19,176 | ) | | (45,753 | ) |
Cash, cash equivalents and restricted cash at beginning of period | 50,639 |
| | 110,747 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 31,463 |
| | $ | 64,994 |
|
| | | |
Reconciliation to consolidated balance sheets: | | | |
Cash and cash equivalents | $ | 29,054 |
| | $ | 19,582 |
|
Restricted cash | 2,409 |
| | 45,412 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 31,463 |
| | $ | 64,994 |
|
| | | |
Supplemental disclosure of cash flow information: | | | |
Cash paid for interest, net of amount capitalized of $2,401 and $1,798 | $ | 134,507 |
| | $ | 173,079 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
BRIXMOR PROPERTY GROUP INC. AND BRIXMOR OPERATING PARTNERSHIP LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands, unless otherwise stated)
1. Nature of Business and Financial Statement Presentation
Description of Business
Brixmor Property Group Inc. and subsidiaries (collectively, the “Parent Company”) is an internally-managed real estate investment trust (“REIT”). Brixmor Operating Partnership LP and subsidiaries (collectively, the “Operating Partnership”) is the entity through which the Parent Company conducts substantially all of its operations and owns substantially all of its assets. The Parent Company owns 100% of the common stock of BPG Subsidiary Inc. (“BPG Sub”), which, in turn, is the sole member of Brixmor OP GP LLC (the “General Partner”), the sole general partner of the Operating Partnership. The Parent Company engages in the ownership, management, leasing, acquisition, disposition and redevelopment of retail shopping centers through the Operating Partnership, and has no other substantial assets or liabilities other than through its investment in the Operating Partnership. The Parent Company, the Operating Partnership and their controlled subsidiaries on a consolidated basis (collectively, the “Company” or “Brixmor”) believes it owns and operates one of the largest open air retail portfolios by gross leasable area ("GLA"(“GLA”) in the United States (“U.S.”), comprised primarily of community and neighborhood shopping centers. As of September 30, 2017,2019, the Company'sCompany’s portfolio was comprised of 498 wholly owned409 shopping centers (the “Portfolio”) totaling approximately 8472 million square feet of gross leasable area (the “Portfolio”). In addition, the Company has one land parcel currently under development.GLA. The Company’s high-quality national Portfolio is primarily located within established trade areas in the top 50 Metropolitan Statistical Areas in the U.S., and ourits shopping centers are primarily anchored by non-discretionary and value-oriented retailers, as well as consumer-oriented service providers.
The Company does not distinguish its principal business or group its operations on a geographical basis for purposes of measuring performance. Accordingly, the Company has a single reportable segment for disclosure purposes in accordance with U.S. generally accepted accounting principles (“GAAP”).
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for the fair presentation of the unaudited Condensed Consolidated Financial Statements for the periods presented have been included. The Company has determined that it is preferable to present underwriter fees associated with the Company’s issuance of unsecured senior notes in the line item Deferred financing costs as opposed to deducting the amount of the fees within the line item Proceeds from unsecured term loans and notes within financing activities in the accompanying unaudited Condensed Consolidated Statement of Cash Flows. In connection with this revised presentation, certain prior period balances have been adjusted to conform to the current period presentation described above. The operating results for the periods presented are not necessarily indicative of the results that may be expected for a full fiscal year. These financial statements should be read in conjunction with the financial statements for the year ended December 31, 20162018 and accompanying notes included in the Company'sCompany’s annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 13, 2017.11, 2019.
Certain prior period balances in the accompanying unaudited Condensed Consolidated Statements of Operations have been reclassified to conform to the current period presentation for the adoption of Accounting Standards Codification Topic 842 “Leases” (“ASC 842”) (described below), which supersedes Accounting Standards Codification Topic 840 “Leases” (“ASC 840”).
Principles of Consolidation
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of the Parent Company, the Operating Partnership, each of their wholly owned subsidiaries and all other entities in which they have a controlling financial interest. The portions of consolidated entities not owned by the Parent Company and the Operating Partnership are presented as non-controlling interests as of and during the periods presented. All intercompany transactions have been eliminated.
Real EstateDeferred Leasing and Financing Costs
Real estate assets are recognizedCosts incurred in the Company's unaudited Condensed Consolidated Balance Sheets at historical cost, less accumulated depreciation and amortization. Upon acquisition of real estate operating properties, management estimates the fair value of acquired tangible assets (consisting of land, buildings, andexecuting tenant improvements), identifiable intangible assets and liabilities (consisting of above and below-market leases, in-place leases and tenant relationships) and assumed debt based on an evaluation of available information. Based on these estimates, the estimated fair value
is allocated to the acquired assets and assumed liabilities. Transaction costs incurred during the acquisition processlong-term financings are capitalized as a component of the asset’s value.
The fair value of tangible assets is determined as if the acquired property is vacant. Fair value is determined using an exit price approach, which contemplates the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. If subsequent information regarding the fair value of the assets acquired and liabilities assumed is received and estimates are refined, the appropriate adjustments are made to the purchase price allocation on a prospective basis.
In allocating the fair value to identifiable intangible assets and liabilities of an acquired operating property, the value of above-market and below-market leases is estimated based on the present value (using a discount rate reflecting the risks associated with leases acquired) of the difference between: (i) the contractual amounts to be paid pursuant to the leases negotiated and in-place at the time of acquisition and (ii) management’s estimate of fair market lease rates for the property or an equivalent property, measured over a period equal to the remaining non-cancelable term of the lease, which includes renewal periods with fixed rental terms that are considered to be below-market. The capitalized above-market or below-market intangible is amortized as a reduction of, or increase to, rental income over the remaining non-cancelable term of each lease.
In determining the value of in-place leases and tenant relationships, management evaluates the specific characteristics of each lease and the Company’s overall relationship with each tenant. Factors considered include, but are not limited to: the nature of the existing relationship with a tenant, the credit risk associated with a tenant, expectations surrounding lease renewals, estimated carrying costs of a property during a hypothetical expected lease-up period, current market conditions and costs to execute similar leases. Management also considers information obtained about a property in connection with its pre-acquisition due diligence. Estimated carrying costs include: property operating costs, insurance, real estate taxes and estimates of lost rentals at market rates. Costs to execute similar leases include leasing commissions and legal costs to the extent that such costs are not already incurred with a new lease that has been negotiated in connection with the purchase of a property. The values assigned to in-place leases and tenant relationships are amortized to Depreciation and amortization expense over the remaining term of each lease.
Certain real estate assets are depreciated using the straight-line method over the estimated useful livesterm of the assets.related lease or debt agreement, which approximates the effective interest method. For tenant leases, capitalized costs incurred include tenant improvements and leasing commissions. In connection with the adoption of ASC 842, the Company no longer capitalizes partial salaries and/or indirect legal fees incurred in executing tenant leases. These amounts were capitalized under previous guidance. For long-term financings, capitalized costs incurred include bank and legal fees. The estimated useful lives areamortization of deferred leasing and financing costs is included in Depreciation and amortization and Interest expense, respectively, on the Company’s unaudited Condensed Consolidated
Statements of Operations and in Operating activities on the Company’s unaudited Condensed Consolidated Statements of Cash Flows.
Revenue Recognition and Receivables
The Company enters into agreements with tenants which convey the right to control the use of identified space at its shopping centers in exchange for rental revenue. These agreements meet the criteria for recognition as follows:
|
| |
Building and building and land improvements | 20 - 40 years |
Furniture, fixtures, and equipment | 5 - 10 years |
Tenant improvements | The shorter of the term of the related lease or useful life |
Costs to fund major replacements and betterments, which extendleases under ASC 842. Rental revenue is recognized on a straight-line basis over the lifeterms of the related leases. The cumulative difference between rental revenue recognized on the Company’s unaudited Condensed Consolidated Statements of Operations and contractual payment terms is recognized as deferred rent and included in Receivables, net on the accompanying unaudited Condensed Consolidated Balance Sheets. The Company commences recognizing rental revenue based on the date it makes the underlying asset available for use by the tenant. Leases also typically provide for the reimbursement of property operating expenses, including common area expenses, utilities, insurance and real estate taxes by the lessee and are capitalized and depreciated over their respective useful lives, while costs for ordinary repairs and maintenance activitiesrecognized in the period the applicable expenditures are expensed as incurred.
When aIn connection with the adoption of ASC 842, the Company has evaluated the lease and non-lease components within its leases and has elected the practical expedient to present lease and non-lease components in its lease agreements as one component. As such, the Company accounts for rental revenue (lease component) and common area expense reimbursements (non-lease component) as one lease component under ASC 842. Additionally, the Company also includes the non-components of its leases, such as the reimbursement of utilities, insurance and real estate asset is identifiedtaxes, within this lease component. These amounts are included in Rental income on the Company’s unaudited Condensed Consolidated Statements of Operations.
Certain leases also provide for percentage rents based upon the level of sales achieved by management as held-for-sale,a lessee. Percentage rents are recognized upon the achievement of certain pre-determined sales levels and are included in Rental income on the Company’s unaudited Condensed Consolidated Statements of Operations.
Gains from the sale of depreciated operating properties are generally recognized under the full accrual method, provided that various criteria relating to the terms of the sale and subsequent involvement by the Company discontinues depreciatingwith the applicable property are met.
The Company periodically evaluates the collectability of its receivables related to rental revenue, straight-line rent, expense reimbursements and those attributable to other revenue generating activities. The Company analyzes individual tenant receivables and considers tenant credit-worthiness, the length of time a receivable has been outstanding, and current economic trends when evaluating collectability. In addition, tenants in bankruptcy are analyzed and estimates are made in connection with the expected recovery of pre-petition and post-petition claims. Any receivables that are deemed to be uncollectible are recognized as a reduction to Rental income on the Company’s unaudited Condensed Consolidated Statements of Operations. Prior period Provision for doubtful accounts is included in Operating expenses on the Company's unaudited Condensed Consolidated Statements of Operations in accordance with the Company's previous presentation and has not been reclassified to Rental income.
Leases
The Company periodically enters into agreements in which it is the lessee, including ground leases for neighborhood and community shopping centers that it operates and office leases for administrative space. In connection with the adoption of ASC 842, the Company evaluated these agreements and determined that they meet the criteria for recognition as leases under ASC 842. For these agreements the Company recognizes an operating lease right-of-use (“ROU”) asset and estimates its sales price, net of estimated selling costs. Ifan operating lease liability based on the estimated net sales price of an asset is less than its net carrying value, a loss is recognized to reflect the estimated fair value. Properties classified as real estate held-for-sale generally represent properties that are under contract for sale and are expected to close within 12 months.
On a periodic basis, management assesses whether there are indicators, including property operating performance, changes in anticipated holding period and general market conditions, that thepresent value of the Company’s real estate assets (including any related intangible assets or liabilities) may be impaired.
If an indicator is identified, a real estate asset is considered impaired only if management’s estimate of current and projected operating cash flows (undiscounted and unleveraged), taking into accountminimum lease payments over the anticipated and probability weighted holding period, are less than a real estate asset’s carrying value. Various factors are considerednon-cancellable lease term. As the discount rates implicit in the estimation process, including trends and prospects andleases are not readily determinable, the effects of demand, competition, and other economic factors. Changes in any estimates and/or assumptions, including the anticipated holding period, could have a material impactCompany uses its incremental secured borrowing rate, based on the projected operating cash flows. If management determines thatinformation available at the carryingcommencement date of each lease, to determine the present value of a real estate asset is impaired, a loss is recognized for the excess of its carrying amount over its fair value.
In situations in which aassociated lease or leases associated with a significant tenant have been, or are expected to be, terminated early, the Company evaluates the remaining useful lives of depreciable or amortizable assets in the asset group related to thepayments. The lease that will be terminated (i.e., tenant improvements, above and below market lease intangibles, in-place lease value and leasing commissions). Based upon consideration of the facts and circumstances surrounding the termination,terms utilized by the Company may accelerateinclude options to extend or terminate the depreciationlease when it is reasonably certain that it will exercise that option. The Company evaluates many factors, including current and amortization associatedfuture lease cash flows, when determining if an option to extend or terminate should be included in the non-cancellable period. Lease expense for minimum lease payments is recognized on a straight-line basis over the non-cancellable lease term. The Company has elected to apply the short-term lease exemption within ASC 842 and has not recorded an ROU asset or lease liability for leases with terms of less than 12 months. Additionally, leases also typically provide for the reimbursement of property operating expenses, including common area expenses, utilities, insurance and real estate taxes by the Company.
In connection with the asset group.adoption of ASC 842, the Company has evaluated the lease and non-lease components within its leases and has elected the practical expedient to present lease and non-lease components in its lease agreements as one component. As such, the Company accounts for lease payments (lease component) and common area expense reimbursements (non-lease component) as one lease component under ASC 842. Additionally, the Company also includes the non-components of its leases, such as the reimbursement of utilities, insurance and real estate taxes, within this lease component. These amounts are included in Operating expenses on the Company’s unaudited Condensed Consolidated Statements of Operations.
Income Taxes
The Parent CompanyBrixmor Property Group Inc. has elected to qualify as a REIT in accordance with the Internal Revenue Code of 1986, as amended (the “Code”). To qualify as a REIT, the Parent CompanyBrixmor Property Group Inc. must meet a number of organizational and operational requirements, including a requirement that it currently distribute to its stockholders at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains, to its stockholders.gains. It is management’s intention to adhere to these requirements and maintain the Parent Company’sBrixmor Property Group Inc.’s REIT status.
As a REIT, the Parent CompanyBrixmor Property Group Inc. generally will not be subject to United StatesU.S. federal income tax, provided that distributions to its stockholders equal at least the amount of its REIT taxable income as defined under the Code. Brixmor Property Group Inc. conducts substantially all of its operations through the Operating Partnership which is organized as a limited partnership and treated as a pass-through entity for U.S. federal tax purposes. Therefore, U.S. federal income taxes on the Company’s taxable income do not materially impact the unaudited Condensed Consolidated Financial Statements of the Company.
If the Parent CompanyBrixmor Property Group Inc. fails to qualify as a REIT in any taxable year, it will be subject to U.S. federal taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for the four subsequent taxable years.
On April 3, 2017, BPG Sub’s status Even if Brixmor Property Group Inc. qualifies for taxation as a REIT, terminated when BPG Sub became a disregarded subsidiary of the Parent Company for United StatesBrixmor Property Group Inc. is subject to certain state and local taxes on its income and property, and to U.S. federal income tax purposes. Prior toand excise taxes on its termination of REIT status, BPG Sub had alsoundistributed taxable income as well as other income items, as applicable.
Brixmor Property Group Inc. has elected to qualifytreat certain of its subsidiaries as a REIT under the Code and was subject to the same tax requirements and tax treatment as the Parent Company.
The Parent Company and BPG Sub have formed taxable REIT subsidiaries (each a “TRS”), and the Parent CompanyBrixmor Property Group Inc. may in the future elect to treat newly formed and/or other existing subsidiaries as taxable REIT subsidiaries which would be subject to income tax. Taxable REIT subsidiariesTRSs. A TRS may participate in non-real estate-relatedestate related activities and/or perform non-customary services for tenants and areis subject to United Statescertain limitations under the Code. A TRS is subject to U.S. federal and state income taxtaxes at regular corporate tax rates.
The Operating Partnership is organized as a limited partnership and is generally Income taxes related to Brixmor Property Group Inc.’s TRSs do not subject to federal income tax. Accordingly, no provision for federal income taxes has been reflected inmaterially impact the accompanying unaudited Condensed Consolidated Financial Statements. The Operating Partnership, however, may be subject to certain state and local income taxes or franchise taxes.Statements of the Company.
The Company has analyzedconsidered the tax positionpositions taken on income tax returns for the open 2013 through 2017 tax years and has concluded that no provision for income taxes related to uncertain tax positions is required in the Company’s unaudited Condensed Consolidated Financial Statements as of September 30, 20172019 and December 31, 2016.2018. Open tax years generally range from 2016 through 2018, but may vary by jurisdiction and issue. The Company recognizes penalties and interest accrued related to unrecognized tax benefits as income tax expense, which is included in Other on the Company’s unaudited Condensed Consolidated Statements of Operations.
New Accounting Pronouncements
In August 2017,November 2018, the FASB issuedFinancial Accounting Standards Update ("ASU"Board (“FASB”) 2017-12 "Derivatives and Hedging (Topic 815)."issued ASU 2017-12 amends guidance2018-19, “Codification Improvements to more closely alignTopic 326, Financial Instruments-Credit Losses.” ASU 2018-19 clarifies that receivables arising from operating leases are not within the resultsscope of cash flow and fair value hedge accountingSubtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with risk management activities through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in the financial statements.ASC 842, Leases. The standard is effective on January 1, 2019,2020, with early adoption permitted. The Company does not expect the adoption of ASU 2017-122018-19 to have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company. Information regarding the adoption of ASC 842 is described below.
In May 2017,October 2018, the FASB issued ASU 2017-09, "Compensation - Stock Compensation2018-16, “Derivatives and Hedging (Topic 718)815)."” ASU 2017-09 clarifies2018-16 amends guidance about which changes to permit the terms or conditionsuse of the Overnight Index Swap rate based on the Secured Overnight Financing Rate as a share-based payment award require an entity to apply modification accounting.U.S. benchmark interest rate for hedge accounting purposes under Topic 815. The standard isbecame effective on January 1, 2018, with early adoption permitted. The Company does not expect the adoption of ASU 2017-09 to have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company.
In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805)." ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new guidance will result in many real estate transactions being classified as an asset acquisition and transaction costs being capitalized. The standard is effective on January 1, 2018, with early adoption permitted. ASU 2017-01 was early adopted by the Company on
January 1, 2017. As a result of adopting ASU 2017-01 the Company has begun capitalizing transaction costs associated with the acquisition of real estate assets. During the three months ended September 30, 2017, the Company did not capitalize any transaction costs. During the nine months ended September 30, 2017, the Company capitalized $0.4 million of transaction costs. The Company determined that these amounts did not have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company.
In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230)." ASU 2016-18 requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard is effective on January 1, 2018, with early adoption permitted. ASU 2016-18 was early adopted by the Company on January 1, 2017. As a result of adopting ASU 2016-18 the Company now presents the unaudited Condensed Consolidated Statement of Cash Flows inclusive of restricted cash balances and also provides a reconciliation to the cash and cash equivalents and restricted cash amounts presented on the unaudited Condensed Consolidated Balance Sheets.2019. The Company determined that these changes did not have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company.
In August 2016,2018, the FASB issued ASU 2016-15, "Statement2018-13, “Fair Value Measurement(Topic 820).” ASU 2018-13 amends certain disclosure requirements regarding the fair value hierarchy of Cash Flows (Topic 230)." ASU 2016-15 provides classification guidance for certain cash receipts and cash payments including paymentinvestments in accordance with GAAP, particularly the significant unobservable inputs used to value investments within Level 3 of debt extinguishment costs, settlement of zero-coupon debt instruments, insurance claim payments and distributions from equity method investees.the fair value hierarchy. The standard is effective on January 1, 2018,2020, with early adoption permitted. The Company does not expect the adoption of ASU 2016-152018-13 to have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company.
In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718)." ASU 2016-09 sets out amendments to Employee Share-Based Payment Accounting. The new standard impacts certain aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statements of cash flows. The new standard became effective for the Company on January 1, 2017. As a result of adopting ASU 2016-09 the Company has elected to account for share-based award forfeitures on an actual basis as opposed to the use of an estimated forfeiture rate. The Company determined these changes did not have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company.
In February 2016, the FASB issued ASU 2016-02, "Leases“Leases (Topic 842)."” ASU 2016-02 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). ASU 2016-02 was subsequently amended by ASU 2018-01, “Land Easement Practical Expedient for Transition to Topic 842”; ASU 2018-10, “Codification Improvements to Topic 842”; ASU 2018-11, “Targeted Improvements”; and ASU 2018-20, “Narrow-Scope Improvements for Lessors”. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to recognize a right-of-usean ROU asset and a lease liability for all leases with a termterms of greater than 12 months, regardless of their classification. Leases with a termterms of 12 months or less willqualify for the short-term lease recognition exemption and may be accounted for similar to existingprevious guidance for operating leases today.leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existingprevious guidance for sales-type leases, direct financing leases and operating leases.
Adoption
The pronouncement requires a modified retrospective method of adoption and isstandard became effective for the Company on January 1, 2019 with early adoption permitted.and a modified retrospective transition approach was required. The Company will continue to evaluate the effectdetermined that the adoption of ASU 2016-02 will haveASC 842 had a material impact on the unaudited Condensed Consolidated Financial Statements of the Company. However,The Company elected the following optional practical expedients upon adoption:
The Company did not reassess whether a current arrangement contains a lease. (ASU 2016-02)
The Company did not reassess current lease classification. (ASU 2016-02)
The Company did not reassess initial direct costs recognized under previous guidance. (ASU 2016-02)
The Company did not reassess current land easements under ASC 842. (ASU 2018-01)
The Company applied ASC 842 as of the effective date. Therefore, the Company’s reporting for the comparative periods presented in the unaudited Condensed Consolidated Financial Statements of the Company currently believeswill continue to be in accordance with ASC 840, however certain prior period balances on the accompanying unaudited Condensed Consolidated Statements of Operations have been reclassified to conform to the current period presentation. The Company recognized a $2.0 million cumulative adjustment to decrease retained earnings for indirect leasing costs capitalized for executed leases that had not commenced as of the adoption date of ASU 2016-02 willASC 842. (ASU 2018-11)
The Company elected, by class of underlying asset, not haveto separate non-lease components from the associated lease components and instead account for them as a material impact for operatingsingle component. This resulted in the consolidation of Rental income and Expense reimbursements on the Company’s unaudited Condensed Consolidated Statements of Operations. (ASU 2018-11)
Lessee
For leases where itthe Company is the lessee, primarily for the Company’s ground leases and administrative office leases, the Company was required to record an ROU asset and a lease liability on its unaudited Condensed Consolidated Balance Sheets on the effective date. The Company elected to apply the short-term lease recognition exemption for all leases that qualified.
Lessor
For leases where the Company is the lessor, andthe Company will continue to record revenues from rental properties for its operating leases on a straight-line basis. However, for leases where the Company is a lessee, primarily for the Company’s ground leases and administrative office leases, the Company will be required to record a lease liability and a right of use asset on its unaudited Condensed Consolidated Balance Sheets at fair value upon adoption. In addition, initial direct internal leasing overhead costs will continue to be capitalized, however, indirect internal leasing overhead costs previously capitalized will beare being expensed under ASU 2016-02.ASC 842. During the three and nine months ended September 30, 2018, the Company capitalized $3.2 million and $8.7 million, respectively, of indirect leasing costs, including leasing payroll and legal costs.
