Brixmor Property Group Inc. 9.30.2013 10-Q






UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2013
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 Inc.
(Exact name of registrant as specified in its charter)
Maryland
 
45-2433192
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

420 Lexington Avenue, New York, New York 10170
(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. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
☐
 
Accelerated filer
☐
Non-accelerated filer
☒
 
Smaller reporting company
☐
(Do not check if a smaller reporting company)
 
 
 
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Exchange Act). Yes ☐ No ☒

As of December 2, 2013, the registrant had 229,689,960 shares of common stock outstanding.




TABLE OF CONTENTS
Page
PART I – FINANCIAL INFORMATION

Item 1.
Financial Statements
 
 
 
 
Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012
 
 
 
 
 
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2013 and 2012
 
 
 
 
 
Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2013 and 2012
 
 
 
 
 
Condensed Consolidated Statement of Changes in Equity for the Nine Months Ended September 30, 2013
 
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012
 
 
 
 
 
Notes to Condensed Consolidated 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




Forward-Looking Statements

This report may contain 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” 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 prospectus, dated October 29, 2013 and filed with the Securities and Exchange Commission (the “SEC”) on October 31, 2013 pursuant to Rule 424(b)(4) under the Securities Act, and in this report, as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov, including the following:
•
adverse global, national and regional economic, market and real estate conditions;
•
the competitive environment in which we operate and the ability to renew or re-let space as leases expire;
•
financial stability of tenants, including the ability of tenants to pay rent, tenants’ decision to close stores or maintain and renew leases and the effect of bankruptcy laws;
•
the illiquidity of real estate property investments;
•
increasing or constant expenses at times when income from our properties decreases;
•
adverse effects of required payments of debt or related interest;
•
our significant leverage;
•
inability to obtain financing through the debt and equity markets;
•
interest rate risk due to our variable rate indebtedness;
•
loss of our investment in a property or group of properties through foreclosure due to default in our mortgage debt obligations;
•
covenants in our debt agreements limiting our flexibility in operating our business;
•
inability to realize expected returns on current and future redevelopment or real estate property acquisitions;
•
inadequate insurance coverage;
•
environmental regulations, expenditures and liabilities;
•
expenditures in connection with compliance with the Americans with Disabilities Act and fire, safety and other regulations;
•
future losses;
•
impairment of the value of our real estate assets;
•
cybersecurity risks;
•
failure to attract and retain key members of senior management;
•
competition in pursuing acquisition opportunities;
•
our Sponsor's (as defined in Note 1) control of us;
•
consequences of a loss of our qualification as a real estate investment trust ("REIT");

- 3 -


•
incurrence of tax liabilities in connection with our REIT status;
•
compliance with REIT requirements (i) causing us to forego otherwise attractive opportunities and limit our expansion opportunities; (ii) forcing us to liquidate or restructure otherwise attractive investments; (iii) limiting our ability to hedge effectively and causing us to incur tax liabilities; (iv) causing us to borrow to make distributions to stockholders; (v) causing us to depend on external sources of capital to fund growth and (vi) restricting our ownership of and relationship with any taxable REIT subsidiaries ("TRS"); and
•
adverse legislative or regulatory tax changes.

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 undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
Unless otherwise stated or indicated by context, all references to “we,” “us,” “our,” “ours,” “Brixmor” or the “Company” in this Quarterly Report refer to Brixmor Property Group Inc. and its consolidated subsidiaries.

Unless otherwise expressly stated to the contrary, our financial condition and results of operations as of and for the periods presented in this report do not reflect the transactions described below in the section titled "Initial Public Offering and IPO Property Transfers," which were effected subsequent to September 30, 2013.



- 4 -


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
 
September 30, 2013
 
December 31, 2012
 
(Unaudited)
 
 
Assets
 
 
 
Real estate
 
 
 
Land
$
1,904,533

 
$
1,915,667

Buildings and improvements
8,017,597

 
7,978,759

 
9,922,130

 
9,894,426

Accumulated depreciation and amortization
(1,085,671
)
 
(796,296
)
Real estate, net
8,836,459

 
9,098,130

 
 
 
 
Investments in and advances to unconsolidated joint ventures
9,155

 
16,038

Cash and cash equivalents
137,376

 
103,098

Restricted cash
82,123

 
90,160

Marketable securities
22,962

 
24,883

Receivables, net
178,304

 
156,944

Deferred charges and prepaid expenses, net
104,875

 
95,118

Other assets
33,621

 
19,358

Total assets
$
9,404,875

 
$
9,603,729

 
 
 
 
 
Liabilities
 
 
 
