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Section 1: 10-Q (10-Q)

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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 September 30, 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 every Interactive Data File required to be submitted 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 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
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     
Brixmor Property Group Inc. Brixmor Operating Partnership LP

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Brixmor Property Group Inc. Yes No þ Brixmor Operating Partnership LP Yes No þ

(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
As of October 1, 2018, Brixmor Property Group Inc. had 299,806,785 shares of common stock outstanding.




EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended September 30, 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 September 30, 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, who 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 capital required by the Company’s business. Sources of this capital include the Operating Partnership’s operations and its direct or indirect incurrence of indebtedness.

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.

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.

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.

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 September 30, 2018 and December 31, 2017
 
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2018 and 2017
 
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and 2017
 
Condensed Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, 2018 and 2017
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017
 
Brixmor Operating Partnership LP (unaudited)
 
 
Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017
 
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2018 and 2017
 
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and 2017
 
Condensed Consolidated Statements of Changes in Capital for the Three and Nine Months Ended September 30, 2018 and 2017
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 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)
 
September 30,
2018
 
December 31,
2017
Assets
 
 
 
Real estate
 
 
 
Land
$
1,845,114

 
$
1,984,309

Buildings and improvements
8,409,857

 
8,937,182

 
10,254,971

 
10,921,491

Accumulated depreciation and amortization
(2,358,782
)
 
(2,361,070
)
Real estate, net
7,896,189

 
8,560,421

 
 
 
 
Cash and cash equivalents
19,607

 
56,938

Restricted cash
45,412

 
53,839

Marketable securities
30,725

 
28,006

Receivables, net of allowance for doubtful accounts of $18,947 and $17,205
230,782

 
232,111

Deferred charges and prepaid expenses, net
150,232

 
147,508

Other assets
124,491

 
75,103

Total assets
$
8,497,438

 
$
9,153,926

 
 
 
 
 
 
 
 
Liabilities
 
 
 
Debt obligations, net
$
5,106,708

 
$
5,676,238

Accounts payable, accrued expenses and other liabilities
516,468

 
569,340

Total liabilities
5,623,176

 
6,245,578

 
 
 
 
Commitments and contingencies (Note 13)


 


 
 
 
 
Equity
 
 
 
Common stock, $0.01 par value; authorized 3,000,000,000 shares; 305,118,890 and 304,947,144 shares issued and 299,891,880 and 304,620,186 shares outstanding
2,999

 
3,046

Additional paid-in capital
3,254,722

 
3,330,466

Accumulated other comprehensive income
27,121

 
24,211

Distributions in excess of net income
(410,580
)
 
(449,375
)
Total equity
2,874,262

 
2,908,348

Total liabilities and equity
$
8,497,438

 
$
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 September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenues
 
 
 
 
 
 
 
Rental income
$
239,217

 
$
246,578

 
$
726,549

 
$
749,976

Expense reimbursements
66,348

 
66,489

 
204,589

 
206,718

Other revenues
915

 
1,429

 
5,547

 
6,426

Total revenues
306,480

 
314,496

 
936,685

 
963,120

 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
Operating costs
31,969

 
30,505

 
101,340

 
100,955

Real estate taxes
44,711

 
45,076

 
135,383

 
135,607

Depreciation and amortization
85,183

 
94,239

 
266,900

 
285,040

Provision for doubtful accounts
3,094

 
1,216

 
6,458

 
4,023

Impairment of real estate assets
16,372

 
11,065

 
44,201

 
27,383

General and administrative
21,209

 
22,838

 
64,955

 
67,043

Total operating expenses
202,538

 
204,939

 
619,237

 
620,051

 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
Dividends and interest
156

 
76

 
356

 
234

Interest expense
(55,364
)
 
(57,410
)
 
(165,735
)
 
(170,584
)
Gain on sale of real estate assets
119,333

 
25,942

 
159,043

 
54,920

Gain (loss) on extinguishment of debt, net
(19,759
)
 
1,828

 
(20,182
)
 
488

Other
(962
)
 
(1,200
)
 
(2,200
)
 
(2,591
)
Total other income (expense)
43,404

 
(30,764
)
 
(28,718
)
 
(117,533
)
 
 
 
 
 
 
 
