BRIXMOR PROPERTY GROUP INC. 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 Financial Statements and accompanying notes, including trends which might appear, should not be taken as indicative of future operations. Executive Summary Our CompanyBrixmor Property Group Inc. and subsidiaries (collectively, the "Parent Company" or "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 the Parent Company conducts substantially all of its operations and owns substantially all of its assets. BPG owns 100% of the common stock ofBPG Subsidiary Inc. ("BPG Sub"), which, in turn, is the sole member ofBrixmor OP GP LLC (the "General Partner"), the sole general partner of theOperating Partnership . Unless stated otherwise or the context otherwise requires, "we," "our," and "us" mean BPG and theOperating Partnership , collectively. We believe we own and operate one of the largest open-air retail portfolios by gross leasable area ("GLA") inthe United States ("U.S."), comprised primarily of community and neighborhood shopping centers. As ofJune 30, 2020 , our portfolio was comprised of 398 shopping centers (the "Portfolio") totaling approximately 70 million square feet of GLA. Our high-quality national Portfolio is primarily located within established trade areas in the top 50 Metropolitan Statistical Areas ("MSAs") in theU.S. , and our shopping centers are primarily anchored by non-discretionary and value-oriented retailers, as well as consumer-oriented service providers. As ofJune 30, 2020 , our three largest tenants by annualized base rent ("ABR") were The TJX Companies, Inc. ("TJX"), The Kroger Co. ("Kroger"), andDollar Tree Stores, Inc. The Parent Company has been organized and operated in conformity with the requirements for qualification and taxation as a REIT underU.S. federal income tax laws, commencing with our taxable year endedDecember 31, 2011 , has maintained such requirements through our taxable year endedDecember 31, 2019 , and intends to satisfy such requirements for subsequent taxable years. Our primary objective is to maximize total returns to our stockholders through consistent, sustainable growth in cash flow. Our key strategies to achieve this objective include 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 be socially responsible as we realize our goal of owning and managing properties that are the centers of the communities we serve.
We believe the following set of competitive advantages positions us to successfully execute on our key strategies:
•Expansive Retailer Relationships - We believe that the scale of our asset base and our nationwide footprint represent competitive advantages in supporting the growth objectives of the nation's largest and most successful retailers. We believe that we are one of the largest landlords by GLA to TJX and Kroger, as well as a key landlord to most major grocers and 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 inNew York and our network of four regional offices inAtlanta ,Chicago ,Philadelphia andSan Diego , as well as our 11 leasing and property management satellite offices throughout the country. We believe that this structure enables us to obtain critical national market intelligence, while also benefitting from the regional and local expertise of our 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 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. 30 -------------------------------------------------------------------------------- Factors That May Influence our Future Results We derive our rental income primarily from base rent and expense reimbursements paid by tenants to us under existing leases at each of our properties. Expense reimbursements primarily consist of payments made by tenants to us for their proportionate 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. Our ability to maintain or increase rental income is primarily dependent on our ability to maintain or increase rental rates, renew expiring leases at equal or higher rents and/or lease available space. Increases in our property operating expenses, including repairs and maintenance, landscaping, snow removal, security, ground rent related to properties for which we are the lessee, utilities, insurance, real estate taxes and various other costs, to the extent they are not reimbursed by tenants or offset by increases in rental income, will adversely impact our overall performance. Factors that could affect our rental income and/or property operating expenses include: (1) changes in national, regional and local economies, due to global events such as international trade disputes, a foreign debt crisis, foreign currency volatility, as well as from domestic issues, such as government policies and regulations, tariffs, energy prices, market dynamics, rising interest rates and unemployment or limited growth in consumer income; (2) local market conditions, including an oversupply of space in, or a reduction in demand for, properties similar to those in our Portfolio; (3) competition from other available properties and e-commerce, and the attractiveness of properties in our Portfolio to our tenants; (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 their ability to pay rent and expense reimbursements; (5) in the case of percentage 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, epidemics and/or pandemics, including COVID-19, 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 environment and taxes. As discussed below and in "Part II - Item 1A. Risk Factors" included elsewhere in this Quarterly Report on Form 10-Q, the COVID-19 pandemic is significantly impacting many of these factors. Impacts on Business from COVID-19 The global outbreak of a novel strain of coronavirus ("COVID-19") and the public health measures that have been undertaken in response have had a significant adverse impact on the global economy, on our tenants, and on our business. The effects of COVID-19, including related government restrictions, border closings, quarantines, "shelter-in-place" orders and "social distancing" guidelines, have forced many of our tenants to close stores, reduce hours or significantly limit service, and have resulted in a dramatic increase in national unemployment and an economic recession. Since