Debt obligations, net
$
6,477,257

 
$
6,499,356

Financing liabilities, net
172,978

 
174,440

Accounts payable, accrued expenses and other liabilities
606,163

 
632,112

Total liabilities
7,256,398

 
7,305,908

 
 
 
 
Redeemable non-controlling interests
21,467

 
21,467

 
 
 
 
Commitments and contingencies
—

 
—

 
 
 
 
Equity
 
 
 
Preferred stock, $0.01 par value, authorized 300,000,000 shares, issued and outstanding 125 shares
—

 
—

Common stock, $0.01 par value, authorized 3,000,000,000 shares, issued and outstanding 182,242,460 shares
1,822

 
1,822

Additional paid in capital
1,749,040

 
1,746,271

Accumulated other comprehensive loss
(7,732
)
 
(39
)
Distributions in excess of accumulated loss
(136,524
)
 
(26,559
)
Total stockholders' equity
1,606,606

 
1,721,495

Non-controlling interests
520,404

 
554,859

Total equity
2,127,010

 
2,276,354

Total liabilities and equity
$
9,404,875

 
$
9,603,729


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

- 5 -


BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, dollars in thousands, except per share data)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2013
 
2012
 
2013
 
2012
 
Revenues
 
 
 
 
 
 
 
 
Rental income
$
228,775

 
$
220,243

 
$
670,781

 
$
653,226

 
Expense reimbursements
62,227

 
57,754

 
184,808

 
173,298

 
Other revenues
2,366

 
2,495

 
8,333

 
8,622

 
Total revenues
293,368

 
280,492

 
863,922

 
835,146

 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
Operating costs
29,267

 
29,983

 
89,760

 
91,186

 
Real estate taxes
43,656

 
39,888

 
129,856

 
121,006

 
Depreciation and amortization
110,582

 
121,494

 
336,239

 
379,381

 
Provision for doubtful accounts
3,314

 
3,003

 
8,641

 
8,791

 
Impairment of real estate assets
—

 
—

 
29,113

 
—

 
General and administrative
23,605

 
20,506

 
65,401

 
67,031

 
Total operating expenses
210,424

 
214,874

 
659,010

 
667,395

 
 
 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
 
Dividends and interest
209

 
281

 
628

 
864

 
Interest expense
(86,134
)
 
(97,385
)
 
(276,005
)
 
(290,396
)
 
Gain on sales of real estate assets and acquisition of joint venture interest
1,502

 
—

 
2,223

 
50

 
Other
(22,231
)
 
(1,754
)
 
(26,912
)
 
(4,771
)
 
Total other expense
(106,654
)
 
(98,858
)
 
(300,066
)
 
(294,253
)
 
 
 
 
 
 
 
 
 
 
Loss before equity in income of unconsolidated joint ventures
(23,710
)
 
(33,240
)
 
(95,154
)
 
(126,502
)
 
Equity in income of unconsolidated joint ventures
247

 
118

 
1,001

 
686

 
Loss from continuing operations
(23,463
)
 
(33,122
)
 
(94,153
)
 
(125,816
)
 
 
 
 
 
 
 
 
 
 
Discontinued operations:
 
 
 
 
 
 
 
 
Income from discontinued operations
191

 
296

 
418

 
105

 
Gain on disposition of operating properties
—

 
3,315

 
2,631

 
4,544

 
Impairment on real estate held for sale
(1,283
)
 
(7,635
)
 
(15,741
)
 
(10,545
)
 
Loss from discontinued operations
(1,092
)
 
(4,024
)
 
(12,692
)
 
(5,896
)
 
 
 
 
 
 
 
 
 
 
Net loss
(24,555
)
 
(37,146
)
 
(106,845
)
 
(131,712
)
 
 
 
 
 
 
 
 
 
 
Non-controlling interests
 
 
 
 
 
 
 
 
Net loss attributable to non-controlling interests
5,716

 
8,798

 
25,248

 
31,334

 
 
 
 
 
 
 
 
 
 
Net loss attributable to common stockholders
$
(18,839
)
 
$
(28,348
)
 
$
(81,597
)
 
$
(100,378
)
 
 
 
 
 
 
 
 
 
 
Per common share
 
 
 
 
 
 
 
 
Loss from continuing operations
 
 
 
 
 
 
 
 
-Basic
$
(0.10
)
 
$
(0.14
)
 
$
(0.40
)
 
$
(0.53
)
 
-Diluted
$
(0.10
)
 
$
(0.14
)
 
$
(0.40
)
 
$
(0.53
)
 
Net loss attributable to common stockholders
 
 
 
 
 
 
 
