Company Quick10K Filing
Quick10K
Brixmor Property Group
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$18.03 298 $5,370
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-15 Shareholder Vote
8-K 2019-05-07 Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2019-04-29 Earnings, Exhibits
8-K 2019-03-07 Officers, Exhibits
8-K 2019-02-11 Earnings, Exhibits
8-K 2018-12-12 Enter Agreement, Off-BS Arrangement
8-K 2018-10-29 Earnings, Exhibits
8-K 2018-08-28 Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2018-07-30 Earnings, Exhibits
8-K 2018-05-08 Shareholder Vote
8-K 2018-03-06 Officers, Exhibits
8-K 2018-01-09 Other Events, Exhibits
DIS Walt Disney 240,140
TJX TJX Companies 65,400
NUE Nucor 17,240
MAS Masco 11,100
SID National Steel 4,870
IBA Industrias Bachoco 2,520
EDIT Editas Medicine 1,210
IOTS Adesto Technologies 221
VABK Virginia National Bankshares 0
ANDR Andrea Electronics 0
BRX 2019-03-31
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.3 brx10q3312019ex103.htm
EX-10.4 brx10q3312019ex104.htm
EX-31.1 brx10q3312019ex311.htm
EX-31.2 brx10q3312019ex312.htm
EX-31.3 brx10q3312019ex313.htm
EX-31.4 brx10q3312019ex314.htm
EX-32.1 brx10q3312019ex321.htm
EX-32.2 brx10q3312019ex322.htm

Brixmor Property Group Earnings 2019-03-31

BRX 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 brx10q3312019.htm 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, 2019
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 April 1, 2019, Brixmor Property Group Inc. had 297,987,158 shares of common stock outstanding.




EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended March 31, 2019 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, 2019, the Parent Company beneficially owned, through its direct and indirect interest in BPG Sub and the General Partner, 100% of the outstanding partnership common units of interest (the “OP Units”) in the Operating Partnership.
The Company believes combining the quarterly reports on Form 10-Q of the Parent Company and the Operating Partnership into this single report:

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. Because the Operating Partnership is managed by the Parent Company, and the Parent Company conducts substantially all of its operations through the Operating Partnership, the Parent Company’s executive officers are the Operating Partnership’s executive officers, and although, as a partnership, the Operating Partnership does not have a board of directors, we refer to the Parent Company’s board of directors as the Operating Partnership’s board of directors.
We believe it is important to understand the few differences between the Parent Company and the Operating Partnership in the context of how the Parent Company and the Operating Partnership operate as a consolidated company. The Parent Company is a REIT, whose only material asset is its indirect interest in the Operating Partnership. As a result, the Parent Company does not conduct business itself other than issuing public equity from time to time. The Parent Company does not incur any material indebtedness. The Operating Partnership holds substantially all of our assets. Except for net proceeds from public equity issuances by the Parent Company, which are contributed to the Operating Partnership in exchange for OP Units, the Operating Partnership generates all 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 March 31, 2019 and December 31, 2018
 
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2019 and 2018
 
Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2019 and 2018
 
Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2019 and 2018
 
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018
 
Brixmor Operating Partnership LP (unaudited)
 
 
Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018
 
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2019 and 2018
 
Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2019 and 2018
 
Condensed Consolidated Statements of Changes in Capital for the Three Months Ended March 31, 2019 and 2018
 
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018
 
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, 2018, as such factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission (the “SEC”), which are accessible on the SEC’s website at http://www.sec.gov. These factors include (1) changes in national, regional and local economic climates or demographics; (2) local market conditions, including an oversupply of space in, or a reduction in demand for, properties similar to those in our Portfolio; (3) competition from other available properties and e-commerce, and the attractiveness of properties in our Portfolio to our tenants; (4) ongoing disruption and/or consolidation in the retail sector, the financial stability of our tenants and the overall financial condition of large retailing companies, including their ability to pay rent and expense reimbursements; (5) in the case of percentage rents, the sales volume of our tenants; (6) increases in operating costs, including common area expenses, utilities, insurance and real estate taxes, which are relatively inflexible and generally do not decrease if revenue or occupancy decreases; (7) increases in the costs to repair, renovate and re-lease space; (8) earthquakes, tornadoes, hurricanes, damage from rising sea levels due to climate change, other natural disasters, civil unrest, terrorist acts or acts of war, which may result in uninsured or underinsured losses; (9) changes in laws and governmental regulations, including those governing usage, zoning, the environment and taxes; and (10) new developments in the litigation and governmental investigations discussed under the heading “Legal Matters” in Note 15 – Commitments and Contingencies to our unaudited Condensed Consolidated Financial Statements in this report. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our other periodic filings. The forward-looking statements speak only as of the date of this report, and we expressly disclaim any obligation or undertaking to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except to the extent otherwise required by law.



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,
2019
 
December 31,
2018
Assets
 
 
 
Real estate
 
 
 
Land
$
1,794,709

 
$
1,804,504

Buildings and improvements
8,279,076

 
8,294,273

 
10,073,785

 
10,098,777

Accumulated depreciation and amortization
(2,386,092
)
 
(2,349,127
)
Real estate, net
7,687,693

 
7,749,650

 
 
 
 
Cash and cash equivalents
349

 
41,745

Restricted cash
3,057

 
9,020

Marketable securities
29,634

 
30,243

Receivables, net
236,391

 
228,297

Deferred charges and prepaid expenses, net
143,535

 
145,662

Real estate assets held for sale
9,093

 
2,901

Other assets
74,178

 
34,903

Total assets
$
8,183,930

 
$
8,242,421

 
 
 
 
 
 
 
 
Liabilities
 
 
 
Debt obligations, net
$
4,873,065

 
$
4,885,863

Accounts payable, accrued expenses and other liabilities
518,094

 
520,459

Total liabilities
5,391,159

 
5,406,322

 
 
 
 
Commitments and contingencies (Note 15)

 

 
 
 
 
Equity
 
 
 
Common stock, $0.01 par value; authorized 3,000,000,000 shares; 305,289,535 and 305,130,472 shares issued and 297,987,158 and 298,488,516 shares outstanding
2,980

 
2,985

Additional paid-in capital
3,222,844

 
3,233,329

Accumulated other comprehensive income
6,048

 
15,973

Distributions in excess of net income
(439,101
)
 
(416,188
)
Total equity
2,792,771

 
2,836,099

Total liabilities and equity
$
8,183,930

 
$
8,242,421

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,
 
2019
 
2018
Revenues
 
 
 
Rental income
$
289,955

 
$
316,797

Other revenues
1,184

 
378

Total revenues
291,139

 
317,175

 
 
 
 
Operating expenses
 
 
 
Operating costs
31,258

 
35,490

Real estate taxes
43,326

 
45,725

Depreciation and amortization
85,395

 
90,383

Provision for doubtful accounts

 
2,415

Impairment of real estate assets
3,112

 
15,902

General and administrative
25,443

 
22,426

Total operating expenses
188,534

 
212,341

 
 
 
 
Other income (expense)
 
 
 
Dividends and interest
147

 
96

Interest expense
(46,666
)
 
(55,171
)
Gain on sale of real estate assets
7,602

 
11,448

Gain (loss) on extinguishment of debt, net
30

 
(132
)
Other
(818
)
 
(53
)
Total other expense
(39,705
)
 
(43,812
)
 
 
 
 
Net income
$
62,900

 
$
61,022

Per common share:
 
 
 
Net income:
 
 
 
Basic
$
0.21

 
$
0.20

Diluted
$
0.21

 
$
0.20

Weighted average shares:
 
 
 