we cannot estimate when the COVID-19 pandemic and the responsive measures to combat it will end, we cannot estimate the ultimate operational and financial impact of COVID-19 on our business. Approximately 70% of our shopping centers are anchored by grocery stores. Grocery stores and other essential tenants have remained open throughout this time and many have experienced stable or increased sales, which we believe will help to partially mitigate the adverse impact of COVID-19 on our business. COVID-19 has significantly impacted our operations during the second quarter of 2020, and the following operating trends, combined with macroeconomic trends such as the current economic recession, reduced consumer spending and significantly increased unemployment, lead us to believe that our operating results for at least the remainder of 2020 will continue to be adversely affected by COVID-19. •Rent collection: As ofJuly 29, 2020 , we had collected approximately 98%, 78% and 58% of second quarter 2020 billed base rent from essential retailers, hybrid retailers and other retailers or services, respectively. As ofJuly 29, 2020 , approximately 33%, 24% and 43% of our portfolio by ABR consisted of essential retailers, hybrid retailers and other retailers or services, respectively. •Store closures: As ofJuly 29, 2020 , approximately 6% of our ABR is represented by tenants that are currently closed, including approximately 1%, 5% and 11% of the ABR of essential retailers, hybrid retailers and other retailers or services, respectively. Store closures, particularly if for an extended period, or if forced to occur multiple times, increase the risk of business failures and lease defaults. 31 -------------------------------------------------------------------------------- •Timing of rental payments: Certain tenants experiencing economic difficulties during this pandemic have sought rent relief, which has been provided on a case-by-case basis primarily in the form of rent deferrals, and in limited cases in the form of rent abatements. Rent deferrals have significantly increased our Receivables, net. We are in ongoing discussions with our tenants regarding rent that has not yet been collected.
•Leasing activity: While the size of our new and renewal leasing pipeline
remains generally consistent with prior periods, the velocity of lease execution
has notably slowed since
We have taken various steps to mitigate the impact of COVID-19 on our liquidity, including deferrals of approximately$100.0 million of capital expenditures originally anticipated in 2020 and the temporary suspension of our quarterly cash dividend. InJune 2020 , we issued$500.0 million aggregate principal amount of 4.050% Senior Notes due 2030, the net proceeds of which were used to repurchase of a portion of our 3.875%, Senior Notes due 2022 and repay outstanding indebtedness under our$1.25 billion revolving credit facility (the "Revolving Facility"), extending the duration of our debt. As ofJuly 29, 2020 , we have approximately$350.0 million in cash, approximately$1.1 billion of remaining availability under the Revolving Facility, and no debt maturities until 2022. In addition, we have encouraged our tenants whose businesses have been impacted by COVID-19 to explore their eligibility for benefits under government assistance programs intended to provide financial support to affected businesses; the ultimate impact of such assistance on our tenants, however, is not yet clear. The effects of COVID-19 have triggered an economic recession, and we expect that the longer it continues, the number of our tenants facing financial distress will increase. Historically, economic indicators such as GDP growth, consumer confidence and employment are correlated with demand for certain of our tenants' products and services. In addition, some of our tenants have been required to close their stores for the second time due to the re-instatement of government restrictions, and other tenants who are currently operating may also be required to do so in the future. These conditions could increase the number of our tenants that are unable to meet their lease obligations to us and could limit the demand for space from new tenants. We expect the significance of the COVID-19 crisis and the resulting economic slowdown on our financial and operational results to be dictated by, among other things, the scope, severity and duration of the pandemic, the direct and indirect economic effects of the pandemic and containment measures, and potential changes in consumer behavior. These uncertainties make it difficult to predict operating results for our Portfolio for the remainder of 2020. Therefore, there can be no assurances that we will not experience declines in revenues, net income or funds from operations, which could be material. See "Part II - Item 1A. Risk Factors" included elsewhere in this Quarterly Report on Form 10-Q for additional information.
Leasing Highlights
As of
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The following table summarizes our executed leasing activity for the three
months ended
For the
Three Months Ended
Tenant Improvements and Third Party Leasing
Leases GLA New ABR PSF Allowances PSF Commissions PSF Rent Spread(1)
New, renewal and option
leases 283 1,841,519 $ 13.49 $ 2.83 $ 1.01 6.5 %
New and renewal leases 241 1,275,855 14.27 4.09 1.45 5.9 %
New leases 75 425,561 13.74 11.04 4.24 19.4 %
Renewal leases 166 850,294 14.53 0.61 0.06 3.3 %
Option leases 42 565,664 11.75 - - 7.8 %
For the
Three Months Ended
Tenant Improvements and Third Party Leasing
Leases GLA New ABR PSF Allowances PSF Commissions PSF Rent Spread(1)
New, renewal and option
leases 456 3,299,874 $ 13.98 $ 8.86 $ 1.59 11.7 %
New and renewal leases 392 2,213,228 14.90 13.12 2.37 13.9 %
New leases 176 1,026,355 15.54 26.63 4.89 30.4 %
Renewal leases 216 1,186,873 14.34 1.44 0.19 8.2 %
Option leases 64 1,086,646 12.12 0.18 - 8.1 %
(1) Based on comparable leases only, which consist of new leases signed on units
that were occupied within the prior 12 months and renewal leases signed with the
same tenant in all or a portion of the same location or that include the
expansion into space that was occupied within the prior 12 months.