 
Income before equity in income of unconsolidated joint venture
147,346

 
78,793

 
288,730

 
225,536

Equity in income of unconsolidated joint venture

 
31

 

 
381

Gain on disposition of unconsolidated joint venture interest

 
4,556

 

 
4,556

 
 
 
 
 
 
 
 
Net income
147,346

 
83,380

 
288,730

 
230,473

Net income attributable to non-controlling interests

 

 

 
(76
)
 
 
 
 
 
 
 
 
Net income attributable to Brixmor Property Group Inc.
147,346

 
83,380

 
288,730

 
230,397

Preferred stock dividends

 

 

 
(39
)
 
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
147,346

 
$
83,380

 
$
288,730

 
$
230,358

Per common share:
 
 
 
 
 
 
 
Net income attributable to common stockholders:
 
 
 
 
 
 
 
Basic
$
0.49

 
$
0.27

 
$
0.95

 
$
0.76

Diluted
$
0.49

 
$
0.27

 
$
0.95

 
$
0.75

Weighted average shares:
 
 
 
 
 
 
 
Basic
302,170

 
304,936

 
303,031

 
304,810

Diluted
302,382

 
305,176

 
303,213

 
305,175

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 September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
147,346

 
$
83,380

 
$
288,730

 
$
230,473

Other comprehensive income (loss)
 
 
 
 
 
 
 
Change in unrealized gain (loss) on interest rate swaps, net (Note 6)
(1,242
)
 
(962
)
 
2,950

 
(1,434
)
Change in unrealized loss on marketable securities

 
(11
)
 
(40
)
 
(31
)
Total other comprehensive income (loss)
(1,242
)
 
(973
)
 
2,910

 
(1,465
)
Comprehensive income
146,104

 
82,407

 
291,640

 
229,008

Comprehensive income attributable to non-controlling interests

 

 

 
(76
)
Comprehensive income attributable to common stockholders
$
146,104

 
$
82,407

 
$
291,640

 
$
228,932

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
 
Total
Beginning balance, January 1, 2018
304,620

 
$
3,046

 
$
3,330,466

 
$
24,211

 
$
(449,375
)
 
$
2,908,348

Common stock dividends ($0.275 per common share)

 

 

 

 
(83,479
)
 
(83,479
)
Equity based compensation expense

 

 
2,484

 

 

 
2,484

Other comprehensive income

 

 

 
4,687

 

 
4,687

Issuance of common stock and OP Units
128

 
1

 

 

 

 
1

Repurchases of common stock
(1,922
)
 
(19
)
 
(29,746
)
 

 

 
(29,765
)
Share-based awards retained for taxes

 

 
(1,722
)
 

 

 
(1,722
)
Net income

 

 

 

 
61,022

 
61,022

Ending balance, March 31, 2018
302,826

 
3,028

 
3,301,482

 
28,898

 
(471,832
)
 
2,861,576

Common stock dividends ($0.275 per common share)

 

 

 

 
(83,584
)
 
(83,584
)
Equity based compensation expense

 

 
2,784

 

 

 
2,784

Other comprehensive loss

 

 

 
(535
)
 

 
(535
)
Issuance of common stock and OP Units
42

 
1

 

 

 

 
1

Repurchases of common stock
(241
)
 
(3
)
 
(3,497
)
 

 

 
(3,500
)
Share-based awards retained for taxes

 

 
(133
)
 

 

 
(133
)
Net income

 

 

 

 
80,362

 
80,362

Ending balance, June 30, 2018
302,627

 
3,026

 
3,300,636

 
28,363

 
(475,054
)
 
2,856,971

Common stock dividends ($0.275 per common share)

 

 

 

 
(82,872
)
 
(82,872
)
Equity based compensation expense

 

 
2,738

 

 

 
2,738

Other comprehensive loss

 

 

 
(1,242
)
 

 
(1,242
)
Issuance of common stock and OP Units
2

 

 

 

 

 

Repurchases of common stock
(2,737
)
 
(27
)
 
(48,643
)
 

 

 
(48,670
)
Share-based awards retained for taxes

 

 
(9
)
 

 

 
(9
)
Net income

 

 

 

 
147,346

 
147,346

Ending balance, September 30, 2018
299,892

 
$
2,999

 
$
3,254,722

 
$
27,121

 
$
(410,580
)
 
