Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
or
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)

Maryland (Brixmor Property Group Inc.)
 
45-2433192
Delaware (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 York 10017
(Address of Principal Executive Offices) (Zip Code)
212-869-3000
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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. Yes þ No Brixmor Operating Partnership LP Yes þ 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. Yes þ No Brixmor Operating Partnership LP Yes þ 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.
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 April 1, 2018, Brixmor Property Group Inc. had 302,826,470 shares of common stock outstanding.





EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended March 31, 2018 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. Unless 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”) that 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”), the sole general partner of the Operating Partnership. As of March 31, 2018, 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:

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 of the Operating Partnership. These individuals are officers of both the Parent Company and the Operating Partnership.

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, its direct or indirect incurrence of indebtedness, and the issuance of OP Units.

Stockholders’ equity, partners’ capital, and non-controlling interests are the primary areas of difference between the unaudited condensed 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.

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 certification of periodic report under Section 302 of the Sarbanes-Oxley Act of 2002 and separate certification 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
Part I - FINANCIAL INFORMATION
1.
Financial Statements
 
Brixmor Property Group Inc. (unaudited)
 
 
Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017
 
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2018 and 2017
 
Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2018 and 2017
 
Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2018 and 2017
 
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017
 
Brixmor Operating Partnership LP (unaudited)
 
 
Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017
 
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2018 and 2017
 
Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2018 and 2017
 
Condensed Consolidated Statements of Changes in Capital for the Three Months Ended March 31, 2018 and 2017
 
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017
 
Brixmor Property Group Inc. and Brixmor Operating Partnership LP (unaudited)
 
 
Notes to Condensed Consolidated Financial Statements
2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
3.
Quantitative and Qualitative Disclosures about Market Risk
4.
Controls and Procedures
Part II - OTHER INFORMATION
1.
Legal Proceedings
1A.
Risk Factors
2.
Unregistered Sales of Equity Securities and Use of Proceeds
3.
Defaults Upon Senior Securities
4.
Mine Safety Disclosures
5.
Other Information
6.
Exhibits




ii




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, 2017, 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 or local economic climates; (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 of our properties; (5) competition from other available properties and the attractiveness of properties in our Portfolio to our tenants; (6) the financial stability of tenants, including the ability of tenants to pay rent and expense reimbursements; (7) in the case of percentage rents, the sales volume of our tenants; and (8) litigation and governmental investigations discussed under the heading “Legal Matters” in Note 13 – 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.





iii



PART I - FINANCIAL INFORMATION

Item 1.    Financial Statements

BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited, in thousands, except share information)
 
March 31,
2018
 
December 31,
2017
Assets
 
 
 
Real estate
 
 
 
Land
$
1,962,364

 
$
1,984,309

Buildings and improvements
8,896,102

 
8,937,182

 
10,858,466

 
10,921,491

Accumulated depreciation and amortization
(2,405,579
)
 
(2,361,070
)
Real estate, net
8,452,887

 
8,560,421

 
 
 
 
Cash and cash equivalents
27,332

 
56,938

Restricted cash
65,437

 
53,839

Marketable securities
27,063

 
28,006

Receivables, net of allowance for doubtful accounts of $17,498 and $17,205
219,312

 
232,111

Deferred charges and prepaid expenses, net
145,421

 
147,508

Other assets
50,406

 
75,103

Total assets
$
8,987,858

 
$
9,153,926

 
 
 
 
 
 
 
 
Liabilities
 
 
 
Debt obligations, net
$
5,622,111

 
$
5,676,238

Accounts payable, accrued expenses and other liabilities
504,171

 
569,340

Total liabilities
6,126,282

 
6,245,578

 
 
 
 
Commitments and contingencies (Note 13)


 


 
 
 
 
Equity
 
 
 
Common stock, $0.01 par value; authorized 3,000,000,000 shares; 305,075,180 and 304,947,144 shares issued and 302,826,470 and 304,620,186 shares outstanding
3,028

 
3,046

Additional paid-in capital
3,301,482

 
3,330,466

Accumulated other comprehensive income
28,898

 
24,211

Distributions in excess of net income
(471,832
)
 
(449,375
)
Total equity
2,861,576

 
2,908,348

Total liabilities and equity
$
8,987,858

 
$
9,153,926

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



1




BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
 
Three Months Ended March 31,
 
2018
 
2017
Revenues
 
 
 
Rental income
$
243,345

 
$
249,621

Expense reimbursements
70,878

 
73,190

Other revenues
2,952

 
2,995

Total revenues
317,175

 
325,806

 
 
 
 
Operating expenses
 
 
 
Operating costs
35,490

 
37,425

Real estate taxes
45,725

 
46,467

Depreciation and amortization
90,383

 
93,931

Provision for doubtful accounts
2,415

 
1,050

Impairment of real estate assets
15,902

 
5,686

General and administrative
22,426

 
20,957

Total operating expenses
212,341

 
205,516

 
 
 
 
Other income (expense)
 
 
 
Dividends and interest
96

 
73

Interest expense
(55,171
)
 
(55,731
)
Gain on sale of real estate assets
11,448

 
8,805

Loss on extinguishment of debt
(132
)
 
(1,262
)
Other
(53
)
 
(707
)
Total other expense
(43,812
)
 
(48,822
)
 
 
 
 
Income before equity in income of unconsolidated joint venture
61,022

 
71,468

Equity in income of unconsolidated joint venture

 
187

 
 
 
 
Net income
61,022

 
71,655

Net income attributable to non-controlling interests

 
(76
)
 
 
 
 
Net income attributable to common stockholders
$
61,022

 
$
71,579

Per common share:
 
 
 
Net income attributable to common stockholders:
 
 
 
Basic
$
0.20

 
$
0.23

Diluted
$
0.20

 
$
0.23

Weighted average shares:
 
 
 
Basic
304,158

 
304,569

Diluted
304,278

 
304,795

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2




BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)
 
Three Months Ended March 31,
 
2018
 
2017
Net income
$
61,022

 
$
71,655

Other comprehensive income (loss)
 
 
 
Change in unrealized gain on interest rate swaps, net (Note 6)
4,773

 
2,619

Change in unrealized gain (loss) on marketable securities
(86
)
 
1

Total other comprehensive income
4,687

 
2,620

Comprehensive income
65,709

 
74,275

Comprehensive income attributable to non-controlling interests

 
(76
)
Comprehensive income attributable to common stockholders
$
65,709

 
$
74,199

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.