Basic
298,599

 
304,158

Diluted
299,029

 
304,278

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,
 
2019
 
2018
Net income
$
62,900

 
$
61,022

Other comprehensive income (loss)
 
 
 
Change in unrealized gain (loss) on interest rate swaps, net (Note 6)
(10,057
)
 
4,773

Change in unrealized gain (loss) on marketable securities
132

 
(86
)
Total other comprehensive income (loss)
(9,925
)
 
4,687

Comprehensive income
$
52,975

 
$
65,709

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

 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance, January 1, 2019
298,489

 
$
2,985

 
$
3,233,329

 
$
15,973

 
$
(416,188
)
 
$
2,836,099

ASC 842 cumulative adjustment

 

 

 

 
(1,974
)
 
(1,974
)
Common stock dividends ($0.28 per common share)

 

 

 

 
(83,839
)
 
(83,839
)
Equity based compensation expense

 

 
2,641

 

 

 
2,641

Other comprehensive loss

 

 

 
(9,925
)
 

 
(9,925
)
Issuance of common stock and OP Units
158

 
2

 

 

 

 
2

Repurchases of common stock
(660
)
 
(7
)
 
(11,579
)
 

 

 
(11,586
)
Share-based awards retained for taxes

 

 
(1,547
)
 

 

 
(1,547
)
Net income

 

 

 

 
62,900

 
62,900

Ending balance, March 31, 2019
297,987

 
$
2,980

 
$
3,222,844

 
$
6,048

 
$
(439,101
)
 
$
2,792,771

 
 
 
 
 
 
 
 
 
 
 
 
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,
 
2019
 
2018
Operating activities:
 
 
 
Net income
$
62,900

 
$
61,022

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
85,395

 
90,383

Debt premium and discount amortization
468

 
(952
)
Deferred financing cost amortization
1,787

 
1,682

Accretion of above- and below-market leases, net
(4,898
)
 
(6,824
)
Provisions for impairment
3,112

 
15,902

Gain on disposition of operating properties
(7,602
)
 
(11,448
)
Equity based compensation
2,641

 
2,484

Other
827

 
824

(Gain) loss on extinguishment of debt, net
(30
)
 
132

Changes in operating assets and liabilities:
 
 
 
Receivables
(816
)
 
12,171

Deferred charges and prepaid expenses
(6,829
)
 
(5,309
)
Other assets
82

 
40

Accounts payable, accrued expenses and other liabilities
(40,199
)
 
(35,657
)
Net cash provided by operating activities
96,838

 
124,450

 
 
 
 
Investing activities:
 
 
 
Improvements to and investments in real estate assets
(77,725
)
 
(76,803
)
Proceeds from sales of real estate assets
45,160

 
104,198

Purchase of marketable securities
(5,246
)
 
(3,655
)
Proceeds from sale of marketable securities
5,977

 
4,496

Net cash provided by (used in) investing activities
(31,834
)
 
28,236

 
 
 
 
Financing activities:
 
 
 
Repayment of secured debt obligations

 
(4,858
)
Repayment of borrowings under unsecured revolving credit facility
(65,000
)
 

Proceeds from borrowings under unsecured revolving credit facility
50,000

 

Repayment of borrowings under unsecured term loans

 
(50,000
)
Deferred financing and debt extinguishment costs
(133
)
 
(184
)
Distributions to common stockholders
(84,097
)
 
(84,165
)
Repurchases of common shares
(11,586
)
 
(29,765
)
Repurchases of common shares in conjunction with equity award plans
(1,547
)
 
(1,722
)
Net cash used in financing activities
(112,363
)
 
(170,694
)
 
 
 
 
Net change in cash, cash equivalents and restricted cash
(47,359
)
 
(18,008
)
Cash, cash equivalents and restricted cash at beginning of period
50,765

 
110,777

Cash, cash equivalents and restricted cash at end of period
$
3,406

 
$
92,769

 
 
 
 
Reconciliation to consolidated balance sheets:
 
 
 
Cash and cash equivalents
$
349

 
$
27,332

Restricted cash
3,057

 
65,437

Cash, cash equivalents and restricted cash at end of period
$
3,406

 
$
92,769

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest, net of amount capitalized of $626 and $654
$
51,168

 
$
63,646

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,
2019
 
December 31,
2018
Assets
 
 
 
Real estate
 
 
 
Land
$
1,794,709

 
$
1,804,504

Buildings and improvements
8,279,076

 
8,294,273

 
10,073,785

 
10,098,777

Accumulated depreciation and amortization
(2,386,092
)
 
(2,349,127
)
Real estate, net
7,687,693

 
7,749,650

 
 
 
 
Cash and cash equivalents
99

 
41,619

Restricted cash
3,057

 
9,020

Marketable securities
29,413

 
30,023

Receivables, net
236,391

 
228,297

Deferred charges and prepaid expenses, net
143,535

 
145,662

Real estate assets held for sale
9,093

 
2,901

Other assets
74,178

 
34,903

Total assets
$
8,183,459

 
$
8,242,075

 
 
 
 
 
 
 
 
Liabilities
 
 
 
Debt obligations, net
$
4,873,065

 
$
4,885,863

Accounts payable, accrued expenses and other liabilities
518,094

 
520,459

Total liabilities
5,391,159

 
5,406,322

 
 
 
 
Commitments and contingencies (Note 15)

 

 
 
 
 
Capital
 
 
 
Partnership common units; 305,289,535 and 305,130,472 units issued and 297,987,158 and 298,488,516 units outstanding
2,786,242

 
2,819,770

Accumulated other comprehensive income
6,058

 
15,983

Total capital
2,792,300

 
2,835,753

Total liabilities and capital
$
8,183,459

 
$
8,242,075

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,
 
2019
 
2018
Revenues
 
 
 
Rental income
$
289,955

 
$
316,797

Other revenues
1,184

 
378

Total revenues
291,139

 
317,175

 
 
 
 
Operating expenses
 
 
 
Operating costs
31,258

 
35,490

Real estate taxes
43,326

 
45,725

Depreciation and amortization
85,395

 
90,383

Provision for doubtful accounts

 
2,415

Impairment of real estate assets
3,112

 
15,902

General and administrative
25,443

 
22,426

Total operating expenses
188,534

 
212,341

 
 
 
 
Other income (expense)
 
 
 
Dividends and interest
147

 
96

Interest expense
(46,666
)
 
(55,171
)
Gain on sale of real estate assets
7,602

 
11,448

Gain (loss) on extinguishment of debt, net
30

 
(132
)
Other
(818
)
 
(53
)
Total other expense
(39,705
)
 
(43,812
)
 
 
 
 
Net income
$
62,900

 
$
61,022

 
 
 
 
Per common unit:
 
 
 
Net income:
 
 
 
Basic
$
0.21

 
$
0.20

Diluted
$
0.21

 
$
0.20

Weighted average units:
 
 
 
Basic
298,599

 
304,158

Diluted
299,029

 
304,278

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,
 
2019
 
2018
Net income
$
62,900

 
$
61,022

Other comprehensive income (loss)
 
 
 
Change in unrealized gain (loss) on interest rate swaps, net (Note 6)
(10,057
)
 
4,773

Change in unrealized gain (loss) on marketable securities
132

 
(85
)
Total other comprehensive income (loss)
(9,925
)
 
4,688

Comprehensive income
$
52,975

 
$
65,710

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 (Loss)
 
Total
Beginning balance, January 1, 2018
$
2,883,875

 
$
24,224

 
$
2,908,099

Distributions to partners
(83,479
)
 

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

 

 
2,484

Other comprehensive income

 
4,688

 
4,688

Issuance of OP Units
1

 

 
1

Repurchases of OP Units
(29,765
)
 