$
2,874,262

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



4



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

Common stock dividends ($0.26 per common share)

 

 

 

 
(79,557
)
 

 
(79,557
)
Equity based compensation expense

 

 
2,848

 

 

 

 
2,848

Preferred stock dividends

 

 

 

 
(641
)
 
(648
)
 
(1,289
)
Other comprehensive loss

 

 

 
(3,112
)
 

 

 
(3,112
)
Issuance of common stock and OP Units
43

 

 

 

 

 

 

Share-based awards retained for taxes

 

 
(197
)
 

 

 

 
(197
)
Net income

 

 

 

 
75,438

 

 
75,438

Ending balance, June 30, 2017
304,936

 
3,049

 
3,330,885

 
21,027

 
(439,213
)
 

 
2,915,748

Common stock dividends ($0.26 per common share)

 

 

 

 
(79,625
)
 

 
(79,625
)
Equity based compensation expense

 

 
2,864

 

 

 

 
2,864

Other comprehensive loss

 

 

 
(973
)
 

 

 
(973
)
Issuance of common stock and OP Units
1

 

 

 

 

 

 

Share-based awards retained for taxes

 

 
(53
)
 

 

 

 
(53
)
Net income

 

 

 

 
83,380

 

 
83,380

Ending balance, September 30, 2017
304,937

 
$
3,049

 
$
3,333,696

 
$
20,054

 
$
(435,458
)
 
$

 
$
2,921,341

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


5



BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
Nine Months Ended September 30,
 
2018
 
2017
Operating activities:
 
 
 
Net income
$
288,730

 
$
230,473

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
266,900

 
285,040

Debt premium and discount amortization
(2,804
)
 
(4,371
)
Deferred financing cost amortization
4,909

 
5,283

Above- and below-market lease intangible amortization
(20,644
)
 
(23,012
)
Provisions for impairment
44,201

 
27,383

Gain on disposition of operating properties
(159,043
)
 
(54,920
)
Gain on disposition of unconsolidated joint venture interest

 
(4,556
)
Equity based compensation
8,006

 
7,838

Other
2,587

 
1,836

(Gain) loss on extinguishment of debt, net
20,182

 
(488
)
Changes in operating assets and liabilities:
 
 
 
Receivables
1,416

 
(15,675
)
Deferred charges and prepaid expenses
(35,840
)
 
(41,760
)
Other assets
3,637

 
(3,753
)
Accounts payable, accrued expenses and other liabilities
(22,055
)
 
11,801

Net cash provided by operating activities
400,182

 
421,119

 
 
 
 
Investing activities:
 
 
 
Improvements to and investments in real estate assets
(185,048
)
 
(140,036
)
Acquisitions of real estate assets
(8,994
)
 
(111,790
)
Proceeds from sales of real estate assets
676,959

 
228,680

Proceeds from sale of unconsolidated joint venture interest

 
12,369

Purchase of marketable securities
(27,923
)
 
(23,998
)
Proceeds from sale of marketable securities
25,076

 
20,640

Net cash provided by (used in) investing activities
480,070

 
(14,135
)
 
 
 
 
Financing activities:
 
 
 
Repayment of secured debt obligations
(518,308
)
 
(396,356
)
Repayment of borrowings under unsecured revolving credit facility
(74,000
)
 
(548,000
)
Proceeds from borrowings under unsecured revolving credit facility
215,000

 
426,000

Proceeds from unsecured notes
250,000

 
1,193,916

Repayment of borrowings under unsecured term loan
(435,000
)
 
(790,000
)
Deferred financing and debt extinguishment costs
(29,017
)
 
(11,185
)
Distributions to common stockholders
(250,886
)
 
(238,106
)
Distributions to non-controlling interests

 
(1,390
)
Repurchases of common shares
(81,935
)
 

Repurchases of common shares in conjunction with equity award plans
(1,864
)
 
(2,714
)
Net cash used in financing activities
(926,010
)
 
(367,835
)
 
 
 
 
Net change in cash, cash equivalents and restricted cash
(45,758
)
 
39,149

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

 
102,869

Cash, cash equivalents and restricted cash at end of period
$
65,019

 
$
142,018

 
 
 
 