3




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
 
Non-controlling Interests
 
Total
Beginning balance, January 1, 2017
304,343

 
$
3,043

 
$
3,324,874

 
$
21,519

 
$
(426,552
)
 
$
4,276

 
$
2,927,160

Common stock dividends ($0.26 per common share)

 

 

 

 
(79,480
)
 

 
(79,480
)
Equity based compensation expense

 

 
2,123

 

 

 
3

 
2,126

Other comprehensive income

 

 

 
2,620

 

 

 
2,620

Issuance of common stock and OP Units
147

 
6

 

 

 

 
(6
)
 

Conversion of OP Units into common stock
403

 

 
3,701

 

 

 
(3,701
)
 

Share-based awards retained for taxes

 

 
(2,464
)
 

 

 

 
(2,464
)
Net income

 

 

 

 
71,579

 
76

 
71,655

Ending balance, March 31, 2017
304,893

 
$
3,049

 
$
3,328,234

 
$
24,139

 
$
(434,453
)
 
$
648

 
$
2,921,617

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4



BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
Three Months Ended March 31,
 
2018
 
2017
Operating activities:
 
 
 
Net income
$
61,022

 
$
71,655

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
90,383

 
93,931

Debt premium and discount amortization
(952
)
 
(1,684
)
Deferred financing cost amortization
1,682

 
1,800

Above- and below-market lease intangible amortization
(6,824
)
 
(7,796
)
Provisions for impairment
15,902

 
5,686

Gain on disposition of operating properties
(11,448
)
 
(8,805
)
Equity based compensation
2,484

 
2,126

Other
824

 
344

Loss on extinguishment of debt
132

 
1,262

Changes in operating assets and liabilities:
 
 
 
Receivables
12,171

 
(3,593
)
Deferred charges and prepaid expenses
(5,309
)
 
(12,321
)
Other assets
40

 
(274
)
Accounts payable, accrued expenses and other liabilities
(35,657
)
 
(34,181
)
Net cash provided by operating activities
124,450

 
108,150

 
 
 
 
Investing activities:
 
 
 
Improvements to and investments in real estate assets
(76,803
)
 
(39,260
)
Acquisitions of real estate assets

 
(104,811
)
Proceeds from sales of real estate assets
104,198

 
34,091

Purchase of marketable securities
(3,655
)
 
(7,502
)
Proceeds from sale of marketable securities
4,496

 
8,335

Net cash provided by (used in) investing activities
28,236

 
(109,147
)
 
 
 
 
Financing activities:
 
 
 
Repayment of secured debt obligations
(4,858
)
 
(5,961
)
Repayment of borrowings under unsecured revolving credit facility

 
(57,000
)
Proceeds from borrowings under unsecured revolving credit facility

 
145,000

Proceeds from unsecured notes

 
396,036

Repayment of borrowings under unsecured term loan
(50,000
)
 
(390,000
)
Deferred financing costs
(184
)
 
(3,508
)
Distributions to common stockholders
(84,165
)
 
(79,493
)
Distributions to non-controlling interests

 
(101
)
Repurchases of common shares
(29,765
)
 

Repurchases of common shares in conjunction with equity award plans
(1,722
)
 
(2,463
)
Net cash provided by (used in) financing activities
(170,694
)
 
2,510

 
 
 
 
Net change in cash, cash equivalents and restricted cash
(18,008
)
 
1,513

Cash, cash equivalents and restricted cash at beginning of period
110,777

 
102,869

Cash, cash equivalents and restricted cash at end of period
$
92,769

 
$
104,382

 
 
 
 
Reconciliation to consolidated balance sheets
 
 
 
Cash and cash equivalents
$
27,332

 
$
59,883

Restricted cash
65,437

 
44,499

Cash, cash equivalents and restricted cash at end of period
$
92,769

 
$
104,382

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest, net of amount capitalized of $654 and $946
$
63,646

 
$
66,815

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


5



BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited, in thousands, except unit information)
 
March 31,
2018
 
December 31,
2017
Assets
 
 
 
Real estate
 
 
 
Land
$
1,962,364

 
$
1,984,309

Buildings and improvements
8,896,102

 
8,937,182

 
10,858,466

 
10,921,491

Accumulated depreciation and amortization
(2,405,579
)
 
(2,361,070
)
Real estate, net
8,452,887

 
8,560,421

 
 
 
 
Cash and cash equivalents
27,303

 
56,908

Restricted cash
65,437

 
53,839

Marketable securities
26,844

 
27,787

Receivables, net of allowance for doubtful accounts of $17,498 and $17,205
219,312

 
232,111

Deferred charges and prepaid expenses, net
145,421

 
147,508

Other assets
50,406

 
75,103

Total assets
$
8,987,610

 
$
9,153,677

 
 
 
 
 
 
 
 
Liabilities
 
 
 
Debt obligations, net
$
5,622,111

 
$
5,676,238

Accounts payable, accrued expenses and other liabilities
504,171

 
569,340

Total liabilities
6,126,282

 
6,245,578

 
 
 
 
Commitments and contingencies (Note 13)


 


 
 
 
 
Capital
 
 
 
Partnership common units; 305,075,180 and 304,947,144 units issued and 302,826,470 and 304,620,186 units outstanding
2,832,416

 
2,883,875

Accumulated other comprehensive income
28,912

 
24,224

Total capital
2,861,328

 
2,908,099

Total liabilities and capital
$
8,987,610

 
$
9,153,677

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


6



BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
 
Three Months Ended March 31,
 
2018
 
2017
Revenues
 
 
 
Rental income
$
243,345

 
$
249,621

Expense reimbursements
70,878

 
73,190

Other revenues
2,952

 
2,995

Total revenues
317,175

 
325,806

 
 
 
 
Operating expenses
 
 
 
Operating costs
35,490

 
37,425

Real estate taxes
45,725

 
46,467

Depreciation and amortization
90,383

 
93,931

Provision for doubtful accounts
2,415

 
1,050

Impairment of real estate assets
15,902

 
5,686

General and administrative
22,426

 
20,957

Total operating expenses
212,341

 
205,516

 
 
 
 
Other income (expense)
 
 
 
Dividends and interest
96

 
73

Interest expense
(55,171
)
 
(55,731
)
Gain on sale of real estate assets
11,448

 
8,805

Loss on extinguishment of debt
(132
)
 
(1,262
)
Other
(53
)
 
(707
)
Total other expense
(43,812
)
 
(48,822
)
 
 
 
 
Income before equity in income of unconsolidated joint venture
61,022

 
71,468

Equity in income of unconsolidated joint venture

 
187

 
 
 
 
Net income attributable to Brixmor Operating Partnership LP
$
61,022

 
$
71,655

 
 
 
 
Per common unit:
 
 
 
Net income attributable to partnership common units:
 
 
 
Basic
$
0.20

 
$
0.23

Diluted
$
0.20

 
$
0.23

Weighted average number of partnership common units:
 
 
 