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

 
(1,722
)
Net income
61,022

 

 
61,022

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

 
$
28,912

 
$
2,861,328

 
 
 
 
 
 
Beginning balance, January 1, 2019
$
2,819,770

 
$
15,983

 
$
2,835,753

ASC 842 cumulative adjustment
(1,974
)
 

 
(1,974
)
Distributions to partners
(83,964
)
 

 
(83,964
)
Equity based compensation expense
2,641

 

 
2,641

Other comprehensive loss

 
(9,925
)
 
(9,925
)
Issuance of OP Units
2

 

 
2

Repurchases of OP Units
(11,586
)
 

 
(11,586
)
Share-based awards retained for taxes
(1,547
)
 

 
(1,547
)
Net income
62,900

 

 
62,900

Ending balance, March 31, 2019
$
2,786,242

 
$
6,058


$
2,792,300

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,
 
2019
 
2018
Operating activities:
 
 
 
Net income
$
62,900

 
$
61,022

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
85,395

 
90,383

Debt premium and discount amortization
468

 
(952
)
Deferred financing cost amortization
1,787

 
1,682

Accretion of above- and below-market leases, net
(4,898
)
 
(6,824
)
Provisions for impairment
3,112

 
15,902

Gain on disposition of operating properties
(7,602
)
 
(11,448
)
Equity based compensation
2,641

 
2,484

Other
827

 
824

(Gain) loss on extinguishment of debt, net
(30
)
 
132

Changes in operating assets and liabilities:
 
 
 
Receivables
(816
)
 
12,171

Deferred charges and prepaid expenses
(6,829
)
 
(5,309
)
Other assets
82

 
40

Accounts payable, accrued expenses and other liabilities
(40,199
)
 
(35,657
)
Net cash provided by operating activities
96,838

 
124,450

 
 
 
 
Investing activities:
 
 
 
Improvements to and investments in real estate assets
(77,725
)
 
(76,803
)
Proceeds from sales of real estate assets
45,160

 
104,198

Purchase of marketable securities
(5,245
)
 
(3,654
)
Proceeds from sale of marketable securities
5,977

 
4,496

Net cash provided by (used in) investing activities
(31,833
)
 
28,237

 
 
 
 
Financing activities:
 
 
 
Repayment of secured debt obligations

 
(4,858
)
Repayment of borrowings under unsecured revolving credit facility
(65,000
)
 

Proceeds from borrowings under unsecured revolving credit facility
50,000

 

Repayment of borrowings under unsecured term loans

 
(50,000
)
Deferred financing and debt extinguishment costs
(133
)
 
(184
)
Partner distributions
(97,355
)
 
(115,652
)
Net cash used in financing activities
(112,488
)
 
(170,694
)
 
 
 
 
Net change in cash, cash equivalents and restricted cash
(47,483
)
 
(18,007
)
Cash, cash equivalents and restricted cash at beginning of period
50,639

 
110,747

Cash, cash equivalents and restricted cash at end of period
$
3,156

 
$
92,740

 
 
 
 
Reconciliation to consolidated balance sheets:
 
 
 
Cash and cash equivalents
$
99

 
$
27,303

Restricted cash
3,057

 
65,437

Cash, cash equivalents and restricted cash at end of period
$
3,156

 
$
92,740

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest, net of amount capitalized of $626 and $654
$
51,168

 
$
63,646

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, 2019, the Company’s portfolio was comprised of 422 shopping centers (the “Portfolio”) totaling approximately 73 million square feet of GLA. The Company’s high-quality national Portfolio is primarily located within established trade areas in the top 50 Metropolitan Statistical Areas in the U.S., and its 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, 2018 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 11, 2019.

Certain prior period balances in the accompanying unaudited Condensed Consolidated Statements of Operations have been reclassified to conform to the current period presentation for the adoption of Accounting Standards Codification Topic 842 “Leases” (“ASC 842”) (described below), which supersedes Accounting Standards Codification Topic 840 “Leases” (“ASC 840”).

Principles of Consolidation
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of the Parent Company, the Operating Partnership, each of their wholly owned subsidiaries and all other entities in which they have a controlling financial interest. All intercompany transactions have been eliminated.

Deferred Leasing and Financing Costs
Costs incurred in executing tenant leases and long-term financings are capitalized and amortized using the straight-line method over the term of the related lease or debt agreement, which approximates the effective interest method. Capitalized costs incurred in executing tenant leases include tenant improvements and leasing commissions. In connection with the adoption of ASC 842, the Company no longer capitalizes partial salaries and/or legal fees incurred in executing tenant leases. These amounts were capitalized under previous guidance. For long-term financings, capitalized costs incurred include bank and legal fees. The amortization of deferred leasing and financing costs is included in Depreciation and amortization and Interest expense, respectively, in the Company’s unaudited Condensed

11



Consolidated Statements of Operations and within Operating activities on the Company’s unaudited Condensed Consolidated Statements of Cash Flows.

Revenue Recognition and Receivables
The Company enters into agreements with tenants which convey the right to control the use of identified space at its shopping centers in exchange for rental revenue. These agreements meet the criteria for recognition as leases under ASC 842. Rental revenue is recognized on a straight-line basis over the terms of the related leases.  The cumulative difference between rental revenue recognized in the Company’s unaudited Condensed Consolidated Statements of Operations and contractual payment terms is recognized as deferred rent and presented on the accompanying unaudited Condensed Consolidated Balance Sheets within Receivables. The Company commences recognizing rental revenue based on the date its makes the underlying asset available for use by the tenant. Leases also typically provide for the reimbursement of operating costs, including common area expenses, utilities, insurance and real estate taxes by the lessee and are recognized in the period the applicable expenditures are incurred.

In connection with the adoption of ASC 842, the Company has evaluated the lease and non-lease components within its leases and has elected the practical expedient to present lease and non-lease components in its lease agreements as one component. As such, the Company accounts for rental revenue and common area expense reimbursements as one lease component under ASC 842. These amounts are included in Rental income in the Company’s unaudited Condensed Consolidated Statements of Operations. Additionally, the Company allocates the reimbursement of utilities, insurance and real estate taxes to the lease and non-lease components of its leases. These amounts are included in Rental income in the Company’s unaudited Condensed Consolidated Statements of Operations.

Certain leases also provide for percentage rents based upon the level of sales achieved by a lessee.  These percentage rents are recognized upon the achievement of certain pre-determined sales levels and are included in Rental income in the Company’s unaudited Condensed Consolidated Statements of Operations.

Gains from the sale of depreciated operating properties are generally recognized under the full accrual method, provided that various criteria relating to the terms of the sale and subsequent involvement by the Company with the applicable property are met.

The Company periodically evaluates the collectability of its receivables related to rental revenue, straight-line rent, expense reimbursements and those attributable to other revenue generating activities. The Company analyzes individual tenant receivables and considers tenant credit-worthiness, the length of time a receivable has been outstanding, and current economic trends when evaluating collectability. In addition, tenants in bankruptcy are analyzed and estimates are made in connection with the expected recovery of pre-petition and post-petition claims. Any receivables that are deemed to be uncollectible are recognized as a reduction to Rental income in the Company’s unaudited Condensed Consolidated Statements of Operations. Prior period Provision for doubtful accounts is presented on the Company's unaudited Condensed Consolidated Statements of Operations in accordance with the Company's previous presentation and has not been reclassified to Rental income.