In May 2014,addition, ASC 842 requires that additional lease disclosures be presented in the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 contains a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The guidance in ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into
contracts for the transfer of non-financial assets unless those contracts are within the scope of other standards. The core principleunaudited Condensed Consolidated Financial Statements of the guidance is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchangeCompany for those goods or services. The pronouncement allows either a full or modified retrospective method of adoptionboth lessor and is effectivelessee lease agreements. See Notes 9 and 10 for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted for reporting periods beginning after December 15, 2016. A majority of the Company’s tenant-related revenue is recognized pursuant to lease agreements and will be governed by the recently issued leasing guidance discussed above. The Company continues to evaluate the effect the adoption of ASU 2014-09 will have on the Company’s other sources of revenue. These include reimbursement amounts the Company receives from tenants for operating expenses such as real estate taxes, insurance and other common area expenses. However, the Company currently does not believe the adoption of ASU 2014-09 will significantly affect the timing of the recognition of the Company’s reimbursement revenue.additional information.
Any other recently issued accounting standards or pronouncements not disclosed above have been excluded as they either are not relevant to the Company, or they are not expected to have a material effect on the unaudited Condensed Consolidated Financial Statements of the Company.
2. Acquisition of Real Estate
During the nine months ended September 30, 2017,2019, the Company acquired the following for an aggregate purchase price, including transaction costs, of (dollarsassets, in thousands):separate transactions:
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| | | | | Aggregate Purchase Price |
Description | Location | Month Acquired | GLA | | Cash | | Debt Assumed | | Total |
Outparcel building adjacent to Annex of Arlington | Arlington Heights, IL | Feb-17 | 5,760 |
| | $ | 1,006 |
| | $ | — |
| | $ | 1,006 |
|
Outparcel adjacent to Northeast Plaza | Atlanta, GA | Feb-17 | N/A |
| | 1,537 |
| | — |
| | 1,537 |
|
Arborland Center | Ann Arbor, MI | Mar-17 | 403,536 |
| | 102,268 |
| | — |
| | 102,268 |
|
Building adjacent to Preston Park | Plano, TX | Apr-17 | 31,080 |
| | 4,015 |
| | — |
| | 4,015 |
|
Outparcel building adjacent to Cobblestone Village | St. Augustine, FL | May-17 | 4,403 |
| | 1,306 |
| | — |
| | 1,306 |
|
Outparcel adjacent to Wynnewood Village | Dallas, TX | May-17 | N/A |
| | 1,658 |
| | — |
| | 1,658 |
|
| | | 444,779 |
| | $ | 111,790 |
| | $ | — |
| | $ | 111,790 |
|
|
| | | | | | | | | | | |
Description(1) | | Location | | Month Acquired | | GLA | | Aggregate Purchase Price(2) |
Land adjacent to Parmer Crossing | | Austin, TX | | Apr-19 | | N/A |
| | $ | 2,197 |
|
Centennial Shopping Center | | Englewood, CO | | Apr-19 | | 113,682 |
| | 18,011 |
|
Plymouth Square Shopping Center(3) | | Conshohocken, PA | | May-19 | | 235,728 |
| | 56,909 |
|
Leases at Baytown Shopping Center | | Baytown, TX | | Jun-19 | | N/A |
| | 2,517 |
|
| | | | | | 349,410 |
| | $ | 79,634 |
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| |
(1) | No debt was assumed related to any of the listed acquisitions. |
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(2) | Aggregate purchase price includes $1.2 million of transaction costs. |
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(3) | GLA excludes square footage related to the anticipated relocation of the Company's regional office. Total acquired GLA is 288,718 square feet. |
During the nine months ended September 30, 2018, the Company acquired the following assets, in separate transactions:
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Description(1) | | Location | | Month Acquired | | GLA | | Aggregate Purchase Price(2) |
Land adjacent to Arborland Center | | Ann Arbor, MI | | Jun-18 | | N/A |
| | $ | 5,554 |
|
Outparcel adjacent to Lehigh Shopping Center | | Bethlehem, PA | | Jun-18 | | 12,739 |
| | 1,899 |
|
Outparcel building adjacent to Beneva Village Shoppes | | Sarasota, FL | | Jul-18 | | 3,710 |
| | 1,541 |
|
| | | | | | 16,449 |
| | $ | 8,994 |
|
| |
(1) | No debt was assumed related to any of the listed acquisitions. |
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(2) | Aggregate purchase price includes $0.2 million of transaction costs. |
The aggregate purchase price of the propertiesassets acquired during the nine months ended September 30, 2017,2019 and 2018, respectively, has been allocated as follows:
| | | | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, |
Assets | Assets | Assets | 2019 | | 2018 |
| | Land | $ | 19,240 |
| Land | $ | 25,953 |
| | $ | 6,078 |
|
| | Buildings | 75,286 |
| Buildings | 45,781 |
| | 2,448 |
|
| | Building and tenant improvements | 9,177 |
| Building and tenant improvements | 5,832 |
| | 238 |
|
| | Above market rents | 2,381 |
| Above-market leases(1) | 155 |
| | — |
|
| | In-place leases | 8,608 |
| In-place leases(2) | 6,923 |
| | 304 |
|
Total assets | Total assets | 114,692 |
| Total assets | 84,644 |
| | 9,068 |
|
| | | | | | |
Liabilities | Liabilities | | Liabilities | | | |
| Accounts payable, accrued expenses and other liabilities (below market leases) | 2,902 |
| Below-market leases(3) | 5,010 |
| | 74 |
|
| | Other liabilities | — |
| | — |
|
Total liabilities | Total liabilities | 2,902 |
| Total liabilities | 5,010 |
| | 74 |
|
Net Assets Acquired | $ | 111,790 |
| |
Net assets acquired | | Net assets acquired | $ | 79,634 |
| | $ | 8,994 |
|
| |
(1) | The weighted average amortization period at the time of acquisition for above-market leases related to assets acquired during the nine months ended September 30, 2019 was 10.4 years. |
In addition, during the nine months ended September 30, 2016, the Company acquired two land parcels and one outparcel building for an aggregate purchase price of $1.2 million. These amounts are included in Improvements to and investments in real estate assets on the Company’s unaudited Condensed Consolidated Statement of Cash Flows.
| |
(2) | The weighted average amortization period at the time of acquisition for in-place leases related to assets acquired during the nine months ended September 30, 2019 and 2018 was 8.8 years and 4.8 years, respectively. |
| |
(3) | The weighted average amortization period at the time of acquisition for below-market leases related to assets acquired during the nine months ended September 30, 2019 and 2018 was 24.3 years and 4.8 years, respectively. |
3. Dispositions and Assets Held for Sale
During the three months ended September 30, 2017,2019, the Company disposed of eight wholly owned12 shopping centers and 1 partial shopping center for aggregate net proceeds of $144.6 million resulting in aggregate gain of $25.5 million and aggregate impairment of $8.2 million. In addition, during the three months ended September 30, 2019, the Company received aggregate net proceeds of $0.1 million from previously disposed assets resulting in aggregate gain of $0.1 million.
During the nine months ended September 30, 2019, the Company disposed of 18 shopping centers and 4 partial shopping centers for aggregate net proceeds of $121.4$239.4 million resulting in aaggregate gain of $25.9$46.0 million and aggregate impairment of $14.4 million. In addition, during the nine months ended September 30, 2019, the Company received aggregate net proceeds of $0.4 million from previously disposed assets resulting in aggregate gain of $0.3 million.
During the three months ended September 30, 2018, the Company disposed of 26 shopping centers and 2 partial shopping centers for aggregate net proceeds of $437.4 million resulting in aggregate gain of $119.3 million and aggregate impairment of $4.2 million. During the nine months ended September 30, 2017,2018, the Company disposed of 14 wholly owned42 shopping centers and two outparcel buildings2 partial shopping centers for aggregate net proceeds of $228.7$676.5 million resulting in aaggregate gain of $54.9$158.5 million and aggregate impairment of $0.4$28.4 million. During the three and nine months ended September 30, 2017, the Company disposed of its unconsolidated joint venture interest for net proceeds of $12.4 million resulting in a gain of $4.6 million. The Company had one property held for sale as of September 30, 2017 with a carrying value of $8.2 million.
During the three months ended September 30, 2016, the Company disposed of two shopping centers for net proceeds of $10.6 million resulting in a gain of $2.5 million. DuringIn addition, during the nine months ended September 30, 2016,2018, the Company disposed of four shopping centers and one outparcel building forreceived net proceeds of $31.1$0.5 million from previously disposed assets resulting in a gain of $10.2 million and an impairment of less than $0.1$0.5 million. The Company had two properties held for sale as
As of September 30, 2016 with a carrying value of $24.1 million. In connection with these properties becoming2019 and December 31, 2018, the Company had 1 property in each period held for sale,sale. The following table presents the Company recognized a $2.0 million impairment to reduce the carrying value of one ofassets associated with the properties to its estimated net realizable value. The impairment charge was based upon the sales price in the signed contract with the third party buyer, adjusted to reflect associated disposition costs.classified as held for sale:
|
| | | | | | | | | |
Assets | September 30, 2019 | | December 31, 2018 |
| Land | $ | 1,720 |
| | $ | 1,220 |
|
| Buildings and improvements | 6,372 |
| | 2,927 |
|
| Accumulated depreciation and amortization | (2,124 | ) | | (1,334 | ) |
| Real estate, net | 5,968 |
| | 2,813 |
|
| Other assets | 218 |
| | 88 |
|
Assets associated with real estate assets held for sale | $ | 6,186 |
| | $ | 2,901 |
|
There were no discontinued operations for the three and nine months ended September 30, 20172019 and 20162018 as none of the dispositions represented a strategic shift in the Company'sCompany’s business that would qualify as discontinued operations.
4. Real Estate
The Company’s components of Real estate, net consisted of the following:
| | | September 30, 2017 | | December 31, 2016 | September 30, 2019 | | December 31, 2018 |
Land | $ | 1,985,781 |
| | $ | 2,006,655 |
| $ | 1,779,161 |
| | $ | 1,804,504 |
|
Buildings and improvements: | | | | | | |
Buildings and tenant improvements(1) | 8,143,978 |
| | 8,165,672 |
| 7,712,129 |
| | 7,626,363 |
|
Lease intangibles (1)(2) | 800,760 |
| | 836,731 |
| 630,065 |
| | 667,910 |
|
| 10,930,519 |
| | 11,009,058 |
| 10,121,355 |
| | 10,098,777 |
|
Accumulated depreciation and amortization (2)(3) | (2,320,090 | ) | | (2,167,054 | ) | (2,452,678 | ) | | (2,349,127 | ) |
Total | $ | 8,610,429 |
| | $ | 8,842,004 |
| $ | 7,668,677 |
| | $ | 7,749,650 |
|
| |
(1) | AtAs of September 30, 20172019 and December 31, 2016,2018, Buildings and tenant improvements included accrued amounts, net of anticipated insurance proceeds, of $46.5 million and $41.7 million, respectively. |
| |
(2) | As of September 30, 2019 and December 31, 2018, Lease intangibles consisted of $723.2$569.0 million and $758.0$601.0 million, respectively, of in-place leases and $77.6$61.1 million and $78.7$66.9 million, respectively, of above-market leases. These intangible assets are amortized over the term of each related lease. |
| |
(2)(3)
| AtAs of September 30, 20172019 and December 31, 2016,2018, Accumulated depreciation and amortization included $630.0$540.4 million and $632.8$560.3 million, respectively, of accumulated amortization related to Lease intangibles. |
In addition, atas of September 30, 20172019 and December 31, 2016,2018, the Company had intangible liabilities relating to below-market leases of $468.6$378.2 million and $485.2$392.9 million, respectively, and accumulated accretion of $277.2$267.3 million and $261.7
$266.1 million, respectively. These intangible liabilities are included in Accounts payable, accrued expenses and other liabilities inon the Company’s unaudited Condensed Consolidated Balance Sheets. These intangible assets are accreted over the term of each related lease.
Net above and below marketBelow-market lease intangible accretion income, net of above-market lease amortization for the three months ended September 30, 20172019 and 20162018 was $7.6$4.5 million and $9.4$5.8 million, respectively. Net above and below marketBelow-market lease intangible accretion income, net of above-market lease amortization for the nine months ended September 30, 20172019 and 20162018 was $23.0$14.1 million and $29.5$20.6 million, respectively. These amounts are included in Rental income inon the Company'sCompany’s unaudited Condensed Consolidated Statements of Operations. Amortization expense associated with in-place lease value for the three months ended September 30, 20172019 and 20162018 was $10.8$6.7 million and $14.5$8.0 million, respectively. Amortization expense associated with in-place lease value for the nine months ended September 30, 20172019 and 20162018 was $36.3$19.5 million and $47.7$27.2 million, respectively. These amounts are included in Depreciation and amortization inon the Company'sCompany’s unaudited Condensed Consolidated Statements of Operations. The Company’s estimated below-market lease accretion income, net accretion (income) andof above-market lease amortization expense, associated with the Company’s above and below market leases and in-place leaseslease amortization expense for the next five years are as follows:
|
| | | | | | | | |
Year ending December 31, | | Below-market lease accretion (income), net of above-market lease amortization | | In-place lease amortization expense |
2019 (remaining three months) | | $ | (4,204 | ) | | $ | 5,801 |
|
2020 | | (14,406 | ) | | 18,708 |
|
2021 | | (11,820 | ) | | 13,696 |
|
2022 | | (9,814 | ) | | 9,556 |
|
2023 | | (8,471 | ) | | 6,928 |
|
|
| | | | | | | | |
Year ending December 31, | | Above- and below-market lease accretion (income), net | | In-place lease amortization expense |
2017 (remaining three months) | | $ | (6,590 | ) | | $ | 9,642 |
|
2018 | | (24,797 | ) | | 33,291 |
|
2019 | | (20,882 | ) | | 26,284 |
|
2020 | | (17,036 | ) | | 19,611 |
|
2021 | | (14,066 | ) | | 14,151 |
|
Hurricane Michael Impact
On October 7, 2018, Hurricane Michael struck Florida resulting in widespread damage and flooding. The Company has 2 properties, totaling 0.4 million square feet of GLA, which were impacted. The Company maintains comprehensive property insurance on these properties, including business interruption insurance.
As of September 30, 2019, the Company’s assessment of the damages sustained to its properties from Hurricane Michael has resulted in cumulative accelerated depreciation of $13.7 million, representing the estimated net book value of damaged assets. The Company also recognized a corresponding receivable for estimated property insurance recoveries. As such, there was no impact to net income during the three and nine months ended September 30, 2019 and year ended December 31, 2018. As of September 30, 2019, the Company has received property insurance proceeds of $6.3 million and has a remaining receivable balance of $7.4 million, which is included in Receivables on the Company’s unaudited Condensed Consolidated Balance Sheets.
5. Impairments
On a periodic basis, management assesses whether there are any indicators, including property operating performance, changes in anticipated holdinghold period and general market conditions, that the carrying value of the Company’s real estate assets (including any related intangible assets or liabilities) may be impaired. If management determines that the carrying value of a real estate asset is impaired, a loss is recognized forto reflect the excess of its carrying amount over itsestimated fair value.
The Company recognized the following impairments during the three months ended September 30, 2017:2019:
|
| | | | | | | | | |
Three Months Ended September 30, 2017 |
Property Name | | Location | | GLA | | Impairment Charge |
Lexington Road Plaza(1) | | Versailles, KY | | 197,668 |
| | $ | 6,393 |
|
Shops at Seneca Mall(1) | | Liverpool, NY | | 231,024 |
| | 1,507 |
|
Remount Village Shopping Center(1) | | North Charleston, SC | | 60,238 |
| | 599 |
|
Fashion Square(1) | | Orange Park, FL | | 36,029 |
| | 2,125 |
|
Renaissance Center East(1)(2) | | Las Vegas, NV | | 144,216 |
| | 52 |
|
The Shoppes at North Ridgeville(1)(2) | | North Ridgeville, OH | | 59,852 |
| | 389 |
|
| | | | 729,027 |
| | $ | 11,065 |
|
|
| | | | | | | | | |
Three Months Ended September 30, 2019 |
Property Name(1) | | Location | | GLA | | Impairment Charge |
Parcel at Mansell Crossing(2) | | Alpharetta, GA | | 51,615 |
| | $ | 5,777 |
|
Glendale Galleria(2) | | Glendale, AZ | | 119,525 |
| | 2,197 |
|
Westview Center(2) | | Hanover Park, IL | | 321,382 |
| | 170 |
|
North Hills Village(2) | | Haltom City, TX | | 43,299 |
| | 26 |
|
| | | | 535,821 |
| | $ | 8,170 |
|
| |
(1) | The Company recognized impairment charges based upon a change in the estimatedanticipated hold period of these properties and/or offers from third-party buyers in connection with the Company'sCompany’s capital recycling program. |
| |
(2) | The Company disposed of this property during the three months ended September 30, 2017.2019. |
The Company recognized the following impairments during the nine months ended September 30, 2017:2019:
|
| | | | | | | | | |
Nine Months Ended September 30, 2017 |
Property Name | | Location | | GLA | | Impairment Charge |
The Plaza at Salmon Run(1) | | Watertown, NY | | 68,761 |
| | $ | 3,486 |
|
Smith's(1) | | Socorro, NM | | 48,000 |
| | 2,200 |
|
The Manchester Collection(1) | | Manchester, CT | | 342,247 |
| | 9,026 |
|
Renaissance Center East(1)(2) | | Las Vegas, NV | | 144,216 |
| | 1,658 |
|
Lexington Road Plaza(1) | | Versailles, KY | | 197,668 |
| | 6,393 |
|
Shops at Seneca Mall(1) | | Liverpool, NY | | 231,024 |
| | 1,507 |
|
Remount Village Shopping Center(1) | | North Charleston, SC | | 60,238 |
| | 599 |
|
Fashion Square(1) | | Orange Park, FL | | 36,029 |
| | 2,125 |
|
The Shoppes at North Ridgeville(1)(2) | | North Ridgeville, OH | | 59,852 |
| | 389 |
|
| | | | 1,188,035 |
| | $ | 27,383 |
|
|
| | | | | | | | | |
Nine Months Ended September 30, 2019 |
Property Name(1) | | Location | | GLA | | Impairment Charge |
Westview Center(2) | | Hanover Park, IL | | 321,382 |
| | $ | 6,356 |
|
Parcel at Mansell Crossing(2) | | Alpharetta, GA | | 51,615 |
| | 5,777 |
|
Brice Park | | Reynoldsburg, OH | | 158,565 |
| | 3,112 |
|
Glendale Galleria(2) | | Glendale, AZ | | 119,525 |
| | 2,197 |
|
North Hills Village(2) | | Haltom City, TX | | 43,299 |
| | 26 |
|
| | | | 694,386 |
| | $ | 17,468 |
|
| |
(1) | The Company recognized impairment charges based upon a change in the estimatedanticipated hold period of these properties and/or offers from third-party buyers in connection with the Company'sCompany’s capital recycling program. |
| |
(2) | The Company disposed of this property during the nine months ended September 30, 2017.2019. |
The Company recognized the following impairments during the three and nine months ended September 30, 2016:2018:
|
| | | | | | | | | |
Three and Nine Months Ended September 30, 2016 |
Property Name | | Location | | GLA | | Impairment Charge |
Inwood Forest(1) | | Houston, TX | | 77,553 |
| | $ | 52 |
|
Plymouth Plaza(2) | | Plymouth Meeting, PA | | 30,013 |
| | 1,990 |
|
Other | | - | | N/A |
| | (71 | ) |
| | | | 107,566 |
| | $ | 1,971 |
|
|
| | | | | | | | | |
Three Months Ended September 30, 2018 |
Property Name(1) | | Location | | GLA | | Impairment Charge |
Westview Center(2) | | Hanover Park, IL | | 321,382 |
| | $ | 5,916 |
|
Wadsworth Crossings(3) | | Wadsworth, OH | | 118,145 |
| | 3,411 |
|
Brooksville Square(3) | | Brooksville, FL | | 96,361 |
| | 2,740 |
|
Sterling Bazaar(3) | | Peoria, IL | | 87,359 |
| | 1,531 |
|
Plantation Plaza(3) | | Clute, TX | | 99,141 |
| | 1,228 |
|
Smith’s(3) | | Socorro, NM | | 48,000 |
| | 1,200 |
|
Shops of Riverdale(3) | | Riverdale, GA | | 16,808 |
| | 155 |
|
Dover Park Plaza(3) | | Yardville, NJ | | 56,638 |
| | 117 |
|
Klein Square(3) | | Spring, TX | | 80,636 |
| | 49 |
|
Parcel at Elk Grove Town Center(3) | | Elk Grove Village, IL | | 72,385 |
| | 19 |
|
Mount Carmel Plaza(3) | | Glenside, PA | | 14,504 |
| | 6 |
|
| | | | 1,011,359 |
| | $ | 16,372 |
|
| |
(1) | The Company disposed of this property during the three and nine months ended September 30, 2016. |
| |
(2)
| The Company recognized impairment charges based upon a change in the estimatedanticipated hold period of these properties in connection with the Company'sCompany’s capital recycling program. |
| |
(2) | The Company disposed of this property during the nine months ended September 30, 2019. |
| |
(3) | The Company disposed of this property during the year ended December 31, 2018. |
The Company recognized the following impairments during the nine months ended September 30, 2018:
|
| | | | | | | | | |
Nine Months Ended September 30, 2018 |
Property Name(1) | | Location | | GLA | | Impairment Charge |
County Line Plaza(2) | | Jackson, MS | | 221,127 |
| | $ | 10,181 |
|
Southland Shopping Plaza(2) | | Toledo, OH | | 285,278 |
| | 7,077 |
|
Westview Center(3) | | Hanover Park, IL | | 321,382 |
| | 5,916 |
|
Roundtree Place(2) | | Ypsilanti, MI | | 246,620 |
| | 4,317 |
|
Skyway Plaza | | St. Petersburg, FL | | 110,799 |
| | 3,639 |
|
Wadsworth Crossings(2) | | Wadsworth, OH | | 118,145 |
| | 3,411 |
|
Brooksville Square(2) | | Brooksville, FL | | 96,361 |
| | 2,740 |
|
Sterling Bazaar(2) | | Peoria, IL | | 87,359 |
| | 1,531 |
|
Pensacola Square(2) | | Pensacola, FL | | 142,767 |
| | 1,345 |
|
Plantation Plaza(2) | | Clute, TX | | 99,141 |
| | 1,228 |
|
Smith’s(2) | | Socorro, NM | | 48,000 |
| | 1,200 |
|
Dover Park Plaza(2) | | Yardville, NJ | | 56,638 |
| | 555 |
|
Parcel at Elk Grove Town Center(2) | | Elk Grove Village, IL | | 72,385 |
| | 538 |
|
Crossroads Centre(2) | | Fairview Heights, IL | | 242,752 |
| | 204 |
|
Shops of Riverdale(2) | | Riverdale, GA | | 16,808 |
| | 155 |
|
Mount Carmel Plaza(2) | | Glenside, PA | | 14,504 |
| | 115 |
|
Klein Square(2) | | Spring, TX | | 80,636 |
| | 49 |
|
| | | | 2,260,702 |
| | $ | 44,201 |
|
| |
(1) | The Company recognized impairment charges based upon a change in the anticipated hold period of these properties in connection with the Company’s capital recycling program. |
| |
(2) | The Company disposed of this property during the year ended December 31, 2018. |
| |
(3) | The Company disposed of this property during the nine months ended September 30, 2019. |
The Company can provide no assurance that material impairment charges with respect to its Portfolio will not occur in future periods. See Note 3 for additional information regarding impairment charges taken in connection with the Company’s dispositions. See Note 8 for additional information regarding the fair value of impairments taken on operating properties.properties which have been impaired.