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 six months
ended June 30, 2020 and 2019 (dollars in thousands, except for per square foot
("PSF") amounts):
For the
Six Months Ended
Tenant Improvements and Third Party Leasing
Leases GLA New ABR PSF Allowances PSF Commissions PSF Rent Spread(1)
New, renewal and option
leases 617 4,188,834 $ 13.66 $ 3.74 $ 1.14 8.1 %
New and renewal leases 518 2,686,485 14.88 5.80 1.77 8.2 %
New leases 178 1,012,215 14.96 14.19 4.59 22.2 %
Renewal leases 340 1,674,270 14.84 0.73 0.07 4.5 %
Option leases 99 1,502,349 11.46 0.07 - 7.8 %
For the
Six Months Ended
Tenant Improvements and Third Party Leasing
Leases GLA New ABR PSF Allowances PSF Commissions PSF Rent Spread(1)
New, renewal and option
leases 851 6,484,250 $ 13.74 $ 6.86 $ 1.47 10.9 %
New and renewal leases 717 3,935,862 15.53 11.25 2.42 13.2 %
New leases 323 1,720,798 16.85 23.63 5.38 31.4 %
Renewal leases 394 2,215,064 14.49 1.63 0.11 7.5 %
Option leases 134 2,548,388 10.98 0.08 - 7.4 %
(1) Based on comparable leases only, which consist of new leases signed on units
that were occupied within the prior 12 months and renewal leases signed with the
same tenant in all or a portion of the same location or that include the
expansion into space that was occupied within the prior 12 months.
Excludes leases executed for terms of less than one year.
ABR PSF includes the GLA of lessee-owned leasehold improvements.
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Acquisition Activity
•During the six months ended June 30, 2020 , we acquired one land parcel for
$2.0 million , including transaction costs.
•During the six months ended June 30, 2019 , we acquired two shopping centers,
two leases at an existing shopping center and one land parcel for an aggregate
purchase price of $79.6 million , including transaction costs.
Disposition Activity
•During the six months ended June 30, 2020 , we disposed of five shopping centers
and two partial shopping centers for aggregate net proceeds of $45.7 million
resulting in aggregate gain of $8.2 million and aggregate impairment of less
than $0.1 million . In addition, during the six months ended June 30, 2020 , we
received aggregate net proceeds of $0.9 million and resolved a $0.5 million
contingency from previously disposed assets resulting in aggregate gain of $1.4
million .
•During the six months ended June 30, 2019 , we disposed of six shopping centers
and three partial shopping centers for aggregate net proceeds of $94.8 million
resulting in aggregate gain of $20.5 million . In addition, during the six months
ended June 30, 2019 , we received aggregate net proceeds of $0.3 million from
previously disposed assets resulting in aggregate gain of $0.1 million .
Results of Operations
The results of operations discussion is combined for BPG and the
Comparison of the Three Months EndedJune 30, 2020 to the Three Months EndedJune 30, 2019 Revenues (in thousands) Three Months Ended June 30, 2020 2019 $ Change Revenues Rental income$ 247,434 $ 290,737 $ (43,303) Other revenues 186 268 (82) Total revenues$ 247,620 $ 291,005 $ (43,385) Rental income The decrease in rental income for the three months endedJune 30, 2020 of$43.3 million , as compared to the corresponding period in 2019, was due to an$8.2 million decrease in rental income due to net disposition activity and a$35.1 million decrease for the remaining portfolio. The decrease for the remaining portfolio was due to (i) a$25.3 million increase in revenues deemed uncollectible; (ii) a$12.4 million decrease in straight-line rental income, net; (iii) a$0.9 million decrease in percentage rents; (iv) a$0.7 million decrease in expense reimbursements; (v) a$0.6 million decrease in ancillary and other rental income; and (vi) a$0.3 million decrease in accretion of above- and below-market leases and tenant inducements, net; partially offset by (vii) a$4.8 million increase in base rent; and (viii) a$0.3 million increase in lease termination fees. The increase in revenues deemed uncollectible and decrease in straight-line rental income, net were primarily attributable to COVID-19. The$4.8 million increase in base rent for the remaining portfolio was primarily due to contractual rent increases, an increase in billed occupancy, and positive rent spreads for new and renewal leases and option exercises of 8.1% during the six months endedJune 30, 2020 and 10.9% during the year endedDecember 31, 2019 . Other revenues Other revenues remained generally consistent for the three months endedJune 30, 2020 as compared to the corresponding period in 2019. 34
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Operating Expenses (in thousands)
Three Months Ended June 30,
2020 2019 $ Change
Operating expenses
Operating costs $ 25,136 $ 29,307 $ (4,171)
Real estate taxes 41,808 43,189 (1,381)
Depreciation and amortization 80,829 81,593 (764)
Impairment of real estate assets 5,962 6,186 (224)
General and administrative 24,436 25,175 (739)
Total operating expenses $ 178,171 $ 185,450 $ (7,279)
Operating costs
The decrease in operating costs for the three months ended June 30, 2020 of $4.2
million , as compared to the corresponding period in 2019, was primarily due to a
$0.9 million decrease in operating costs due to net disposition activity and a
$3.3 million decrease for the remaining portfolio primarily due to proactive
cost reductions taken in response to COVID-19.