Reconciliation to consolidated balance sheets
 
 
 
Cash and cash equivalents
$
19,607

 
$
29,978

Restricted cash
45,412

 
112,040

Cash, cash equivalents and restricted cash at end of period
$
65,019

 
$
142,018

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest, net of amount capitalized of $1,798 and $2,268
$
173,079

 
$
176,524

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


6



BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited, in thousands, except unit information)
 
September 30,
2018
 
December 31,
2017
Assets
 
 
 
Real estate
 
 
 
Land
$
1,845,114

 
$
1,984,309

Buildings and improvements
8,409,857

 
8,937,182

 
10,254,971

 
10,921,491

Accumulated depreciation and amortization
(2,358,782
)
 
(2,361,070
)
Real estate, net
7,896,189

 
8,560,421

 
 
 
 
Cash and cash equivalents
19,582

 
56,908

Restricted cash
45,412

 
53,839

Marketable securities
30,506

 
27,787

Receivables, net of allowance for doubtful accounts of $18,947 and $17,205
230,782

 
232,111

Deferred charges and prepaid expenses, net
150,232

 
147,508

Other assets
124,491

 
75,103

Total assets
$
8,497,194

 
$
9,153,677

 
 
 
 
 
 
 
 
Liabilities
 
 
 
Debt obligations, net
$
5,106,708

 
$
5,676,238

Accounts payable, accrued expenses and other liabilities
516,468

 
569,340

Total liabilities
5,623,176

 
6,245,578

 
 
 
 
Commitments and contingencies (Note 13)


 


 
 
 
 
Capital
 
 
 
Partnership common units; 305,118,890 and 304,947,144 units issued and 299,891,880 and 304,620,186 units outstanding
2,846,886

 
2,883,875

Accumulated other comprehensive income
27,132

 
24,224

Total capital
2,874,018

 
2,908,099

Total liabilities and capital
$
8,497,194

 
$
9,153,677

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 OPERATIONS
(Unaudited, in thousands, except per share data)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenues
 
 
 
 
 
 
 
Rental income
$
239,217

 
$
246,578

 
$
726,549

 
$
749,976

Expense reimbursements
66,348

 
66,489

 
204,589

 
206,718

Other revenues
915

 
1,429

 
5,547

 
6,426

Total revenues
306,480

 
314,496

 
936,685

 
963,120

 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
Operating costs
31,969

 
30,505

 
101,340

 
100,955

Real estate taxes
44,711

 
45,076

 
135,383

 
135,607

Depreciation and amortization
85,183

 
94,239

 
266,900

 
285,040

Provision for doubtful accounts
3,094

 
1,216

 
6,458

 
4,023

Impairment of real estate assets
16,372

 
11,065

 
44,201

 
27,383

General and administrative
21,209

 
22,838

 
64,955

 
67,043

Total operating expenses
202,538

 
204,939

 
619,237

 
620,051

 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
Dividends and interest
156

 
76

 
356

 
234

Interest expense
(55,364
)
 
(57,410
)
 
(165,735
)
 
(170,584
)
Gain on sale of real estate assets
119,333

 
25,942

 
159,043

 
54,920

Gain (loss) on extinguishment of debt, net
(19,759
)
 
1,828

 
(20,182
)
 
488

Other
(962
)
 
(1,200
)
 
(2,200
)
 
(2,591
)
Total other income (expense)
43,404

 
(30,764
)
 
(28,718
)
 
(117,533
)
 
 
 
 
 
 
 
 
Income before equity in income of unconsolidated joint venture
147,346

 
78,793

 
288,730

 
225,536

Equity in income of unconsolidated joint venture

 
31

 

 
381

Gain on disposition of unconsolidated joint venture interest

 
4,556

 

 
4,556

 
 
 
 
 
 
 
 
Net income attributable to Brixmor Operating Partnership LP
$
147,346

 
$
83,380

 
$
288,730

 
$
230,473

 
 
 
 
 
 
 
 
Per common unit:
 
 
 
 
 
 
 
Net income attributable to partnership common units:
 
 
 
 
 
 
 
Basic
$
0.49

 
$
0.27

 
$
0.95

 
$
0.76

Diluted
$
0.49

 
$
0.27

 
$
0.95

 
$
0.76

Weighted average number of partnership common units:
 