6. Financial Instruments -– Derivatives and Hedging
The Company’s use of derivative instruments is limitedintended to the utilization ofmanage its exposure to interest rate agreements or othermovements and such instruments to manage interest rate risk exposures andare not utilized for speculative purposes. In certain situations, the Company may enter into derivative financial instruments such as interest rate swap and interest rate cap agreements that result in the receipt and/or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s objective in using interest rate derivatives is to add stability to interest expense and to manage its exposure to interest rate movements.
Cash Flow Hedges of Interest Rate Risk
Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without changingexchanging the underlying notional amount. The Company utilizes interest rate swaps to partially hedge the cash flows associated with variable LIBOR based debt. During the three and nine months ended September 30, 2017,2019, the Company did not0t enter into any new interest rate swap agreements. During the year ended December 31, 2016,2018, the Company entered into nine4 forward starting interest rate swap agreements (the “Swaps”) with an effective date of November 1, 2016 andJanuary 2, 2019, an aggregate notional value of $1.4 billion to partially hedge the variable cash flows associated with variable LIBOR based interest$300.0 million, a weighted average fixed rate debt.of 2.61% and an expiration date of July 26, 2024.
Detail ofon the Company’s interest rate derivatives designated as cash flow hedges outstanding as of September 30, 20172019 and December 31, 20162018 is as follows:
|
| | | | | | | | | | | | |
| | Number of Instruments | | Notional Amount |
| | September 30, 2019 | | December 31, 2018 | | September 30, 2019 | | December 31, 2018 |
Interest Rate Swaps | | 7 | | 10 | | $ | 800,000 |
| | $ | 1,200,000 |
|
|
| | | | | | | | | | | | |
| | Number of Instruments | | Notional Amount |
| | September 30, 2017 | | December 31, 2016 | | September 30, 2017 | | December 31, 2016 |
Interest Rate Swaps | | 9 | | 9 | | $ | 1,400,000 |
| | $ | 1,400,000 |
|
The Company has elected to present its interest rate derivatives on its unaudited Condensed Consolidated Balance Sheets on a gross basis as interest rate swap assets and interest rate swap liabilities. Detail on the Company’s fair value of interest rate derivatives on a gross and net basis as of September 30, 20172019 and December 31, 2016,2018, respectively, is as follows:
|
| | | | | | | | |
| | Fair Value of Derivative Instruments |
Interest rate swaps classified as: | | September 30, 2019 | | December 31, 2018 |
Gross derivative assets | | $ | 3,810 |
| | $ | 18,630 |
|
Gross derivative liabilities | | (17,124 | ) | | (2,571 | ) |
Net derivative assets (liabilities) | | $ | (13,314 | ) | | $ | 16,059 |
|
|
| | | | | | | | |
| | Fair Value of Derivative Instruments |
Interest rate swaps classified as: | | September 30, 2017 | | December 31, 2016 |
Gross derivative assets | | $ | 20,171 |
| | $ | 21,605 |
|
Gross derivative liabilities | | — |
| | — |
|
Net derivative assets | | $ | 20,171 |
| | $ | 21,605 |
|
The gross derivative assets are included in Other assets and the gross derivative liabilities are included in Accounts payable, accrued expenses and other liabilities on the Company'sCompany’s unaudited Condensed Consolidated Balance Sheets. All of the Company’s outstanding interest rate swap agreements for the periods presented were designated as cash flow hedges of interest rate risk. The fair value of the Company'sCompany’s interest rate derivatives is determined using market standard valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives,derivative, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. These inputs are classified as Level 2 of the fair value hierarchy. The effective portion of changes in the fair value of derivatives designated as and that qualify as, cash flow hedges is recognized in other comprehensive income (“OCI”) and is reclassified into earnings as interest expense in the period that the hedged forecasted transaction affects earnings.
The effective portion of the Company'sCompany’s interest rate swaps that was recognized inon the Company’s unaudited Condensed Consolidated StatementStatements of Comprehensive Income for the three and nine months ended September 30, 20172019 and 20162018 is as follows:
|
| | | | | | | | | | | | | | | | |
Derivatives in Cash Flow Hedging Relationships (Interest Rate Swaps) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Change in unrealized gain (loss) on interest rate swaps | | $ | (4,125 | ) | | $ | 1,868 |
| | $ | (23,375 | ) | | $ | 12,103 |
|
Accretion of interest rate swaps to interest expense | | (1,207 | ) | | (3,110 | ) | | (5,998 | ) | | (9,153 | ) |
Change in unrealized gain (loss) on interest rate swaps, net | | $ | (5,332 | ) | | $ | (1,242 | ) | | $ | (29,373 | ) | | $ | 2,950 |
|
|
| | | | | | | | | | | | | | | | |
Derivatives in Cash Flow Hedging Relationships (Interest Rate Swaps) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Change in unrealized gain (loss) on interest rate swaps | | $ | 132 |
| | $ | 79 |
| | $ | (532 | ) | | $ | (1,704 | ) |
Amortization of interest rate swaps to interest expense | | (1,094 | ) | | 1,242 |
| | (902 | ) | | 4,117 |
|
Change in unrealized gain (loss) on interest rate swaps, net | | $ | (962 | ) | | $ | 1,321 |
| | $ | (1,434 | ) | | $ | 2,413 |
|
The Company estimates that $7.0less than $0.1 million will be reclassified from accumulated other comprehensive incomeloss as a decreasean increase to interest expense over the next twelve months. No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on the Company’s cash flow hedges during the three and nine months ended September 30, 20172019 and 2016.2018.
Non-Designated (Mark-to Market)(Mark-to-Market) Hedges of Interest Rate Risk
The Company does not use derivatives for trading or speculative purposes. As of September 30, 20172019 and December 31, 2016,2018, the Company did not have any non-designated hedges.
Credit-risk-related Contingent Features
The Company has agreements with its derivative counterparties that contain a provisionprovisions whereby if the Company defaults on certain of its indebtedness and the indebtedness has been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. If the Company were to breach any of the contractual provisions of the derivative contracts, it would be required to settle its obligations under the agreements at their termination value including accrued interest.
7. Debt Obligations
As of September 30, 20172019 and December 31, 2016,2018, the Company had the following indebtedness outstanding:
|
| | | | | | | | | | | | |
| | Carrying Value as of | | | | |
| | September 30, 2019 | | December 31, 2018 | | Stated Interest Rate(1) | | Scheduled Maturity Date |
Secured loan | | | | | | | | |
Secured loan(2) | | $ | 7,000 |
| | $ | 7,000 |
| | 4.40% | | 2024 |
Net unamortized premium | | 224 |
| | 262 |
| | | | |
Net unamortized debt issuance costs | | (39 | ) | | (45 | ) | | | | |
Total secured loan, net | | $ | 7,185 |
| | $ | 7,217 |
| | | | |
| | | | | | | | |
Notes payable | | | | | | | | |
Unsecured notes(3)(4) | | $ | 4,218,453 |
| | $ | 3,468,453 |
| | 3.25% – 7.97% | | 2022 – 2029 |
Net unamortized premium (discount) | | 11,152 |
| | (11,562 | ) | | | | |
Net unamortized debt issuance costs | | (24,726 | ) | | (20,877 | ) | | | | |
Total notes payable, net | | $ | 4,204,879 |
| | $ | 3,436,014 |
| | | | |
| | | | | | | | |
Unsecured Credit Facility and term loans | | | | | | | | |
Unsecured Credit Facility - $500 Million Term Loan | | $ | — |
| | $ | 500,000 |
| | — | | 2021 |
Unsecured Credit Facility - Revolving Facility | | — |
| | 306,000 |
| | — | | 2023 |
Unsecured $350 Million Term Loan(4) | | 350,000 |
| | 350,000 |
| | 3.35% | | 2023 |
Unsecured $300 Million Term Loan(5) | | 300,000 |
| | 300,000 |
| | 3.35% | | 2024 |
Net unamortized debt issuance costs | | (9,554 | ) | | (13,368 | ) | | | | |
Total Unsecured Credit Facility and term loans | | $ | 640,446 |
| | $ | 1,442,632 |
| | | | |
| | | | | | | | |
Total debt obligations, net | | $ | 4,852,510 |
| | $ | 4,885,863 |
| | | | |
|
| | | | | | | | | | | | |
| | Carrying Value as of | | | | |
| | September 30, 2017 | | December 31, 2016 | | Stated Interest Rates (7) | | Scheduled Maturity Date |
Secured loans | | | | | | | | |
Secured loans(1)(2) | | $ | 915,936 |
| | $ | 1,312,292 |
| | 4.40% - 7.89% | | 2017 – 2024 |
Net unamortized premium | | 16,803 |
| | 25,189 |
| | | | |
Net unamortized debt issuance cost | | (150 | ) | | (387 | ) | | | | |
Total secured loans, net | | $ | 932,589 |
| | $ | 1,337,094 |
| | | | |
| | | | | | | | |
Notes payable | | | | | | | | |
Unsecured notes(3) | | $ | 3,218,453 |
| | $ | 2,318,453 |
| | 3.25% - 7.97% | | 2022 - 2029 |
Net unamortized discount | | (13,965 | ) | | (9,097 | ) | | | | |
Net unamortized debt issuance cost | | (23,306 | ) | | (17,402 | ) | | | | |
Total notes payable, net | | $ | 3,181,182 |
| | $ | 2,291,954 |
| | | | |
| | | | | | | | |
Unsecured Credit Facility and Term Loan | |
| | | | | | |
Unsecured Credit Facility(4) | | $ | 710,000 |
| | $ | 1,622,000 |
| | 2.60% | | 2018 – 2021 |
Unsecured $600 Million Term Loan(5) | | 600,000 |
| | 600,000 |
| | 2.65% | | 2019 |
Unsecured $300 Million Term Loan(6) | | 300,000 |
| | — |
| | 3.14% | | 2024 |
Net unamortized debt issuance cost | | (10,083 | ) | | (12,159 | ) | | | | |
Total Unsecured Credit Facility and Term Loan | | $ | 1,599,917 |
| | $ | 2,209,841 |
| | | | |
| | | | | | | | |
Total debt obligations, net | | $ | 5,713,688 |
| | $ | 5,838,889 |
| | | | |
| |
(1) | Stated interest rates as of September 30, 2019 do not include the impact of the Company’s interest rate swap agreements (described below). |
| |
(2) | The Company’s secured loans areloan is collateralized by certain properties and the equity interests of certain subsidiaries. These properties hada property with a carrying value of approximately $16.4 million as of September 30, 2017 of approximately $1.8 billion.2019. |
| |
(2)(3)
| The weighted average interest rate on the Company’s fixed rate secured loans was 6.16% as of September 30, 2017. |
| |
(3)
| The weighted averagestated interest rate on the Company’s unsecured notes was 3.81%3.83% as of September 30, 2017.2019. |
| |
(4) | Effective November 1, 2016, the Company has in place one interest rate swap agreement that converts the variable interest rate on $210.0 million of a term loan under the Company's $2.75 billion senior unsecured credit facility as amended July 25, 2016, (the "Unsecured Credit Facility") to a fixed interest rate of 0.82% (plus a spread of 135 bps) through July 31, 2018, and three3 interest rate swap agreements that convert the variable interest rate on a $500.0$150.0 million term loan underof the Unsecured Credit FacilityCompany’s $250.0 million Floating Rate Senior Notes due 2022, issued on August 31, 2018 (the “2022 Notes”) to a fixed, combined interest rate of 1.11% (plus a spread of 135 bps)105 basis points) and the Company’s $350.0 million term loan agreement, as amended December 12, 2018, (the “$350 Million Term Loan”) to a fixed, combined interest rate of 1.11% (plus a spread of 125 basis points) through July 30, 2021. |
| |
(5) | Effective November 1, 2016,January 2, 2019, the Company has in place two4 interest rate swap agreements that convert the variable interest rate on $200.0 million of the Company's $600Company’s $300 million term loan agreement, as amended July 25, 2016,December 12, 2018 (the "$600 million“$300 Million Term Loan"Loan”) to a fixed, combined interest rate of 0.82%2.61% (plus a spread of 140 bps)125 basis points) through July 31, 2018, and three interest rate swap agreements that convert the variable interest rate on $400.0 million of the $600 million Term Loan to a fixed interest rate of 0.88% (plus a spread of 140 bps) through March 18, 2019. |
| |
(6)
| Effective July 28, 2017, the Company has in place one interest rate swap agreement that converts the variable interest rate on $90.0 million of the $300 Million Term Loan (defined below) to a fixed interest rate of 0.82% (plus a spread of 190 bps) through July 31, 2018. |
| |
(7)
| The stated interest rates are as of September 30, 2017 and do not include the impact of any interest rate swap agreements.26, 2024. |
20172019 Debt Transactions
In March 2017,May 2019, the Operating Partnership issued $400.0 million aggregate principal amount of 3.90%4.125% Senior Notes due 20272029 (the “2027“2029 Notes”), at 99.804% of par, the net proceeds of which were utilizedused to repay outstanding indebtedness including borrowings under the Company's UnsecuredOperating Partnership’s senior unsecured credit facility agreement, as amended December 12, 2018 (the “Unsecured Credit Facility,Facility”), and for general corporate purposes. The 20272029 Notes bear interest at a rate of 3.90%4.125% per annum, payable semi-annually on MarchMay 15 and SeptemberNovember 15 of each year, commencing SeptemberNovember 15, 2017.2019. The 20272029 Notes will mature on MarchMay 15, 2027.2029. The 2027Operating Partnership may redeem the 2029 Notes prior to maturity at its option, at any time in whole or from time to time in part, at the applicable redemption price specified in the Indenture with respect to the 2029 Notes. If the 2029 Notes are redeemed on or after February 15, 2029 (three months prior to the maturity date), the redemption price will be equal to 100% of the principal amount of the 2029 Notes being redeemed plus accrued and unpaid interest thereon to, but not including, the redemption date. The 2029 Notes are the Operating Partnership’s unsecured and unsubordinated obligations and rank equally in right of payment with all of the Operating Partnership’s existing and future senior unsecured and unsubordinated indebtedness. The Operating Partnership may redeem the 2027 Notes at any time in whole or from time to time in part at the applicable make-whole redemption price specified in the Indenture with respect to the 2027 Notes. If the 2027 Notes are redeemed on or after December 15, 2026 (three months prior to the maturity date), the redemption price will be equal to 100% of the principal amount of the 2027 Notes being redeemed plus accrued and unpaid interest thereon to, but not including, the redemption date.
In June 2017,August 2019, the Operating Partnership issued $500.0$350.0 million aggregate principal amount of 3.65%4.125% Senior Notes due 2024 (the “2024 Notes”),2029 at 106.402% of par, the net proceeds of which were utilizedused to repay outstanding indebtedness including borrowings under the Company's Unsecured Credit Facility and for general corporate purposes. The 2024 Notes bear interest atnotes have substantially identical terms as, constitute a ratefurther issuance of, 3.65% per annum, payable semi-annually on June 15 and December 15 of each year, commencing December 15, 2017. The 2024 Notes will mature on June 15, 2024. The 2024 Notes areform a single series with, the Operating Partnership’s unsecured and unsubordinated obligations and rank equally in right of payment with all of the Operating Partnership’s existing and future senior unsecured and unsubordinated indebtedness. The Operating Partnership may redeem the 2024 Notes at any time in whole or from time to time in part at the applicable make-whole redemption price specified in the Indenture with respect to the 2024outstanding 2029 Notes. If the 2024 Notes are redeemed on or after April 15, 2024 (two months prior to the maturity date), the redemption price will be equal to 100% of the principal amount of the 2024 Notes being redeemed plus accrued and unpaid interest thereon to, but not including, the redemption date.
In July 2017, the Operating Partnership entered into a $300.0 million variable rate unsecured term loan facility (the "$300 Million Term Loan"). The $300 Million Term Loan has a seven-year term maturing on July 26, 2024, with no available extension options, and bears interest at a rate of LIBOR plus 190 basis points (based on the Operating Partnership’s current credit ratings). Proceeds from the $300 Million Term Loan were used to prepay $300.0 million of an unsecured term loan under the Company's Unsecured Credit Facility maturing July 31, 2018.
During the nine months ended September 30, 2017,2019, the Company repaid $380.3$806.0 million of secured loans and $790.0 million of an unsecured term loanindebtedness under the Company's Unsecured Credit Facility, resulting in a $0.5including $500.0 million gain on extinguishment of debt, net.unsecured term loans and $306.0 million of the Operating Partnership’s $1.25 billion revolving credit facility (the “Revolving Facility”), net of borrowings. These repayments were funded primarily with proceeds from the issuance of the 2027 Notes, 2024 Notes and $300 Million Term Loan. In addition,2029 Notes. Additionally, during the nine months ended September 30, 2017,2019, the Company repaid $122.0recognized a $1.6 million loss on extinguishment of debt, net as a result of borrowingsdebt transactions. Loss on the Revolving Facility.extinguishment of debt, net includes $1.6 million of accelerated unamortized debt issuance costs.
Pursuant to the terms of the Company’s unsecured debt agreements, the Company among other things is subject to the maintenance of various financial covenants. The Company was in compliance with these covenants as of September 30, 2017.2019.
Debt Maturities
As of September 30, 20172019 and December 31, 2016,2018, the Company had accrued interest of $27.2$36.0 million and $34.1$34.0 million outstanding, respectively. As of September 30, 2017,2019, scheduled amortization and maturities of the Company’s outstanding debt obligations were as follows:
|
| | | | |
Year ending December 31, | | |
2019 (remaining three months) | | $ | — |
|
2020 | | — |
|
2021 | | — |
|
2022 | | 750,000 |
|
2023 | | 850,000 |
|
Thereafter | | 3,275,453 |
|
Total debt maturities | | 4,875,453 |
|
Net unamortized premium | | 11,376 |
|
Net unamortized debt issuance costs | | (34,319 | ) |
Total debt obligations, net | | $ | 4,852,510 |
|
|
| | | | |
Year ending December 31, | | |
2017 (remaining three months) | | $ | 13,165 |
|
2018 | | 227,892 |
|
2019 | | 618,437 |
|
2020 | | 673,217 |
|
2021 | | 686,225 |
|
Thereafter | | 3,525,453 |
|
Total debt maturities | | 5,744,389 |
|
Net unamortized premiums and discounts | | 2,838 |
|
Net unamortized debt issuance costs | | (33,539 | ) |
Total debt obligations, net | | $ | 5,713,688 |
|
As of the date the financial statements were issued, the Company did not have any scheduled debt maturities for the next 12 months.
8. Fair Value Disclosures
All financial instruments of the Company are reflected in the accompanying unaudited Condensed Consolidated Balance Sheets at amounts which, in management’s judgment, reasonably approximate their fair values, except those instruments listed below:
|
| | | | | | | | | | | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
| | Carrying Amounts | | Fair Value | | Carrying Amounts | | Fair Value |
|
| Secured loans | $ | 7,185 |
| | $ | 7,309 |
| | $ | 7,217 |
| | $ | 7,072 |
|
| Notes payable | 4,204,879 |
| | 4,415,073 |
| | 3,436,014 |
| | 3,372,418 |
|
| Unsecured Credit Facility and term loans | 640,446 |
| | 652,515 |
| | 1,442,632 |
| | 1,452,382 |
|
| Total debt obligations, net | $ | 4,852,510 |
| | $ | 5,074,897 |
| | $ | 4,885,863 |
| | $ | 4,831,872 |
|
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | Carrying Amounts | | Fair Value | | Carrying Amounts | | Fair Value |
|
| Secured loans | $ | 932,589 |
| | $ | 989,296 |
| | $ | 1,337,094 |
| | $ | 1,410,698 |
|
| Notes payable | 3,181,182 |
| | 3,231,275 |
| | 2,291,954 |
| | 2,302,048 |
|
| Unsecured Credit Facility and Term Loans | 1,599,917 |
| | 1,611,802 |
| | 2,209,841 |
| | 2,223,807 |
|
| Total debt obligations, net | $ | 5,713,688 |
| | $ | 5,832,373 |
| | $ | 5,838,889 |
| | $ | 5,936,553 |
|
As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy is included in GAAP that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs that are classified within Level 3 of the hierarchy).
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The valuation methodology used to estimate the fair value of the Company’s debt obligations is based on a discounted cash flow analysis, with assumptions that include credit spreads, interest rate curves, estimated property values, loan amounts and debt maturities. Thematurity dates. Based on these inputs, the Company has determined that the valuations of its debt obligations are classified within Level 3 of the fair value hierarchy. Such fair value estimates are not necessarily indicative of the amounts that would be realized upon disposition.
Recurring Fair Value
The Company’s marketable securities and interest rate derivatives are measured and recognized at fair value on a recurring basis. The fair valuevaluations of the Company’s marketable securities are based primarily on publicly traded market values in active markets and are classified within Level 1 or 2 of the fair value hierarchy. See Note 6 for fair value information regarding the Company'sCompany’s interest rate derivatives.