Basic
304,158

 
304,888

Diluted
304,278

 
305,114

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7



BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)
 
Three Months Ended March 31,
 
2018
 
2017
Net income attributable to Brixmor Operating Partnership LP
$
61,022

 
$
71,655

Other comprehensive income (loss)
 
 
 
Change in unrealized gain on interest rate swaps, net (Note 6)
4,773

 
2,619

Change in unrealized gain (loss) on marketable securities
(85
)
 
2

Total other comprehensive income
4,688

 
2,621

Comprehensive income attributable to Brixmor Operating Partnership LP
$
65,710

 
$
74,276

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


8



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, 2017
$
2,905,378

 
$
21,531

 
$
2,926,909

Distributions to partners
(79,476
)
 

 
(79,476
)
Equity based compensation expense
2,126

 

 
2,126

Other comprehensive income

 
2,621

 
2,621

Share-based awards retained for taxes
(2,464
)
 

 
(2,464
)
Net income attributable to Brixmor Operating Partnership LP
71,655

 

 
71,655

Ending balance, March 31, 2017
$
2,897,219

 
$
24,152

 
$
2,921,371

 
 
 
 
 
 
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 attributable to Brixmor Operating Partnership LP
61,022

 

 
61,022

Ending balance, March 31, 2018
$
2,832,416

 
$
28,912

 
$
2,861,328

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


9



BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
Three Months Ended March 31,
 
2018
 
2017
Operating activities:
 
 
 
Net income attributable to Brixmor Operating Partnership LP
$
61,022

 
$
71,655

Adjustments to reconcile net income attributable to Brixmor Operating Partnership LP
to net cash provided by operating activities:
 
 
 
Depreciation and amortization
90,383

 
93,931

Debt premium and discount amortization
(952
)
 
(1,684
)
Deferred financing cost amortization
1,682

 
1,800

Above- and below-market lease intangible amortization
(6,824
)
 
(7,796
)
Provisions for impairment
15,902

 
5,686

Gain on disposition of operating properties
(11,448
)
 
(8,805
)
Equity based compensation
2,484

 
2,126

Other
824

 
344

Loss on extinguishment of debt
132

 
1,262

Changes in operating assets and liabilities:
 
 
 
Receivables
12,171

 
(3,593
)
Deferred charges and prepaid expenses
(5,309
)
 
(12,321
)
Other assets
40

 
(274
)
Accounts payable, accrued expenses and other liabilities
(35,657
)
 
(34,181
)
Net cash provided by operating activities
124,450

 
108,150

 
 
 
 
Investing activities:
 
 
 
Improvements to and investments in real estate assets
(76,803
)
 
(39,260
)
Acquisitions of real estate assets

 
(104,811
)
Proceeds from sales of real estate assets
104,198

 
34,091

Purchase of marketable securities
(3,654
)
 
(7,502
)
Proceeds from sale of marketable securities
4,496

 
8,335

Net cash provided by (used in) investing activities
28,237

 
(109,147
)
 
 
 
 
Financing activities:
 
 
 
Repayment of secured debt obligations
(4,858
)
 
(5,961
)
Repayment of borrowings under unsecured revolving credit facility

 
(57,000
)
Proceeds from borrowings under unsecured revolving credit facility

 
145,000

Proceeds from unsecured notes

 
396,036

Repayment of borrowings under unsecured term loan
(50,000
)
 
(390,000
)
Deferred financing costs
(184
)
 
(3,508
)
Partner distributions
(115,652
)
 
(82,054
)
Net cash provided by (used in) financing activities
(170,694
)
 
2,513

 
 
 
 
Net change in cash, cash equivalents and restricted cash
(18,007
)
 
1,516

Cash, cash equivalents and restricted cash at beginning of period
110,747

 
102,834

Cash, cash equivalents and restricted cash at end of period
$
92,740

 
$
104,350

 
 
 
 
Reconciliation to consolidated balance sheets
 
 
 
Cash and cash equivalents
$
27,303

 
$
59,851

Restricted cash
65,437

 
44,499

Cash, cash equivalents and restricted cash at end of period
$
92,740

 
$
104,350

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest, net of amount capitalized of $654 and $946
$
63,646

 
$
66,815

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


10



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”) in the United States (“U.S.”), comprised primarily of community and neighborhood shopping centers. As of March 31, 2018, the Company’s portfolio was comprised of 480 shopping centers totaling approximately 82 million square feet of gross leasable area (the “Portfolio”). In addition, the Company has one land parcel currently under development. The Company’s high quality national Portfolio is primarily located within established trade areas in the top 50 Metropolitan Statistical Areas, and our 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 notes. These line items are both within financing activities in the accompanying unaudited Condensed Consolidated Statements 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, 2017 and accompanying notes included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 12, 2018.

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.

Income Taxes
The Parent Company 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 Company 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. It is management’s intention to adhere to these requirements and maintain the Parent Company’s REIT status.

11




As a REIT, the Parent Company generally will not be subject to U.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. The Parent Company 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 Company 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 for tax years beginning before December 31, 2017) and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Parent Company qualifies for taxation as a REIT, the Company is subject to certain state and local taxes on its income and property, and to U.S. federal income and excise taxes on its undistributed taxable income.

The Company has elected to treat certain of its subsidiaries as taxable REIT subsidiaries (“TRS”), and the Company may in the future elect to treat newly formed and/or existing subsidiaries as TRSs. A TRS may participate in non-real estate-related activities and/or perform non-customary services for tenants and are subject to certain limitations under the Code. A TRS is subject to U.S. federal and state income taxes. Income taxes related to the Company’s TRSs do not materially impact the unaudited Condensed Consolidated Financial Statements of the Company.

The Company has considered the tax positions taken for the open 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 March 31, 2018 and December 31, 2017. Open tax years generally range from 2014 through 2017, but may vary by jurisdiction and issue.

New Accounting Pronouncements
In August 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-12, “Derivatives and Hedging (Topic 815).” ASU 2017-12 amends guidance to more closely align the results of cash flow and fair value hedge accounting 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. ASU 2017-12 was early adopted by the Company on January 1, 2018. The Company determined that these changes did not have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company.

In May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718).” ASU 2017-09 clarifies guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The standard became effective for the Company on January 1, 2018. The Company determined that these changes did not have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company.