Real estate taxes
The decrease in real estate taxes for the three months ended June 30, 2020 of
$1.4 million , as compared to the corresponding period in 2019, was primarily due
to a $0.9 million decrease in real estate taxes due to net disposition activity
and a $0.5 million decrease for the remaining portfolio primarily due to
favorable adjustments of prior year assessments.
Depreciation and amortization
The decrease in depreciation and amortization for the three months ended June
30, 2020 of $0.8 million , as compared to the corresponding period in 2019, was
primarily due to a $2.2 million decrease in depreciation and amortization due to
net disposition activity, partially offset by a $1.4 million increase for the
remaining portfolio primarily related to tenant write-offs and value-enhancing
reinvestment capital expenditures, partially offset by a decrease in
depreciation and amortization related to acquired in-place lease intangibles.
Impairment of real estate assets
During the three months ended June 30, 2020 , aggregate impairment of $6.0
million was recognized on two operating properties. During the three months
ended June 30, 2019 , aggregate impairment of $6.2 million was recognized on one
operating property. Impairments recognized were due to changes in anticipated
hold periods in connection with our capital recycling program.
General and administrative
The decrease in general and administrative costs for the three months ended June
30, 2020 of $0.7 million , as compared to the corresponding period in 2019, was
primarily due to a decrease in marketing and travel costs due to COVID-19 and a
decrease in net compensation costs, partially offset by an increase in
non-recurring costs.
During the three months ended
35--------------------------------------------------------------------------------
Other Income and Expenses (in thousands)
Three Months Ended June 30,
2020 2019 $ Change
Other income (expense)
Dividends and interest $ 102 $ 300 $ (198)
Interest expense (49,852) (48,475) (1,377)
Gain on sale of real estate assets 692 13,043 (12,351)
Loss on extinguishment of debt, net (10,386) (707) (9,679) Other (961) (756) (205) Total other expense$ (60,405) $ (36,595) $ (23,810) Dividends and interest The decrease in dividends and interest for the three months endedJune 30, 2020 of$0.2 million , as compared to the corresponding period in 2019, was primarily due to a$0.2 million decrease in investment income from marketable securities. Interest expense The increase in interest expense for the three months endedJune 30, 2020 of$1.4 million , as compared to the corresponding period in 2019, was primarily due to higher overall debt obligations. Gain on sale of real estate assets During the three months endedJune 30, 2020 , two shopping centers were disposed resulting in aggregate gain of$0.7 million . During the three months endedJune 30, 2019 , three shopping centers and three partial shopping centers were disposed resulting in aggregate gain of$13.2 million . Loss on extinguishment of debt, net During the three months endedJune 30, 2020 , we repurchased$182.5 million of our 3.875% Senior Notes due 2022 through a tender offer, resulting in a$10.4 million loss on extinguishment of debt, net. Loss on extinguishment of debt, net includes$9.5 million of prepayment fees and$0.9 million of accelerated unamortized debt issuance costs and debt discounts. During the three months endedJune 30, 2019 , we repaid$200.0 million of an unsecured term loan under theOperating Partnership's senior unsecured credit facility agreement, as amendedApril 29, 2020 (the "Unsecured Credit Facility"), resulting in a$0.7 million loss on extinguishment of debt due to the acceleration of unamortized debt issuance costs.