The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured and recognized at fair value on a recurring basis:
| | | Fair Value Measurements as of September 30, 2017 | Fair Value Measurements as of September 30, 2019 |
| Balance | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | Balance | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | | | | | | | | |
Marketable securities(1) | $ | 28,840 |
| | $ | 986 |
| | $ | 27,854 |
| | $ | — |
| $ | 19,109 |
| | $ | 1,074 |
| | $ | 18,035 |
| | $ | — |
|
Interest rate derivatives | $ | 20,171 |
| | $ | — |
| | $ | 20,171 |
| | $ | — |
| $ | 3,810 |
| | $ | — |
| | $ | 3,810 |
| | $ | — |
|
| | | | | | | | | | | | | | |
Liabilities: | | | | | | | | |
Interest rate derivatives | | $ | (17,124 | ) | | $ | — |
| | $ | (17,124 | ) | | $ | — |
|
| | | | | | | | |
| Fair Value Measurements as of December 31, 2016 | Fair Value Measurements as of December 31, 2018 |
| Balance | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | Balance | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | | | | | | | | |
Marketable securities(1) | $ | 25,573 |
| | $ | 5,679 |
| | $ | 19,894 |
| | $ | — |
| $ | 30,243 |
| | $ | 1,756 |
| | $ | 28,487 |
| | $ | — |
|
Interest rate derivatives | $ | 21,605 |
| | $ | — |
| | $ | 21,605 |
| | $ | — |
| $ | 18,630 |
| | $ | — |
| | $ | 18,630 |
| | $ | — |
|
| | | | | | | | |
Liabilities: | | | | | | | | |
Interest rate derivatives | | $ | (2,571 | ) | | $ | — |
| | $ | (2,571 | ) | | $ | — |
|
| |
(1) | As of September 30, 20172019 and December 31, 20162018, marketable securities included $0.1 million of net unrealized losses.gains and $0.1 million of net unrealized losses, respectively. As of September 30, 2019, the contractual maturities of the Company’s marketable securities are within the next five years. |
Non-Recurring Fair Value
On a non-recurringperiodic basis, the Company evaluatesmanagement assesses whether there are any indicators, including property operating performance, changes in anticipated hold period and general market conditions, that the carrying value of its properties when eventsthe Company’s real estate assets (including any related intangible assets or changes in circumstances indicate that the carrying valueliabilities) may not be recoverable.impaired. Fair value is determined by purchase price offers from third-party buyers, market comparable data, third party appraisals or by discounted cash flow analysis using the income approach. Theseanalysis. The cash flows utilized in such analyses are comprised of unobservable inputs which include forecasted rental revenue and expenses based upon market conditions and future expectations. CapitalizationThe capitalization rates and discount rates utilized in these modelssuch analyses are based upon unobservable rates that we believe to be within a reasonable range of current market rates for the respective properties. Based on these inputs, the Company has determined that the valuationvaluations of these properties isare classified within Level 3 of the fair value hierarchy.
The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured and recognized at fair value on a non-recurring basis. The table includes information related to properties that were remeasured to fair value as a result of impairment testing:testing during the nine months ended September 30, 2019 and during the year ended December 31, 2018, excluding the properties sold prior to September 30, 2019 and December 31, 2018, respectively:
|
| | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of September 30, 2019 | | |
| Balance | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Impairment of Real Estate Assets |
Assets: | | | | | | | | | |
Properties(1)(2) | $ | 9,700 |
| | $ | — |
| | $ | — |
| | $ | 9,700 |
| | $ | 3,112 |
|
| | | | | | | | | |
| Fair Value Measurements as of December 31, 2018 | | |
| Balance | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Impairment of Real Estate Assets |
Assets: | | | | | | | | | |
Properties(3)(4)(5) | $ | 31,725 |
| | $ | — |
| | $ | — |
| | $ | 31,725 |
| | $ | 16,303 |
|
|
| | | | | | | | | | | | | | | |
| Fair Value Measurements as of September 30, 2017 |
| Balance | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | |
Properties(1)(2) | $ | 69,652 |
| | $ | — |
| | $ | — |
| | $ | 69,652 |
|
| | | | | | | |
| Fair Value Measurements as of December 31, 2016 |
| Balance | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | |
Properties(3) | $ | 285 |
| | $ | — |
| | $ | — |
| | $ | 285 |
|
| |
(1) | DuringExcludes properties disposed of prior to September 30, 2019. |
| |
(2) | The carrying value of properties remeasured to fair value based upon offers from third-party buyers during the nine months ended September 30, 2017, the Company recognized $15.32019 includes $9.7 million related to Brice Park. |
| |
(3) | Excludes properties disposed of impairmentprior to December 31, 2018. |
| |
(4) | The carrying value of properties remeasured to fair value based upon offers from third partythird-party buyers and $12.1during the year ended December 31, 2018 includes $26.1 million related to Westview Center. |
| |
(5) | The carrying value of impairmentproperties remeasured to fair value based upon a discounted cash flow analysis. The discounted cash flow analysis included all estimated cash inflowsduring the year ended December 31, 2018 includes: (i) $2.9 million related to Skyway Plaza and outflows over a specified holding period. These cash flows were comprised of unobservable inputs which include forecasted revenues and expenses based upon market conditions and future expectations.(ii) $2.7 million related to Covington Gallery. The capitalization rates (ranging from 7.0%9.0% to 8.5%9.3%) and discount rates (ranging from 7.9%6.0% to 9.5%10.4%) which were utilized in the analysisdiscounted cash flow analyses were based upon unobservable rates that the Company believes to be within a reasonable range of current market rates for each respective investment. |
9. Revenue Recognition
The Company engages in the ownership, management, leasing, acquisition, disposition and redevelopment of retail shopping centers. Revenue is primarily generated through lease agreements and classified as Rental income on the Company’s unaudited Condensed Consolidated Statements of Operations. These agreements include retail shopping center unit leases; ground leases; ancillary leases or agreements, such as agreements with tenants for cellular towers, ATMs, and short-term or seasonal retail (e.g. Halloween or Christmas-related retail); and reciprocal easement agreements. The agreements range in term from less than one year to 25 or more years, with certain agreements containing extension options. These extension options range from as little as one month to five or more years. The Company’s retail shopping center leases generally require tenants to pay their proportionate share of reimbursable expenses such as common area expenses, utilities, insurance and real estate taxes.
As of September 30, 2019, the fixed contractual lease payments to be received over the next five years pursuant to the terms of non-cancelable operating leases are included in the table below, assuming that no leases are renewed and no renewal options are exercised. Additionally, the table does not include variable lease payments which may be received under certain leases for the reimbursement of property operating expenses or percentage rents. These variable lease payments are recognized in the period when the applicable expenditures are incurred or, in the case of percentage rents, when the sales data is made available.
|
| | | | |
Year ending December 31, | | Operating Leases |
2019 (remaining three months) | | $ | 212,057 |
|
2020 | | 811,776 |
|
2021 | | 711,393 |
|
2022 | | 601,482 |
|
2023 | | 502,045 |
|
Thereafter | | 1,753,242 |
|
Minimum Annual Base Rents As Presented Under ASC 840
Future minimum annual base rents as of and in-place at December 31, 2018 to be received over the next five years pursuant to the terms of non-cancelable operating leases are included in the table below, assuming that no leases are renewed and no renewal options are exercised. Future minimum annual base rents also do not include payments which may be received under certain leases for the reimbursement of property operating expenses or percentage rents.
|
| | | | |
Year ending December 31, | | Operating Leases |
2019 | | $ | 811,381 |
|
2020 | | 709,230 |
|
2021 | | 599,367 |
|
2022 | | 490,087 |
|
2023 | | 392,892 |
|
Thereafter | | 1,368,278 |
|
10. Leases
The Company periodically enters into agreements in which it is the lessee, including ground leases for neighborhood and community shopping centers that it operates and office leases for administrative space. The agreements range in term from less than one year to 50 or more years, with certain agreements containing extension options for up to an additional 100 years. As of September 30, 2019 the Company is not including any options to extend or any termination options in its ROU asset, as the exercise of such options is not reasonably certain. Upon lease execution, the Company measures a liability for the present value of future lease payments over the noncancellable period of the lease. Certain agreements require the Company to pay its proportionate share of reimbursable expenses such as common area expenses, utilities, insurance and real estate taxes. These payments are not included in the calculation of the lease liability and are presented as variable lease costs. The following table presents additional information pertaining to the Company’s operating leases:
|
| | | | | | | | |
Supplemental Statements of Operations Information | | Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 |
Operating lease costs | | $ | 1,705 |
| | $ | 5,121 |
|
Short-term lease costs | | 9 |
| | 29 |
|
Variable lease costs | | 80 |
| | 336 |
|
Total lease costs | | $ | 1,794 |
| | $ | 5,486 |
|
| | | | |
Supplemental Statements of Cash Flows Information | | Nine Months Ended September 30, 2019 | | |
Operating cash outflows from operating leases | | $ | 5,226 |
| | |
ROU assets obtained in exchange for operating lease liabilities | | $ | 44,354 |
| | |
| | | | |
Operating Lease Liabilities | | As of September 30, 2019 | | |
Future minimum operating lease payments: | | | | |
2019 (remaining three months) | | $ | 1,725 |
| | |
2020 | | 6,916 |
| | |
2021 | | 6,942 |
| | |
2022 | | 6,999 |
| | |
2023 | | 5,611 |
| | |
Thereafter | | 30,807 |
| | |
Total future minimum operating lease payments | | 59,000 |
| | |
Less: imputed interest | | (13,396 | ) | | |
Operating lease liabilities | | $ | 45,604 |
| | |
| | | | |
Supplemental Balance Sheets Information | | As of September 30, 2019 | | |
Operating lease liabilities(1)(2) | | $ | 45,604 |
| | |
ROU assets(1)(3) | | $ | 40,599 |
| | |
| |
(1) | As of September 30, 2019, the weighted average remaining lease term was 11.1 years and the weighted average discount rate was 4.30%. |
| |
(2) | The carrying value of properties remeasured to fair value duringThese amounts are included in Accounts payable, accrued expenses and other liabilities on the nine months ended September 30, 2017 include: (i) $7.8 million related to The Plaza at Salmon Run, (ii) $1.9 million related to Smith's, (iii) $46.9 million related to The Manchester Collection, (iv) $4.7 million related to Lexington Road Plaza, (v) $3.8 million related to Shops at Seneca Mall, (vi) $2.2 million related to Remount Village Shopping Center, and (vii) $2.4 million related to Fashion Square.Company’s unaudited Condensed Consolidated Balance Sheets. |
| |
(3) | The carrying value of properties remeasured to fair value duringThese amounts are included in Other assets on the year ended December 31, 2016 include: (i) $0.1 million related to a parcel at Country Hills Shopping Center and (ii) $0.2 million related to Milford Center.Company’s unaudited Condensed Consolidated Balance Sheets. |
As of September 30, 2019, there were no material leases that have been executed but not yet commenced.
Minimum Annual Rental Commitments As Presented Under ASC 840
Minimum annual rental commitments as of and in-place at December 31, 2018 for the Company's ground and office leases during the next five years and thereafter are as follows:
|
| | | | |
Year ending December 31, | | |
2019 | | $ | 6,929 |
|
2020 | | 6,948 |
|
2021 | | 7,157 |
|
2022 | | 7,233 |
|
2023 | | 5,827 |
|
Thereafter | | 43,876 |
|
Total minimum annual rental commitments | | $ | 77,970 |
|
9.11. Equity and Capital
ATMShare Repurchase Program
In 2015,December 2017, the Parent Company entered into an at-the-market equity offeringBoard of Directors authorized a share repurchase program (“ATM”(the “Program”) through which the Parent Company may sell from time to timefor up to an aggregate of $400.0 million of itsthe Company’s common stock through sales agents over a three-year period. Nostock. The Program is scheduled to expire on December 5, 2019, unless extended by the Board of Directors. During the nine months ended September 30, 2019, the Company repurchased 0.8 million shares have been issued under the ATM and as result $400.0 million of common stock remained available for issuance under the ATM asProgram at an average price per share of $17.43 for a total of $14.6 million, excluding commissions. The Company incurred commissions of less than $0.1 million in conjunction with the Program for the nine months ended September 30, 2019. During the nine months ended September 30, 2018, the Company repurchased 4.9 million shares of common stock under the Program at an average price per share of $16.71 for a total of $81.9 million, excluding commissions. The Company incurred commissions of $0.1 million in conjunction with the Program for the nine months ended September 30, 2018. As of September 30, 2017.2019, the Program had $275.0 million of available repurchase capacity.
Common Stock
In connection with the vesting of restricted stock units ("RSUs"(“RSUs”) under the Company'sCompany’s equity-based compensation plan, the Company withholds shares to satisfy statutory minimum tax withholding obligations. During the nine months ended September 30, 20172019 and 2016,2018, the Company withheld 0.1 million shares.
Dividends and Distributions
During the three months ended September 30, 20172019 and 2016,2018, the Company declared common stock dividends and OP unitUnit distributions of $0.260$0.280 per share/unit and $0.245$0.275 per share/unit, respectively. As of September 30, 20172019 and December 31, 2016,2018, the Company had declared but unpaid common stock dividends and OP unitUnit distributions of $81.1
$85.4 million and $80.6$85.3 million, respectively. These amounts are included in Accounts payable, accrued expenses and other liabilities on the Company'sCompany’s unaudited Condensed Consolidated Balance Sheets.
Non-controlling interests
During the nine months ended September 30, 2017, the Company exchanged 0.4 million shares of the Company's common stock for an equal number of outstanding OP Units held by certain members of the Parent Company's current and former management. As of September 30, 2017, the Parent Company beneficially owned, through its direct and indirect interest in BPG Sub and the General Partner, 100.0% of the outstanding OP Units.
Preferred Stock
During the nine months ended September 30, 2017, the Company redeemed all 125 shares of BPG Sub Series A Redeemable Preferred Stock for $10,000 per share.
10.12. Stock Based Compensation
During the year ended December 31, 2013, the Board of Directors approved the 2013 Omnibus Incentive Plan (the “Plan”). The Plan provides for a maximum of 15.0 million shares of the Company’s common stock to be issued for qualified and non-qualified options, stock appreciation rights, restricted stock and RSUs, OP Units, performance awards and other stock-based awards.
During the nine months ended September 30, 20172019 and the year ended December 31, 2016,2018, the Company granted RSUs to certain employees. The RSUs are divided into multiple tranches, with each tranchewhich are all subject to separate performance-based, market-based and service-based vesting conditions. Each award containsCertain tranches are also subject to performance-based or market-based vesting conditions, which contain a threshold, target, and maximum number of units in respect to each tranche.which can be earned. The number of units actually earned for each tranche is determined based on performance during a specified performance period, and the earned units are then further subject toperiod. Tranches that only have a service-based vesting conditions.component can only earn a target number of units. The aggregate number of RSUs granted, assuming that the
target level of performance is achieved, was 0.60.8 million and 0.8 million for the nine months ended September 30, 20172019 and the year ended December 31, 2016,2018, respectively, with vesting periods ranging from one to five years. For the performance-based and service-based RSUs granted, under the Plan, fair value is based on the CompanyCompany’s grant date stock price. For the market-based RSUs granted during the nine months ended September 30, 20172019 and the year ended December 31, 2016,2018, the Company calculated the grant date fair values per unit using a Monte Carlo simulation based on the probability of satisfying the market performance hurdles over the remainder of the performance period based on the Company’s historical common stock performance relative to the other companies within the FTSE NAREIT Equity Shopping Centers Index as well as the following significant assumptions: (i) volatility of 22.0%20.0% to 23.0%21.0% and 23.5%29.0% to 26.5%32.0%, respectively; (ii) a weighted average risk-free interest rate of 1.20%2.55% and 2.43% to 1.41% and 1.0%2.53%, respectively; and (iii) the Company’s weighted average common stock dividend yield of 4.0% to 4.6%5.6% and 3.8%5.6%, respectively.
During the three months ended September 30, 20172019 and 2016,2018, the Company recognized $2.9$3.5 million and $3.5$2.7 million of equity compensation expense, respectively, of which $0.2 million and $0.0 million was capitalized, respectively. During the nine months ended September 30, 2017,2019 and 2018, the Company recognized $7.8$9.5 million of equity compensation expense. During the nine months ended September 30, 2016, the Company recognizedand $8.0 million of equity compensation expense, respectively, of which included the reversal of $2.6$0.6 million of previously recognized expense as a result of forfeitures and the acceleration of $2.7$0.0 million of expense associated with the issuance of shares, both in connection with the separation of certain Company executives.was capitalized, respectively. These amounts are included in General and administrative expense inon the Company'sCompany’s unaudited Condensed Consolidated Statements of Operations. As of September 30, 2017,2019, the Company had $13.4$18.8 million of total unrecognized compensation expense related to unvested stock compensation, which is expected to be recognized over a weighted average period of approximately 2.2 years.
11.13. Earnings per Share
Basic earnings per share (“EPS”) is calculated by dividing net income attributable to the Company’s common stockholders, including any participating securities, by the weighted average number of shares outstanding for the period. Certain restricted shares issued pursuant to the Company’s share-based compensation program are considered participating securities, as such sharesstockholders have rights to receive non-forfeitable dividends. Fully-diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into shares of common stock. Unvested RSUs are not allocated net losses and/or any excess of dividends declared over net income, as such amounts are allocated entirely to the Company’s common stockholders.stock.
The following table provides a reconciliation of the numerator and denominator of the EPS calculations for the three and nine months ended September 30, 20172019 and 2016:2018 (dollars in thousands, except per share data):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Computation of Basic Earnings Per Share: | | | | | | | |
Net income | $ | 80,854 |
| | $ | 147,346 |
| | $ | 212,714 |
| | $ | 288,730 |
|
Non-forfeitable dividends on unvested restricted shares | (176 | ) | | (162 | ) | | (484 | ) | | (264 | ) |
Net income attributable to the Company’s common stockholders for basic earnings per share | $ | 80,678 |
| | $ | 147,184 |
| | $ | 212,230 |
| | $ | 288,466 |
|
| | | | | | | |
Weighted average number shares outstanding – basic | 298,031 |
| | 302,170 |
| | 298,257 |
| | 303,031 |
|
| | | | | | | |
Basic earnings per share attributable to the Company’s common stockholders: | | | | | | | |
Net income per share | $ | 0.27 |
| | $ | 0.49 |
| | $ | 0.71 |
| | $ | 0.95 |
|
|
| |
| | | | |
Computation of Diluted Earnings Per Share: | | | | | | | |
Net income attributable to the Company’s common stockholders for diluted earnings per share | $ | 80,678 |
| | $ | 147,184 |
| | $ | 212,230 |
| | $ | 288,466 |
|
| | | | | | | |
Weighted average shares outstanding – basic | 298,031 |
| | 302,170 |
| | 298,257 |
| | 303,031 |
|
Effect of dilutive securities: | | | | | | | |
Equity awards | 848 |
| | 212 |
| | 670 |
| | 182 |
|
Weighted average shares outstanding – diluted | 298,879 |
| | 302,382 |
| | 298,927 |
| | 303,213 |
|
| | | | | | | |
Diluted earnings per share attributable to the Company’s common stockholders: | | | | | | | |
Net income per share | $ | 0.27 |
| | $ | 0.49 |
| | $ | 0.71 |
| | $ | 0.95 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Computation of Basic Earnings Per Share: | | | | | | | |
Net income | $ | 83,380 |
| | $ | 57,805 |
| | $ | 230,473 |
| | $ | 184,824 |
|
Income attributable to non-controlling interests | — |
| | (313 | ) | | (76 | ) | | (2,399 | ) |
Non-forfeitable dividends on unvested restricted shares | (10 | ) | | (9 | ) | | (31 | ) | | (26 | ) |
Preferred stock dividends | — |
| | — |
| | (39 | ) | | — |
|
Net income attributable to the Company’s common stockholders for basic earnings per share | $ | 83,370 |
| | $ | 57,483 |
| | $ | 230,327 |
| | $ | 182,399 |
|
| | | | | | | |
Weighted average shares outstanding - basic | 304,936 |
| | 303,013 |
| | 304,810 |
| | 300,697 |
|
| | | | | | | |
Basic Earnings Per Share Attributable to the Company’s Common Stockholders: | | | | | | | |
Net income | $ | 0.27 |
| | $ | 0.19 |
| | $ | 0.76 |
| | $ | 0.61 |
|
| | | | | | | |
Computation of Diluted Earnings Per Share: | | | | | | | |
Net income attributable to the Company’s common stockholders for basic earnings per share | $ | 83,370 |
| | $ | 57,483 |
| | $ | 230,327 |
| | $ | 182,399 |
|
Allocation of net income to dilutive convertible non-controlling interests | — |
| | — |
| | 76 |
| | — |
|
Net income attributable to the Company’s common stockholders for diluted earnings per share | $ | 83,370 |
| | $ | 57,483 |
| | $ | 230,403 |
| | $ | 182,399 |
|
| | | | | | | |
Weighted average shares outstanding - basic | 304,936 |
| | 303,013 |
| | 304,810 |
| | 300,697 |
|
Effect of dilutive securities: | | | | | | | |
Conversion of OP Units | — |
| | — |
| | 104 |
| | — |
|
Equity awards | 240 |
| | 508 |
| | 261 |
| | 449 |
|
Weighted average shares outstanding - diluted | 305,176 |
| | 303,521 |
| | 305,175 |
| | 301,146 |
|
| | | | | | | |
Diluted Earnings Per Share Attributable to the Company’s Common Stockholders: | | | | | | | |
Net income | $ | 0.27 |
| | $ | 0.19 |
| | $ | 0.75 |
| | $ | 0.61 |
|
12.14. Earnings per Unit
Basic earnings per unit is calculated by dividing net income attributable to the Operating Partnership’s common units,unitholders, including any participating securities, by the weighted average number of partnership common units outstanding for the period. Certain restricted units issued pursuant to the Company’s share-based compensation program are considered participating securities, as such sharesunitholders have rights to receive non-forfeitable dividends. Fully-diluted earnings per unit reflects the potential dilution that could occur if securities or other contracts to issue common units were exercised or converted into shares of common units. Unvested RSUs are not allocated net losses and/or any excess of dividends declared over net income, as such amounts are allocated entirely to the Operating Partnership'sPartnership’s common units.