In February 2017, the FASB issued ASU 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance.” ASU 2017-05 focuses on recognizing gains and losses from the transfer of nonfinancial assets with noncustomers. It provides guidance as to the definition of an “in substance nonfinancial asset,” and provides guidance for sales of real estate, including partial sales. The standard became effective for the Company on January 1, 2018 in conjunction with ASU 2014-09 and the Company applied the same transition method as ASU 2014-09. The Company did not record any cumulative adjustment in connection with the adoption of the new pronouncement. 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, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230).” ASU 2016-15 provides classification guidance for certain cash receipts and cash payments including payment of debt extinguishment costs, settlement of zero-coupon debt instruments, insurance claim payments and distributions from equity method investees. The standard became effective for the Company on January 1, 2018. The Company determined that 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 (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). 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

12




over the term of the lease. A lessee is also required to recognize a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The pronouncement requires a modified retrospective method of adoption and is effective on January 1, 2019, with early adoption permitted. The Company will continue to evaluate the effect the adoption of ASU 2016-02 will have on the unaudited Condensed Consolidated Financial Statements of the Company. However, the Company currently believes that the adoption of ASU 2016-02 will not have a material impact for operating leases where it is a lessor and 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, direct internal leasing overhead costs will continue to be capitalized, however, indirect internal leasing overhead costs previously capitalized will be expensed under ASU 2016-02.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” 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 principle 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 exchange for those goods or services.  The pronouncement allows either a full or modified retrospective method of adoption.  The standard became effective for the Company on January 1, 2018 and the Company elected the modified retrospective approach of adoption, which requires a cumulative adjustment as of the date of the adoption, if applicable. The Company did not record any such cumulative adjustment in connection with the adoption of the new pronouncement. Substantially all of the Company’s tenant-related revenue is recognized pursuant to lease agreements and is out of the scope of ASU 2014-09 and falls instead under ASU 2016-02, which is discussed above and will not be effective until January 1, 2019. As a result, the Company determined that ASU 2014-09 did not have a material impact on the process for, timing of, and presentation and disclosure of revenue recognition from contracts with tenants and other customers.

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 three months ended March 31, 2018, the Company did not acquire any real estate assets.

During the three months ended March 31, 2017, the Company acquired the following assets, in separate transactions:
Description(1)
 
Location
 
Month Acquired
 
GLA
 
Aggregate Purchase Price
Outparcel building adjacent to Annex of Arlington
 
Arlington Heights, IL
 
Feb-17
 
5,760

 
$
1,006

Outparcel adjacent to Northeast Plaza
 
Atlanta, GA
 
Feb-17
 
N/A

 
1,537

Arborland Center
 
Ann Arbor, MI
 
Mar-17
 
403,536

 
102,268

 
 
 
 
 
 
409,296

 
$
104,811

(1) 
No debt was assumed related to any of the listed acquisitions.








13




The aggregate purchase price of the properties acquired during the three months ended March 31, 2017 has been allocated as follows:
 
 
 
Three Months Ended March 31, 2017
Assets
 
Land
$
16,130

 
Buildings
72,543

 
Building and tenant improvements
8,352

 
Above-market leases(1)
2,381

 
In-place leases(1)
8,259

Total assets
107,665

 
 
 
 
Liabilities
 
 
Below-market leases(1)
2,854

 
Other liabilities

Total liabilities
2,854

Net assets acquired
$
104,811


(1) 
The weighted average amortization period at the time of acquisition for above-market leases, in-place leases and below-market leases related to properties acquired during the three months ended March 31, 2017 was 5.0 years, 6.6 years and 16.9 years, respectively.

During the three months ended March 31, 2018, the Company incurred transaction costs of less than $0.1 million, which were included in Other on the Company’s unaudited Condensed Consolidated Statements of Operations. During the three months ended March 31, 2017, the Company incurred transaction costs of $0.3 million, which were capitalized and included in Buildings and tenant improvements on the Company’s unaudited Condensed Consolidated Balance Sheets.

3. Dispositions and Assets Held for Sale
During the three months ended March 31, 2018, the Company disposed of six shopping centers and one outparcel for net proceeds of $104.2 million resulting in a gain of $11.4 million and impairment of $0.2 million. The Company had no properties held for sale as of March 31, 2018.

During the three months ended March 31, 2017, the Company disposed of three shopping centers for net proceeds of $34.1 million resulting in a gain of $8.8 million. The Company had no properties held for sale as of March 31, 2017.

There were no discontinued operations for the three months ended March 31, 2018 and 2017 as none of the dispositions represented a strategic shift in the Company’s business that would qualify as discontinued operations.
 
4. Real Estate
The Company’s components of Real estate, net consisted of the following:
 
March 31, 2018
 
December 31, 2017
Land
$
1,962,364

 
$
1,984,309

Buildings and improvements:
 
 
 
Buildings and tenant improvements(1)
8,121,758

 
8,145,085

Lease intangibles(2)
774,344

 
792,097

 
10,858,466

 
10,921,491

Accumulated depreciation and amortization(3)
(2,405,579
)
 
(2,361,070
)
Total
$
8,452,887

 
$
8,560,421

(1) 
As of March 31, 2018 and December 31, 2017, Buildings and tenant improvements included accrued amounts of $20.3 million and $22.8 million, respectively, related to construction in progress, net of any anticipated insurance proceeds. 
(2) 
As of March 31, 2018 and December 31, 2017, Lease intangibles consisted of $700.0 million and $715.1 million, respectively, of in-place leases and $74.4 million and $77.0 million, respectively, of above-market leases. These intangible assets are amortized over the term of each related lease.
(3) 
As of March 31, 2018 and December 31, 2017, Accumulated depreciation and amortization included $623.1 million and $629.1 million, respectively, of accumulated amortization related to Lease intangibles.

14



In addition, as of March 31, 2018 and December 31, 2017, the Company had intangible liabilities relating to below-market leases of $455.8 million and $463.3 million, respectively, and accumulated accretion of $284.3 million and $281.5 million, respectively. These intangible liabilities are included in Accounts payable, accrued expenses and other liabilities in the Company’s unaudited Condensed Consolidated Balance Sheets. These intangible assets are accreted over the term of each related lease.

Below-market lease accretion income, net of above-market lease amortization expense for the three months ended March 31, 2018 and 2017 was $6.8 million and $7.8 million, respectively. These amounts are included in Rental income in the Company’s unaudited Condensed Consolidated Statements of Operations. Amortization expense associated with in-place lease value for the three months ended March 31, 2018 and 2017 was $9.3 million and $12.1 million, respectively. These amounts are included in Depreciation and amortization in the Company’s unaudited Condensed Consolidated Statements of Operations. The Company’s estimated below-market lease accretion income, net of above-market lease amortization expense, and in-place lease 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
2018 (remaining nine months)
 
$
(17,909
)
 
$
24,663

2019
 
(20,384
)
 
26,802

2020
 
(16,624
)
 
19,840

2021
 
(13,782
)
 
14,295

2022
 
(11,539
)
 
10,811


5. Impairments
On a periodic basis, management assesses whether there are any indicators, including property operating performance, changes in anticipated holding period and general market conditions, that the 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 for the excess of its carrying amount over its fair value. The Company recognized the following impairments during the three months ended March 31, 2018:

Three Months Ended March 31, 2018
Property Name(1)
 
Location
 
GLA
 
Impairment Charge
Crossroads Centre(2)
 
Fairview Heights, IL
 
242,752

 
$
204

Roundtree Place
 
Ypsilanti, MI
 
246,620

 
3,772

Pensacola Square
 
Pensacola, FL
 
142,767

 
1,345

Southland Shopping Plaza
 
Toledo, OH
 
285,278

 
6,942

Skyway Plaza
 
St. Petersburg, FL
 
110,799

 
3,639

 
 
 
 
1,028,216

 
$
15,902


(1) 
The Company recognized impairment charges based upon a change in the estimated hold period of these properties in connection with the Company’s capital recycling program.
(2) 
The Company disposed of this property during the three months ended March 31, 2018.