Leases
The Company periodically enters into agreements in which it is the lessee, including ground leases for neighborhood and community shopping centers that it operates and office leases for administrative space. In connection with the adoption of ASC 842, the Company evaluated these agreements and determined that they meet the criteria for recognition as leases under ASC 842. For these agreements the Company recognizes an operating lease right-of-use (“ROU”) asset and operating lease liability based on the present value of the minimum lease payments over the non-cancellable lease term. As the rates implicit in the leases are not readily determinable the Company uses its incremental secured borrowing rate based on the information available at commencement date to determine the present value of the lease payments. The lease terms utilized by the Company may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. The Company evaluates many factors, including current and future tenant cash flows, when determining if an option to extend or terminate should be included in the non-cancellable period. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company has elected to apply the short-term lease exemption within ASC 842 and does not record an ROU asset or lease liability for leases with terms of less than 12 months.

Additionally, leases also typically provide for the reimbursement of operating costs, including common area expenses, utilities, insurance and real estate taxes by the Company. In connection with the adoption of ASC 842, the Company

12



has evaluated the lease and non-lease components within its leases and has elected the practical expedient to present lease and non-lease components in its lease agreements as one component. As such, the Company accounts for lease payments and common area expense reimbursements as one lease component under ASC 842. These amounts are included in Operating expenses in the Company’s unaudited Condensed Consolidated Statements of Operations. Additionally, the Company allocates the reimbursement of utilities, insurance and real estate taxes to the lease and non-lease components of its leases. These amounts are included in Operating expenses in the Company’s unaudited Condensed Consolidated Statements of Operations.

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.

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 January 1, 2018) 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 March 31, 2019 and December 31, 2018. Open tax years generally range from 2015 through 2018, but may vary by jurisdiction and issue. The Company recognizes penalties and interest accrued related to unrecognized tax benefits as income tax expense, which is included in Other on the Company’s unaudited Condensed Consolidated Statements of Operations.

New Accounting Pronouncements
In November 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses.” ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with ASC 842, Leases. The standard is effective on January 1, 2020, with early adoption permitted. The Company does not expect the adoption of ASU 2018-19 to have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company. Information regarding the adoption of ASC 842 is described below.

In October 2018, the FASB issued ASU 2018-16, “Derivatives and Hedging (Topic 815).” ASU 2018-16 amends guidance to permit the use of the Overnight Index Swap rate based on the Secured Overnight Financing Rate as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815. The standard became effective for the Company on January 1, 2019. The Company determined that these changes did not have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company.

In August 2018, the 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

13



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 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). ASU 2016-02 was subsequently amended by ASU 2018-01, “Land Easement Practical Expedient for Transition to Topic 842”; ASU 2018-10, “Codification Improvements to Topic 842”; ASU 2018-11, “Targeted Improvements”; and ASU 2018-20, “Narrow-Scope Improvements for Lessors”. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to recognize an ROU 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 qualify for the short-term lease recognition exemption and may be accounted for similar to previous guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to previous guidance for sales-type leases, direct financing leases and operating leases.

Adoption
The standard became effective for the Company on January 1, 2019 and a modified retrospective transition approach was required. The Company determined that the adoption of ASC 842 had a material impact on the unaudited Condensed Consolidated Financial Statements of the Company. The Company elected the following optional practical expedients upon adoption:

The Company did not reassess whether a current arrangement contains a lease. (ASU 2016-02)
The Company did not reassess current lease classification. (ASU 2016-02)
The Company did not reassess initial direct costs recognized under previous guidance. (ASU 2016-02)
The Company did not reassess current land easements under ASC 842. (ASU 2018-01)
The Company applied ASC 842 as of the effective date. Therefore, the Company’s reporting for the comparative periods presented in the unaudited Condensed Consolidated Financial Statements of the Company will continue to be in accordance with ASC 840, however certain prior period balances in the accompanying unaudited Condensed Consolidated Statements of Operations have been reclassified to conform to the current period presentation. The Company recognized a $2.0 million cumulative adjustment to decrease retained earnings for indirect leasing costs capitalized for executed leases that had not commenced as of the adoption date of ASC 842. (ASU 2018-11)
The Company elected, by class of underlying asset, not to separate non-lease components from the associated lease components and instead account for them as a single component. This resulted in the consolidation of Rental income and Expense reimbursements on the Company’s unaudited Condensed Consolidated Statements of Operations. (ASU 2018-11)

Lessee
For leases where the Company is the lessee, primarily for the Company’s ground leases and administrative office leases, the Company is required to record a right of use asset and a lease liability on its unaudited Condensed Consolidated Balance Sheets on the effective date. The Company has elected to apply the short-term lease recognition exemption for all leases that qualify.

Lessor
For leases where the Company is the lessor, the Company will continue to record revenues from rental properties for its operating leases on a straight-line basis. In addition, initial direct leasing costs continue to be capitalized, however, indirect leasing costs previously capitalized are being expensed under ASC 842. During the three months ended March 31, 2018, the Company capitalized $3.0 million of indirect leasing costs, including leasing payroll and legal costs.

In addition, ASC 842 requires that additional lease disclosures be presented in the unaudited Condensed Consolidated Financial Statements of the Company for both lessor and lessee lease agreements. See Notes 9 and 10 for additional information.


14



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, 2019 and 2018, the Company did not acquire any real estate assets.

3. Dispositions and Assets Held for Sale
During the three months ended March 31, 2019, the Company disposed of three shopping centers for aggregate net proceeds of $44.9 million resulting in aggregate gain of $7.3 million. In addition, during the three months ended March 31, 2019, the Company received net proceeds of $0.3 million from previously disposed assets resulting in a gain of $0.3 million.

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

As of March 31, 2019, the Company had one property and one partial property held for sale. As of December 31, 2018, the Company had one property held for sale. The following table presents the assets and liabilities associated with the properties classified as held for sale:
Assets
March 31, 2019
 
December 31, 2018
 
Land
$
1,412

 
$
1,220

 
Buildings and improvements
10,935

 
2,927

 
Accumulated depreciation and amortization
(3,356
)
 
(1,334
)
 
Real estate, net
8,991

 
2,813

 
Other assets
102

 
88

Assets associated with real estate assets held for sale
$
9,093

 
$
2,901

 
 
 
 
 
 
Liabilities
 
 
 
 
Below-market leases
$
444

 
$

Liabilities associated with real estate assets held for sale(1)
$
444

 
$

(1) 
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 months ended March 31, 2019 and 2018 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, 2019
 
December 31, 2018
Land
$
1,794,709

 
$
1,804,504

Buildings and improvements:
 
 
 
Buildings and tenant improvements(1)
7,626,515

 
7,626,363

Lease intangibles(2)
652,561

 
667,910

 
10,073,785

 
10,098,777

Accumulated depreciation and amortization(3)
(2,386,092
)
 
(2,349,127
)
Total
$
7,687,693

 
$
7,749,650

(1) 
As of March 31, 2019 and December 31, 2018, Buildings and tenant improvements included accrued amounts, net of anticipated insurance proceeds, of $38.9 million and $41.7 million, respectively. 
(2) 
As of March 31, 2019 and December 31, 2018, Lease intangibles consisted of $587.6 million and $601.0 million, respectively, of in-place leases and $65.0 million and $66.9 million, respectively, of above-market leases. These intangible assets are amortized over the term of each related lease.
(3) 
As of March 31, 2019 and December 31, 2018, Accumulated depreciation and amortization included $553.7 million and $560.3 million, respectively, of accumulated amortization related to Lease intangibles.