The following table provides a reconciliation of the numerator and denominator of the earnings per unit calculations for the three and nine months ended September 30, 20172019 and 2016:2018 (dollars in thousands, except per unit data):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Computation of Basic Earnings Per Unit: | | | | | | | |
Net income | $ | 80,854 |
| | $ | 147,346 |
| | $ | 212,714 |
| | $ | 288,730 |
|
Non-forfeitable dividends on unvested restricted units | (176 | ) | | (162 | ) | | (484 | ) | | (264 | ) |
Net income attributable to the Operating Partnership’s common units for basic earnings per unit | $ | 80,678 |
| | $ | 147,184 |
| | $ | 212,230 |
| | $ | 288,466 |
|
| | | | | | | |
Weighted average number common units outstanding – basic | 298,031 |
| | 302,170 |
| | 298,257 |
| | 303,031 |
|
| | | | | | | |
Basic earnings per unit attributable to the Operating Partnership’s common units: | | | | | | | |
Net income per unit | $ | 0.27 |
| | $ | 0.49 |
| | $ | 0.71 |
| | $ | 0.95 |
|
| | | | | | | |
Computation of Diluted Earnings Per Unit: | | | | | | | |
Net income attributable to the Operating Partnership’s common units for diluted earnings per unit | $ | 80,678 |
| | $ | 147,184 |
| | $ | 212,230 |
| | $ | 288,466 |
|
| | | | | | | |
Weighted average common units outstanding – basic | 298,031 |
| | 302,170 |
| | 298,257 |
| | 303,031 |
|
Effect of dilutive securities: | | | | | | | |
Equity awards | 848 |
| | 212 |
| | 670 |
| | 182 |
|
Weighted average common units outstanding – diluted | 298,879 |
| | 302,382 |
| | 298,927 |
| | 303,213 |
|
| | | | | | | |
Diluted earnings per unit attributable to the Operating Partnership’s common units: | | | | | | | |
Net income per unit | $ | 0.27 |
| | $ | 0.49 |
| | $ | 0.71 |
| | $ | 0.95 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Computation of Basic Earnings Per Unit: | | | | | | | |
Net income attributable to Brixmor Operating Partnership LP | $ | 83,380 |
| | $ | 57,805 |
| | $ | 230,473 |
| | $ | 184,824 |
|
Non-forfeitable dividends on unvested restricted units | (10 | ) | | (9 | ) | | (31 | ) | | (26 | ) |
Net income attributable to the Operating Partnership’s common units for basic earnings per unit | $ | 83,370 |
| | $ | 57,796 |
| | $ | 230,442 |
| | $ | 184,798 |
|
| | | | | | | |
Weighted average common units outstanding - basic | 304,936 |
| | 304,659 |
| | 304,914 |
| | 304,577 |
|
| | | | | | | |
Basic Earnings Per Unit Attributable to the Operating Partnership’s Common Units: | | | | | | | |
Net Income | $ | 0.27 |
| | $ | 0.19 |
| | $ | 0.76 |
| | $ | 0.61 |
|
| | | | | | | |
Computation of Diluted Earnings Per Unit: | | | | | | | |
Net income attributable to the Operating Partnership’s common units for diluted earnings per unit | $ | 83,370 |
| | $ | 57,796 |
| | $ | 230,442 |
| | $ | 184,798 |
|
| | | | | | | |
Weighted average common units outstanding - basic | 304,936 |
| | 304,659 |
| | 304,914 |
| | 304,577 |
|
Effect of dilutive securities: | | | | | | | |
Equity awards | 240 |
| | 508 |
| | 261 |
| | 449 |
|
Weighted average common units outstanding - diluted | 305,176 |
| | 305,167 |
| | 305,175 |
| | 305,026 |
|
| | | | | | | |
Diluted Earnings Per Unit Attributable to the Operating Partnership’s Common Units: | | | | | | | |
Net Income | $ | 0.27 |
| | $ | 0.19 |
| | $ | 0.76 |
| | $ | 0.61 |
|
13.15. Commitments and Contingencies
Legal Matters
Except as described below, the Company is not presently involved in any material litigation arising outside the ordinary course of business. However, the Company is involved in routine litigation arising in the ordinary course of business, none of which the Company believes, individually or in the aggregate, taking into account existing reserves, will have a material impact on the Company’s results of operations, cash flows, or financial position.
OnAs previously disclosed, on August 1, 2019, the Company finalized a settlement with the SEC with respect to matters initially disclosed on February 8, 2016 the Company issuedrelating to a press release and filed a Form 8-K reporting the completion of a review conducted by the Audit Committee of the Company'sCompany’s Board of Directors that began afterinto certain accounting matters and the related conduct of certain former Company executives. The final agreement with the SEC provides for, among other things, (i) the Company’s consent to a cease and desist order, without admitting or denying the findings therein, with respect to violations of Sections 10(b) and 13(a) of the Securities Exchange Act of 1934, certain related rules and Rule 100(b) of Regulation G, (ii) the Company’s commitment to engage an independent consultant to assess the Company’s current policies and procedures relating to certain non-GAAP performance measures, and (iii) the payment of a civil penalty of $7.0 million, which the Company received information in late December 2015 through its established compliance processes. The Audit Committee review ledpaid during the Boardthree months ended September 30, 2019. Also as previously disclosed, these matters were the subject of Directors to conclude that specific Company accounting and financial reporting personnel, in certain instances, were smoothing income items, both up and down, between reporting periods in an effort to achieve consistent quarterly same property net operating income growth.
As a result of the Audit Committee review and the conclusions reachedinvestigation by the Board of Directors, the Company’s Chief Executive Officer, its President and Chief Financial Officer, its Chief Accounting Officer and Treasurer, and an accounting employee all resigned. Following these resignations the Company appointed a new Interim Chief Executive Officer and President, Interim Chief Financial Officer and Interim Chief Accounting Officer. A new Chief Executive Officer and Chief Financial Officer were appointed effective May 20, 2016. A new Chief Accounting Officer was appointed effective March 8, 2017.
Prior to the Company’s February 8, 2016 announcement, the Company voluntarily reported these matters to the SEC. As a result, the SEC and the United States Attorney'sU.S. Attorney’s Office for the Southern District of New York.
The Company believes that no additional government proceedings relating to these matters will be brought against the Company. The Company understands that the SEC and Southern District of New York are conducting investigationshave announced actions relating to these matters with respect to certain former employees. The Company remains obligated to indemnify these former officers for legal and other professional fees, some of certain aspectswhich may be in excess of the Company’s financial reporting and accounting for prior periods andinsurance coverage.
As previously disclosed, these matters were the Company is cooperating fully.
The Company entered into a preliminary agreement in May 2017,subject of civil litigation, which was finalized in July 2017, to settle the putative securities class action complaint filed in March 2016 by the Westchester Putnam Counties Heavy & Highway Laborers Local 60 Benefit Funds related to the previously disclosed review conducted by the Company’s Audit Committeesettled for $28.0 million. The settlementan aggregate amount is within the coverage amount of the Company’s applicable insurance policies. There can be no assurance that such settlement will be approved by the Court. Based on current information, the Company accrued $28.0 million as of September 30, 2017 with respect to the settlement agreement. This amount is included in Accounts payable, accrued expenses and other liabilities in the Company's unaudited Condensed Consolidated Balance Sheets. Because the settlement amount iswas within the coverage amount of the Company’s applicable insurance policies and were funded into escrow by the Company accrued a receivable of $28.0 million as of September 30, 2017. This amount is included in Accounts receivable, net in the Company's unaudited Condensed Consolidated Balance Sheets.
Leasing commitments
The Company periodically enters into ground leases for neighborhood and community shopping centers that it operates and enters into office leases for administrative space. During the three months ended September 30, 2017 and 2016, the Company recognized rent expense associated with these leases of $1.9 million.insurance carriers. During the nine months ended September 30, 2017 and 2016,2019, the remaining settlement balance of $19.5 million was released from escrow. The settlements provided for the release of, among others, the Company, recognized rent expense associated with these leases of $5.6 millionits subsidiaries, and $6.5 million, respectively. Minimum annual rental commitments associated with these leases duringtheir respective current and former officers, directors and employees from the next five years and thereafter are as follows:claims that were or could have been asserted in the litigation.
|
| | | | |
Year ending December 31, | | |
2017 (remaining three months) | | $ | 1,828 |
|
2018 | | 7,127 |
|
2019 | | 7,046 |
|
2020 | | 7,060 |
|
2021 | | 7,251 |
|
Thereafter | | 79,084 |
|
Total minimum annual rental commitments | | $ | 109,396 |
|
Environmental matters
Under various federal, state and local laws, ordinances and regulations, the Company may be considered an owner or operator of real property or may have arrangedbecome liable for the disposalcosts of removal or treatmentremediation of certain hazardous or toxic substances. As a result,substances released on or in the Company’s property or disposed of by the Company may be liable foror its tenants, as well as certain other potential costs including removal, remediation, governmentwhich could relate to hazardous or toxic substances (including governmental fines and injuries to persons and property.property). The Company does not believe that any resulting liability from such matters will have a material impact on the Company’s results of operations, cash flows, or financial position.
14.16. Related-Party Transactions
In the ordinary course of conducting its business, the Company enters into agreements with its affiliates and an unconsolidated joint venture in relation to the leasing and management of its and/or its related parties’ real estate assets.
Pursuant to the employment agreement dated April 12, 2016 between the Company and James Taylor, the Company’s chief executive officer, the Company was contingently obligated to purchase Mr. Taylor’s former residence for an amount equal to the appraised value of the residence as of a date within 120 days of the execution of the employment agreement. Based upon the contingency being triggered in May 2017, the Company purchased the residence on July 5, 2017 for the appraised value of $4.4 million. The Company intends to sell the residence. Based on an August 2017 appraisal, the value of the residence was $3.9 million.
As of September 30, 20172019 and December 31, 2016,2018, there were no material receivables from or payables to related parties.
15.17. Subsequent Events
In preparing the unaudited Condensed Consolidated Financial Statements, the Company has evaluated events and transactions occurring after September 30, 20172019 for recognition and/or disclosure purposes. Based on this evaluation, there were no subsequent events from September 30, 20172019 through the date the financial statements were issued.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and the accompanying notes thereto. Historical results and percentage relationships set forth in the unaudited Condensed Consolidated Statements of Operations and contained in the unaudited Condensed Consolidated Financial Statements and accompanying notes, including trends which might appear, should not be taken as indicative of future operations.
Executive Summary
Our Company
Brixmor Property Group Inc. and subsidiaries (collectively, “BPG”) is an internally-managed real estate investment trust (“REIT”). Brixmor Operating Partnership LP and subsidiaries (collectively, the “Operating Partnership”) is the entity through which BPG conducts substantially all of its operations and owns substantially all of its assets. BPG owns 100% of the common stock of BPG Subsidiary Inc. (“BPG Sub”), which, in turn, is the sole member of Brixmor OP GP LLC (the “General Partner”), the sole general partner of the Operating Partnership. Unless stated otherwise expressly stated or the context otherwise requires, “we,” “us,“our,” and “our” as used herein to refer to each of“us” mean BPG and the Operating Partnership, collectively. We believe we own and operate one of the largest open air retail portfolios by gross leasable area ("GLA"(“GLA”) in the United States (“U.S.”), comprised primarily of community and neighborhood shopping centers. As of September 30, 2017, we owned interests in 498 wholly owned2019, our portfolio was comprised of 409 shopping centers (the “Portfolio”) withtotaling approximately 8472 million square feet of GLA. In addition, we have one land parcel currently under development. Our high-quality national Portfolio is primarily located within established trade areas in the top 50 Metropolitan Statistical Areas (“MSAs”) in the U.S., and our shopping centers are primarily anchored by non-discretionary and value-oriented retailers, as well as consumer-oriented service providers. As of September 30, 2019, our three largest tenants by annualized base rent (“ABR”) were The TJX Companies, Inc. (“TJX”), The Kroger Co. (“Kroger”), and Dollar Tree Stores, Inc. BPG has been organized and operated in conformity with the requirements for qualification and taxation as a REIT under the United StatesU.S. federal income tax laws, commencing with our taxable year ended December 31, 2011, has maintained such requirements forthrough our taxable year ended December 31, 20162018, and expectsintends to satisfy such requirements for subsequent taxable years.
Our primary objective is to maximize total returns to BPG’sour stockholders through consistent, sustainable growth in cash flow. We seek to achieve this through proactive management of and accretive reinvestment in our existing Portfolio of high-quality open air shopping centers, and disciplined capital recycling program focused on maximizing asset value and achieving critical mass in attractive retail submarkets. Our key strategies to achieve growth in cash flowthis objective include capitalizing on below-market expiring leases, achieving occupancy increases,proactively managing our Portfolio to drive internal growth, pursuing value-enhancing reinvestment opportunities and prudently executing on acquisition and disposition activity, while also maintaining a flexible capital structure positioned for growth. In addition, as we execute on our key strategies, we do so guided by a commitment to operate in a socially responsible manner that allows us to realize our goal of owning and managing properties that are the center of the communities we serve.
We believe the following set of competitive advantages positions us to achievesuccessfully execute on our key strategies:
Expansive Retailer Relationships -– We believe that given the scale of our asset base and our nationwide footprint we have arepresent competitive advantageadvantages in supporting the growth objectives of the nation’s largest and most successful retailers. We believe that we are one of the largest landlordlandlords by GLA to KrogerTJX and TJX Companies,Kroger, as well as a key landlord to most major grocers and most major retail category leaders. We believe that our strong relationships with leading retailers afford us unique insight into their strategies and priority access to their expansion plans.
Fully-Integrated Operating Platform -– We manage a fully-integrated operating platform, leveraging our national scope and demonstrating our commitment to operating with a strong regional and local presence. We provide our tenants with dedicated service through both our national accounts leasing team based in New York and our network of four regional offices in Atlanta, Chicago, Philadelphia and San Diego, and Philadelphia, as well as 11our 10 leasing and property management satellite offices throughout the country. We believe that this strategystructure enables us to obtain critical national market intelligence, and to benefitwhile also benefitting from the regional and local expertise of our workforce.leasing and operations team.
Experienced Management -– Senior members of our management team are seasoned real estate operators with extensive public company leadership experience. Our management team has deep industry knowledge and extensive, well-established relationships with retailers, brokers and vendors through many years of operational and transactional experience, as well as significant capital markets capabilities and expertise in executing value-enhancing reinvestment opportunities.
Other Factors That May Influence our Future Results
We derive our revenues primarily from rent and expense reimbursements duepaid by tenants to us from tenants under existing leases at each of our properties. Expense reimbursements primarily consist of payments made by tenants to us under contractual lease obligations for their proportionalproportionate share of the property’sproperty operating expenses, including common area expenses, utilities, insurance and real estate taxes, and certain capital expenditures related to the maintenance of theour properties.
The amount of rentalRental income and expense reimbursements we receive is primarily dependent on our ability to maintain or increase rental rates, and on our ability to renew expiring leases and/or lease available space.space, and our inability to do so may impact our overall performance. Additionally, increases in our property operating expenses, such as repairs and maintenance, landscaping, snow removal, utilities, security, ground rent related to properties for which we are the lessee, property insurance, real estate taxes and various other costs, to the extent they are not offset by increases in revenue, may impact our overall performance. Factors that could affect our rental income and/or property operating expenses include: (1) changes in national, regional orand local economic climates;climates or demographics; (2) local market conditions, including an oversupply of space in, or a reduction in demand for, properties similar to those in our Portfolio; (3) changes in market rental rates; (4) changes in the regional demographics surrounding our properties; (5) competition from other available properties and e-commerce, and the attractiveness of properties in our Portfolio to our tenants; (6)(4) ongoing disruption and/or consolidation in the retail sector, the financial stability of our tenants and the overall financial condition of large retailing companies, including thetheir ability of tenants to pay rent and expense reimbursements; and (7)(5) in the case of percentage rent,rents, the sales volume of our tenants.
Ourtenants; (6) increases in property operating costs represent property-related costs, such as repairsexpenses, including common area expenses, utilities, insurance and maintenance, landscaping, snow removal, utilities, property insurance costs, security, ground rent expense related to properties forreal estate taxes, which we are the lesseerelatively inflexible and various other property related costs. Increasesgenerally do not decrease if revenue or occupancy decrease; (7) increases in our operatingthe costs to repair, renovate and re-lease space; (8) earthquakes, tornadoes, hurricanes, damage from rising sea levels due to climate change, other natural disasters, civil unrest, terrorist acts or acts of war, which may result in uninsured or underinsured losses; and (9) changes in laws and governmental regulations, including those governing usage, zoning, the extent they are not offset by revenue increases, may impact our overall performance.environment and taxes. For a further discussion of these and other factors that could impact our future results, and performance, see Item 1A1A. “Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2016.2018.
PortfolioLeasing Highlights
As of September 30, 2019, billed and Financial Highlightsleased occupancy were 88.6% and 91.9%, respectively, as compared to 89.4% and 92.5%, respectively, as of September 30, 2018.
The following table summarizes our executed leasing activity for the three months ended September 30, 2019 and 2018 (dollars in thousands, except for per square foot (“PSF”) amounts):
| | For the Three Months Ended September 30, 2019 | | For the Three Months Ended September 30, 2019 |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | Leases | | GLA | | New ABR PSF | | Tenant Improvements and Allowances PSF | | Third Party Leasing Commissions PSF | | Rent Spread(1) |
| | 2017 | | 2016 | | 2017 | | 2016 | |
Occupancy | | | | | | | | |
| Billed | 89.6 | % | | 90.6 | % | | 89.6 | % | | 90.6 | % | |
| Leased | 91.6 | % | | 92.6 | % | | 91.6 | % | | 92.6 | % | |
Executed leases | | | | | | | | |
New, renewal and option leases | | 509 |
| | 3,623,347 |
| | $ | 13.95 |
| | $ | 6.92 |
| | $ | 1.38 |
| | 11.1 | % |
New and renewal leases | | 438 |
| | 2,252,432 |
| | 16.63 |
| | 11.12 |
| | 2.22 |
| | 13.3 | % |
New leases | New leases | | | | | | | | 160 |
| | 948,964 |
| | 15.63 |
| | 23.97 |
| | 5.07 |
| | 30.5 | % |
| Leases executed | 158 |
| | 191 |
| | 472 |
| | 569 |
| |
| GLA executed | 0.7 million |
| | 0.8 million |
| | 2.3 million |
| | 2.6 million |
| |
Renewal leases | Renewal leases | | | | | | | | 278 |
| | 1,303,468 |
| | 17.36 |
| | 1.77 |
| | 0.15 |
| | 9.4 | % |
| Leases executed | 235 |
| | 229 |
| | 721 |
| | 720 |
| |
| GLA executed | 1.4 million |
| | 1.2 million |
| | 3.5 million |
| | 3.3 million |
| |
Option leases | Option leases | | | | | | | | 71 |
| | 1,370,915 |
| | 9.55 |
| | — |
| | — |
| | 6.5 | % |
| Leases executed | 93 |
| | 93 |
| | 240 |
| | 275 |
| | | | | | | | | | | |
For the Three Months Ended September 30, 2018 | | For the Three Months Ended September 30, 2018 |
| GLA executed | 1.3 million |
| | 1.5 million |
| | 3.2 million |
| | 4.8 million |
| Leases | | GLA | | New ABR PSF | | Tenant Improvements and Allowances PSF | | Third Party Leasing Commissions PSF | | Rent Spread(1) |
Total | | | | | | | | |
| Leases executed | 486 |
| | 513 |
| | 1,433 |
| | 1,564 |
| |
| GLA executed | 3.4 million |
| | 3.5 million |
| | 9.0 million |
| | 10.7 million |
| |
New and renewal lease statistics | | | | | | | | |
New, renewal and option leases | | 509 |
| | 3,135,370 |
| | $ | 14.54 |
| | $ | 6.97 |
| | $ | 1.31 |
| | 12.1 | % |
New and renewal leases | | 436 |
| | 2,238,581 |
| | 15.43 |
| | 9.76 |
| | 1.84 |
| | 13.4 | % |
New leases | New leases | | | | | | | | 157 |
| | 875,425 |
| | 14.78 |
| | 21.76 |
| | 4.53 |
| | 39.7 | % |
| Average ABR per square foot | $ | 16.89 |
| | $ | 15.53 |
| | $ | 15.92 |
| | $ | 15.40 |
| |
| Average ABR per square foot increase (1) | 20.7 | % | | 26.2 | % | | 30.6 | % | | 28.4 | % | |
| Average tenant improvements per square foot | $ | 23.39 |
| | $ | 20.83 |
| | $ | 22.87 |
| | $ | 20.59 |
| |
| Average leasing commissions per square foot | $ | 4.19 |
| | $ | 3.37 |
| | $ | 3.90 |
| | $ | 3.28 |
| |
New and renewal leases | | | | | | | | |
| Average ABR per square foot | $ | 14.99 |
| | $ | 13.40 |
| | $ | 15.57 |
| | $ | 14.93 |
| |
| Average ABR per square foot increase (1) | 12.7 | % | | 14.7 | % | | 15.2 | % | | 15.5 | % | |
| Average tenant improvements per square foot | $ | 11.76 |
| | $ | 8.72 |
| | $ | 11.33 |
| | $ | 9.26 |
| |
| Average leasing commissions per square foot | $ | 1.52 |
| | $ | 1.38 |
| | $ | 1.62 |
| | $ | 1.48 |
| |
Renewal leases | | 279 |
| | 1,363,156 |
| | 15.84 |
| | 2.06 |
| | 0.10 |
| | 6.7 | % |
Option leases | | 73 |
| | 896,789 |
| | 12.32 |
| | — |
| | — |
| | 8.6 | % |
| |
(1) | Based on comparable leases only.only, which includes new leases executed on units that were occupied within the prior 12 months and renewals executed with the same tenant in all or a portion of the same location to extend the term of an expiring lease. |
Excludes leases executed for terms of less than one year.
ABR PSF includes the GLA of lessee-owned leasehold improvements.