The Company recognized the following impairments during the three months ended March 31, 2017:
Three Months Ended March 31, 2017
Property Name(1)
 
Location
 
GLA
 
Impairment Charge
The Plaza at Salmon Run
 
Watertown, NY
 
68,761

 
$
3,486

Smith’s
 
Socorro, NM
 
48,000

 
2,200

 
 
 
 
116,761

 
$
5,686

 
 
 
 
 
 
 
(1) 
The Company recognized impairment charges based upon a change in the estimated hold period of these properties in connection with the Company’s capital recycling program.


15



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 operating properties which have been impaired.

6. Financial Instruments – Derivatives and Hedging
The Company’s use of derivative instruments is limited to the utilization of interest rate agreements or other instruments to manage interest rate risk exposures and not 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 exchanging the underlying notional amount. The Company utilizes interest rate swaps to partially hedge the cash flows associated with variable LIBOR based interest rate debt. During the three months ended March 31, 2018, the Company did not enter into any new interest rate swap agreements.

Detail on the Company’s interest rate derivatives designated as cash flow hedges outstanding as of March 31, 2018 and December 31, 2017 is as follows:
 
 
Number of Instruments
 
Notional Amount
 
 
March 31, 2018
 
December 31, 2017
 
March 31, 2018
 
December 31, 2017
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 March 31, 2018 and December 31, 2017, respectively, is as follows:
 
 
Fair Value of Derivative Instruments
Interest rate swaps classified as:
 
March 31, 2018
 
December 31, 2017
Gross derivative assets
 
$
29,193

 
$
24,420

Gross derivative liabilities
 

 

Net derivative assets
 
$
29,193

 
$
24,420


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’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’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, 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.










16




The effective portion of the Company’s interest rate swaps that was recognized in the Company’s unaudited Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017 is as follows:

Derivatives in Cash Flow Hedging Relationships
(Interest Rate Swaps)
 
Three Months Ended March 31,
 
2018
 
2017
Change in unrealized gain on interest rate swaps
 
$
7,234

 
$
2,157

Amortization (accretion) of interest rate swaps to interest expense
 
(2,461
)
 
462

Change in unrealized gain on interest rate swaps, net
 
$
4,773

 
$
2,619


The Company estimates that $12.1 million will be reclassified from accumulated other comprehensive income as a decrease 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 months ended March 31, 2018 or 2017.

Non-Designated (Mark-to Market) Hedges of Interest Rate Risk
The Company does not use derivatives for trading or speculative purposes. As of March 31, 2018 and December 31, 2017, 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 provision 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 March 31, 2018 and December 31, 2017, the Company had the following indebtedness outstanding:
 
 
Carrying Value as of
 
 
 
 
 
 
March 31,
2018
 
December 31,
2017
 
Stated
Interest
Rate(1)
 
Scheduled
Maturity
Date
Secured loans
 
 
 
 
 
 
 
 
Secured loans(2)(3)
 
$
897,859

 
$
902,717

 
4.40% – 7.89%
 
2018 – 2024
Net unamortized premium
 
13,888

 
15,321

 
 
 
 
Net unamortized debt issuance costs
 
(82
)
 
(93
)
 
 
 
 
Total secured loans, net
 
911,665

 
917,945

 
 
 
 
 
 
 
 
 
 
 
 
 
Notes payable
 
 
 
 
 
 
 
 
Unsecured notes(4)
 
3,218,453

 
3,218,453

 
3.25% – 7.97%
 
2022 – 2029
Net unamortized discount
 
(13,004
)
 
(13,485
)
 
 
 
 
Net unamortized debt issuance costs
 
(21,678
)
 
(22,476
)
 
 
 
 
Total notes payable, net
 
3,183,771

 
3,182,492

 
 
 
 
 
 
 
 
 
 
 
 
 
Unsecured Credit Facility and term loans
 
 
 
 
 
 
 
 
Unsecured Credit Facility(5)
 
635,000

 
685,000

 
3.04%
 
2018 – 2021
Unsecured $600 Million Term Loan(6)
 
600,000

 
600,000

 
3.09%
 
2019
Unsecured $300 Million Term Loan(7)
 
300,000

 
300,000

 
3.56%
 
2024
Net unamortized debt issuance costs
 
(8,325
)
 
(9,199
)
 
 
 
 
Total Unsecured Credit Facility and term loans
 
1,526,675

 
1,575,801

 
 
 
 
 
 
 
 
 
 
 
 
 
Total debt obligations, net
 
$
5,622,111

 
$
5,676,238

 
 
 
 
(1) 
The stated interest rates are as of March 31, 2018 and do not include the impact of the Company’s interest rate swap agreements (described below).

17



(2) 
The Company’s secured loans are collateralized by certain properties and the equity interests of certain subsidiaries. These properties had a carrying value as of March 31, 2018 of approximately $1.7 billion.
(3) 
The weighted average stated interest rate on the Company’s secured loans was 6.16% as of March 31, 2018.
(4) 
The weighted average stated interest rate on the Company’s unsecured notes was 3.81% as of March 31, 2018.
(5) 
Effective November 1, 2016, the Company has in place one interest rate swap agreement that converts the variable interest rate on a $135.0 million term loan under the Company’s senior unsecured credit facility agreement, 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 three interest rate swap agreements that convert the variable interest rate on a $500.0 million term loan under the Unsecured Credit Facility to a fixed, combined interest rate of 1.11% (plus a spread of 135 bps) through July 30, 2021.
(6) 
Effective November 1, 2016, the Company has in place two interest rate swap agreements that convert the variable interest rate on $200.0 million of the Company’s $600 million term loan agreement, as amended July 25, 2016, (the “$600 Million Term Loan”) to a fixed, combined interest rate of 0.82% (plus a spread of 140 bps) 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, combined interest rate of 0.88% (plus a spread of 140 bps) through March 18, 2019.
(7) 
Effective July 28, 2017, the Company has in place one interest rate swap agreement that converts the variable interest rate on $165.0 million of the Company's $300 million term loan agreement, as entered into July 28, 2017, (the "$300 Million Term Loan") to a fixed, combined interest rate of 0.82% (plus a spread of 190 bps) through July 31, 2018.