 
 
 
 
 
 
Basic
302,170

 
304,936

 
303,031

 
304,914

Diluted
302,382

 
305,176

 
303,213

 
305,175

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 COMPREHENSIVE INCOME
(Unaudited, in thousands)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net income attributable to Brixmor Operating Partnership LP
$
147,346

 
$
83,380

 
$
288,730

 
$
230,473

Other comprehensive income (loss)
 
 
 
 
 
 
 
Change in unrealized gain (loss) on interest rate swaps, net (Note 6)
(1,242
)
 
(962
)
 
2,950

 
(1,434
)
Change in unrealized loss on marketable securities
(4
)
 
(10
)
 
(42
)
 
(30
)
Total other comprehensive income (loss)
(1,246
)
 
(972
)
 
2,908

 
(1,464
)
Comprehensive income attributable to Brixmor Operating Partnership LP
$
146,100

 
$
82,408

 
$
291,638

 
$
229,009

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 CHANGES IN CAPITAL

(Unaudited, in thousands)

 
 
 
 
 
 
 
Partnership Common Units
 
Accumulated Other Comprehensive Income
 
Total
Beginning balance, January 1, 2018
$
2,883,875

 
$
24,224

 
$
2,908,099

Distributions to partners
(83,479
)
 

 
(83,479
)
Equity based compensation expense
2,484

 

 
2,484

Other comprehensive income

 
4,688

 
4,688

Issuance of OP Units
1

 

 
1

Repurchases of OP Units
(29,765
)
 

 
(29,765
)
Share-based awards retained for taxes
(1,722
)
 

 
(1,722
)
Net income attributable to Brixmor Operating Partnership LP
61,022

 

 
61,022

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

 
28,912

 
2,861,328

Distributions to partners
(83,584
)
 

 
(83,584
)
Equity based compensation expense
2,784

 

 
2,784

Other comprehensive loss

 
(534
)
 
(534
)
Issuance of OP Units
1

 

 
1

Repurchases of OP Units
(3,500
)
 

 
(3,500
)
Share-based awards retained for taxes
(133
)
 

 
(133
)
Net income attributable to Brixmor Operating Partnership LP
80,362

 

 
80,362

Ending balance, June 30, 2018
2,828,346

 
28,378

 
2,856,724

Distributions to partners
(82,865
)
 

 
(82,865
)
Equity based compensation expense
2,738

 

 
2,738

Other comprehensive loss

 
(1,246
)
 
(1,246
)
Repurchases of OP Units
(48,670
)
 

 
(48,670
)
Share-based awards retained for taxes
(9
)
 

 
(9
)
Net income attributable to Brixmor Operating Partnership LP
147,346

 

 
147,346

Ending balance, September 30, 2018
$
2,846,886

 
$
27,132

 
$
2,874,018

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


10



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

Distributions to partners
(80,850
)
 

 
(80,850
)
Equity based compensation expense
2,848

 

 
2,848

Other comprehensive loss

 
(3,113
)
 
(3,113
)
Share-based awards retained for taxes
(197
)
 

 
(197
)
Net income attributable to Brixmor Operating Partnership LP
75,438

 

 
75,438

Ending balance, June 30, 2017
2,894,458

 
21,039

 
2,915,497

Distributions to partners
(79,623
)
 

 
(79,623
)
Equity based compensation expense
2,864

 

 
2,864

Other comprehensive loss

 
(972
)
 
(972
)
Share-based awards retained for taxes
(53
)
 

 
(53
)
Net income attributable to Brixmor Operating Partnership LP
83,380

 

 
83,380

Ending balance, September 30, 2017
$
2,901,026

 
$
20,067

 
$
2,921,093

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


11



BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
Nine Months Ended September 30,
 
2018
 
2017
Operating activities:
 
 
 
Net income attributable to Brixmor Operating Partnership LP
$
288,730

 
$
230,473

Adjustments to reconcile net income attributable to Brixmor Operating Partnership LP
 
 
 
to net cash provided by operating activities:

 
 
 
Depreciation and amortization
266,900

 
285,040

Debt premium and discount amortization
(2,804
)
 
(4,371
)
Deferred financing cost amortization
4,909

 
5,283

Above- and below-market lease intangible amortization
(20,644
)
 