 
-Basic
$
(0.10
)
 
$
(0.16
)
 
$
(0.45
)
 
$
(0.55
)
 
-Diluted
$
(0.10
)
 
$
(0.16
)
 
$
(0.45
)
 
$
(0.55
)
 
Weighted average common outstanding shares
 
 
 
 
 
 
 
 
-Basic
182,242

 
182,242

 
182,242

 
182,242

 
-Diluted
240,905

 
240,905

 
240,905

 
240,905

 

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

- 6 -


BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited, dollars in thousands)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2013
 
2012
 
2013
 
2012
 
Net loss
$
(24,555
)
 
$
(37,146
)
 
$
(106,845
)
 
$
(131,712
)
 
Other comprehensive income
 
 
 
 
 
 
 
 
 Change in unrealized loss on interest rate hedges
(7,720
)
 
—

 
(7,720
)
 
—

 
Change in unrealized loss on marketable securities
(36
)
 
10

 
(27
)
 
(46
)
 
 
 
 
 
 
 
 
 
 
Comprehensive loss
(32,311
)
 
(37,136
)
 
(114,592
)
 
(131,758
)
 
 
 
 
 
 
 
 
 
 
Comprehensive loss attributable to non-controlling interests
5,716

 
8,798

 
25,248

 
31,334

 
 
 
 
 
 
 
 
 
 
Comprehensive loss attributable to the Company
$
(26,595
)
 
$
(28,338
)
 
$
(89,344
)
 
$
(100,424
)
 

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


- 7 -


BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited, dollars in thousands)
For the Nine Months Ended September 30, 2013
 
Preferred Stock
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
Number
 
Amount
 
Number
 
Amount
 
Additional Paid in Capital
 
Accumulated
Other
Comprehensive
Loss
 
Distributions in Excess of Accumulated Loss
 
Non-controlling Interests
 
Total
Beginning balance, January 1, 2013
125

 
$
—

 
182,242,460

 
$
1,822

 
$
1,746,271

 
$
(39
)
 
$
(26,559
)
 
$
554,859

 
$
2,276,354

Distributions to stockholders
—

 
—

 
—

 
—

 
—

 
—

 
(28,368
)
 
—

 
(28,368
)
Distributions to non-controlling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(9,132
)
 
(9,132
)
Compensation expense relating to Class B Units
—

 
—

 
—

 
—

 
2,769

 
—

 
—

 
891

 
3,660

Credit swap liability
—

 
—

 
—

 
—

 
—

 
(7,720
)
 
—

 
—

 
(7,720
)
Unrealized gain on marketable securities
—

 
—

 
—

 
—

 
—

 
27

 
—

 
—

 
27

Net loss
—

 
—

 
—

 
—

 
—

 
—

 
(81,597
)
 
(26,214
)
 
(107,811
)
Ending balance, September 30, 2013
125

 
$
—

 
182,242,460

 
$
1,822

 
$
1,749,040

 
$
(7,732
)
 
$
(136,524
)
 
$
520,404

 
$
2,127,010

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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

- 8 -


BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in thousands)
 
Nine Months Ended September 30,
 
2013
 
2012
Operating activities:
 
 
 
Net loss
$
(106,845
)
 
$
(131,712
)
   Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
338,379

 
387,946

Debt premium and discount amortization
(16,619
)
 
(19,340
)
Deferred financing cost amortization
8,703

 
7,336

Above and below market lease intangible amortization
(39,051
)
 
(38,588
)
Provisions of impairment
44,854

 
10,545

Gain on sale of real estate assets and acquisition of joint venture interest
(4,854
)
 
(4,594
)
Amortization of Class B units
3,661

 
4,815

Other
(1,002
)
 
(647
)
Loss on debt extinguishment
17,788

 
—

Changes in operating assets and liabilities:
 
 
 
Restricted cash
5,244

 
(11,863
)
Receivables
(21,495
)
 
(8,771
)
Deferred charges and prepaid expenses
(25,288
)
 
(25,649
)
Other assets
(1,820
)
 
1,292

Accounts payable, accrued expenses and other liabilities
12,988

 
14,578

Net cash provided by operating activities
214,643

 
185,348

 
 
 
 
Investing activities:
 
 
 
Building improvements
(104,627
)
 
(125,219
)
Acquisitions of real estate assets
(23,792
)
 
(5,000
)
Proceeds from sales of real estate assets
44,866

 
24,439

Distributions from unconsolidated joint ventures
455

 
1,501

Contributions to unconsolidated joint ventures
(3
)
 