The following table summarizes our executed leasing activity for the nine months ended September 30, 2019 and 2018 (dollars in thousands, except for PSF amounts):
|
| | | | | | | | | | | | | | | | | | | | |
For the Nine Months Ended September 30, 2019 |
| Leases | | GLA | | New ABR PSF | | Tenant Improvements and Allowances PSF | | Third Party Leasing Commissions PSF | | Rent Spread(1) |
New, renewal and option leases | 1,360 |
| | 10,107,597 |
| | $ | 13.82 |
| | $ | 6.88 |
| | $ | 1.44 |
| | 10.9 | % |
New and renewal leases | 1,155 |
| | 6,188,294 |
| | 15.93 |
| | 11.20 |
| | 2.34 |
| | 13.3 | % |
New leases | 483 |
| | 2,669,762 |
| | 16.42 |
| | 23.75 |
| | 5.27 |
| | 31.0 | % |
Renewal leases | 672 |
| | 3,518,532 |
| | 15.56 |
| | 1.68 |
| | 0.12 |
| | 8.3 | % |
Option leases | 205 |
| | 3,919,303 |
| | 10.48 |
| | 0.05 |
| | — |
| | 7.2 | % |
| | | | | | | | | | | |
For the Nine Months Ended September 30, 2018 |
| Leases | | GLA | | New ABR PSF | | Tenant Improvements and Allowances PSF | | Third Party Leasing Commissions PSF | | Rent Spread(1) |
New, renewal and option leases | 1,525 |
| | 9,276,924 |
| | $ | 14.61 |
| | $ | 7.77 |
| | $ | 1.43 |
| | 12.4 | % |
New and renewal leases | 1,295 |
| | 6,362,370 |
| | 15.74 |
| | 11.27 |
| | 2.06 |
| | 14.7 | % |
New leases | 484 |
| | 2,931,627 |
| | 14.71 |
| | 22.14 |
| | 4.42 |
| | 35.2 | % |
Renewal leases | 811 |
| | 3,430,743 |
| | 16.62 |
| | 1.98 |
| | 0.05 |
| | 8.4 | % |
Option leases | 230 |
| | 2,914,554 |
| | 12.14 |
| | 0.14 |
| | 0.03 |
| | 7.6 | % |
| |
(1) | Based on comparable leases only, which includes new leases executed on units that were occupied within the prior 12 months and renewals executed with the same tenant in all or a portion of the same location to extend the term of an expiring lease. |
Excludes leases executed for terms of less than one year.
ABR PSF includes the GLA of lessee-owned leasehold improvements.
Acquisition Activity
During the nine months ended September 30, 2017, 2019, we acquired onetwo shopping centers, two leases at an existing shopping center and one building, two outparcel buildings and two outparcels land parcel for an aggregate purchase price of $79.6 million, including transaction costs,costs.
During the nine months ended September 30, 2018, we acquired one land parcel, one outparcel building and one outparcel for an aggregate purchase price of $111.8 million.
$9.0 million, including transaction costs.
Disposition Activity
During the nine months ended September 30, 2017,2019, we disposed of 14 wholly owned18 shopping centers and two outparcel buildingsfour partial shopping centers for aggregate net proceeds of $228.7$239.4 million resulting in aaggregate gain of $54.9$46.0 million and aggregate impairment of $0.4$14.4 million. In addition, during the nine months ended September 30, 2017,2019, we received aggregate net proceeds of $0.4 million from previously disposed assets resulting in aggregate gain of $0.3 million.
During the nine months ended September 30, 2018, we disposed of our unconsolidated joint venture interest42 shopping centers and two partial shopping centers for aggregate net proceeds of $12.4$676.5 million resulting in aggregate gain of $158.5 million and aggregate impairment of $28.4 million. In addition, during the nine months ended September 30, 2018, we received net proceeds of $0.5 million from previously disposed assets resulting in a gain of $4.6$0.5 million.
Results of Operations
The results of operations discussion is combined for the Parent CompanyBPG and the Operating Partnership because there are no material differences in the results of operations between the two reporting entities.
Comparison of the Three Months Ended September 30, 20172019 to the Three Months Ended September 30, 20162018
Revenues (in thousands)
| | | Three Months Ended September 30, | | | Three Months Ended September 30, | | |
| 2017 | | 2016 | | $ Change | 2019 | | 2018 | | $ Change |
Revenues | | | | | | | | | | |
Rental income | $ | 246,578 |
| | $ | 247,859 |
| | $ | (1,281 | ) | $ | 292,732 |
| | $ | 306,172 |
| | $ | (13,440 | ) |
Expense reimbursements | 66,489 |
| | 69,469 |
| | (2,980 | ) | |
Other revenues | 1,429 |
| | 1,249 |
| | 180 |
| 233 |
| | 308 |
| | (75 | ) |
Total revenues | $ | 314,496 |
| | $ | 318,577 |
| | $ | (4,081 | ) | $ | 292,965 |
| | $ | 306,480 |
| | $ | (13,515 | ) |
Rental income
The decrease in rental income for the three months ended September 30, 20172019 of $1.3$13.4 million, as compared to the corresponding period in 2016,2018, was primarily due to (i) a $2.1$21.0 million decrease in above and below market lease accretion,rental income due to net of tenant inducements; and (ii) a $0.9 million decrease in straight-line rent;disposition activity, partially offset by a $7.6 million increase for the remaining portfolio. The increase for the remaining portfolio was due to (i) a $5.2 million increase in base rent; (ii) a $2.5 million increase in straight-line rental income, net; (iii) a $1.1$2.0 million increase in expense reimbursements; (iv) a $0.7 million increase in ancillary and other rental income; (v) a $0.4 million increase in percentage rents; and (vi) a $0.1 million increase in lease settlement income;termination fees; partially offset by (vii) a $2.1 million increase in revenues deemed uncollectible; and (iv)(viii) a $0.9$1.2 million decrease in accretion of above- and below-market leases and tenant inducements, net. The $5.2 million increase in base rent. The base rent increasefor the remaining portfolio was driven primarily bydue to contractual rent increases as well as positive rent spreads of 12.2% during the nine months ended September 30, 2017 and 11.3% in 2016 for new and renewal leases and option exercises of 10.9% during the nine months ended September 30, 2019 and 11.8% during the year ended December 31, 2018, partially offset by a decline in billed occupancy. In connection with the adoption of Accounting Standards Codification 842 (“ASC 842”), revenues deemed uncollectible, as noted above, is now recognized as an adjustment to rental income. Prior period provision for doubtful accounts is presented in accordance with our previous presentation and has not been reclassified to rental income.
Expense reimbursementsOther revenues
The decrease in expense reimbursementsOther revenues remained generally consistent for the three months ended September 30, 2017 of $3.0 million,2019 as compared to the corresponding period in 2016, was primarily due to a decrease in reimbursable real estate tax expenses.2018.
Other revenues
The increase in other revenues for the three months ended September 30, 2017 of $0.2 million, as compared to the corresponding period in 2016, was primarily due to an increase in percentage rent.
Operating Expenses (in thousands)
| | | Three Months Ended September 30, | | | Three Months Ended September 30, | | |
| 2017 | | 2016 | | $ Change | 2019 | | 2018 | | $ Change |
Operating expenses | | | | | | | | | | |
Operating costs | $ | 30,505 |
| | $ | 31,041 |
| | $ | (536 | ) | $ | 29,573 |
| | $ | 31,969 |
| | $ | (2,396 | ) |
Real estate taxes | 45,076 |
| | 47,812 |
| | (2,736 | ) | 43,688 |
| | 44,711 |
| | (1,023 | ) |
Depreciation and amortization | 94,239 |
| | 98,337 |
| | (4,098 | ) | 82,837 |
| | 85,183 |
| | (2,346 | ) |
Provision for doubtful accounts | 1,216 |
| | 2,218 |
| | (1,002 | ) | — |
| | 3,094 |
| | (3,094 | ) |
Impairment of real estate assets | 11,065 |
| | 1,971 |
| | 9,094 |
| 8,170 |
| | 16,372 |
| | (8,202 | ) |
General and administrative | 22,838 |
| | 21,787 |
| | 1,051 |
| 24,550 |
| | 21,209 |
| | 3,341 |
|
Total operating expenses | $ | 204,939 |
| | $ | 203,166 |
| | $ | 1,773 |
| $ | 188,818 |
| | $ | 202,538 |
| | $ | (13,720 | ) |
Operating costs
The decrease in operating costs for the three months ended September 30, 20172019 of $0.5$2.4 million, as compared to the corresponding period in 2016,2018, was primarily due to a $2.3 million decrease in insurance expenses,operating costs due to net disposition activity and a $0.9 million decrease in operating costs for the remaining portfolio, partially offset by ana $0.8 million increase in repair and maintenance costs.operating costs due to insurance captive adjustments.
Real estate taxes
The decrease in real estate taxes for the three months ended September 30, 20172019 of $2.7$1.0 million, as compared to the corresponding period in 2016,2018, was primarily due to a $2.5 million decrease in real estate taxes due to net disposition
activity, partially offset by a $1.5 million increase for the remaining portfolio primarily due to increases in tax refunds as a result of appeals during 2016.rates and assessments from several jurisdictions.
Depreciation and amortization
The decrease in depreciation and amortization for the three months ended September 30, 20172019 of $4.1$2.3 million, as compared to the corresponding period in 2016,2018, was primarily due to the continueda $5.3 million decrease in acquired in-place lease intangibles withdepreciation and amortization due to net disposition activity, partially offset by a $3.0 million increase for the remaining net book value.portfolio primarily due to an increase in depreciation and amortization for tenant-specific assets.
Provision for doubtful accounts
The decreaseFollowing the adoption of ASC 842 on January 1, 2019, we recognize any revenue deemed uncollectible as an adjustment to rental income. Prior periods continue to be presented in the provision for doubtful accounts for the three months ended September 30, 2017 of $1.0 million, as compared to the corresponding period in 2016, was primarily due to increased recoveries of previously reserved receivables.accordance with our previous presentation.
Impairment of real estate assets
During the three months ended September 30, 2017,2019, aggregate impairment of $11.1$8.2 million was recognized on three shopping centers and one partial shopping center as a result of disposition activity. During the three months ended September 30, 2018, aggregate impairment of $16.4 million was recognized on four shopping centers and two partial shopping centers as a result of disposition activity and fourfive operating properties as a result of a changeproperties. Impairments recognized were due to changes in the estimatedanticipated hold period of these propertiesperiods in connection with our capital recycling program. During the three months ended September 30, 2016, aggregate impairment of $2.0 million was recognized on one shopping center as a result of disposition activity and one shopping center held for sale.
General and administrative
The increase in general and administrative costs for the three months ended September 30, 20172019 of $1.1$3.3 million, as compared to the corresponding period in 2016,2018, was primarily due to a reduction in capitalized legal and payroll costs in connection with the adoption of ASC 842 and increased non-routine legal expenses.payroll costs.
During the three months ended September 30, 20172019 and 2016,2018, construction compensation costs of $1.8$3.8 million and $1.7$2.6 million, respectively, were capitalized to building and improvements and leasing compensationpayroll costs of $3.5$0.0 million and $3.7$2.0 million, respectively, leasing legal costs of $0.0 million and $1.2 million, respectively, and leasing commission costs of $1.6 million and $2.5 million, respectively, were capitalized to deferred charges and prepaid expenses, net.
Other Income and Expenses (in thousands)
| | | Three Months Ended September 30, | | | Three Months Ended September 30, | | |
| 2017 | | 2016 | | $ Change | 2019 | | 2018 | | $ Change |
Other income (expense) | | | | | | | | | | |
Dividends and interest | $ | 76 |
| | $ | 89 |
| | $ | (13 | ) | $ | 128 |
| | $ | 156 |
| | $ | (28 | ) |
Interest expense | (57,410 | ) | | (57,855 | ) | | 445 |
| (47,698 | ) | | (55,364 | ) | | 7,666 |
|
Gain on sale of real estate assets | 25,942 |
| | 2,450 |
| | 23,492 |
| 25,621 |
| | 119,333 |
| | (93,712 | ) |
Gain (loss) on extinguishment of debt, net | 1,828 |
| | (1,042 | ) | | 2,870 |
| |
Loss on extinguishment of debt, net | | (943 | ) | | (19,759 | ) | | 18,816 |
|
Other | (1,200 | ) | | (1,370 | ) | | 170 |
| (401 | ) | | (962 | ) | | 561 |
|
Total other income (expense) | $ | (30,764 | ) | | $ | (57,728 | ) | | $ | 26,964 |
| $ | (23,293 | ) | | $ | 43,404 |
| | $ | (66,697 | ) |
Dividends and interest
Dividends and interest remained generally consistent for the three months ended September 30, 20172019 as compared to the corresponding period in 2016.2018.
Interest expense
The decrease in interest expense for the three months ended September 30, 20172019 of $0.4$7.7 million, as compared to the corresponding period in 2016,2018, was primarily due to (i) the refinancing oflower overall debt obligations at lower rates and (ii) a decrease in debt obligations, partially offset by (iii) a decrease in debt premium amortization, net of discounts.obligations.
Gain on the sale of real estate assets
During the three months ended September 30, 2017, six2019, nine shopping centers that were disposed forresulting in aggregate gain of $25.5 million. In addition, during the three months ended September 30, 2019, we received aggregate net proceeds of $104.1$0.1 million resultedfrom previously disposed assets resulting in aaggregate gain of $25.9$0.1 million. During the three months ended September 30, 2016, one of the2018, 22 shopping centers that waswere disposed for net proceeds of $5.6 million resultedresulting in aaggregate gain of $2.5$119.3 million.
Gain (loss)Loss on extinguishment of debt, net
During the three months ended September 30, 2017,2019, we repaid $300.0 million of an unsecured term loan under our $2.75 billion senior unsecured credit facility agreement, as amended December 12, 2018 (the "Unsecured“Unsecured Credit Facility"Facility”) and $97.0 million of secured loans,, resulting in a $1.8$0.9 million gainloss on extinguishment of debt net.due to the acceleration of unamortized debt issuance costs. During the three months ended September 30, 2016,2018, we repaid $681.0$250.0 million of unsecured term loans and $505.4 million of secured loans, resulting in a $1.4 million gain on extinguishment of debt, net. In addition,loans. During the three months ended September 30, 2018, we recognized a $2.5$19.8 million loss on extinguishment of debt, in connection with the executionnet as a result of the Unsecured Credit Facility.debt transactions, which included $27.3 million of prepayment fees, partially offset by $7.5 million of accelerated unamortized debt premiums, net of debt issuance costs.
Other
The decrease in other expense net for the three months ended September 30, 2017 as compared to the corresponding period in 2016, was primarily due to a decrease in consulting expenses and a decrease in tenant litigation settlement expenses.
Equity in Income2019 of Unconsolidated Joint Venture (in thousands)
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | |
| 2017 | | 2016 | | $ Change |
Equity in income of unconsolidated joint venture | $ | 31 |
| | $ | 122 |
| | $ | (91 | ) |
Gain on disposition of unconsolidated joint venture interest | $ | 4,556 |
| | $ | — |
| | $ | 4,556 |
|
Equity in income of unconsolidated joint venture
The decrease in equity in income of unconsolidated joint venture for the three months ended September 30, 2017 of less than $0.1$0.6 million, as compared to the corresponding period in 2016,2018, was primarily due to the dispositiona favorable appeal of our unconsolidated joint venture interestpreviously reserved taxes during the three months ended September 30, 2017.2019.
Gain on disposition of unconsolidated joint venture interest
During the three months ended September 30, 2017, we disposed of our unconsolidated joint venture interest for net proceeds of $12.4 million resulting in a gain of $4.6 million.
Comparison of the Nine Months Ended September 30, 20172019 to the Nine Months Ended September 30, 20162018
Revenues (in thousands)
| | | Nine Months Ended September 30, | | | Nine Months Ended September 30, | | |
| 2017 | | 2016 | | $ Change | 2019 | | 2018 | | $ Change |
Revenues | | | | | | | | | | |
Rental income | $ | 749,976 |
| | $ | 744,580 |
| | $ | 5,396 |
| $ | 873,424 |
| | $ | 935,689 |
| | $ | (62,265 | ) |
Expense reimbursements | 206,718 |
| | 200,944 |
| | 5,774 |
| |
Other revenues | 6,426 |
| | 6,214 |
| | 212 |
| 1,685 |
| | 996 |
| | 689 |
|
Total revenues | $ | 963,120 |
| | $ | 951,738 |
| | $ | 11,382 |
| $ | 875,109 |
| | $ | 936,685 |
| | $ | (61,576 | ) |
Rental income
The increasedecrease in rental income for the nine months ended September 30, 2017,2019 of $5.4$62.3 million, as compared to the corresponding period in 2016,2018, was primarily due to a $74.6 million decrease in rental income due to net disposition activity, partially offset by a $12.3 million increase for the remaining portfolio. The increase for the remaining portfolio was due to (i) a $10.5$12.1 million increase in base rent; and (ii) a $4.7$6.7 million increase in straight-line rent;rental income, net; (iii) a $2.9 million increase in expense reimbursements; (iv) a $1.8 million increase in ancillary and other rental income; (v) a $0.8 million increase in percentage rents; and (vi) a $0.5 million increase in lease termination fees; partially offset by (iii)(vii) a $7.3$6.9 million increase in revenues deemed uncollectible; and (viii) a $5.6 million decrease in aboveaccretion of above- and below market lease accretion, net ofbelow-market leases and tenant inducements; and (iv) a $2.1inducements, net. The $12.1 million decreaseincrease in lease settlement income. The base rent increasefor the remaining portfolio was driven primarily bydue to contractual rent increases as well as positive rent spreads of 12.2% during the nine months ended September 30, 2017 and 11.3% in 2016 for new and renewal leases and option exercises of 10.9% during the nine months ended September 30, 2019 and 11.8% during the year ended December 31, 2018, partially offset by a decline in billed occupancy. In connection with the adoption of ASC 842, revenues deemed uncollectible, as noted above, is now recognized as an adjustment to rental income. Prior period provision for doubtful accounts is presented in accordance with our previous presentation and has not been reclassified to rental income.
Expense reimbursementsOther revenues
The increase in expense reimbursementsother revenues for the nine months ended September 30, 20172019 of $5.8$0.7 million, as compared to the corresponding period in 2016,2018, was primarily due to an increase in reimbursable real estate tax expenses and operating expenses.increment financing income.
Other revenues
Other revenues remained generally consistent for the nine months ended September 30, 2017 as compared to the corresponding period in 2016.
Operating Expenses (in thousands)
| | | Nine Months Ended September 30, | | | Nine Months Ended September 30, | | |
| 2017 | | 2016 | | $ Change | 2019 | | 2018 | | $ Change |
Operating expenses | | | | | | | | | | |
Operating costs | $ | 100,955 |
| | $ | 97,507 |
| | $ | 3,448 |
| $ | 90,138 |
| | $ | 101,340 |
| | $ | (11,202 | ) |
Real estate taxes | 135,607 |
| | 130,886 |
| | 4,721 |
| 130,203 |
| | 135,383 |
| | (5,180 | ) |
Depreciation and amortization | 285,040 |
| | 294,634 |
| | (9,594 | ) | 249,825 |
| | 266,900 |
| | (17,075 | ) |
Provision for doubtful accounts | 4,023 |
| | 6,579 |
| | (2,556 | ) | — |
| | 6,458 |
| | (6,458 | ) |
Impairment of real estate assets | 27,383 |
| | 1,971 |
| | 25,412 |
| 17,468 |
| | 44,201 |
| | (26,733 | ) |
General and administrative | 67,043 |
| | 69,709 |
| | (2,666 | ) | 75,168 |
| | 64,955 |
| | 10,213 |
|
Total operating expenses | $ | 620,051 |
| | $ | 601,286 |
| | $ | 18,765 |
| $ | 562,802 |
| | $ | 619,237 |
| | $ | (56,435 | ) |
Operating costs
The increasedecrease in operating costs for the nine months ended September 30, 20172019 of $3.4$11.2 million, as compared to the corresponding period in 2016,2018, was primarily due to ana $8.5 million decrease in operating costs due to net disposition activity and a $3.7 million decrease in operating costs for the remaining portfolio, partially offset by a $1.0 million increase in snow removaloperating costs and repair and maintenance costs.due to insurance captive adjustments.
Real estate taxes
The increasedecrease in real estate taxes for the nine months ended September 30, 20172019 of $4.7$5.2 million, as compared to the corresponding period in 2016,2018, was primarily due to increaseda $9.1 million decrease in real estate taxes due to net disposition activity, partially offset by a $3.9 million increase for the remaining portfolio primarily due to increases in tax rates and assessments from several jurisdictions during 2017.jurisdictions.
Depreciation and amortization
The decrease in depreciation and amortization for the nine months ended September 30, 20172019 of $9.6$17.1 million, as compared to the corresponding period in 2016,2018, was primarily due to the continueda $20.2 million decrease in depreciation and amortization due to net disposition activity, partially offset by a $3.1 million increase for the remaining portfolio primarily due to an increase in depreciation and amortization for tenant-specific assets, partially offset by a decrease related to acquired in-place lease intangibles with remaining net book value.intangibles.
Provision for doubtful accounts
The decreaseIn connection with the adoption of ASC 842 on January 1, 2019, we recognize any revenue deemed uncollectible as an adjustment to rental income. Prior periods continue to be presented in the provision for doubtful accounts for the nine months ended September 30, 2017 of $2.6 million, as compared to the corresponding period in 2016, was primarily due to increased recoveries of previously reserved receivables.accordance with our previous presentation.
Impairment of real estate assets
During the nine months ended September 30, 2017,2019, aggregate impairment of $27.4$17.5 million was recognized on twothree shopping centers as a result of disposition activity and seven operating properties as a result of a change in the estimated hold period of these properties in connection with our capital recycling program. During the nine months ended September 30, 2016, aggregate impairment of $2.0 million was recognized on one partial shopping center as a result of disposition activity and one operating property. During the nine months ended September 30, 2018, aggregate impairment of $44.2 million was recognized on 10 shopping centers and one partial shopping center held for sale.as a result of disposition activity and six operating properties. Impairments recognized were due to changes in anticipated hold periods in connection with our capital recycling program.
General and administrative
The decreaseincrease in general and administrative costs for the nine months ended September 30, 20172019 of $2.7$10.2 million, as compared to the corresponding period in 2016,2018, was primarily due to 2016 expenses associateda reduction in capitalized legal and payroll costs in connection with the Audit Committee reviewadoption of ASC 842 and decreased severance expenses associated with the separation of former executives of the Company in 2016, partially offset by increased non-routine legal expenses.payroll costs.
During the nine months ended September 30, 20172019 and 2016,2018, construction compensation costs of $5.8$10.7 million and $4.8$7.7 million, respectively, were capitalized to building and improvements and leasing compensationpayroll costs of $10.6$0.0 million and $11.5$6.2 million, respectively, leasing legal costs of $0.0 million and $2.5 million, respectively, and leasing commission costs of $4.5 million and $5.4 million, respectively, were capitalized to deferred charges and prepaid expenses, net.