(23,012
)
Provisions for impairment
44,201

 
27,383

Gain on disposition of operating properties
(159,043
)
 
(54,920
)
Gain on disposition of unconsolidated joint venture interest

 
(4,556
)
Equity based compensation
8,006

 
7,838

Other
2,587

 
1,836

(Gain) loss on extinguishment of debt, net
20,182

 
(488
)
Changes in operating assets and liabilities:
 
 
 
Receivables
1,416

 
(15,675
)
Deferred charges and prepaid expenses
(35,840
)
 
(41,760
)
Other assets
3,637

 
(3,753
)
Accounts payable, accrued expenses and other liabilities
(22,055
)
 
11,801

Net cash provided by operating activities
400,182

 
421,119

 
 
 
 
Investing activities:
 
 
 
Improvements to and investments in real estate assets
(185,048
)
 
(140,036
)
Acquisitions of real estate assets
(8,994
)
 
(111,790
)
Proceeds from sales of real estate assets
676,959

 
228,680

Proceeds from sale of unconsolidated joint venture interest

 
12,369

Purchase of marketable securities
(27,922
)
 
(23,995
)
Proceeds from sale of marketable securities
25,076

 
20,640

Net cash provided by (used in) investing activities
480,071

 
(14,132
)
 
 
 
 
Financing activities:
 
 
 
Repayment of secured debt obligations
(518,308
)
 
(396,356
)
Repayment of borrowings under unsecured revolving credit facility
(74,000
)
 
(548,000
)
Proceeds from borrowings under unsecured revolving credit facility
215,000

 
426,000

Proceeds from unsecured notes
250,000

 
1,193,916

Repayment of borrowings under unsecured term loan
(435,000
)
 
(790,000
)
Deferred financing and debt extinguishment costs
(29,017
)
 
(11,185
)
Partner distributions
(334,681
)
 
(242,209
)
Net cash used in financing activities
(926,006
)
 
(367,834
)
 
 
 
 
Net change in cash, cash equivalents and restricted cash
(45,753
)
 
39,153

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

 
102,835

Cash, cash equivalents and restricted cash at end of period
$
64,994

 
$
141,988

 
 
 
 
Reconciliation to consolidated balance sheets
 
 
 
Cash and cash equivalents
$
19,582

 
$
29,948

Restricted cash
45,412

 
112,040

Cash, cash equivalents and restricted cash at end of period
$
64,994

 
$
141,988

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest, net of amount capitalized of $1,798 and $2,268
$
173,079

 
$
176,524

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


12



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 September 30, 2018, the Company’s portfolio was comprised of 445 shopping centers (the “Portfolio”) totaling approximately 77 million square feet of gross leasable area. 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 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.

Certain prior period balances in the accompanying unaudited Condensed Consolidated Statements of Cash Flows have been reclassified to conform to the current period presentation for the adoption of Accounting Standards Update (“ASU”) 2016-15, “Statement of Cash Flows (Topic 230).” Additionally, certain prior period balances in the accompanying unaudited Condensed Consolidated Statements of Changes in Equity and Capital have been included to conform to the current period presentation for the updates made under SEC Regulation S-X, Rule 3-04, which upon effectiveness in November 2018, will require interim reporting of changes in equity for all periods presented.
 
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

13




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.

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 Parent Company has elected to treat certain of its subsidiaries as taxable REIT subsidiaries (“TRS”), and the Parent 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 is subject to certain limitations under the Code. A TRS is subject to U.S. federal and state income taxes. Income taxes related to the Parent 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 September 30, 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 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-13, “Fair Value Measurement (Topic 820).” ASU 2018-13 amends certain disclosure requirements regarding the fair value hierarchy of investments in accordance with GAAP, particularly the significant unobservable inputs used to value investments within Level 3 of the fair value hierarchy. The standard is effective on January 1, 2020, with early adoption permitted. The Company does not expect the adoption of ASU 2018-13 to have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company.

In August 2017, the FASB issued 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).” 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.


14




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 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.