(1,439
)
Change in restricted cash attributable to investing activities
4,238

 
1,988

Purchase of marketable securities
(10,662
)
 
—

Proceeds from sale of marketable securities
12,609

 
(2,433
)
Net cash used in investing activities
(76,916
)
 
(106,163
)
 
 
 
 
Financing activities:
 
 
 
Repayment of debt obligations and financing liabilities
(2,479,830
)
 
(509,900
)
Proceeds from debt obligations
2,436,108

 
360,000

Deferred financing costs
(21,223
)
 
(7,215
)
Distributions to stockholders
(28,368
)
 
(9,456
)
Distributions to non-controlling interests and other
(10,136
)
 
(4,482
)
Net cash used in financing activities
(103,449
)
 
(171,053
)
 
 
 
 
Change in cash and cash equivalents
34,278

 
(91,868
)
Cash and cash equivalents at beginning of period
103,098

 
157,606

Cash and cash equivalents at end of period
$
137,376

 
$
65,738

Supplemental cash flow information, including non-cash investing and/or financing activities:
 
 
 
Cash paid for interest, net of amount capitalized
$
273,842

 
$
285,248

State and local taxes paid
1,724

 
1,949

Capitalized interest
3,350

 
1,149


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

- 9 -


BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
September 30, 2013
(dollars in thousands, unless otherwise stated)

1.    Nature of Business and Financial Statement Presentation
Description of Business
Brixmor Property Group Inc. and its consolidated subsidiaries (the “Company”) were formed for the purpose of owning, operating and managing shopping centers throughout the United States.
In June 2013, the Company changed its name from BRE Retail Parent Inc. to Brixmor Property Group Inc. Simultaneous with this name change, the Company’s consolidated subsidiary changed its name to BPG Subsidiary Inc. ("BPG Sub") from Brixmor Property Group Inc.
The Company does not distinguish its principal business or group its operations on a geographical basis for purposes of measuring performance. Accordingly, the Company believes it has a single reportable segment for disclosure purposes in accordance with U.S. generally accepted accounting principles (“GAAP”).
Initial Public Offering and IPO Property Transfers
On November 4, 2013, subsequent to the date of these financial statements, Brixmor Property Group Inc. completed an initial public offering (“IPO”) in which it sold approximately 47.4 million shares of its common stock, at an IPO price of $20.00 per share. The Company received net proceeds of approximately $891.3 million, after deducting $57.4 million in underwriting discounts, expenses and transaction costs, from the sale of shares in the IPO. Of the total proceeds received, $824.7 million was used to pay down amounts outstanding under the Company's unsecured credit facility (see Note 7 for additional information).
In connection with the IPO, the Company acquired interests in 43 properties (the “Acquired Properties”) from certain investment funds affiliated with The Blackstone Group L.P. (“Blackstone” or the “Sponsor”) in exchange for 15,877,791 common units of partnership interest (the “OP Units”) in Brixmor Operating Partnership LP (the “Operating Partnership”) having a value equivalent to the value of the Acquired Properties. In connection with the acquisition of the Acquired Properties, the Company will repay approximately $74.1 million of indebtedness to the Sponsor attributable to certain of the Acquired Properties, approximately $66.6 million of which will be repaid with a portion of the net proceeds of the IPO and approximately $7.5 million of which will be repaid approximately one year following the IPO.
Also in connection with the IPO, the Company created a separate series of interest in the Operating Partnership that allocates to certain funds affiliated with Blackstone and Centerbridge Partners L.P. (owners of the Operating Partnership prior to the IPO) (the "pre-IPO owners") all of the economic consequences of ownership of the Operating Partnership's interests in 47 properties that the Operating Partnership has historically held in its portfolio (the “Non Core Properties”). The Operating Partnership intends to cause the Non-Core Properties to be transferred to the pre-IPO Owners in redemption of this separate series of interest in the Operating Partnership relating to the Non-Core Properties on January 15, 2014.
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 financial position of the Company at September 30, 2013 and the results of operations for the periods presented have been included. The 2013 operating results for the period presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. These financial statements should be read in conjunction with the financial statements and accompanying notes included in the Company's prospectus, dated October 29, 2013 and filed with the SEC on October 31, 2013 pursuant to Rule 424(b)(4) under the Securities Act.

Certain prior period balances have been reclassified to conform to the current period presentation.