Other Income and Expenses (in thousands)
| | | Nine Months Ended September 30, | | | Nine Months Ended September 30, | | |
| 2017 | | 2016 | | $ Change | 2019 | | 2018 | | $ Change |
Other income (expense) | | | | | | | | | | |
Dividends and interest | $ | 234 |
| | $ | 481 |
| | $ | (247 | ) | $ | 575 |
| | $ | 356 |
| | $ | 219 |
|
Interest expense | (170,584 | ) | | (171,482 | ) | | 898 |
| (142,839 | ) | | (165,735 | ) | | 22,896 |
|
Gain on sale of real estate assets | 54,920 |
| | 10,232 |
| | 44,688 |
| 46,266 |
| | 159,043 |
| | (112,777 | ) |
Gain (loss) on extinguishment of debt, net | 488 |
| | (949 | ) | | 1,437 |
| |
Loss on extinguishment of debt, net | | (1,620 | ) | | (20,182 | ) | | 18,562 |
|
Other | (2,591 | ) | | (4,258 | ) | | 1,667 |
| (1,975 | ) | | (2,200 | ) | | 225 |
|
Total other income (expense) | $ | (117,533 | ) | | $ | (165,976 | ) | | $ | 48,443 |
| |
Total other expense | | $ | (99,593 | ) | | $ | (28,718 | ) | | $ | (70,875 | ) |
Dividends and interest
The decrease in dividendDividends and interest remained generally consistent for the nine months ended September 30, 2017 of $0.2 million,2019 as compared to the corresponding period in 2016, was primarily due to interest income recognized in 2016 in connection with a tax refund.2018.
Interest expense
The decrease in interest expense for the nine months ended September 30, 20172019 of $0.9$22.9 million, as compared to the corresponding period in 2016,2018, was primarily due to (i) the refinancing oflower overall debt obligations at lower rates and (ii) a decrease in debt obligations, partially offset by (iii) a decrease in debt premium amortization, net of discounts.obligations.
Gain on the sale of real estate assets
During the nine months ended September 30, 2017, 122019, 15 shopping centers and two outparcel buildings thatthree partial shopping centers were disposed forresulting in aggregate gain of $46.0 million. In addition, during the nine months ended September 30, 2019, we received aggregate net proceeds of $211.4$0.4 million resultedfrom previously disposed assets resulting in aaggregate gain of $54.9$0.3 million. During the nine months ended September 30, 2016, three of the2018, 35 shopping centers and one outparcel building thatpartial shopping center were disposed forresulting in aggregate gain of $158.5 million. In addition, during the nine months ended September 30, 2018, we received aggregate net proceeds of $26.2$0.5 million resultedfrom previously disposed assets resulting in aaggregate gain of $10.2$0.5 million.
Gain (loss)Loss on extinguishment of debt, net
During the nine months ended September 30, 2017,2019, we repaid $380.3 million of secured loans and $790.0$500.0 million of an unsecured term loan under ourthe Unsecured Credit Facility, resulting in a $0.5$1.6 million gainloss on extinguishment of debt net.due to the acceleration of unamortized debt issuance costs. During the nine months ended September 30, 2016,2018, we repaid $849.5$435.0 million of unsecured term loans and $505.5 million of secured loans, resulting in a $1.5 million gain on extinguishment of debt. In addition,loans. During the nine months ended September 30, 2018, we recognized a $2.5$20.2 million loss on extinguishment of debt, in connection with the executionnet as a result of the Unsecured Credit Facility.debt transactions, which included $27.6 million of prepayment fees, partially offset by $7.4 million of accelerated unamortized debt premiums, net of discounts and debt issuance costs.
Other
The decrease in otherOther expense netremained generally consistent for the nine months ended September 30, 2017 of $1.7 million,2019 as compared to the corresponding period in 2016, was primarily due to a decrease in consulting expenses and a decrease in tenant litigation settlement expenses.2018.
Equity in Income of Unconsolidated Joint Venture (in thousands)
|
| | | | | | | | | | | |
| Nine Months Ended September 30, | | |
| 2017 | | 2016 | | $ Change |
Equity in income of unconsolidated joint venture | $ | 381 |
| | $ | 348 |
| | $ | 33 |
|
Gain on disposition of unconsolidated joint venture interest | $ | 4,556 |
| | $ | — |
| | $ | 4,556 |
|
Equity in income of unconsolidated joint venture
The increase in equity in income of unconsolidated joint venture for the nine months ended September 30, 2017 of less than $0.1 million, as compared to the corresponding period in 2016, was primarily due to lower interest expense as a result of the 2016 payoff of a secured loan on our joint venture property and the disposition of our unconsolidated joint venture interest during the nine months ended September 30, 2017.
Gain on disposition of unconsolidated joint venture interest
During the nine months ended September 30, 2017, we disposed of our unconsolidated joint venture interest for net proceeds of $12.4 million resulting in a gain of $4.6 million.
Liquidity and Capital Resources
We anticipate that our cash flows from the sources listed below will provide adequate capital for the next 12 months and beyond for all anticipated uses, including all scheduled principal and interest payments on our outstanding indebtedness, current and anticipated tenant and other capital improvements, stockholder distributions to maintain BPG'sour qualification as a REIT and other capital obligations associated with conducting our business.
Our primary expected sources and uses of capital are as follows:
Sources
cash and cash equivalent and restricted cash balances;
operating cash flow;
dispositions;
available borrowings under our existing Unsecured Credit Facility;
dispositions;
issuance of long-term debt; and
issuance of equity securities.
Uses
recurring maintenance capital expenditures;
leasing relatedleasing-related capital expenditures;
debt repayments;
anchor space repositioning, redevelopment, development and developmentother value-enhancing capital expenditures;
debt maturities and repayment requirements;
dividend/distribution payments;payments
acquisitions; and
acquisitions.repurchases of equity securities.
We believe our current capital structure provides us with the financial flexibility and capacity to fund our current capital needs as well as future growth opportunities. We have a $1.25 billion revolving credit facility (the "Revolving Facility"), under which we had $1.25 billion of undrawn capacity as of September 30, 2017. In addition, we believe we have access to multiple forms of capital, including secured property level debt, unsecured corporate level debt, preferred equity, and common equity, including throughwhich will allow us to efficiently execute on our at-the-market equity offering program.strategic and operational objectives. We currently have investment grade credit ratings from all three major credit rating agencies. As of September 30, 2019, our $1.25 billion revolving credit facility (the “Revolving Facility”) had $1.2 billion of undrawn capacity and we had outstanding letters of credit totaling $4.3 million, which reduce available liquidity under the Revolving Facility. We intend to continue to enhance our financial and operatingoperational flexibility through laddering and extendingthe additional extension of the duration of our debt, and further expanding our unencumbered asset base.debt.
In March 2017, the Operating PartnershipMay 2019, we issued $400.0 million aggregate principal amount of 3.90%4.125% Senior Notes due 20272029 (the “2027“2029 Notes”), at 99.804% of par, the net proceeds of which were utilizedused to repay outstanding indebtedness including borrowings under theour Unsecured Credit Facility and for general corporate purposes. The 20272029 Notes bear interest at a rate of 3.90%4.125% per annum, payable semi-annually on SeptemberMay 15 and MarchNovember 15 of each year, commencing SeptemberNovember 15, 2017.2019. The 20272029 Notes will mature on MarchMay 15, 2027.2029. We may redeem the 2029 Notes prior to maturity at its option, at any time in whole or from time to time in part, at the applicable redemption price specified in the Indenture with respect to the 2029 Notes. If the 2029 Notes are redeemed on or after February 15, 2029 (three months prior to the maturity date), the redemption price will be equal to 100% of the principal amount of the 2029 Notes being redeemed plus accrued and unpaid interest thereon to, but not including, the redemption date. The 2029 Notes are our unsecured and unsubordinated obligations and rank equally in right of payment with all of our existing and future senior unsecured and unsubordinated indebtedness.
In June 2017, the Operating PartnershipAugust 2019, we issued $500.0$350.0 million aggregate principal amount of 3.65%4.125% Senior Notes due 2024 (the “2024 Notes”),2029 at 106.402% of par, the net proceeds of which were utilizedused to repay outstanding indebtedness including borrowings under theour Unsecured Credit Facility and for general corporate purposes. The 2024 Notes bear interest atnotes have substantially identical terms as, constitute a ratefurther issuance of, 3.65% per annum, payable semi-annually on June 15 and December 15 of each year, commencing December 15, 2017. The 2024 Notes will mature on June 15, 2024.form a single series with, our outstanding 2029 Notes.
In JulyDecember 2017, the Operating Partnership entered intoBoard of Directors authorized a $300.0 million variable rate unsecured term loan facilityshare repurchase program (the "$300 Million Term Loan"“Program”). The term loan facility has a seven-year term maturing on July 26, 2024, with no available extension options, and will bear interest at a rate of LIBOR plus 190 basis points (based on the Operating Partnership’s current credit ratings). Proceeds from the $300 Million Term Loan were used for up to prepay $300.0$400.0 million of an unsecured term loan underour common stock. The Program is scheduled to expire on December 5, 2019, unless extended by the Company’s Unsecured Credit Facility maturing July 31, 2018.
Board of Directors. During the nine months ended September 30, 2017,2019, we repurchased 0.8 million shares of common stock under the Company repaid $790.0Program at an average price per share of $17.43 for a total of $14.6 million, excluding commissions. We incurred commissions of less than $0.1 million in conjunction with the program for the nine months ended September 30, 2019. As of September 30, 2019, the Program had $275.0 million of an unsecured term loan under our Unsecured Credit Facility and $380.3 million of secured loans, resulting in a $0.5 million net gain on extinguishment of debt. These repayments were funded primarily with proceeds from the issuance of the 2027 Notes, 2024 Notes and the $300 Million Term Loan.available repurchase capacity.
In connection with our intention to continue to qualify as a REIT for federal income tax purposes, we expect to continue paying regular dividends to our stockholders. Our Board of Directors will continue to evaluate the dividend policy on a quarterly basis, evaluating sources and uses of capital, operating fundamentals, maintenance of our REIT qualification and operating fundamentals.other factors our Board of Directors may deem relevant. We generally intend to maintain a conservative dividend payout ratio, reserving such amounts as the Board of Directors considers necessary for reinvestment in our Portfolio, debt reduction, acquisitions of new properties, other investments as suitable opportunities arise, and such other factors as the Board of Directors considers appropriate.ratio. Cash dividends paid to common stockholders and OP Unit holders for the nine months ended
September 30, 20172019 and 20162018 were $238.2$251.3 million and $224.1$250.9 million, respectively. Our Board of Directors declared a quarterly cash dividend of $0.26$0.28 per common share in July 20172019 for the third quarter of 2017.2019. The dividend was paid on October 16, 201715, 2019 to shareholders of record on October 5, 2017.4, 2019. Our Board of Directors declared a quarterly cash dividend of $0.275$0.285 per common share in October 20172019 for the fourth quarter of 2017.2019. The dividend is payable on January 16, 201815, 2020 to shareholders of record on January 4, 2018.6, 2020.
Our cash flow activities are summarized as follows (dollars in thousands):
Brixmor Property Group Inc.
| | | | Nine Months Ended September 30, | | Nine Months Ended September 30 |
| | 2017 | | 2016 | | 2019 | | 2018 |
Cash flows provided by operating activities | | $ | 421,113 |
| | $ | 421,191 |
| | $ | 399,933 |
| | $ | 400,182 |
|
Cash flows used in investing activities | | $ | (14,135 | ) | | $ | (115,083 | ) | |
Cash flows provided by (used in) investing activities | | | (110,543 | ) | | 480,070 |
|
Cash flows used in financing activities | | $ | (367,829 | ) | | $ | (340,293 | ) | | (308,674 | ) | | (926,010 | ) |
Brixmor Operating Partnership LP
| | | | Nine Months Ended September 30, | | Nine Months Ended September 30 |
| | 2017 | | 2016 | | 2019 | | 2018 |
Cash flows provided by operating activities | | $ | 421,113 |
| | $ | 421,191 |
| | $ | 399,933 |
| | $ | 400,182 |
|
Cash flows used in investing activities | | $ | (14,132 | ) | | $ | (115,074 | ) | |
Cash flows provided by (used in) investing activities | | | (110,540 | ) | | 480,071 |
|
Cash flows used in financing activities | | $ | (367,828 | ) | | $ | (340,316 | ) | | (308,569 | ) | | (926,006 | ) |
Cash, cash equivalents and restricted cash for BPG and the Operating Partnership were $142.0$31.5 million and $76.8$65.0 million as of September 30, 20172019 and 2016,2018, respectively.
Operating Activities
Net cash flow provided by operating activities primarily consists of cash inflows from tenant rental payments and expense reimbursements and cash outflows for property operating costs, real estate taxes,expenses, general and administrative expenses and interest expense.
During the nine months ended September 30, 2017,2019, our net cash flow provided by operating activities decreased $0.1$0.2 million as compared to the corresponding period in 2016.2018. The decrease is primarily due to (i) a decrease in working capitalnet operating income due to net disposition activity; and (ii) a decreasean increase in lease settlement income,cash outflows for general and administrative expense; partially offset by (iii) an increase in net operating income, (iv) a decrease in cash outflows for interest expense,expense; (iv) an increase from net working capital; (v) an increase in same property net operating income; and (v) a decrease(vi) an increase in cash outflows for general and administrative expense due to decreased severance expense associated with the separation of former executives of the Company in 2016.lease termination fees.
Investing Activities
Net cash flow used inprovided by (used in) investing activities is impacted by the nature, timing and extentmagnitude of acquisition and disposition activity and improvements to and investments in our shopping centers, including capital expenditures associated with leasing and redevelopment efforts, and our acquisition and disposition programs. Capital used to fund these activities can vary significantly from period to period based on the volume and timing of these activities.value-enhancing reinvestment efforts.
During the nine months ended September 30, 2017,2019, our net cash flow used in investing activities decreased $100.9increased $590.6 million as compared to the corresponding period in 2016.2018. The decreaseincrease was primarily due to (i) an increasea decrease of $197.6$437.1 million in net proceeds from sales of real estate assets, andassets; (ii) an increase of $12.4 million in proceeds from the sale of our unconsolidated joint venture interest, partially offset by (iii) an increase of $105.1 million in acquisitions of real estate assets, and (iv) an increase of $4.2$97.2 million in improvements to and investments in real estate assets.assets; and (iii) an increase of $70.6 million in acquisitions of real estate assets; partially offset by (iv) an increase of $14.3 million in proceeds from sale of marketable securities, net of purchases.
Improvements to and investments in real estate assets
During the nine months ended September 30, 20172019 and 2016,2018, we expended $140.0$282.2 million and $135.9$185.0 million, respectively, on improvements to and investments in real estate assets, whichassets. In addition, during the nine months ended September 30, 2019 and 2018, insurance proceeds of $5.0 million and $4.3 million, respectively, were received and included recurringin improvements to and leasing-related capital expenditures, as well as costs related to anchor space repositioning, redevelopment, outparcel development and new development projects.investments in real estate assets.
Recurring
Maintenance capital expenditures represent costs to fund major replacements and betterments to our properties. Recurring capital expenditures per square foot for the nine months ended September 30, 2017 and 2016, were $0.21 and $0.12, respectively.
Leasing related capital expenditures represent tenant specific costs incurred to lease space, including tenant improvements and tenant allowances. In addition, we evaluate our Portfolio on an ongoing basis to identify value-enhancing anchor space repositioning, redevelopment, outparcel development, new development and developmentother opportunities. Such initiatives are tenant driven and focus on upgrading our centers with strong, best-in-class retailers and enhancing the overall merchandise mix and tenant quality of our Portfolio.
As of September 30, 2017, in-process anchor space repositioning, redevelopment and development2019, we had 62 projects arein process with an aggregate anticipated cost of $413.9 million, of which $191.6 million has been incurred as follows (dollars in thousands):of September 30, 2019.
|
| | | | | | | | | | |
| As of September 30, 2017 |
| Total Projects | | Anticipated Cost | | Cost Incurred |
Anchor space repositioning | 21 |
| | $ | 44,200 |
| | $ | 17,035 |
|
Redevelopment | 14 |
| | 187,700 |
| | 79,663 |
|
Outparcel development | 7 |
| | 13,724 |
| | 3,263 |
|
New development | 1 |
| | 37,800 |
| | 19,241 |
|
Total | 43 |
| | $ | 283,424 |
| | $ | 119,202 |
|
Acquisitions of and proceeds from sales of real estate assets
We continue to evaluate the market for available propertiesacquisition opportunities and we may acquire shopping centers when we believe strategic opportunities exist, particularly where we can enhancefurther concentrate our concentrationPortfolio in attractive retail submarkets and optimize the quality and long-term growth rate of our asset base. During the nine months ended September 30, 2017, 2019, we acquired onetwo shopping centers, two leases at an existing shopping center and one building, two outparcel buildings and two outparcels land parcel for an aggregate purchase price of $79.6 million, including transaction costs, of $111.8 million.
We may also dispose of properties when we feel growth has been maximized or the assets are no longer a strategic fit for our Portfolio. costs. During the nine months ended September 30, 2017,2018, we disposedacquired one land parcel, one outparcel building and one outparcel for an aggregate purchase price of 14 wholly owned shopping centers and two outparcel buildings for net proceeds$9.0 million, including transaction costs.
We may also dispose of $228.7 million. In addition, duringproperties when we believe value has been maximized, where there is further downside risk, or where we have limited ability or desire to build critical mass in a particular submarket. During the nine months ended September 30, 2017, 2019, we disposed of our sole unconsolidated joint venture interest18 shopping centers and four partial shopping centers for aggregate net proceeds of $12.4$239.4 million. In addition, during the nine months ended September 30, 2019, we received aggregate net proceeds of $0.4 million from previously disposed assets. During the nine months ended September 30, 2018, we disposed of 42 shopping centers and two partial shopping centers for aggregate net proceeds of $676.5 million. In addition, during the nine months ended September 30, 2018, we received net proceeds of $0.5 million from previously disposed assets.
Financing Activities
Net cash flow used in financing activities is impacted by the nature, timing and extentmagnitude of issuances and repurchases of debt and equity securities, as well as principal and other payments associated with our outstanding indebtedness.indebtedness and distributions made to our common stockholders.
During the nine months ended September 30, 2017, the Company’s2019, our net cash used in financing activities increased $27.5decreased $617.3 million as compared to the corresponding period in 2016.2018. The increasedecrease was primarily due to (i) a $19.2$527.9 million increasedecrease in debt repayments, net of borrowings andborrowings; (ii) a net increasedecrease of $14.9$67.5 million in distributions torepurchases of common stock holders, partnersstock; and non-controlling interests, partially offset by(iii) a $22.3 million decrease of $6.5 million in deferred financing and debt extinguishment costs.
Contractual Obligations
Our contractual obligations relate to our debt, including secured loans, unsecured notes payable, and unsecured credit facilities and a secured loan, with maturities ranging from one yeartwo years to 1310 years, in addition to non-cancelable operating leases pertaining to shopping centers where we are the lesseeground leases and to our corporate offices.administrative office leases.
The following table summarizes our debt maturities (excluding extension options,options), interest payment obligations (excluding debt premiums and discounts and deferred financing costs), interest payment obligations and obligations under non-cancelable operating leases (excluding extension options) as of September 30, 2017.2019: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contractual Obligations | | Payment due by period |
(in thousands) | | 2017 (Remaining three months) | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter | | Total |
Debt (1) | | $ | 13,165 |
| | $ | 227,892 |
| | $ | 618,437 |
| | $ | 673,217 |
| | $ | 686,225 |
| | $ | 3,525,453 |
| | $ | 5,744,389 |
|
Interest payments (2) | | 46,275 |
| | 215,888 |
| | 201,428 |
| | 186,958 |
| | 139,887 |
| | 421,233 |
| | 1,211,669 |
|
Operating leases | | 1,828 |
| | 7,127 |
| | 7,046 |
| | 7,060 |
| | 7,251 |
| | 79,084 |
| | 109,396 |
|
Total | | $ | 61,268 |
| | $ | 450,907 |
| | $ | 826,911 |
| | $ | 867,235 |
| | $ | 833,363 |
| | $ | 4,025,770 |
| | $ | 7,065,454 |
|
| | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contractual Obligations (in thousands) | | Payment due by period |
| | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
Debt(1) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 750,000 |
| | $ | 850,000 |
| | $ | 3,275,453 |
| | $ | 4,875,453 |
|
Interest payments(2) | | 40,547 |
| | 180,277 |
| | 182,412 |
| | 177,803 |
| | 157,094 |
| | 348,475 |
| | 1,086,608 |
|
Operating leases | | 1,725 |
| | 6,916 |
| | 6,942 |
| | 6,999 |
| | 5,611 |
| | 30,807 |
| | 59,000 |
|
Total | | $ | 42,272 |
| | $ | 187,193 |
| | $ | 189,354 |
| | $ | 934,802 |
| | $ | 1,012,705 |
| | $ | 3,654,735 |
| | $ | 6,021,061 |
|
| | | | | | | | | | | | | | |
| |
(1) | Debt includes scheduled principal amortization and scheduled maturities for secured loans, unsecured notes payable, and unsecured credit facilities.facilities and a secured loan. |
| |
(2) | As of September 30, 2017,2019, we incur variable rate interest on (i) a (i) $210.0$350.0 million term loan under our Unsecured Credit Facility;loan; (ii) a $500.0 million term loan under our Unsecured Credit Facility; (iii) a $600.0 million term loan under our $600 Million Term Loan, and (iv) a $300 million term loan under our $300 Million Term Loan. Interestloan; and (iii) $250.0 million of Floating Rate Senior Notes due 2022. We have in place seven interest rate swap agreements with an aggregate notional value of $800.0 million, which effectively convert variable interest payments for these variable rate loans are presented using rates as of September 30, 2017.to fixed interest payments. For a further discussion of these and other factors that could impact interest payments please see Item 7A. “Quantitative and Qualitative Disclosures.”Disclosures” in our annual report on Form 10-K for the fiscal year ended December 31, 2016.2018. Interest payments for these variable rate loans are presented using rates (including the impact of interest rate swaps) as of September 30, 2019. |
Funds From Operations
NAREIT FFO is a supplemental non-GAAP performance measure utilized to evaluate the operational performance of real estate companies. The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income (loss) in accordance with GAAP excluding (i) gain (loss) on disposition of operating properties, and (ii) extraordinary items, plus (iii) depreciation and amortization of operating properties, (iv) impairment of operating properties and real estate equity investments, and (v) after adjustments for joint ventures calculated to reflect funds from operations on the same basis.