15


In addition, as of March 31, 2019 and December 31, 2018, the Company had intangible liabilities relating to below-market leases of $385.3 million and $392.9 million, respectively, and accumulated accretion of $265.3 million and $266.1 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 for the three months ended March 31, 2019 and 2018 was $4.9 million and $6.8 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, 2019 and 2018 was $6.5 million and $9.3 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
2019 (remaining nine months)
 
$
(13,278
)
 
$
17,382

2020
 
(14,757
)
 
17,615

2021
 
(11,982
)
 
12,711

2022
 
(9,869
)
 
9,353

2023
 
(8,473
)
 
6,846


Hurricane Michael Impact
On October 7, 2018, Hurricane Michael struck Florida resulting in widespread damage and flooding. The Company has two properties, totaling 0.4 million square feet of GLA, which were impacted. The Company maintains comprehensive property insurance on these properties, including business interruption insurance.

As of March 31, 2019, the Company’s assessment of the damages sustained to its properties from Hurricane Michael resulted in $13.7 million of accelerated depreciation, representing the estimated net book value of damaged assets. The Company also recognized a corresponding receivable for estimated property insurance recoveries related to the write-down.  As such, there was no impact to net income during the three months ended March 31, 2019 and year ended December 31, 2018.  As of March 31, 2019, the Company has received property insurance proceeds of $3.0 million and has a remaining receivable balance of $10.7 million, which is included in Receivables on the Company’s unaudited Condensed Consolidated Balance Sheets.

5. Impairments
On a periodic basis, management assesses whether there are any indicators, including property operating performance, changes in anticipated 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 to reflect the estimated fair value.

The Company recognized the following impairments during the three months ended March 31, 2019:
Three Months Ended March 31, 2019
Property Name(1)
 
Location
 
GLA
 
Impairment Charge
Brice Park
 
Reynoldsburg, OH
 
158,565

 
$
3,112

 
 
 
 
158,565

 
$
3,112

(1) 
The Company recognized an impairment charge based upon a change in the estimated hold period of this property in connection with the Company’s capital recycling program.







16


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
Southland Shopping Plaza(2)
 
Toledo, OH
 
285,278

 
$
6,942

Roundtree Place(2)
 
Ypsilanti, MI
 
246,620

 
3,772

Skyway Plaza
 
St. Petersburg, FL
 
110,799

 
3,639

Pensacola Square(2)
 
Pensacola, FL
 
142,767

 
1,345

Crossroads Centre(2)
 
Fairview Heights, IL
 
242,752

 
204

 
 
 
 
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 year ended December 31, 2018.

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 intended to manage its exposure to interest rate movements and such instruments are not utilized for speculative purposes. In certain situations, the Company may enter into derivative financial instruments such as interest rate swap and interest rate cap agreements that result in the receipt and/or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.

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 debt. During the three months ended March 31, 2019, the Company did not enter into any new interest rate swap agreements. During the year ended December 31, 2018, the Company entered into four forward starting interest rate swap agreements with an effective date of January 2, 2019, an aggregate notional value of $300.0 million, a weighted average fixed rate of 2.61% and an expiration date of July 26, 2024.

Detail on the Company’s interest rate derivatives designated as cash flow hedges outstanding as of March 31, 2019 and December 31, 2018 is as follows:
 
 
Number of Instruments
 
Notional Amount
 
 
March 31, 2019
 
December 31, 2018
 
March 31, 2019
 
December 31, 2018
Interest Rate Swaps
 
7
 
10
 
$
800,000

 
$
1,200,000


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, 2019 and December 31, 2018, respectively, is as follows:
 
 
Fair Value of Derivative Instruments
Interest rate swaps classified as:
 
March 31, 2019
 
December 31, 2018
Gross derivative assets
 
$
12,788

 
$
18,630

Gross derivative liabilities
 
(6,786
)
 
(2,571
)
Net derivative assets
 
$
6,002

 
$
16,059


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

17



analysis reflects the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. These inputs are classified as Level 2 of the fair value hierarchy. The effective portion of changes in the fair value of derivatives designated as cash flow hedges is recognized in other comprehensive income (“OCI”) and is reclassified into earnings as interest expense in the period that the hedged forecasted transaction affects earnings.

The effective portion of the Company’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, 2019 and 2018 is as follows:
Derivatives in Cash Flow Hedging Relationships
(Interest Rate Swaps)
 
Three Months Ended March 31,
 
2019
 
2018
Change in unrealized gain (loss) on interest rate swaps
 
$
(6,944
)
 
$
7,234

Accretion of interest rate swaps to interest expense
 
(3,113
)
 
(2,461
)
Change in unrealized gain (loss) on interest rate swaps, net
 
$
(10,057
)
 
$
4,773


The Company estimates that $5.8 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, 2019 and 2018.

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, 2019 and December 31, 2018, the Company did not have any non-designated hedges.

Credit-risk-related Contingent Features
The Company has agreements with its derivative counterparties that contain provisions 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.





















18


7. Debt Obligations
As of March 31, 2019 and December 31, 2018, the Company had the following indebtedness outstanding:
 
 
Carrying Value as of
 
 
 
 
 
 
March 31,
2019
 
December 31,
2018
 
Stated
Interest
Rate(1)
 
Scheduled
Maturity
Date
Secured loan
 
 
 
 
 
 
 
 
Secured loan(2)
 
$
7,000

 
$
7,000

 
4.40%
 
2024
Net unamortized premium
 
250

 
262

 
 
 
 
Net unamortized debt issuance costs
 
(43
)
 
(45
)
 
 
 
 
Total secured loan, net
 
$
7,207

 
$
7,217

 
 
 
 
 
 
 
 
 
 
 
 
 
Notes payable
 
 
 
 
 
 
 
 
Unsecured notes(3)
 
$
3,468,453

 
$
3,468,453

 
3.25% – 7.97%
 
2022 – 2029
Net unamortized discount
 
(11,082
)
 
(11,562
)
 
 
 
 
Net unamortized debt issuance costs
 
(19,902
)
 
(20,877
)
 
 
 
 
Total notes payable, net
 
$
3,437,469

 
$
3,436,014

 
 
 
 
 
 
 
 
 
 
 
 
 
Unsecured Credit Facility and term loans
 
 
 
 
 
 
 
 
Unsecured Credit Facility - $500 Million Term Loan(4)
 
$
500,000

 
$
500,000

 
3.74%
 
2021
Unsecured Credit Facility - Revolving Facility
 
291,000

 
306,000

 
3.59%
 
2023
Unsecured $350 Million Term Loan
 
350,000

 
350,000

 
3.74%
 
2023
Unsecured $300 Million Term Loan(5)
 
300,000

 
300,000

 
4.39%
 
2024
Net unamortized debt issuance costs
 
(12,611
)
 
(13,368
)
 
 
 
 
Total Unsecured Credit Facility and term loans
 
$
1,428,389

 
$
1,442,632

 
 
 
 
 
 
 
 
 
 
 
 
 
Total debt obligations, net
 
$
4,873,065

 
$
4,885,863

 
 
 
 
(1) 
The stated interest rates are as of March 31, 2019 and do not include the impact of the Company’s interest rate swap agreements (described below).
(2) 
The Company’s secured loan is collateralized by a property with a carrying value of approximately $16.3 million as of March 31, 2019.
(3) 
The weighted average stated interest rate on the Company’s unsecured notes was 3.81% as of March 31, 2019.
(4) 
Effective November 1, 2016, the Company has in place three interest rate swap agreements that convert the variable interest rate on a $500.0 million term loan (the “$500 Million Term Loan”) under the Company’s senior unsecured credit facility agreement, as amended December 12, 2018, (the “Unsecured Credit Facility”) to a fixed, combined interest rate of 1.11% (plus a spread of 125 basis points) through July 30, 2021.
(5) 
Effective January 2, 2019, the Company has in place four interest rate swap agreements that convert the variable interest rate on the Company’s $300.0 million term loan agreement, as amended December 12, 2018 (the “$300 Million Term Loan”) to a fixed, combined interest rate of 2.61% (plus a spread of 190 basis points until July 28, 2019, which decreases to 125 basis points thereafter) through July 26, 2024.