2018 Debt Transactions
During the three months ended March 31, 2018, the Company repaid a total of $50.0 million of unsecured term loan debt under the Company’s Unsecured Credit Facility, resulting in a $0.1 million loss on extinguishment of debt. These repayments were funded primarily with disposition proceeds.

Pursuant to the terms of the Company’s unsecured debt agreements, the Company among other things is subject to maintenance of various financial covenants. The Company was in compliance with these covenants as of March 31, 2018.

Debt Maturities
As of March 31, 2018 and December 31, 2017, the Company had accrued interest of $26.7 million and $35.9 million outstanding, respectively. As of March 31, 2018, scheduled amortization and maturities of the Company’s outstanding debt obligations were as follows:
Year ending December 31,
 
 
2018 (remaining nine months)
 
$
148,260

2019
 
618,679

2020
 
672,695

2021
 
686,225

2022
 
500,000

Thereafter
 
3,025,453

Total debt maturities
 
5,651,312

Net unamortized premiums and discounts
 
884

Net unamortized debt issuance costs
 
(30,085
)
Total debt obligations, net
 
$
5,622,111


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:
 
 
March 31, 2018
 
December 31, 2017
 
 
Carrying
Amounts
 
Fair
Value
 
Carrying
Amounts
 
Fair
Value
 
 
Secured loans
$
911,665

 
$
946,503

 
$
917,945

 
$
963,702

 
Notes payable
3,183,771

 
3,154,654

 
3,182,492

 
3,224,877

 
Unsecured Credit Facility and term loans
1,526,675

 
1,536,230

 
1,575,801

 
1,586,206

 
Total debt obligations, net
$
5,622,111

 
$
5,637,387

 
$
5,676,238

 
$
5,774,785

 
 
 
 
 
 
 
 
 


18



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, estimated property values, loan amounts and maturity 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 valuations 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’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 March 31, 2018
 
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)
$
27,063

 
$
1,216

 
$
25,847

 
$

Interest rate derivatives
$
29,193

 
$

 
$
29,193

 
$

 
 
 
 
 
 
 
 
 
Fair Value Measurements as of December 31, 2017
 
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)
$
28,006

 
$
725

 
$
27,281

 
$

Interest rate derivatives
$
24,420

 
$

 
$
24,420

 
$

(1) 
As of March 31, 2018 and December 31, 2017, marketable securities included $0.3 million and $0.2 million of net unrealized losses, respectively.

Non-Recurring Fair Value
On a non-recurring basis, the Company evaluates the carrying value of its properties when events or changes in circumstances indicate that the carrying value may not be recoverable. Fair value is determined by purchase price offers, market comparable data, third party appraisals or by discounted cash flow analysis. These cash flows are comprised of unobservable inputs which include forecasted rental revenue and expenses based upon market conditions and future expectations. Capitalization rates and discount rates utilized in these models 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 valuations of these properties are classified within Level 3 of the fair value hierarchy.


19



The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured 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 during the three months ended March 31, 2018 and during the year ended December 31, 2017, excluding the properties sold prior to March 31, 2018 and December 31, 2017, respectively:
 
Fair Value Measurements as of March 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(1)(2)
$
27,477

 
$

 
$

 
$
27,477

 
$
15,698

 
 
 
 
 
 
 
 
 
 
 
Fair Value Measurements as of December 31, 2017
 
 
 
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)
$
73,303

 
$

 
$

 
$
73,303

 
$
17,195

 
 
 
 
 
 
 
 
 
 
(1) 
Excludes properties disposed of prior to March 31, 2018.
(2) 
The carrying value of properties remeasured to fair value during the three months ended March 31, 2018 include: (i) $11.3 million related to Roundtree Place, (ii) $8.8 million related to Pensacola Square, and (iii) $4.5 million related to Southland Shopping Center based upon offers from third party buyers, and (iv) $2.9 million related to Skyway Plaza based upon a discounted cash flow analysis. The capitalization rate of 9.3% and discount rate of 10.4% which were utilized in the analysis were based upon unobservable rates that the Company believes to be within a reasonable range of current market rates for each respective investment.
(3) 
Excludes properties disposed of prior to December 31, 2017.
(4) 
The carrying value of properties remeasured to fair value during the year ended December 31, 2017 include: (i) $46.9 million related to The Manchester Collection, (ii) $2.4 million related to Fashion Square, and (iii) $14.3 million related to Crossroads Centre based upon offers from third party buyers, and (iv) $7.8 million related to The Plaza at Salmon Run and (v) $1.9 million related to Smith’s based upon a discounted cash flow analysis. The capitalization rates (ranging from 7.0% to 8.5%) and discount rates (ranging from 7.9% to 9.5%) which were utilized in the analysis were based upon unobservable rates that the Company believes to be within a reasonable range of current market rates for each respective investment.

9. Equity and Capital
Share Repurchase Program
In December 2017, the Board of Directors authorized a share repurchase 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 March 31, 2018, the Company repurchased approximately 1.9 million shares of common stock under the program at an average price per share of $15.47 for a total of approximately $29.7 million. The Company incurred commissions of less than $0.1 million in conjunction with the program for the three months ended March 31, 2018.

Common Stock
In connection with the vesting of restricted stock units (“RSUs”) under the Company’s equity-based compensation plan, the Company withholds shares to satisfy statutory minimum tax withholding obligations. During the three months ended March 31, 2018 and 2017, the Company withheld 0.1 million shares.

Dividends and Distributions
During the three months ended March 31, 2018 and 2017, the Company declared common stock dividends and OP Unit distributions of $0.275 per share/unit and $0.260 per share/unit, respectively. As of March 31, 2018 and December 31, 2017, the Company had declared but unpaid common stock dividends and OP Unit distributions of $84.9 million and $85.6 million, respectively. These amounts are included in Accounts payable, accrued expenses and other liabilities on the Company’s unaudited Condensed Consolidated Balance Sheets.




20



Non-controlling interests
As of March 31, 2018, 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. During the three months ended March 31, 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.