Other
Other expense remained generally consistent for the three months ended
Comparison of the Six Months EndedJune 30, 2020 to the Six Months EndedJune 30, 2019 Revenues (in thousands) Six Months Ended June 30, 2020 2019 $ Change Revenues Rental income$ 527,836 $ 580,692 $ (52,856) Other revenues 2,085 1,452 633 Total revenues$ 529,921 $ 582,144 $ (52,223) Rental income The decrease in rental income for the six months endedJune 30, 2020 of$52.9 million , as compared to the corresponding period in 2019, was due to a$16.0 million decrease in rental income due to net disposition activity and a$36.9 million decrease for the remaining portfolio. The decrease for the remaining portfolio was due to (i) a$28.6 million increase in revenues deemed uncollectible; (ii) a$19.6 million decrease in straight-line rental income, net; (iii) a$1.9 million decrease in percentage rents; (iv) a$1.0 million decrease in accretion of above- and below-market leases and tenant inducements, net; and (v) a$0.3 million decrease in ancillary and other rental income; partially offset by (vi) a$12.3 million increase in base rent; (vii) a$1.2 million increase in expense reimbursements; 36 -------------------------------------------------------------------------------- and (viii) a$1.0 million increase in lease termination fees. The increase in revenues deemed uncollectible and decrease in straight-line rental income, net were primarily attributable to COVID-19. The$12.3 million increase in base rent for the remaining portfolio was primarily due to contractual rent increases, an increase in billed occupancy, and positive rent spreads for new and renewal leases and option exercises of 8.1% during the six months endedJune 30, 2020 and 10.9% during the year endedDecember 31, 2019 . Other revenues The increase in other revenues for the six months endedJune 30, 2020 of$0.6 million , as compared to the corresponding period in 2019, was primarily due to an increase in tax increment financing income.
Operating Expenses (in thousands)
Six Months Ended June 30,
2020 2019 $ Change
Operating expenses
Operating costs $ 55,492 $ 60,565 $ (5,073)
Real estate taxes 84,672 86,515 (1,843)
Depreciation and amortization 163,846 166,988 (3,142)
Impairment of real estate assets 10,560 9,298 1,262
General and administrative 47,033 50,618 (3,585)
Total operating expenses $ 361,603 $ 373,984 $ (12,381)
Operating costs
The decrease in operating costs for the six months ended June 30, 2020 of $5.1
million , as compared to the corresponding period in 2019, was primarily due to a
$2.0 million decrease in operating costs due to net disposition activity and a
$3.1 million decrease for the remaining portfolio primarily due to proactive
cost reductions taken in response to COVID-19.
Real estate taxes
The decrease in real estate taxes for the six months ended June 30, 2020 of $1.8
million , as compared to the corresponding period in 2019, was primarily due to a
$2.2 million decrease in real estate taxes due to net disposition activity,
partially offset by a $0.4 million increase for the remaining portfolio
primarily due to increases in tax rates and assessments from several
jurisdictions.
Depreciation and amortization
The decrease in depreciation and amortization for the six months ended June 30,
2020 of $3.1 million , as compared to the corresponding period in 2019, was
primarily due to a $4.1 million decrease in depreciation and amortization due to
net disposition activity, partially offset by a $1.0 million increase for the
remaining portfolio primarily related to tenant write-offs, partially offset by
a decrease in depreciation and amortization related to acquired in-place lease
intangibles.
Impairment of real estate assets
During the six months ended June 30, 2020 , aggregate impairment of $10.6 million
was recognized on one partial shopping center as a result of disposition
activity and three operating properties. During the six months ended June 30,
2019 , aggregate impairment of $9.3 million was recognized on two operating
properties. Impairments recognized were due to changes in anticipated hold
periods primarily in connection with our capital recycling program.
General and administrative
The decrease in general and administrative costs for the six months ended June
30, 2020 of $3.6 million , as compared to the corresponding period in 2019, was
primarily due to a decrease in marketing, professional and travel costs due to
COVID-19 and a decrease in net compensation costs, partially offset by an
increase in non-recurring costs.
During the six months ended
37
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million, respectively and leasing commission costs of
Other Income and Expenses (in thousands)
Six Months Ended June 30,
2020 2019 $ Change
Other income (expense)
Dividends and interest $ 226 $ 447 $ (221)
Interest expense (97,206) (95,141) (2,065)
Gain on sale of real estate assets 9,597 20,645 (11,048)
Loss on extinguishment of debt, net (10,391)
(677) (9,714)
Other (1,719) (1,574) (145) Total other expense$ (99,493) $
(76,300)
Dividends and interest The decrease in dividends and interest for the six months endedJune 30, 2020 of$0.2 million , as compared to the corresponding period in 2019, was primarily due to a$0.2 million decrease in investment income from marketable securities. Interest expense The increase in interest expense for the six months endedJune 30, 2020 of$2.1 million , as compared to the corresponding period in 2019, was primarily due to higher overall debt obligations. Gain on sale of real estate assets During the six months endedJune 30, 2020 , five shopping centers and one partial shopping center were disposed resulting in aggregate gain of$8.2 million . In addition, during the six months endedJune 30, 2020 , we received aggregate net proceeds of$0.9 million and resolved a$0.5 million contingency from previously disposed assets resulting in aggregate gain of$1.4 million . During the six months endedJune 30, 2019 , six shopping centers and three partial shopping centers were disposed resulting in aggregate gain of$20.5 million . In addition, during the six months endedJune 30, 2019 , we received aggregate net proceeds of$0.3 million from previously disposed assets resulting in aggregate gain of$0.1 million . Loss on extinguishment of debt, net During the six months endedJune 30, 2020 , we repurchased$182.5 million of our 3.875% Senior Notes due 2022 through a tender offer and repaid our$7.0 million secured loan, resulting in a$10.4 million loss on extinguishment of debt, net. Loss on extinguishment of debt, net includes$9.7 million of prepayment fees and$0.7 million of accelerated unamortized debt issuance costs and debt discounts, net of premiums. During the six months endedJune 30, 2019 , we repaid$200.0 million of an unsecured term loan under the Unsecured Credit Facility, resulting in a$0.7 million loss on extinguishment of debt due to the acceleration of unamortized debt issuance costs.