- 10 -


Principles of Consolidation and Use of Estimates
The accompanying Condensed Consolidated Financial Statements include the accounts of Brixmor Property Group Inc., its wholly owned subsidiaries and all other entities in which it has a controlling financial interest. The portions of consolidated entities not owned by the Company are presented as non-controlling interests as of and during the periods presented. All intercompany transactions have been eliminated. These Condensed Consolidated Financial Statements should be read in conjunction with the Company's final prospectus, dated October 29, 2013 and filed with the SEC on October 31, 2013 pursuant to Rule 424(b)(4) as part of its Registration Statement on Form S-11, as amended (SEC File No. 333-190002) (the “Registration Statement”), as certain disclosures in this Quarterly Report for the quarterly period ended September 30, 2013 that would duplicate those included in the Registration Statement are not included in these Condensed Consolidated Financial Statements.
When the Company obtains an economic interest in an entity, management evaluates the entity to determine: (i) whether the entity is a variable interest entity (“VIE”), (ii) in the event the entity is a VIE, whether the Company is the primary beneficiary of the entity, and (iii) in the event the entity is not a VIE, whether the Company otherwise has a controlling financial interest.
The Company consolidates: (i) entities that are VIEs for which the Company is deemed to be the primary beneficiary and (ii) entities that are not VIEs which the Company controls.  If the Company has an interest in a VIE but it is not determined to be the primary beneficiary, the Company accounts for its interest under the equity method of accounting. Similarly, for those entities which are not VIEs and over which the Company has the ability to exercise significant influence, the Company accounts for its interests under the equity method of accounting. The Company continually reconsiders its determination of whether an entity is a VIE and whether the Company qualifies as its primary beneficiary.
GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during a reporting period. The most significant assumptions and estimates relate to impairments of real estate, recovery of receivables and depreciable lives. These estimates are based on historical experience and other assumptions which management believes are reasonable under the circumstances. Management evaluates its estimates on an ongoing basis and makes revisions to these estimates and related disclosures as experience develops or new information becomes known. Actual results could differ from these estimates.
New Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-2, “Comprehensive Income (Topic 220): Reporting Amounts Reclassified Out of Accumulated Other Comprehensive Income.” ASU 2013-2 requires entities to disclose certain information relating to amounts reclassified out of accumulated other comprehensive income. The adoption of this guidance did not have a material impact on the Company's financial statement presentation.
It has been determined that 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 Condensed Consolidated Financial Statements of the Company.
2.    Acquisition of Real Estate
During the three and nine months ended September 30, 2013, the Company acquired one building, located adjacent to one of the Company's existing shopping centers, for approximately $5.1 million and acquired the remaining 70% partnership interest in Arapahoe Crossings, L.P. that was previously owned by a foreign investor for a net purchase price of $18.7 million. In connection with the acquisition, a gain of $1.1 million on the step-up of the Company's original 30% interest was recognized. The acquisition of the partnership interest included the assumption of debt obligations of approximately $41.8 million, which were paid off with the proceeds from the unsecured credit facility entered into in July 2013 (see Note 7 for further discussion of the credit facility).

During the year ended December 31, 2012, the Company acquired three retail buildings, located adjacent to three of the Company’s existing shopping centers, for approximately $5.5 million and acquired the remaining 50% ownership interest in a 41.6 acre land parcel in Riverhead, NY for a purchase price of $0.5 million.

3.    Discontinued Operations and Assets Held for Sale
The Company reports as discontinued operations real estate assets that are held for sale as of the end of the current period and real estate assets that were sold during the period. The operating results and gain on disposition of the real estate properties are included in a separate component of income on the Condensed Consolidated Statements of Operations under Discontinued operations. This has resulted in certain reclassifications for the three and nine months

- 11 -

ended September 30, 2013.
As of September 30, 2013 and December 31, 2012, six shopping centers and one shopping center, respectively, were classified as held for sale and are presented in Other assets within the Condensed Consolidated Balance Sheets. The shopping centers had carrying values of approximately $15.0 million and $1.6 million as of September 30, 2013 and December 31, 2012, respectively. During the three months ended September 30, 2013, the Company disposed of three shopping centers and one land parcel for aggregate proceeds of $13.2 million. During the nine months ended September 30, 2013, the Company disposed of ten shopping centers and three land parcels for aggregate proceeds of $44.9 million.
During the three months ended September 30, 2012, the Company disposed of seven shopping centers for aggregate proceeds of $19.0 million. During the nine months ended September 30, 2012, the Company disposed of ten shopping centers, one land parcel and one building for aggregate proceeds of $24.4 million.
In connection with the real estate classified as held for sale and the disposition of the shopping centers during the nine months ended September 30, 2013, the Company recognized provisions for impairment of $1.3 million and $15.7 million, for the three and nine months ended September 30, 2013, respectively. In connection with the real estate classified as held for sale and the disposition of the shopping centers during the nine months ended September 30, 2012, the Company recognized provisions for impairment of $7.6 million and $10.5 million, for the three and nine months ended September 30, 2012, respectively. For purposes of measuring this provision, fair value was determined based upon contracts with buyers and then adjusted to reflect associated disposition costs.
The components of income from discontinued operations for the three and nine months ended September 30, 2013 and 2012 are shown below:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2013
 