15




2. Acquisition of Real Estate
During the nine months ended September 30, 2018, the Company acquired the following assets, in separate transactions:
Description(1)
 
Location
 
Month Acquired
 
GLA
 
Aggregate Purchase Price(2)
Land adjacent to Arborland Center
 
Ann Arbor, MI
 
Jun-18
 
N/A

 
$
5,554

Outparcel adjacent to Lehigh Shopping Center
 
Bethlehem, PA
 
Jun-18
 
12,739

 
1,899

Outparcel building adjacent to Beneva Village Shoppes
 
Sarasota, FL
 
Jul-18
 
3,710

 
1,541

 
 
 
 
 
 
16,449


$
8,994


(1) 
No debt was assumed related to any of the listed acquisitions.
(2) 
Includes transaction costs

During the nine months ended September 30, 2017, the Company acquired the following assets, in separate transactions:
Description(1)
 
Location
 
Month Acquired
 
GLA
 
Aggregate Purchase Price(2)
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

Building adjacent to Preston Park
 
Plano, TX
 
Apr-17
 
31,080

 
4,015

Outparcel building adjacent to Cobblestone Village
 
St. Augustine, FL
 
May-17
 
4,403

 
1,306

Outparcel adjacent to Wynnewood Village
 
Dallas, TX
 
May-17
 
N/A

 
1,658

 
 
 
 
 
 
444,779

 
$
111,790

(1) 
No debt was assumed related to any of the listed acquisitions.
(2) 
Includes transaction costs

The aggregate purchase price of the assets acquired during the nine months ended September 30, 2018 and 2017, respectively, has been allocated as follows:
 
 
 
Nine Months Ended September 30,
Assets
2018
 
2017
 
Land
$
6,078

 
$
19,240

 
Buildings
2,448

 
75,286

 
Building and tenant improvements
238

 
9,177

 
Above-market leases(1)

 
2,381

 
In-place leases(2)
304

 
8,608

Total assets
9,068

 
114,692

 
 
 
 
 
 
Liabilities
 
 
 
 
Below-market leases(3)
74

 
2,902

 
Other liabilities

 

Total liabilities
74

 
2,902

Net assets acquired
$
8,994

 
$
111,790


(1) 
The weighted average amortization period at the time of acquisition for above-market leases related to assets acquired during the nine months ended September 30, 2017 was 5.0 years.
(2) 
The weighted average amortization period at the time of acquisition for in-place leases related to assets acquired during the nine months ended September 30, 2018 and 2017 was 4.8 years and 6.6 years, respectively.
(3) 
The weighted average amortization period at the time of acquisition for below-market leases related to assets acquired during the nine months ended September 30, 2018 and 2017 was 4.8 years and 16.7 years, respectively.



16




During the three and nine months ended September 30, 2018, the Company incurred the following transaction costs:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Transaction Costs
 
2018
 
2017
 
2018
 
2017
Capitalized(1)
 
$
41

 
$

 
$
173

 
$
372

Expensed(2)
 
95

 
204

 
294

 
204

Total transaction costs
 
$
136

 
$
204

 
$
467

 
$
576


(1) 
These amounts are included in Real estate, net on the Company’s unaudited Condensed Consolidated Balance Sheets.
(2) 
These amounts are included in Other on the Company’s unaudited Condensed Consolidated Statements of Operations.

3. Dispositions and Assets Held for Sale
During the three months ended September 30, 2018, the Company disposed of 26 shopping centers and two partial shopping centers for aggregate net proceeds of $437.4 million resulting in an aggregate gain of $119.3 million and aggregate impairment of $4.2 million. During the nine months ended September 30, 2018, the Company disposed of 42 shopping centers and two partial shopping centers for aggregate net proceeds of $676.5 million resulting in an aggregate gain of $158.5 million and aggregate impairment of $28.4 million. In addition, during the nine months ended September 30, 2018, the Company received net proceeds of $0.5 million from previously disposed assets resulting in a gain of $0.5 million.

During the three months ended September 30, 2017, the Company disposed of eight wholly owned shopping centers for aggregate net proceeds of $121.4 million resulting in an aggregate gain of $25.9 million and aggregate impairment of $0.4 million. During the nine months ended September 30, 2017, the Company disposed of 14 wholly owned shopping centers and two outparcel buildings for aggregate net proceeds of $228.7 million resulting in an aggregate gain of $54.9 million and aggregate impairment of $0.4 million. During the three and nine months ended September 30, 2017, the Company disposed of its unconsolidated joint venture interest for net proceeds of $12.4 million resulting in a gain of $4.6 million.