Pursuant to the terms of the Company’s unsecured debt agreements, the Company among other things is subject to the maintenance of various financial covenants. The Company was in compliance with these covenants as of March 31, 2019.











19


Debt Maturities
As of March 31, 2019 and December 31, 2018, the Company had accrued interest of $27.2 million and $34.0 million outstanding, respectively. As of March 31, 2019, scheduled amortization and maturities of the Company’s outstanding debt obligations were as follows:
Year ending December 31,
 
 
2019 (remaining nine months)
 
$

2020
 

2021
 
500,000

2022
 
750,000

2023
 
1,141,000

Thereafter
 
2,525,453

Total debt maturities
 
4,916,453

Net unamortized discount
 
(10,832
)
Net unamortized debt issuance costs
 
(32,556
)
Total debt obligations, net
 
$
4,873,065

As of the date the financial statements were issued, the Company did not have any scheduled debt maturities for the next 12 months.

8. Fair Value Disclosures
All financial instruments of the Company are reflected in the accompanying unaudited Condensed Consolidated Balance Sheets at amounts which, in management’s judgment, reasonably approximate their fair values, except those instruments listed below:
 
 
March 31, 2019
 
December 31, 2018
 
 
Carrying
Amounts
 
Fair
Value
 
Carrying
Amounts
 
Fair
Value
 
 
Secured loans
$
7,207

 
$
7,172

 
$
7,217

 
$
7,072

 
Notes payable
3,437,469

 
3,462,929

 
3,436,014

 
3,372,418

 
Unsecured Credit Facility and term loans
1,428,389

 
1,436,953

 
1,442,632

 
1,452,382

 
Total debt obligations, net
$
4,873,065

 
$
4,907,054

 
$
4,885,863

 
$
4,831,872

 
 
 
 
 
 
 
 
 

As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy is included in GAAP that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs that are classified within Level 3 of the hierarchy).

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The valuation methodology used to estimate the fair value of the Company’s debt obligations is based on a discounted cash flow analysis, with assumptions that include credit spreads, interest rate curves, estimated property values, loan amounts and 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.

20


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, 2019
 
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)
$
29,634

 
$
1,535

 
$
28,099

 
$

Interest rate derivatives
$
12,788

 
$

 
$
12,788

 
$

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Interest rate derivatives
$
(6,786
)
 
$

 
$
(6,786
)
 
$

 
 
 
 
 
 
 
 
 
Fair Value Measurements as of December 31, 2018
 
Balance
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Marketable securities(1)
$
30,243

 
$
1,756

 
$
28,487

 
$

Interest rate derivatives
$
18,630

 
$

 
$
18,630

 
$

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Interest rate derivatives
$
(2,571
)
 
$

 
$
(2,571
)
 
$

(1) 
As of March 31, 2019 and December 31, 2018, marketable securities included less than $0.1 million of net unrealized gains and $0.1 million of net unrealized losses, respectively. As of March 31, 2019, the contractual maturities of the Company’s marketable securities are within the next five years.

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 offers from third-party buyers, market comparable data, third party appraisals or by discounted cash flow analysis. The cash flows utilized in such analyses are comprised of unobservable inputs which include forecasted rental revenue and expenses based upon market conditions and future expectations. The capitalization rates and discount rates utilized in such analyses are based upon unobservable rates that we believe to be within a reasonable range of current market rates for the respective properties. Based on these inputs, the Company has determined that the valuations of these properties are classified within Level 3 of the fair value hierarchy.




















21


The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured and recognized at fair value on a non-recurring basis. The table includes information related to properties that were remeasured to fair value as a result of impairment testing during the three months ended March 31, 2019 and during the year ended December 31, 2018, excluding the properties sold prior to March 31, 2019 and December 31, 2018, respectively:
 
Fair Value Measurements as of March 31, 2019
 
 
 
Balance
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Impairment of Real Estate Assets
Assets:
 
 
 
 
 
 
 
 
 
Properties(1)
$
9,700

 
$

 
$

 
$
9,700

 
$
3,112

 
 
 
 
 
 
 
 
 
 
 
Fair Value Measurements as of December 31, 2018
 
 
 
Balance
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Impairment of Real Estate Assets
Assets:
 
 
 
 
 
 
 
 
 
Properties(2)(3)(4)
$
31,725

 
$

 
$

 
$
31,725

 
$
16,303

(1) 
The carrying value of the property remeasured to fair value based upon offers from third-party buyers during the three months ended March 31, 2019 is $9.7 million related to Brice Park.
(2) 
Excludes properties disposed of prior to December 31, 2018.
(3) 
The carrying value of properties remeasured to fair value based upon offers from third-party buyers during the year ended December 31, 2018 includes $26.1 million related to Westview Center.
(4) 
The carrying value of properties remeasured to fair value based upon a discounted cash flow analysis during the year ended December 31, 2018 includes: (i) $2.9 million related to Skyway Plaza and (ii) $2.7 million related to Covington Gallery. The capitalization rates (ranging from 9.0% to 9.3%) and discount rates (ranging from 6.0% to 10.4%) which were utilized in the discounted cash flow analyses were based upon unobservable rates that the Company believes to be within a reasonable range of current market rates for each respective investment.

9. Revenue Recognition
The Company engages in the ownership, management, leasing, acquisition, disposition and redevelopment of retail shopping centers. Revenue is primarily generated through lease agreements and classified as Rental income on the Company’s unaudited Condensed Consolidated Statements of Operations. These agreements include retail shopping center unit leases; ground leases; ancillary leases or agreements, such as agreements with tenants for cellular towers, ATMs, and short-term or seasonal retail (e.g. Halloween or Christmas-related retail); and reciprocal easement agreements. The agreements range in term from less than one year to 25 or more years, with certain agreements containing extension options. These extension options range from as little as one month to five or more years. The Company’s retail shopping center leases generally require tenants to pay their portion of reimbursable expenses such as common area expenses, utilities, insurance and real estate taxes.

As of March 31, 2019, the fixed contractual lease payments to be received over the next five years pursuant to the terms of non-cancelable operating leases are included in the table below, assuming that no leases are renewed and no renewal options are exercised. Additionally, the table does not include variable lease payments which may be received under certain leases for percentage rents or the reimbursement of operating costs, such as common area expenses, utilities, insurance and real estate taxes. These variable lease payments are recognized in the period when the applicable expenditures are incurred or in the case of percentage rents when the sales data is made available.
Year ending December 31,
 
Operating Leases
2019 (remaining nine months)
 
$
626,724

2020
 
751,081

2021
 
640,651

2022
 
529,569

2023
 
430,870

Thereafter
 
1,501,400



22


Minimum Annual Base Rents As Presented Under ASC 840
Future minimum annual base rents as of and in-place at December 31, 2018 to be received over the next five years pursuant to the terms of non-cancelable operating leases are included in the table below, assuming that no leases are renewed and no renewal options are exercised. Future minimum annual base rents also do not include payments which may be received under certain leases for percentage rent or the reimbursement of operating costs, such as common area expenses, utilities, insurance and real estate taxes.
Year ending December 31,
 
Operating Leases
2019
 
$
811,381

2020
 
709,230

2021
 
599,367

2022
 
490,087

2023
 
392,892

Thereafter
 
1,368,278


10. Leases
The Company periodically enters into agreements in which it is the lessee, including ground leases for neighborhood and community shopping centers that it operates and office leases for administrative space. The agreements range in term from less than one year to 50 or more years, with certain agreements containing extension options for up to an additional 100 years. As of March 31, 2019 the Company is not including any options to extend or termination rights in its ROU asset. Upon lease execution, the Company measures a liability for the present value of future lease payments over the noncancellable period of the lease. Certain agreements require the Company to pay its portion of reimbursable expenses such as common area expenses, utilities, insurance and real estate taxes. These payments are not included in the calculation of the lease liability and are presented as variable lease costs. The following table presents additional information pertaining to the Company’s operating leases:
 