2012
 
2013
 
2012
 
Discontinued operations:
 
 
 
 
 
 
 
 
Revenues
$
1,483

 
$
4,536

 
5,700

 
14,732

 
Operating expenses
(957
)
 
(3,686
)
 
(4,559
)
 
(12,823
)
 
Other expense, net
(335
)
 
(554
)
 
(723
)
 
(1,804
)
 
Income from discontinued operating properties
191

 
296

 
418

 
105

 
Gain on disposition of operating properties
—

 
3,315

 
2,631

 
4,544

 
Impairment on real estate held for sale
(1,283
)
 
(7,635
)
 
(15,741
)
 
(10,545
)
 
Loss from discontinued operations
$
(1,092
)
 
$
(4,024
)
 
$
(12,692
)
 
$
(5,896
)
 

4.    Real Estate
The Company's components of Real estate consisted of the following:
 
September 30, 2013
 
December 31, 2012
Land
$
1,904,533

 
$
1,915,667

Buildings and improvements:
 
 
 
Building
6,807,398

 
6,817,378

Building and tenant improvements
325,154

 
254,844

Other rental property (1)
885,045

 
906,537

 
9,922,130

 
9,894,426

Accumulated depreciation and amortization
(1,085,671
)
 
(796,296
)
Total
$
8,836,459

 
$
9,098,130

(1) 
At September 30, 2013 and December 31, 2012, Other rental property consisted of intangible assets including: (i) $806.4 million and $826.9 million, respectively, of in-place lease value, (ii) $78.7 million and $79.6 million, respectively, of above-market leases, and (iii) $430.0 million and $341.8 million, respectively, of accumulated amortization. These intangible assets are amortized over the term of each related lease.
In addition, at September 30, 2013 and December 31, 2012, the Company had intangible liabilities relating to below-market leases of approximately $465.3 million and $473.9 million, respectively, and accumulated amortization of approximately $139.0 million and $97.7 million, respectively. These intangible liabilities, which are included in Accounts payable, accrued expenses and other liabilities in the Company's Condensed Consolidated Balance Sheets,

- 12 -

are amortized over the term of each related lease including any renewal periods with fixed rentals that are considered to be below market.
Amortization expense associated with the above mentioned intangible assets and liabilities recognized for the three months ended September 30, 2013 and 2012 was approximately $20.3 million and $32.6 million, respectively. Amortization expense associated with the above mentioned intangible assets and liabilities recognized for the nine months ended September 30, 2013 and 2012 was approximately $71.1 million and $112.6 million, respectively. The estimated net amortization expense associated with the Company's intangible assets and liabilities for the next five years are as follows:
Year ending December 31,
 
Estimated net amortization expense
2013 (remaining three months)
 
$
18,889

2014
 
58,785

2015
 
35,820

2016
 
15,813

2017
 
6,428


On a continuous basis, management assesses whether there are any indicators, including property operating performance and general market conditions, that the value of the Company's assets (including any related amortizable intangible assets or liabilities) may be impaired. To the extent impairment has occurred, the carrying value of the asset would be adjusted to an amount to reflect the estimated fair value of the asset.
The Company did not recognize a provision for impairment during the three months ended September 30, 2013. During the nine months ended September 30, 2013, the Company recognized approximately $29.1 million of provision for impairment, excluding provision for impairment included in Discontinued operations. Other than the provision for impairment recognized in Discontinued operations, the Company did not recognize a provision for impairment for the three and nine months ended September 30, 2012 (see Note 3).

The Company's estimated fair values relating to the above impairment provision assessments were based upon internal analyses as well as proposed sale prices from properties under contract for sale. The Company believes the inputs utilized were reasonable in the context of applicable market conditions; however, due to the significance of the unobservable inputs to the overall fair value measures, including forecasted revenues and expenses based upon market conditions and expectations for growth, the Company determined that such fair value measurements were classified within Level 3 of the fair value hierarchy. The fair value of impaired real estate was $77.5 million as of September 30, 2013.

5.    Investments in and Advances to Unconsolidated Joint Ventures
The Company has investments in and advances to various unconsolidated joint ventures. These unconsolidated joint ventures were formed primarily for the purpose of owning real estate or operating shopping centers. The Company and its joint venture partners have joint approval rights for major decisions, including those regarding property operations. As such, the Company holds non-controlling interests in these unconsolidated joint ventures and accounts for them under the equity method of accounting.