Non-GAAP Performance Measures
We present NAREIT FFO as we consider it an important supplemental measure of our operational and financial performance. We believe NAREIT FFO assists investors in analyzing our comparative operational and financialthe non-GAAP performance because, by excluding gains and losses related to dispositions of previously depreciated operating properties, real estate-related depreciation and amortization of continuing operations, impairment of operating properties and real estate equity investments, extraordinary items, and after adjustments for joint ventures calculated to reflect FFO on the same basis, investors can compare the operational performance of a company’s real estate between periods.
NAREIT FFOmeasures set forth below. These measures should not be considered as an alternativealternatives to, or more meaningful than, net income (determined(calculated in accordance with GAAP) or other GAAP financial measures, as an indicator of financial performance and isare not an alternativealternatives to, or more meaningful than, cash flow from operating activities (determined(calculated in accordance with GAAP) as a measure of liquidity.
Non-GAAP performance measures have limitations as they do not include all items of income and expense that affect operations, and accordingly, should always be considered as supplemental financial results to those presentedcalculated in accordance with GAAP. ComputationOur computation of NAREIT FFOthese non-GAAP performance measures may differ in certain respects from the methodology utilized by other REITs and, therefore, may not be comparable to similarly titled measures presented by such other REITs. Investors are cautioned that items excluded from NAREIT FFOthese non-GAAP performance measures are relevant to understanding and addressing financial performance.
Funds From Operations
NAREIT FFO (defined hereafter) is a supplemental, non-GAAP performance measure utilized to evaluate the operating and financial performance of real estate companies. The National Association of Real Estate Investment Trusts (“NAREIT”) defines funds from operations (“FFO”) as net income (loss), calculated in accordance with GAAP, excluding (i) depreciation and amortization related to real estate, (ii) gains and losses from the sale of certain real estate assets, (iii) gains and losses from change in control, (iv) impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity and (v) after adjustments for unconsolidated joint ventures calculated to reflect FFO on the same basis.
Considering the nature of our business as a real estate owner and operator, we believe that NAREIT FFO is useful to investors in measuring our operating and financial performance because the definition excludes items included in net income that do not relate to or are not indicative of our operating and financial performance, such as depreciation and amortization related to real estate, and items which can make periodic and peer analyses of operating and financial performance more difficult, such as gains and losses from the sale of certain real estate assets.
Our reconciliation of Brixmor Property Group Inc.’s net income to NAREIT FFO for the three and nine months ended September 30, 20172019 and 20162018 is as follows (in thousands, except per share amounts):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income | $ | 83,380 |
| | $ | 57,805 |
| | $ | 230,473 |
| | $ | 184,824 |
|
Gain on disposition of operating properties | (25,942 | ) | | (2,450 | ) | | (54,920 | ) | | (10,232 | ) |
Gain on disposition of unconsolidated joint venture interest | (4,556 | ) | | — |
| | (4,556 | ) | | — |
|
Depreciation and amortization-real estate related-continuing operations | 93,299 |
| | 97,570 |
| | 282,240 |
| | 292,295 |
|
Depreciation and amortization-real estate related-unconsolidated joint venture | — |
| | 23 |
| | 56 |
| | 68 |
|
Impairment of operating properties | 11,065 |
| | 1,971 |
| | 27,383 |
| | 1,971 |
|
NAREIT FFO | 157,246 |
| | 154,919 |
| | 480,676 |
| | 468,926 |
|
NAREIT FFO per share/OP Unit - diluted | $ | 0.52 |
| | $ | 0.51 |
| | $ | 1.58 |
| | $ | 1.54 |
|
Weighted average shares/OP Units outstanding - basic and diluted (1) | 305,176 |
| | 305,167 |
| | 305,175 |
| | 305,026 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 |
| 2019 | | 2018 | | 2019 | | 2018 |
Net income | $ | 80,854 |
| | $ | 147,346 |
| | $ | 212,714 |
| | $ | 288,730 |
|
Depreciation and amortization related to real estate | 81,869 |
| | 84,028 |
| | 246,887 |
| | 263,616 |
|
Gain on sale of real estate assets | (25,621 | ) | | (119,333 | ) | | (46,266 | ) | | (159,043 | ) |
Impairment of real estate assets | 8,170 |
| | 16,372 |
| | 17,468 |
| | 44,201 |
|
NAREIT FFO | $ | 145,272 |
| | $ | 128,413 |
| | $ | 430,803 |
| | $ | 437,504 |
|
NAREIT FFO per diluted share | $ | 0.49 |
| | $ | 0.42 |
| | $ | 1.44 |
| | $ | 1.44 |
|
Weighted average diluted shares outstanding | 298,879 |
| | 302,382 |
| | 298,927 |
| | 303,213 |
|
| |
(1)
| Basic and diluted shares/OP Units outstanding reflects an assumed conversion of vested OP Units to common stock of the Company and the vesting of certain equity awards. |
Same Property Net Operating Income
Same Property Net Operating Income ("NOI"property net operating income (“NOI”) is a supplemental, non-GAAP performance measure utilized to evaluate the operating performance of real estate companies. Same property NOI is calculated (using properties owned for the entirety of both periods and excluding properties under development),development and completed new development properties which have been stabilized for less than one year) as total property revenues (base rent, expense reimbursements, adjustments for revenues deemed uncollectible, ancillary and other expense reimbursements,rental income, percentage rents and percentage rents)other revenues) less direct property operating expenses (operating costs, real estate taxes and provision for doubtful accounts). Same property NOI excludes (i) corporate level incomeexpenses (including management, transaction,general and other fees)administrative),
(ii) lease termination fees, (iii) straight-line rental income, amortizationnet, (iv) accretion of above- and below-market rentleases and tenant inducements, net, (v) straight-line ground rent expense, and (vi) income / expense(expense) associated with the Company'sour captive insurance company.
Same PropertyConsidering the nature of our business as a real estate owner and operator, we believe that same property NOI is useful to investors in measuring the operating performance of our property portfolio because the definition excludes various items included in net income that do not relate to, or are not indicative of, the operating performance of our properties, such as depreciation and amortization and corporate level expenses (including general and administrative), and because it eliminates disparities in NOI due to the acquisition or disposition of properties or the stabilization of completed new development properties during the period presented and therefore provides a more consistent metric for comparing the operating performance. Management uses same property NOI to review operating results for comparative purposes with respect to previous periods and also to evaluate future prospects.performance of our real estate between periods.
Same Property NOI should not be considered an alternative to or more meaningful than net income (determined in accordance with GAAP) or other GAAP financial measures as an indicator of financial performance and is not an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of liquidity.
Non-GAAP performance measures have limitations as they do not include all items of income and expense that affect operations and, accordingly, should always be considered as supplemental financial results to those presented in accordance with GAAP. Computation of Same Property NOI may differ in certain respects from the methodology utilized by other REITs and, therefore, may not be comparable to similarly titled measures presented by such other REITs. Investors are cautioned that items excluded from Same Property NOI are relevant to understanding and addressing financial performance.
Comparison of the Three and Nine Months Ended September 30, 20172019 to the Three and Nine Months Ended September 30, 20162018
| | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change | | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
| | | | | | | | | | | | | | | | | | | | | | | | |
Number of properties | Number of properties | 495 |
| | 495 |
| | — |
| | 495 |
| | 495 |
| | — |
| Number of properties | 403 |
| | 403 |
| | — |
| | 402 |
| | 402 |
| | — |
|
Percent billed | Percent billed | 89.6 | % | | 90.5 | % | | (0.9 | %) | | 89.6 | % | | 90.5 | % | | (0.9 | %) | Percent billed | 88.9 | % | | 89.4 | % | | (0.5 | %) | | 88.9 | % | | 89.4 | % | | (0.5 | %) |
Percent leased | Percent leased | 91.6 | % | | 92.5 | % | | (0.9 | %) | | 91.6 | % | | 92.5 | % | | (0.9 | %) | Percent leased | 92.3 | % | | 92.6 | % | | (0.3 | %) | | 92.2 | % | | 92.6 | % | | (0.4 | %) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Revenues | Revenues | | | | | | | | | | | | Revenues | | | | | | | | | | | |
| Base rent | $ | 225,812 |
| | $ | 222,902 |
| | $ | 2,910 |
| | $ | 678,707 |
| | $ | 664,849 |
| | $ | 13,858 |
| Rental income | $ | 274,934 |
| | $ | 268,240 |
| | $ | 6,694 |
| | $ | 814,629 |
| | $ | 803,526 |
| | $ | 11,103 |
|
| Ancillary and other | 4,160 |
| | 4,386 |
| | (226 | ) | | 11,560 |
| | 11,978 |
| | (418 | ) | Other revenues | 221 |
| | 261 |
| | (40 | ) | | 1,664 |
| | 892 |
| | 772 |
|
| Expense reimbursements | 64,916 |
| | 67,497 |
| | (2,581 | ) | | 201,211 |
| | 195,040 |
| | 6,171 |
| | 275,155 |
| | 268,501 |
| | 6,654 |
| | 816,293 |
| | 804,418 |
| | 11,875 |
|
| Percentage rents | 1,245 |
| | 1,032 |
| | 213 |
| | 6,009 |
| | 5,194 |
| | 815 |
| |
| | 296,133 |
| | 295,817 |
| | 316 |
| | 897,487 |
| | 877,061 |
| | 20,426 |
| |
Operating expenses | Operating expenses | | | | | | | | | | | | Operating expenses | | | | | | | | | | | |
| Operating costs | (30,720 | ) | | (30,239 | ) | | (481 | ) | | (98,903 | ) | | (94,018 | ) | | (4,885 | ) | Operating costs | (28,258 | ) | | (29,027 | ) | | 769 |
| | (86,704 | ) | | (89,981 | ) | | 3,277 |
|
| Real estate taxes | (43,941 | ) | | (46,485 | ) | | 2,544 |
| | (132,039 | ) | | (127,404 | ) | | (4,635 | ) | Real estate taxes | (42,576 | ) | | (41,071 | ) | | (1,505 | ) | | (125,496 | ) | | (121,593 | ) | | (3,903 | ) |
| Provision for doubtful accounts | (1,169 | ) | | (2,052 | ) | | 883 |
| | (3,904 | ) | | (6,303 | ) | | 2,399 |
| Provision for doubtful accounts | — |
| | (2,665 | ) | | 2,665 |
| | — |
| | (5,300 | ) | | 5,300 |
|
| | (75,830 | ) | | (78,776 | ) | | 2,946 |
| | (234,846 | ) | | (227,725 | ) | | (7,121 | ) | | (70,834 | ) | | (72,763 | ) | | 1,929 |
| | (212,200 | ) | | (216,874 | ) | | 4,674 |
|
Same property NOI | Same property NOI | $ | 220,303 |
| | $ | 217,041 |
| | $ | 3,262 |
| | $ | 662,641 |
| | $ | 649,336 |
| | $ | 13,305 |
| Same property NOI | $ | 204,321 |
| | $ | 195,738 |
| | $ | 8,583 |
| | $ | 604,093 |
| | $ | 587,544 |
| | $ | 16,549 |
|
| | | | | | | | | | | | | |
NOI margin | 74.4 | % | | 73.4 | % | | | | 73.8 | % | | 74.0 | % | | | |
Expense recovery ratio | 86.9 | % | | 88.0 | % | | | | 87.1 | % | | 88.1 | % | | | |
The following table provides a reconciliation of Netnet income attributable to common stockholders to Same Propertysame property NOI for the periods presented (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
Net income attributable to common stockholders | $ | 83,380 |
| | $ | 57,492 |
| | $ | 230,358 |
| | $ | 182,425 |
| |
Net income | | $ | 80,854 |
| | $ | 147,346 |
| | $ | 212,714 |
| | $ | 288,730 |
|
Adjustments: | | | | | | | | | | | | | | |
Non-same property NOI | (5,644 | ) | | (6,755 | ) | | (18,282 | ) | | (21,436 | ) | (4,538 | ) | | (20,414 | ) | | (18,621 | ) | | (73,551 | ) |
Lease termination fees | (2,235 | ) | | (1,174 | ) | | (5,476 | ) | | (7,537 | ) | (423 | ) | | (467 | ) | | (2,706 | ) | | (2,363 | ) |
Straight-line rental income, net | (2,401 | ) | | (3,314 | ) | | (14,486 | ) | | (9,833 | ) | (6,831 | ) | | (5,015 | ) | | (18,051 | ) | | (11,896 | ) |
Amortization of above- and below-market rent and tenant inducements, net | (6,964 | ) | | (9,083 | ) | | (21,434 | ) | | (28,744 | ) | |
Fee income | (183 | ) | | (217 | ) | | (320 | ) | | (855 | ) | |
Accretion of above- and below-market leases and tenant inducements, net | | (3,622 | ) | | (5,112 | ) | | (11,391 | ) | | (18,250 | ) |
Straight-line ground rent expense | 31 |
| | 78 |
| | 104 |
| | 975 |
| 31 |
| | 40 |
| | 94 |
| | 100 |
|
Depreciation and amortization | 94,239 |
| | 98,337 |
| | 285,040 |
| | 294,634 |
| 82,837 |
| | 85,183 |
| | 249,825 |
| | 266,900 |
|
Impairment of real estate assets | 11,065 |
| | 1,971 |
| | 27,383 |
| | 1,971 |
| 8,170 |
| | 16,372 |
| | 17,468 |
| | 44,201 |
|
General and administrative | 22,838 |
| | 21,787 |
| | 67,043 |
| | 69,709 |
| 24,550 |
| | 21,209 |
| | 75,168 |
| | 64,955 |
|
Total other expense | 30,764 |
| | 57,728 |
| | 117,533 |
| | 165,976 |
| |
Equity in income of unconsolidated joint venture | (31 | ) | | (122 | ) | | (381 | ) | | (348 | ) | |
Gain on disposition of unconsolidated joint venture interest | (4,556 | ) | | — |
| | (4,556 | ) | | — |
| |
Net income attributable to non-controlling interests | — |
| | 313 |
| | 76 |
| | 2,399 |
| |
Preferred stock dividends | — |
| | — |
| | 39 |
| | — |
| |
Total other income (expense) | | 23,293 |
| | (43,404 | ) | | 99,593 |
| | 28,718 |
|
Same property NOI | $ | 220,303 |
| | $ | 217,041 |
| | $ | 662,641 |
| | $ | 649,336 |
| $ | 204,321 |
| | $ | 195,738 |
| | $ | 604,093 |
| | $ | 587,544 |
|
Inflation
OverFor the last several years inflation has been historically low and has had a minimal impact on the operating performance of our shopping centers; however, inflation may increase in the future. Most of our long-term leases contain provisions designed to mitigate the adverse impact of inflation, including contractual rent increasesescalations and requirements for tenants to pay their proportionalproportionate share of property operating expenses, including common area expenses, utilities,
insurance and real estate taxes, and certain capital expenditures related to the maintenance of our properties, thereby reducing our exposure to increases in property-level costs resulting from inflation. In addition, we believe that many of our existing rental rates are below current market levels for comparable space and that upon
renewal or re-leasing, such rates may be increased to be consistent with, or closer to, current market rates. This belief is based upon an analysis of relevant market conditions. In addition, withWith respect to our outstanding indebtedness, we periodically evaluate our exposure to interest rate fluctuations, and have, and may in the future,continue to enter into interest rate protection agreements which mitigate, but do not eliminate, the impact of changes in interest rates on our variable rate loans.
Off-Balance Sheet Arrangements
We had no material off-balance sheet arrangements as of September 30, 2017.2019.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes from the quantitative and qualitative disclosures about market risk disclosed in Item 7A of Part II of our annual report on Form 10-K for the year ended December 31, 2016.2018.
Item 4. Controls and Procedures
Controls and Procedures (Brixmor Property Group Inc.)
Evaluation of Disclosure Controls and Procedures
The Parent CompanyBPG maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in its reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. The Parent Company’sBPG’s management, with the participation of its principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based upon thaton this evaluation, the Parent Company’sBPG’s principal executive officer, James M. Taylor, and principal financial officer, Angela Aman, concluded that as of the end of the period covered by this report, the design and operation of the Parent Company’sBPG’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.as of September 30, 2019.
Changes in Internal Control over Financial Reporting
There have been no changes in the Parent Company’sBPG’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 20172019 that have materially affected, or that are reasonably likely to materially affect, the Parent Company’sBPG’s internal control over financial reporting.
Controls and Procedures (Brixmor Operating Partnership LP)
Evaluation of Disclosure Controls and Procedures
The Operating Partnership maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in its reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. The Operating Partnership’s management, with the participation of its principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based upon thaton this evaluation, the Operating Partnership’s principal executive officer, James M. Taylor and principal financial officer, Angela Aman concluded that as of the end of the period covered by this report, the design and operation of the Operating Partnership’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.as of September 30, 2019.
Changes in Internal Control over Financial Reporting
There have been no changes in the Operating Partnership’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 20172019 that have materially affected, or that are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1.Legal Proceedings
The information contained under the heading “Legal Matters” in Note 13 -15 – Commitments and Contingencies to our unaudited Condensed Consolidated Financial Statements in this report is incorporated by reference into this Item 1.
Item 1A. Risk Factors
There have been no material changes to the risk factors relating to the Company disclosed in our Form 10-K for the year ended December 31, 2016.2018.
Item 2.2. Unregistered Sales of Equity Securities and Use of Proceeds
None.On December 5, 2017, the Board of Directors authorized a share repurchase program (the “Program”) for up to $400.0 million of the Company’s common stock. The Program is scheduled to expire on December 5, 2019, unless extended by the Board of Directors. During the three months ended September 30, 2019, the Company did not repurchase any shares of common stock. As of September 30, 2019, the Program had $275.0 million of available repurchase capacity.
Item 3.Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6.Exhibits
The exhibits listed on the accompanying Exhibit Indexfollowing documents are filed as part ofexhibits to this report and such Exhibit Index is incorporated herein by reference.report:
|
| | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit Number | | Exhibit Description | | Form | | File No. | | Date of Filing | | Exhibit Number | | Filed Herewith |
| | Term Loan Agreement, dated as of July 28, 2016, among Brixmor Operating Partnership LP, as borrower, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto | | 8-K | | 001-36160 | | 7/31/2017 | | 10.1 | | |
| | Brixmor Property Group Inc. Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | — | | — | | — | | — | | x |
| | Brixmor Property Group Inc. Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | — | | — | | — | | — | | x |
| | Brixmor Operating Partnership LP Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | — | | — | | — | | — | | x |
| | Brixmor Operating Partnership LP Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | — | | — | | — | | — | | x |
| | Brixmor Property Group Inc. Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | — | | — | | — | | — | | x |
| | Brixmor Operating Partnership LP Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | — | | — | | — | | — | | x |
101.INS | | XBRL Instance Document | | — | | — | | — | | — | | x |
101.SCH | | XBRL Taxonomy Extension Schema Document | | — | | — | | — | | — | | x |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | — | | — | | — | | — | | x |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | — | | — | | — | | — | | x |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | — | | — | | — | | — | | x |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | — | | — | | — | | — | | x |
|
| | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit Number | | Exhibit Description | | Form | | File No. | | Date of Filing | | Exhibit Number | | Filed Herewith |
| | Second Amended and Restated Agreement of Limited Partnership of Brixmor Operating Partnership LP, dated as of October 28, 2019, by and among Brixmor OP GP LLC, as General Partner, BPG Subsidiary Inc., as a Limited Partner, BPG Sub LLC, as a Limited Partner, and the other limited partners from time to time party thereto | | — | | — | | — | | — | | x |
| | Amendment No. 1 to the Eighth Supplemental Indenture, dated August 15, 2019, between Brixmor Operating Partnership LP, as issuer, and The Bank of New York Mellon, as trustee | | 8-K | | 001-36160 | | 8/15/2019 | | 4.3 | | |
| | Form of Global Note representing the 4.125% Senior Notes due 2029 (included in Exhibit 4.1) | | 8-K | | 001-36160 | | 8/15/2019 | | 4.4 | | |
| | Brixmor Property Group Inc. Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | — | | — | | — | | — | | x |
| | Brixmor Property Group Inc. Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | — | | — | | — | | — | | x |
| | Brixmor Operating Partnership LP Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | — | | — | | — | | — | | x |
| | Brixmor Operating Partnership LP Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | — | | — | | — | | — | | x |
| | Brixmor Property Group Inc. Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | — | | — | | — | | — | | x |
| | Brixmor Operating Partnership LP Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | — | | — | | — | | — | | x |
101.INS | | Inline XBRL Taxonomy Extension Instance Document | | — | | — | | — | | — | | x |
|
| | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit Number | | Exhibit Description | | Form | | File No. | | Date of Filing | | Exhibit Number | | Filed Herewith |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | — | | — | | — | | — | | x |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | — | | — | | — | | — | | x |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | — | | — | | — | | — | | x |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | | — | | — | | — | | — | | x |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | — | | — | | — | | — | | x |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibit 101) | | | | | | | | | | x |
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
|
| | |
| BRIXMOR PROPERTY GROUP INC. |
| | |
Date: October 30, 201728, 2019 | By: | /s/James M. Taylor |
| | James M. Taylor |
| | Chief Executive Officer and President |
| | (Principal Executive Officer) |
| | |
Date: October 30, 201728, 2019 | By: | /s/Angela Aman |
| | Angela Aman |
| | Chief Financial Officer |
| | (Principal Financial Officer) |
| | |
Date: October 30, 201728, 2019 | By: | /s/Steven Gallagher |
| | Steven Gallagher |
| | Chief Accounting Officer |
| | (Principal Accounting Officer) |
| | |
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| | |
| BRIXMOR OPERATING PARTNERSHIP LP |
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Date: October 30, 201728, 2019 | By: | /s/James M. Taylor |
| | James M. Taylor |
| | Chief Executive Officer and President |
| | (Principal Executive Officer) |
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Date: October 30, 201728, 2019 | By: | /s/Angela Aman |
| | Angela Aman |
| | Chief Financial Officer |
| | (Principal Financial Officer) |
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Date: October 30, 201728, 2019 | By: | /s/Steven Gallagher |
| | Steven Gallagher |
| | Chief Accounting Officer |
| | (Principal Accounting Officer) |
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