Other
Other expense remained generally consistent for the six months ended
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 payments on our outstanding debt, current and
anticipated tenant and other capital improvements, stockholder distributions to
maintain our qualification as a REIT and other obligations associated with
conducting our business.
Our primary expected sources and uses of capital are as follows:
Sources
•cash and cash equivalent balances;
•operating cash flow;
38
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•available borrowings under the Unsecured Credit Facility;
•dispositions;
•issuance of long-term debt; and
•issuance of equity securities.
Uses
•maintenance capital expenditures; •leasing capital expenditures; •debt repayments; •dividend/distribution payments; •value-enhancing reinvestment capital expenditures; •acquisitions; and •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 access to multiple forms of capital, including secured property level debt, unsecured corporate level debt, preferred equity, and common equity, which will allow us to efficiently execute on our strategic and operational objectives. We currently have investment grade credit ratings from all three major credit rating agencies. As ofJune 30, 2020 , we had$1.1 billion of available liquidity under our$1.25 billion revolving credit facility (the "Revolving Facility") and$318.5 million in cash and cash equivalents. We intend to continue to enhance our financial and operational flexibility through the additional extension of the duration of our debt. As previously discussed under the header "Impacts on Business from COVID-19", the COVID-19 pandemic has had, and we expect will continue to have, an adverse impact on our liquidity and capital resources. Future decreases in cash flow from operations resulting from tenant defaults, rent deferrals, or decreases in our rents or occupancy, would decrease the cash available for the capital uses described above, including payment of dividends. The decline in our stock price since the onset of the pandemic has significantly decreased the likelihood of utilizing our at-the-market equity offering program in the near future. InJune 2020 , we issued$500.0 million aggregate principal amount of 4.050% Senior Notes due 2030, the net proceeds of which were used to repurchase a portion of our 3.875%, Senior Notes due 2022 and repay outstanding indebtedness under the Revolving Facility, extending the duration of our debt. However, the impacts of COVID-19 may increase risks related to the pricing and availability of future debt financing. In addition, a significant decline in our operating performance in the future could result in us not satisfying the financial covenants applicable to our debt and/or defaulting on our debt, which could impact our ability to incur additional debt, including the remaining capacity on our Revolving Facility. We have taken various steps to mitigate the impact of COVID-19 on our liquidity, including deferrals of approximately$100.0 million of capital expenditures originally anticipated in 2020 and the temporary suspension of our quarterly cash dividend. In addition, we have no debt maturities until 2022. However, since we do not know the ultimate severity and length of the COVID-19 pandemic, and thus cannot predict the impact it will ultimately have on our tenants and on the debt and equity capital markets, we cannot estimate the impact it will have on our liquidity and capital resources. In order to continue to qualify as a REIT for federal income tax purposes, we must distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains. We intend to continue to satisfy this requirement and maintain our REIT status. Cash dividends paid to common stockholders for the six months endedJune 30, 2020 and 2019 were$170.3 million and$167.8 million , respectively. In response to uncertainties stemming from the COVID-19 pandemic, our Board of Directors has temporarily suspended the quarterly cash dividend. Our Board of Directors will reevaluate the dividend on a quarterly basis, taking into account a variety of relevant factors including REIT taxable income. 39 -------------------------------------------------------------------------------- Our cash flow activities are summarized as follows (dollars in thousands):Brixmor Property Group Inc. Six Months Ended June 30, 2020 2019 Cash flows provided by operating activities$ 179,564 $ 251,007 Cash flows used in investing activities (116,021) (139,284) Cash flows provided by (used in) financing activities 234,925 (149,232)
Six
Months Ended
2020 2019
Cash flows provided by operating activities $ 179,564 $ 251,007
Cash flows used in investing activities (116,021) (139,282)
Cash flows provided by (used in) financing activities 224,927 (149,127)
Cash and cash equivalents and restricted cash for BPG were