 
Three Months Ended March 31, 2019
Supplemental Statements of Operations Information
 
Operating lease costs
 
$
1,711

Short-term lease costs
 
10

Variable lease costs
 
142

Total lease costs
 
$
1,863

 
 
 
 
 
Three Months Ended March 31, 2019
Supplemental Statements of Cash Flows Information
 
Operating cash outflows from operating leases
 
$
1,797

ROU assets obtained in exchange for operating lease liabilities
 
$
44,324

 
 
 
Operating Lease Liabilities
 
As of March 31, 2019
Future minimum operating lease payments:
 
 
2019 (remaining nine months)
 
$
5,180

2020
 
6,924

2021
 
6,964

2022
 
7,022

2023
 
5,635

Thereafter
 
30,912

Total future minimum operating lease payments
 
62,637

Less: imputed interest
 
(14,441
)
Operating lease liabilities
 
$
48,196

 
 
 
Supplemental Balance Sheets Information
 
As of March 31, 2019
Operating lease liabilities(1)(2)(3)
 
$
48,196

ROU assets(1)(2)(4)
 
$
43,146

(1) 
As of March 31, 2019, the weighted average remaining lease term was 11.3 years.

23


(2) 
As of March 31, 2019, the weighted average discount rate was 4.30%.
(3) 
These amounts are included in Accounts payable, accrued expenses and other liabilities on the Company’s unaudited Condensed Consolidated Balance Sheets.
(4) 
These amounts are included in Other assets on the Company’s unaudited Condensed Consolidated Balance Sheets.

As of March 31, 2019, there were no material leases that have been executed but not yet commenced.

Minimum Annual Rental Commitments As Presented Under ASC 840
Minimum annual rental commitments as of and in-place at December 31, 2018 for the Company's ground and office leases during the next five years and thereafter are as follows:
Year ending December 31,
 
 
2019
 
$
6,929

2020
 
6,948

2021
 
7,157

2022
 
7,233

2023
 
5,827

Thereafter
 
43,876

Total minimum annual rental commitments
 
$
77,970


11. Equity and Capital
Share Repurchase Program
In December 2017, the Board of Directors authorized a share repurchase program (the “Program”) for up to $400.0 million of the Company’s common stock. The Program is scheduled to expire on December 5, 2019, unless extended by the Board of Directors. During the three months ended March 31, 2019, the Company repurchased 0.7 million shares of common stock under the Program at an average price per share of $17.53 for a total of $11.6 million, excluding commissions. The Company incurred commissions of less than $0.1 million in conjunction with the program for the three months ended March 31, 2019. During the three months ended March 31, 2018, the Company repurchased 1.9 million shares of common stock under the Program at an average price per share of $15.47 for a total of $29.7 million, excluding commissions. The Company incurred commissions of less than $0.1 million in conjunction with the program for the three months ended March 31, 2018. As of March 31, 2019, the Program had $278.0 million of available repurchase capacity.
 
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 tax withholding obligations. During the three months ended March 31, 2019 and 2018, the Company withheld 0.1 million shares.

Dividends and Distributions
During the three months ended March 31, 2019 and 2018, the Company declared common stock dividends and OP Unit distributions of $0.280 per share/unit and $0.275 per share/unit, respectively. As of March 31, 2019 and December 31, 2018, the Company had declared but unpaid common stock dividends and OP Unit distributions of $85.0 million and $85.3 million, respectively. These amounts are included in Accounts payable, accrued expenses and other liabilities on the Company’s unaudited Condensed Consolidated Balance Sheets.

12. Stock Based Compensation
During the year ended December 31, 2013, the Board of Directors approved the 2013 Omnibus Incentive Plan (the “Plan”). The Plan provides for a maximum of 15.0 million shares of the Company’s common stock to be issued for qualified and non-qualified options, stock appreciation rights, restricted stock and RSUs, OP Units, performance awards and other stock-based awards.

During the three months ended March 31, 2019 and the year ended December 31, 2018, 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-

24


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 0.8 million for the three months ended March 31, 2019 and the year ended December 31, 2018, respectively, with vesting periods ranging from one to five years. For the performance-based and service-based RSUs granted, fair value is based on the Company’s grant date stock price. For the market-based RSUs granted during the three months ended March 31, 2019 and the year ended December 31, 2018, the Company calculated the grant date fair values per unit using a Monte Carlo simulation based on the probability of satisfying the market performance hurdles over the remainder of the performance period based on the Company’s historical common stock performance relative to the other companies within the FTSE NAREIT Equity Shopping Centers Index as well as the following significant assumptions: (i) volatility of 20.0% to 21.0% and 29.0% to 32.0%, respectively; (ii) a weighted average risk-free interest rate of 2.55% and 2.43% to 2.53%, respectively; and (iii) the Company’s weighted average common stock dividend yield of 5.6% and 5.6%, respectively. 

During the three months ended March 31, 2019 and 2018, the Company recognized $2.6 million and $2.5 million of equity compensation expense, respectively. These amounts are included in General and administrative expense in the Company’s unaudited Condensed Consolidated Statements of Operations. As of March 31, 2019, the Company had $25.3 million of total unrecognized compensation expense related to unvested stock compensation, which is expected to be recognized over a weighted average period of approximately 2.5 years.

25


13.     Earnings per Share
Basic earnings per share (“EPS”) is calculated by dividing net income attributable to the Company’s common stockholders, including any participating securities, by the weighted average number of shares outstanding for the period. Certain restricted shares issued pursuant to the Company’s share-based compensation program are considered participating securities, as such stockholders 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, 2019 and 2018 (dollars in thousands, except per share data):
 
Three Months Ended March 31,
 
2019
 
2018
Computation of Basic Earnings Per Share:
 
 
 
 Net income
$
62,900

 
$
61,022

 Non-forfeitable dividends on unvested restricted shares
(144
)
 
(56
)
 Net income attributable to the Company’s common stockholders for basic earnings per share
$
62,756

 
$
60,966

 
 
 
 
 Weighted average number shares outstanding – basic
298,599

 
304,158

 
 
 
 
 Basic earnings per share attributable to the Company’s common stockholders:
 
 
 
 Net income per share
$
0.21

 
$
0.20

 

 

Computation of Diluted Earnings Per Share:
 
 
 
 Net income attributable to the Company’s common stockholders for diluted earnings per share
$
62,756

 
$
60,966

 
 
 
 
 Weighted average shares outstanding – basic
298,599

 
304,158

 Effect of dilutive securities:
 
 
 
    Equity awards
430

 
120

 Weighted average shares outstanding – diluted
299,029

 
304,278

 
 
 
 
 Diluted earnings per share attributable to the Company’s common stockholders:
 
 
 
 Net income per share
$
0.21

 
$
0.20



26


14. 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, 2019 and 2018 (dollars in thousands, except per unit data):
 
Three Months Ended March 31,
 
2019
 
2018
Computation of Basic Earnings Per Unit:
 
 
 
 Net income
$
62,900

 
$
61,022

 Non-forfeitable dividends on unvested restricted units
(144
)
 
(56
)
 Net income attributable to the Operating Partnership’s common units for basic earnings per unit
$
62,756

 
$
60,966

 
 
 
 
 Weighted average number common units outstanding – basic
298,599

 
304,158

 
 
 
 
 Basic earnings per unit attributable to the Operating Partnership’s common units:
 
 
 
 Net income per unit
$
0.21

 
$
0.20

 
 
 
 
Computation of Diluted Earnings Per Unit:
 
 
 
 Net income attributable to the Operating Partnership’s common units for diluted earnings per unit
$
62,756

 
$
60,966

 
 
 
 
 Weighted average common units outstanding – basic
298,599

 
304,158

 Effect of dilutive securities:
 
 
 
    Equity awards
430

 
120

 Weighted average common units outstanding – diluted
299,029

 
304,278

 
 
 
 
 Diluted earnings per unit attributable to the Operating Partnership’s common units:
 
 
 
 Net income per unit
$
0.21

 
$
0.20



27


15. Commitments and Contingencies
Legal Matters
Except as described below, the Company is not presently involved in any material litigation arising outside the ordinary course of business. However, the Company is involved in routine litigation arising in the ordinary course of business, none of which the Company believes, individually or in the aggregate, taking into account existing reserves, will have a material impact on the Company’s results of operations, cash flows, or financial position.