10. 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 three months ended March 31, 2018 and the year ended December 31, 2017, the Company granted RSUs to certain employees. The RSUs are divided into multiple tranches, which are all subject to service-based vesting conditions. Certain tranches are also subject to performance-based or market-based vesting conditions, which contain a threshold, target, and maximum number of units which can be earned. The number of units actually earned for each tranche is determined based on performance during a specified performance period. Tranches that only have a service-based 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 0.7 million and 0.6 million for the three months ended March 31, 2018 and year ended December 31, 2017, 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 Company grant date stock price. For the market-based RSUs granted during the three months ended March 31, 2018 and year ended December 31, 2017, 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 29.0% to 32.0% and 22.0% to 23.0%, respectively; (ii) a weighted average risk-free interest rate of 2.43% to 2.53% and 1.20% to 1.41%, respectively; and (iii) the Company’s weighted average common stock dividend yield of 5.6% and 4.0% to 4.6%, respectively.

During the three months ended March 31, 2018 and 2017, the Company recognized $2.5 million and $2.1 million of equity compensation expense. These amounts are included in General and administrative expense in the Company’s unaudited Condensed Consolidated Statements of Operations. As of March 31, 2018, the Company had $20.5 million of total unrecognized compensation expense related to unvested stock compensation expected to be recognized over a weighted average period of approximately 2.5 years.

21



11.     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 shareholders 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 stock.

The following table provides a reconciliation of the numerator and denominator of the EPS calculations for the three months ended March 31, 2018 and 2017 (dollars in thousands, except per share data):
 
Three Months Ended March 31,
 
2018
 
2017
Computation of Basic Earnings Per Share:
 
 
 
 Net income
$
61,022

 
$
71,655

 Net income attributable to non-controlling interests

 
(76
)
 Non-forfeitable dividends on unvested restricted shares
(56
)
 
(10
)
 Net income attributable to the Company’s common stockholders for basic earnings per share
$
60,966

 
$
71,569

 
 
 
 
 Weighted average number shares outstanding – basic
304,158

 
304,569

 
 
 
 
 Basic earnings per share attributable to the Company’s common stockholders:
 
 
 
 Net income
$
0.20

 
$
0.23

 

 

Computation of Diluted Earnings Per Share:
 
 
 
 Net income attributable to the Company’s common stockholders for diluted earnings per share
$
60,966

 
$
71,569

 
 
 
 
 Weighted average shares outstanding – basic
304,158

 
304,569

 Effect of dilutive securities:
 
 
 
    Equity awards
120

 
226

 Weighted average shares outstanding – diluted(1)
304,278

 
304,795

 
 
 
 
 Diluted earnings per share attributable to the Company’s common stockholders:
 
 
 
 Net income
$
0.20

 
$
0.23

(1) 
For the three months ended March 31, 2017, the weighted average number of vested OP Units outstanding was 0.3 million and was not dilutive.


22



12. Earnings per Unit
Basic earnings per unit is calculated by dividing net income attributable to the Operating Partnership’s common 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 unitholders 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 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’s common units.

The following table provides a reconciliation of the numerator and denominator of the earnings per unit calculations for the three months ended March 31, 2018 and 2017 (dollars in thousands, except per unit data):
 
Three Months Ended March 31,
 
2018
 
2017
Computation of Basic Earnings Per Unit:
 
 
 
 Net income attributable to Brixmor Operating Partnership LP
$
61,022

 
$
71,655

 Non-forfeitable dividends on unvested restricted units
(56
)
 
(10
)
 Net income attributable to the Operating Partnership’s common units for basic earnings per unit
$
60,966

 
$
71,645

 
 
 
 
 Weighted average number common units outstanding – basic
304,158

 
304,888

 
 
 
 
 Basic earnings per unit attributable to the Operating Partnership’s common units:
 
 
 
 Net income
$
0.20

 
$
0.23

 
 
 
 
Computation of Diluted Earnings Per Unit:
 
 
 
 Net income attributable to the Operating Partnership’s common units for diluted earnings per unit
$
60,966

 
$
71,645

 
 
 
 
 Weighted average common units outstanding – basic
304,158

 
304,888

 Effect of dilutive securities:
 
 
 
    Equity awards
120

 
226

 Weighted average common units outstanding – diluted
304,278

 
305,114

 
 
 
 
 Diluted earnings per unit attributable to the Operating Partnership’s common units:
 
 
 
 Net income
$
0.20

 
$
0.23



23



13. 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.

On February 8, 2016, the Company issued a press release and filed a Form 8-K reporting the completion of a review by the Audit Committee of the Company’s Board of Directors that began after the Company received information in late December 2015 through its established compliance processes. The Audit Committee review led the Board 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 reached 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’s Office for the Southern District of New York are conducting investigations of certain aspects of the Company’s financial reporting and accounting for prior periods and the Company is cooperating fully.

On December 13, 2017, the United States District Court for the Southern District of New York granted final approval of the settlement of the previously disclosed putative securities class action complaint filed in March 2016 by the Westchester Putnam Counties Heavy & Highway Laborers Local 60 Benefit Funds related to the review conducted by the Audit Committee of the Board of Directors. Pursuant to the approved settlement, without any admission of liability, the Company will pay $28.0 million to settle the claims. This amount is within the coverage amount of the Company’s applicable insurance policies and has been funded into escrow by the insurance carriers. The settlement provides for the release of, among others, the Company, its subsidiaries, and their respective current and former officers, directors and employees from the claims that were or could have been asserted in the class action litigation. Certain institutional investors elected to opt out of the settlement and will not be bound by the release or receive any settlement proceeds. The Company expects that the resolution of any future related claims asserted by such opt-outs will also be within the coverage amount of the Company’s applicable insurance policies. During the three months ended March 31, 2018, $8.5 million of the settlement amount was released from escrow per the court approved settlement agreement for the payment of plaintiff’s legal fees. The remaining settlement balance of $19.5 million remains in escrow pending final class distribution.

As of March 31, 2018, the $19.5 million amount is included in Accounts payable, accrued expenses and other liabilities in the Company’s unaudited Condensed Consolidated Balance Sheets. Because the settlement amount is within the coverage amount of the Company’s applicable insurance policies, the Company accrued a receivable of $19.5 million as of March 31, 2018. This amount is included in Accounts receivable, net in the Company’s unaudited Condensed Consolidated Balance Sheets.










24


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 March 31, 2018 and 2017, the Company recognized rent expense associated with these leases of $1.8 million and $1.9 million, respectively. Minimum annual rental commitments associated with these leases during the next five years and thereafter are as follows:
Year ending December 31,
 
 
2018 (remaining nine months)
 
$
5,446

2019
 
7,225

2020
 
7,244

2021
 
7,453

2022
 
7,521

Thereafter
 
72,621

Total minimum annual rental commitments
 
$
107,510


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 arranged for the disposal or treatment of hazardous or toxic substances. As a result, the Company may be liable for certain costs including removal, remediation, government fines and injuries to persons and 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. Related-Party Transactions
In the ordinary course of conducting its business, the Company enters into agreements with its affiliates in relation to the leasing and management of its and/or its related parties’ real estate assets.