Operating Activities Net cash provided by operating activities primarily consists of cash inflows from tenant rental payments and expense reimbursements and cash outflows for property operating expenses, general and administrative expenses and interest expense. During the six months endedJune 30, 2020 , our net cash provided by operating activities decreased$71.4 million as compared to the corresponding period in 2019. The decrease is primarily due to (i) a decrease from net working capital; (ii) a decrease in net operating income due to net disposition activity; (iii) a decrease in same property net operating income primarily due to COVID-19; and (iv) an increase in cash outflows for interest expense; partially offset by (v) a decrease in cash outflows for general and administrative expense; and (vi) an increase in lease termination fees. Investing Activities Net cash used in investing activities is impacted by the nature, timing and magnitude of acquisition and disposition activity and improvements to and investments in our shopping centers, including capital expenditures associated with our value-enhancing reinvestment efforts. During the six months endedJune 30, 2020 , our net cash used in investing activities decreased$23.3 million as compared to the corresponding period in 2019. The decrease was primarily due to (i) a decrease of$77.6 million in acquisitions of real estate assets; and (ii) a decrease of$11.4 million in improvements to and investments in real estate assets; partially offset by (iii) a decrease of$48.5 million in net proceeds from sales of real estate assets; and (iv) a$17.3 million decrease in net proceeds from sales of marketable securities, net of purchases. Improvements to and investments in real estate assets During the six months endedJune 30, 2020 and 2019, we expended$158.1 million and$169.5 million , respectively, on improvements to and investments in real estate assets. In addition, during the six months endedJune 30, 2020 and 2019, insurance proceeds of$3.6 million and$1.4 million , respectively, were received and included in improvements to and investments in real estate assets. Maintenance capital expenditures represent costs to fund major replacements and betterments to our properties. 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 reinvestment 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 40 --------------------------------------------------------------------------------June 30, 2020 , we had 52 in-process anchor space repositioning, redevelopment and outparcel development projects with an aggregate anticipated cost of$392.9 million , of which$215.6 million had been incurred as ofJune 30, 2020 . Acquisitions of and proceeds from sales of real estate assets We continue to evaluate the market for acquisition opportunities and we may acquire shopping centers when we believe strategic opportunities exist, particularly where we can further concentrate our Portfolio in attractive retail submarkets and optimize the quality and long-term growth rate of our asset base. During the six months endedJune 30, 2020 , we acquired one land parcel for$2.0 million , including transaction costs. During the six months endedJune 30, 2019 , we acquired two shopping centers, two leases at an existing shopping center and one land parcel for an aggregate purchase price of$79.6 million , including transaction costs. We may also dispose of properties when we believe value has been maximized, where there is downside risk, or where we have limited ability or desire to build critical mass in a particular submarket. During the six months endedJune 30, 2020 , we disposed of five shopping centers and two partial shopping centers for aggregate net proceeds of$45.7 million . In addition, during the six months endedJune 30, 2020 , we received aggregate net proceeds of$0.9 million from previously disposed assets. During the six months endedJune 30, 2019 , we disposed of six shopping centers and three partial shopping centers for aggregate net proceeds of$94.8 million . In addition, during the six months endedJune 30, 2019 , we received aggregate net proceeds of$0.3 million from previously disposed assets. Financing Activities Net cash provided by (used in) financing activities is impacted by the nature, timing and magnitude of issuances and repurchases of debt and equity securities, as well as principal payments associated with our outstanding indebtedness and distributions made to our common stockholders. During the six months endedJune 30, 2020 , our net cash provided by financing activities increased$384.2 million as compared to the corresponding period in 2019. The increase was primarily due to (i) a$409.7 million increase in debt borrowings, net of repayments, partially offset by (ii) an increase of$12.3 million in repurchases of common stock; (iii) an increase of$10.6 million in deferred financing and debt extinguishment costs; and (iv) an increase of$2.6 million in distributions to common stockholders. The increase in debt borrowings is primarily related to amounts drawn on our Revolving Facility in order to bolster liquidity in response to COVID-19 and net proceeds from the issuance of our 4.050%, Senior Notes due 2030, net of amounts repaid under the Revolving Facility and the repurchase of a portion of our 3.875%, Senior Notes due 2022. Contractual Obligations Our contractual obligations relate to our debt, including unsecured notes payable and unsecured credit facilities, with maturities ranging from two years to 10 years, in addition to non-cancelable operating leases pertaining to our ground leases and administrative office leases. The following table summarizes our debt maturities (excluding extension options), interest payment obligations (excluding debt premiums and discounts and deferred financing costs) and obligations under non-cancelable operating leases (excluding renewal options) as ofJune 30, 2020 :
Contractual Obligations
(in thousands) Payment due by period
2020 2021 2022 2023 2024 Thereafter Total
Debt(1) $ - $ - $ 567,521 $ 995,500 $ 800,000 $ 2,968,453 $ 5,331,474
Interest payments(2) 82,391 193,271 185,454 170,943 135,532 354,615 1,122,206
Operating leases 3,522 6,257 6,028 5,339 5,246 25,560 51,952
Total $ 85,913 $ 199,528 $ 759,003 $ 1,171,782 $ 940,778 $ 3,348,628 $ 6,505,632
(1) Debt includes scheduled maturities for unsecured notes payable and unsecured
credit facilities.