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 (“SDNY”) have been conducting investigations of certain aspects of the Company’s financial reporting and accounting for prior periods and the Company has been cooperating fully.

The Company and the Staff of the SEC Enforcement Division have been discussing a possible negotiated resolution with respect to the SEC investigation. Agreement has been reached on the material terms of such a resolution, which is still subject to finalizing the necessary documents and obtaining approval by the SEC, which cannot be assured. The agreement provides for, among other things, (i) the Company consenting to a cease and desist order, without admitting or denying the findings therein, with respect to violations of Sections 10(b) and 13(a) of the Securities Exchange Act of 1934, certain related rules and Rule 100(b) of Regulation G and (ii) the payment of a civil penalty of $7.0 million. As of March 31, 2019, the $7.0 million contingent liability is included in Accounts payable, accrued expenses and other liabilities in the Company’s unaudited Condensed Consolidated Balance Sheets.

The Company believes that no additional government proceedings relating to these matters will be brought against the Company. The Company understands that the SEC and SDNY inquiries into these matters with respect to certain former employees are ongoing.

As previously disclosed, 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. During the year ended December 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, 2019, 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, 2019. This amount is included in Accounts receivable, net in the Company’s unaudited Condensed Consolidated Balance Sheets.

As previously disclosed, certain institutional investors elected to opt out of the class action settlement and accordingly were not bound by the release and will not receive any of the class action settlement proceeds. On October 10, 2018,

28


the Company entered into an agreement to settle these claims for $8.0 million. This amount, which was paid in full during the year ended December 31, 2018, was within the coverage amount of the Company’s applicable insurance policies and was paid 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 opt out lawsuit.

Environmental matters
Under various federal, state and local laws, ordinances and regulations, the Company may be or become liable for the costs of removal or remediation of certain hazardous or toxic substances released on or in the Company’s property or disposed of by the Company or its tenants, as well as certain other potential costs which could relate to hazardous or toxic substances (including governmental 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.

16. 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 real estate assets.

As of March 31, 2019 and December 31, 2018, there were no material receivables from or payables to related parties.

17. Subsequent Events
In preparing the unaudited Condensed Consolidated Financial Statements, the Company has evaluated events and transactions occurring after March 31, 2019 for recognition and/or disclosure purposes. Based on this evaluation, there were no subsequent events from March 31, 2019 through the date the financial statements were issued.


29



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 stated otherwise or the context otherwise requires, “we,” “our,” and “us” mean BPG and the Operating Partnership, collectively. We believe we own and operate one of the largest open air retail portfolios by gross leasable area (“GLA”) in the United States (“U.S.”), comprised primarily of community and neighborhood shopping centers. As of March 31, 2019, our portfolio was comprised of 422 shopping centers (the “Portfolio”) totaling approximately 73 million square feet of GLA. Our high-quality national Portfolio is primarily located within established trade areas in the top 50 Metropolitan Statistical Areas (“MSAs”) in the U.S., and our shopping centers are primarily anchored by non-discretionary and value-oriented retailers, as well as consumer-oriented service providers. As of March 31, 2019, our three largest tenants by annualized base rent (“ABR”) were The TJX Companies, Inc. (“TJX”), The Kroger Co. (“Kroger”), and Dollar Tree Stores, Inc. BPG has been organized and operated in conformity with the requirements for qualification and taxation as a REIT under U.S. federal income tax laws, commencing with our taxable year ended December 31, 2011, has maintained such requirements through our taxable year ended December 31, 2018, and intends to satisfy such requirements for subsequent taxable years.

Our primary objective is to maximize total returns to our stockholders through consistent, sustainable growth in cash flow. Our key strategies to achieve this objective include proactively managing our Portfolio to drive internal growth, pursuing value-enhancing reinvestment opportunities and prudently executing on acquisition and disposition activity, while also maintaining a flexible capital structure positioned for growth. In addition, as we execute on our key strategies, we do so guided by, a commitment to operate in a socially responsible manner that allows us to realize our goal of owning and managing properties that are the center of the communities we serve.

We believe the following set of competitive advantages positions us to successfully execute on our key strategies:

Expansive Retailer Relationships – We believe that the scale of our asset base and our nationwide footprint represent competitive advantages in supporting the growth objectives of the nation’s largest and most successful retailers. We believe that we are one of the largest landlords by GLA to TJX and Kroger, as well as a key landlord to most major grocers and retail category leaders. We believe that our strong relationships with leading retailers afford us unique insight into their strategies and priority access to their expansion plans.

Fully-Integrated Operating Platform – We manage a fully-integrated operating platform, leveraging our national scope and demonstrating our commitment to operating with a strong regional and local presence. We provide our tenants with dedicated service through both our national accounts leasing team based in New York and our network of four regional offices in Atlanta, Chicago, Philadelphia and San Diego, as well as our 10 leasing and property management satellite offices throughout the country. We believe that this structure enables us to obtain critical national market intelligence, while also benefitting from the regional and local expertise of our leasing and operations team.

Experienced Management – Senior members of our management team are seasoned real estate operators with extensive public company leadership experience.  Our management team has deep industry knowledge and well-established relationships with retailers, brokers and vendors through many years of operational and transactional experience, as well as significant expertise in executing value-enhancing reinvestment opportunities.


30



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 for their proportional share of operating costs, including common area expenses, utilities, insurance and real estate taxes, and certain capital expenditures related to the maintenance of our 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 and local economic climates or demographics; (2) local market conditions, including an oversupply of space in, or a reduction in demand for, properties similar to those in our Portfolio; (3) competition from other available properties and e-commerce, and the attractiveness of properties in our Portfolio to our tenants; (4) ongoing disruption and/or consolidation in the retail sector, the financial stability of our tenants and the overall financial condition of large retailing companies, including their ability to pay rent and expense reimbursements; (5) in the case of percentage rents, the sales volume of our tenants; (6) increases in operating costs, including common area expenses, utilities, insurance and real estate taxes, which are relatively inflexible and generally do not decrease if revenue or occupancy decreases; (7) increases in the costs to repair, renovate and re-lease space; (8) earthquakes, tornadoes, hurricanes, damage from rising sea levels due to climate change, other natural disasters, civil unrest, terrorist acts or acts of war, which may result in uninsured or underinsured losses; and (9) changes in laws and governmental regulations, including those governing usage, zoning, the environment and taxes.

Our operating costs represent property-related costs, such as repairs and maintenance, landscaping, snow removal, utilities, security, ground rent related to properties for which we are the lessee, property insurance, real estate taxes and various other costs. Increases in our operating costs, to the extent they are not offset by increases in revenue, 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, 2018.