- 13 -

The following table summarizes the Company's investments in and advances to unconsolidated joint ventures:
 
 
 
 
September 30,
 
December 31,
 
 
 
 
2013
 
2012
 
 
 
 
Percent
 
Percent
Venture
City
State
JV Partner
Ownership
 
Ownership
Arapahoe Crossings, L.P. (1)
Aurora
CO
Foreign Investor
n/a
 
30%
 
 
 
 
 
 
 
BPR Land Partnership, L.P.
Frisco
TX
Private Investors
50%
 
50%
 
 
 
 
 
 
 
BPR South, L.P.
Frisco
TX
Private Investors
50%
 
50%
 
 
 
 
 
 
 
Heritage Intercontinental LP (2)
Dallas
TX
Intercontinental Real Estate
n/a
 
25%
 
 
 
 
 
 
 
NP/I&G Institutional Retail Company II, LLC (3) 

Las Vegas

NV
JPMorgan Investment Management, Inc.
20%
 
20%
 
 
 
 
 
 
 
NPK Redevelopment I, LLC (3) 
Various
Various
Kmart Corporation (Sears Holding Corp.)
20%
 
20%
 
 
 
 
 
 
 
_____________
(1)
On July 31, 2013, the Company acquired the remaining 70% partnership interest in Arapahoe Crossings, L.P. that was previously owned by a foreign investor for a net purchase price of $18.7 million.  The acquisition included the assumption of debt obligations of approximately $41.8 million, which were paid off with the proceeds from the unsecured credit facility entered into in July 2013 (see Note 7 for further discussion of the unsecured credit facility). As of September 30, 2013, this investment is wholly owned and no longer included in the Investment in and advances to unconsolidated joint ventures.
(2)
In July 2013, the joint venture conveyed Skillman Abrams, a shopping center located in Dallas, Texas, to the lender in satisfaction of its non-recourse mortgage loan. The Company no longer has an ownership interest in the shopping center.
(3)
Pursuant to the terms of the applicable joint venture agreements, the Company's participation in the unconsolidated joint ventures may increase if certain performance targets are achieved.
The Company does not have commitments to fund losses in excess of the carrying value of its investment.

6.    Financial Instruments - Derivatives and Hedging
The Company's use of derivative instruments is limited to the utilization of interest rate agreements or other instruments to manage interest rate risk exposures and not for speculative purposes. In certain situations, the Company has entered into derivative financial instruments such as interest rate swap and interest rate cap agreements to manage interest rate risk exposure arising from variable rate debt transactions that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s objective in using interest rate derivatives is to add stability to interest expense and to manage its exposure to interest rate movements.
Cash Flow Hedges of Interest Rate Risk
Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without changing the underlying notional amount. During the nine months ended September 30, 2013, the Company entered into five forward starting interest rate swap agreements with a notional amount of $1,500.0 million to hedge the variable cash flows associated with third party debt.
A detail of the Company’s interest rate derivatives designated as cash flow hedges outstanding as of September 30, 2013 is as follows:
 
 
Number of Instruments
 
Notional Amount
 
Interest Rate Swaps
 
5
 
$
1,500,000

 
The Company has elected to present its interest rate derivatives on its Condensed Consolidated Balance Sheets on a gross basis as interest rate swap assets and interest rate swap liabilities. A detail of the Company’s fair value of interest rate derivatives on a gross and net basis as of September 30, 2013 and December 31, 2012, respectively, is as follows:


- 14 -


 
 
Fair Value of Derivative Instruments
Interest rate swaps classified as:
 
September 30,
2013
 
December 31,
2012
Gross derivative assets
 
$
—

 
$
—

Gross derivative liabilities
 
(7,720
)
 
—

Net derivative liability
 
$
(7,720
)
 
$
—


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 effective portion of changes in the fair value of derivatives designated as, and that qualify as, cash flow hedges is recorded 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 recorded in the accompanying Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2013 is as follows:
Derivatives in Cash Flow Hedging Relationships (Interest Rate Swaps and Caps)
 
Three Months Ended September 30, 2013
 
Nine Months Ended September 30, 2013
Amount of loss recognized in OCI on derivative
 
$
(7,720
)
 
$
(7,720
)
Amount of gain (loss) reclassified from accumulated OCI into interest expense
 