As of September 30, 2018 and December 31, 2017, the Company had six properties and one property held for sale, respectively. The following table presents the assets and liabilities associated with the properties classified as held for sale:
Assets
September 30, 2018
 
December 31, 2017
 
Land
$
23,092

 
$
3,220

 
Buildings and improvements
77,995

 
30,758

 
Accumulated depreciation and amortization
(22,232
)
 
(7,464
)
 
Real estate, net
78,855

 
26,514

 
Other assets
1,471

 
567

Assets associated with properties held for sale(1)
$
80,326

 
$
27,081

 
 
 
 
 
 
Liabilities
 
 
 
 
Other liabilities
$
3,233

 
$
33

Liabilities associated with properties held for sale(2)
$
3,233

 
$
33

(1) 
These amounts are included in Other assets on the Company's unaudited Condensed Consolidated Balance Sheets.
(2) 
These amounts are included in Accounts payable, accrued expenses and other liabilities on the Company's unaudited Condensed Consolidated Balance Sheets.

There were no discontinued operations for the three and nine months ended September 30, 2018 and 2017 as none of the dispositions represented a strategic shift in the Company’s business that would qualify as discontinued operations.
 






17



4. Real Estate
The Company’s components of Real estate, net consisted of the following:
 
September 30, 2018
 
December 31, 2017
Land
$
1,845,114

 
$
1,984,309

Buildings and improvements:
 
 
 
Buildings and tenant improvements(1)
7,712,739

 
8,145,085

Lease intangibles(2)
697,118

 
792,097

 
10,254,971

 
10,921,491

Accumulated depreciation and amortization(3)
(2,358,782
)
 
(2,361,070
)
Total
$
7,896,189

 
$
8,560,421

(1) 
As of September 30, 2018 and December 31, 2017, Buildings and tenant improvements included accrued amounts of $34.8 million and $22.8 million, respectively, related to construction in progress, net of any anticipated insurance proceeds. 
(2) 
As of September 30, 2018 and December 31, 2017, Lease intangibles consisted of $628.9 million and $715.1 million, respectively, of in-place leases and $68.2 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 September 30, 2018 and December 31, 2017, Accumulated depreciation and amortization included $579.5 million and $629.1 million, respectively, of accumulated amortization related to Lease intangibles.

In addition, as of September 30, 2018 and December 31, 2017, the Company had intangible liabilities relating to below-market leases of $408.8 million and $463.3 million, respectively, and accumulated accretion of $271.6 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 September 30, 2018 and 2017 was $5.8 million and $7.6 million, respectively. Below-market lease accretion income, net of above-market lease amortization expense for the nine months ended September 30, 2018 and 2017 was $20.6 million and $23.0 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 September 30, 2018 and 2017 was $8.0 million and $10.8 million, respectively. Amortization expense associated with in-place lease value for the nine months ended September 30, 2018 and 2017 was $27.2 million and $36.3 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 three months)
 
$
(5,243
)
 
$
7,280

2019
 
(18,907
)
 
24,872

2020
 
(15,357
)
 
18,294

2021
 
(12,524
)
 
13,023

2022
 
(10,343
)
 
9,599


5. Impairments
On a periodic basis, management assesses whether there are any indicators, including changes in property operating performance, anticipated holding period and/or 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.






18



The Company recognized the following impairments during the three months ended September 30, 2018:
Three Months Ended September 30, 2018
Property Name(1)
 
Location
 
GLA
 
Impairment Charge
Westview Center
 
Hanover Park, IL
 
321,382

 
$
5,916

Wadsworth Crossings
 
Wadsworth, OH
 
118,145

 
3,411

Brooksville Square(2)
 
Brooksville, FL
 
96,361

 
2,740

Sterling Bazaar
 
Peoria, IL
 
87,359

 
1,531

Plantation Plaza
 
Clute, TX
 
99,141

 
1,228

Smith’s(2)
 
Socorro, NM
 
48,000

 
1,200

Shops of Riverdale(2)
 
Riverdale, GA
 
16,808

 
155

Dover Park Plaza(2)
 
Yardville, NJ
 
56,638

 
117