(2) As of June 30, 2020 , we incur variable rate interest on (i) $145.5 million
outstanding under our Revolving Facility; (ii) a $350.0 million term loan; (iii)
a $300.0 million term loan; and (iv) $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 to fixed interest payments. See Item 7A. "Quantitative and
Qualitative Disclosures" in our annual report on Form 10-K for the year ended
December 31, 2019 for a further discussion of these and other factors that could
impact interest payments. Interest payments for these variable rate loans are
presented using rates (including the impact of interest rate swaps) as of June
30, 2020 .
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Non-GAAP Performance Measures
We present the non-GAAP performance measures set forth below. These measures
should not be considered as alternatives to, or more meaningful than, net income
(calculated in accordance with GAAP) or other GAAP financial measures, as an
indicator of financial performance and are not alternatives to, or more
meaningful than, cash flow from operating activities (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 calculated in accordance with GAAP. Our computation
of these 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 these 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 and impairment write-downs.
Our reconciliation of net income to NAREIT FFO for the three and six months
ended June 30, 2020 and 2019 is as follows (in thousands, except per share
amounts):
Six Months Ended June
Three Months Ended June 30, 30,
2020 2019 2020 2019
Net income $ 9,044 $ 68,960 $ 68,825 $ 131,860
Depreciation and amortization related to
real estate 79,768 80,621 161,788 165,018
Gain on sale of real estate assets (692) (13,043) (9,597) (20,645)
Impairment of real estate assets 5,962 6,186 10,560 9,298
NAREIT FFO $ 94,082 $ 142,724 $ 231,576 $ 285,531
NAREIT FFO per diluted share $ 0.32 $ 0.48 $ 0.78 $ 0.96
Weighted average diluted shares outstanding 296,773 298,893 297,485 298,895
Same Property Net Operating Income
Same 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 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 rental
income, percentage rents and other revenues) less direct property operating
expenses (operating costs and real estate taxes). Same property NOI excludes (i)
corporate level expenses (including general and administrative), (ii) lease
termination fees, (iii) straight-line rental income, net, (iv) accretion of
above- and below-market leases and tenant inducements, net, (v) straight-line
ground rent expense, and (vi) income (expense) associated with our captive
insurance company.
Considering 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
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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 of our
real estate between periods.
Comparison of the Three and Six Months Ended
Three Months Ended June 30 , Six Months Ended June 30,
2020 2019 Change 2020 2019 Change
Number of properties 392 392 - 392 392 -
Percent billed 89.1 % 87.8 % 1.3 % 89.1 % 87.8 % 1.3 %
Percent leased 92.3 % 91.9 % 0.4 % 92.3 % 91.9 % 0.4 %
Revenues
Rental income $ 244,714 $ 266,139 $ (21,425) $ 516,690 $ 531,892 $ (15,202)
Other revenues 186 262 (76) 2,085 1,410 675
244,900 266,401 (21,501) 518,775 533,302 (14,527)
Operating expenses
Operating costs (24,480) (27,845) 3,365 (53,940) (57,115) 3,175
Real estate taxes (40,581) (40,996) 415 (82,517) (82,171) (346)
(65,061) (68,841) 3,780 (136,457) (139,286) 2,829
Same property NOI $ 179,839 $ 197,560 $ (17,721) $ 382,318 $ 394,016 $ (11,698) The following table provides a reconciliation of net income to same property NOI for the periods presented (in thousands):
Three Months Six Months
Ended June 30, Ended June 30,
2020 2019 2020 2019
Net income $ 9,044 $ 68,960 $ 68,825 $ 131,860
Adjustments:
Non-same property NOI (2,398) (9,630) (6,413) (19,839)
Lease termination fees (1,746) (1,514) (3,134) (2,283)
Straight-line rental income, net 6,422 (6,184) 8,559 (11,220)
Accretion of above- and below-market leases and
tenant inducements, net (3,150) (3,653) (6,521) (7,769)
Straight-line ground rent expense 35 32 70 63
Depreciation and amortization 80,829 81,593 163,846 166,988
Impairment of real estate assets 5,962 6,186 10,560 9,298
General and administrative 24,436 25,175 47,033 50,618
Total other expense 60,405 36,595 99,493 76,300
Same property NOI $ 179,839 $ 197,560 $ 382,318 $ 394,016
Inflation
For the last several years inflation has been 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
escalations and requirements for tenants to pay their proportionate 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 rates 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. With respect to our
outstanding indebtedness, we periodically evaluate our exposure to interest rate
fluctuations, and may 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.
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Off-Balance Sheet Arrangements
We had no material off-balance sheet arrangements as of June 30, 2020 .
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