As of March 31, 2018 and December 31, 2017, there were no material receivables from or payables to related parties.

15. Subsequent Events
In preparing the unaudited Condensed Consolidated Financial Statements, the Company has evaluated events and transactions occurring after March 31, 2018 for recognition or disclosure purposes. Based on this evaluation, there were no subsequent events from March 31, 2018 through the date the financial statements were issued.


25



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 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 otherwise expressly stated or the context otherwise requires, “we,” “us,” and “our” as used herein refer to each of 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”) in the United States, comprised primarily of community and neighborhood shopping centers. As of March 31, 2018, our portfolio consisted of 480 shopping centers (the “Portfolio”) with approximately 82 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”), and our shopping centers are primarily anchored by non-discretionary and value-oriented retailers, as well as consumer-oriented service providers. As of March 31, 2018, our three largest tenants by annualized base rent are The TJX Companies, Inc., The Kroger Co., 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 States federal income tax laws, commencing with our taxable year ended December 31, 2011, has maintained such requirements through our taxable year ended December 31, 2017, 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.

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 retailers. We believe that we are one of the largest landlords by GLA to TJX Companies and Kroger, as well as a key landlord to most major grocers and major retail category leaders. We believe that our strong relationships with leading retailers afford us 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, as well as 11 leasing and property management satellite offices throughout the country. We believe that this structure enables us to obtain critical national market intelligence and to benefit from the regional and local expertise of our workforce.

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 transactional experience, as well as significant 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 paid by tenants to us under existing leases at each of our properties. Expense reimbursements primarily consist of payments made by tenants to us under

26




contractual lease obligations for their proportional share of a property’s operating costs, insurance and real estate taxes and certain capital expenditures related to the maintenance of the properties.

The amount of revenue we receive is primarily dependent on our ability to maintain or increase rental rates, renew expiring leases and/or lease available space. Factors that could affect our rental income include: (1) changes in national, regional or local economic climates; (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 of our properties; (5) competition from other available properties and the attractiveness of properties in our Portfolio to our tenants; (6) the financial stability of tenants, including the ability of tenants to pay rent and expense reimbursements; and (7) in the case of percentage rents, the sales volume of our tenants.

Our operating costs represent property-related costs, such as repairs and maintenance, landscaping, snow removal, utilities, property insurance, security, ground rent related to properties for which we are the lessee and various other property related costs. Increases in our operating costs, to the extent they are not offset by revenue increases, may impact our overall performance. For a further discussion of these and other factors that could impact our future results, see Item 1A. “Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2017.

Leasing Highlights
As of March 31, 2018, billed and leased occupancy was 89.8% and 92.1%, respectively, as compared to 90.4% and 92.5%, respectively, as of March 31, 2017. In addition, the following table summarizes our executed leasing activity for the three months ended March 31, 2018 and 2017 (dollars in thousands, except for per square foot (“PSF”) amounts):
Three Months Ended March 31, 2018
 
Leases
 
GLA
 
New ABR PSF
 
Tenant Improvements and Allowances PSF(1)
 
Third Party Leasing Commissions PSF
 
Rent Spread(2)
New, renewal and option leases
440

 
2,745,080

 
$
14.43

 
$
8.90

 
$
1.63

 
14.5
%
New and renewal leases
395

 
2,046,088

 
15.19

 
11.94

 
2.19

 
16.7
%
New leases
151

 
1,042,526

 
14.47

 
21.11

 
4.29

 
36.7
%
Renewal leases
244

 
1,003,562

 
15.94

 
2.40

 

 
8.4
%
Option leases
45

 
698,992

 
12.19

 

 

 
8.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2017
 
Leases
 
GLA
 
New ABR PSF
 
Tenant Improvements and Allowances PSF(1)
 
Third Party Leasing Commissions PSF
 
Rent Spread(2)
New, renewal and option leases
436

 
2,664,063

 
$
14.47

 
$
8.13

 
$
1.14

 
13.4
%
New and renewal leases
363

 
1,851,999

 
15.14

 
11.68

 
1.64

 
16.4
%
New leases
152

 
803,958

 
14.48

 
23.78

 
3.61

 
36.7
%
Renewal leases
211

 
1,048,041

 
15.65

 
2.39

 
0.14

 
9.6
%
Option leases
73

 
812,064

 
12.94

 
0.04

 

 
7.7
%
(1) 
Includes tenant specific landlord work.
(2) 
Based on comparable leases only.
Includes new development property. Excludes leases executed for terms of less than one year.
ABR PSF includes the GLA of lessee owned leasehold improvements.

Acquisition Activity
During the three months ended March 31, 2018, we did not acquire any real estate assets.

During the three months ended March 31, 2017, we acquired one shopping center, one outparcel building and one outparcel for an aggregate purchase price of $104.8 million.




27




Disposition Activity
During the three months ended March 31, 2018, we disposed of six shopping centers and one outparcel for net proceeds of $104.2 million resulting in an aggregate gain of $11.4 million and aggregate impairment of $0.2 million.

During the three months ended March 31, 2017, we disposed of three shopping centers for net proceeds of $34.1 million resulting in an aggregate gain of $8.8 million.

Results of Operations
The results of operations discussion is combined for BPG 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 March 31, 2018 to the Three Months Ended March 31, 2017
Revenues (in thousands)
 
Three Months Ended March 31,
 
 
 
2018
 
2017
 
$ Change
Revenues
 
 
 
 
 
Rental income
$
243,345

 
$
249,621

 
$
(6,276
)
Expense reimbursements
70,878

 
73,190

 
(2,312
)
Other revenues
2,952

 
2,995

 
(43
)
Total revenues
$
317,175

 
$
325,806

 
$
(8,631
)

Rental income
The decrease in rental income for the three months ended March 31, 2018 of $6.3 million, as compared to the corresponding period in 2017, was primarily due to (i) a $3.9 million decrease in base rent; (ii) a $2.2 million decrease in straight-line rent; and (iii) a $1.4 million decrease in amortization of above- and below-market leases and tenant inducements, net; partially offset by (iv) a $0.9 million increase in lease termination fees; and (v) a $0.3 million increase in ancillary and other income. The decrease in base rent is due to a $6.8 million decrease in base rent due to net disposition activity, partially offset by a $2.9 million increase in base rent for the remaining portfolio. The increase in base rent for the remaining portfolio was driven primarily by contractual rent increases as well as positive rent spreads for new and renewal leases and option exercises of 14.5% and 12.6% during the three months ended March 31, 2018 and the year ended December 31, 2017, respectively, partially offset by a decline in billed occupancy.

Expense reimbursements