$
—

 
$
—


The Company estimates that approximately $9.1 million will be reclassified from accumulated other comprehensive loss as an increase to interest expense over the next twelve months. No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on the Company’s cash flow hedges during the three and nine months ended September 30, 2013 and September 30, 2012. The Company did not have any designated hedges for the three or nine months ended September 30, 2012.
Non-Designated (Mark-to Market) Hedges of Interest Rate Risk
The Company does not use derivatives for trading or speculative purposes. Derivatives not designated as hedges are used to manage the Company’s exposure to interest rate movements but do not meet the strict hedge accounting requirements. The Company’s only non-designated interest rate derivatives held at September 30, 2013 and September 30, 2012 were interest rate caps. Interest rate caps involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. As of September 30, 2013 and December 31, 2012, the fair value of these interest rate caps was nominal, and, during the three and nine months ended September 30, 2013 and 2012, no payments were received from the respective counterparties.
A detail of the Company’s non-designated interest rate derivatives outstanding as of September 30, 2013 is as follows:
 
 
Number of Instruments
 
Notional Amount
 
Interest Rate Caps
 
7
 
$
722,000

 

Credit-risk-related Contingent Features
The Company has agreements with its derivative counterparties that contain a provision whereby if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not 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, or approximately $7.6 million.


- 15 -

7.    Debt Obligations
At September 30, 2013 and December 31, 2012, the Company had the following indebtedness outstanding:
 
 
Carrying Value as of
 
 
 
 
 
 
September 30, 2013
 
December 31, 2012
 
Stated
Interest
Rates
 
Scheduled
Maturity
Date
Mortgage and secured loans(1)
 
 
 
 
 
 
 
 
Fixed rate mortgage and secured loans(2)
 
$
3,391,679

 
$
5,330,442

 
4.85% - 8.18%
 
2014 – 2034
Variable rate mortgage and secured loans(3)
 
227,000

 
668,605

 
Variable(3)
 
2014 – 2016
Total mortgage and secured loans
 
3,618,679

 
5,999,047

 
 
 
 
Net unamortized premium
 
90,463

 
116,222

 
 
 
 
Total mortgage and secured loans, net
 
$
3,709,142

 
$
6,115,269

 
 
 
 
 
 
 
 
 
 
 
 
 
Notes payables
 
 
 
 
 
 
 
 
Unsecured notes(4)(5)
 
$
404,612

 
$
404,612

 
3.75% - 7.97%
 
2013 - 2029
Net unamortized discount
 
(15,605
)
 
(20,525
)
 
 
 
 
Total notes payable, net
 
$
389,007

 
$
384,087

 
 
 
 
 
 
 
 
 
 
 
 
 
Credit facility(6)
 
$
2,379,108

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Total debt obligations
 
$
6,477,257

 
$
6,499,356

 
 
 
 

(1)
The Company's mortgages and secured loans are collateralized by certain properties and the equity interests of certain subsidiaries. These properties had a carrying value as of September 30, 2013 of approximately $4.6 billion.
(2)
The weighted average interest rate on the Company’s fixed rate mortgage and secured loans was 5.91% as of September 30, 2013.
(3)
The weighted average interest rate on the Company’s variable rate mortgage and secured loans was 3.57% as of September 30, 2013. The Company incurs interest on $227.0 million of mortgages using the 30-day LIBOR rate (which was 0.18% as of September 30, 2013 subject to certain rate floor requirements ranging from 0 basis points to 50 basis points), plus interest spreads ranging from 250 basis points to 375 basis points.
(4)
The weighted average interest rate on the Company’s unsecured notes was 5.97% as of September 30, 2013.
(5)
The Company has a one-time put repurchase right to certain unsecured notes that requires the Company to offer to repurchase the notes if tendered by holders (but does not require the holders to tender) for an amount equal to the principal amount plus accrued and unpaid interest on January 15, 2014. Although the stated maturity dates for these notes range from August 2026 to February 2028, the scheduled maturity dates listed above represent the first dates that note holders can require the Company to redeem all or any portion of the notes pursuant to the required put repurchase right. As of September 30, 2013, approximately $104.6 million aggregate principal amount of the unsecured notes with this put right remained outstanding.
(6)
On July 16, 2013, the Operating Partnership entered into an unsecured credit facility consisting of (i) a $1,250.0 million revolving credit facility, which incurs interest using the 30-day LIBOR rate (which was 0.18% as of September 30, 2013) plus an interest spread of 170 basis points, which will mature on July 31, 2017, with a one-year extension option; and (ii) a $1,500.0 million term loan facility, which incurs interest using the 30-day LIBOR rate (which was 0.18% as of September 30, 2013) plus an interest spread of 160 basis points, which will mature on July 31, 2018. The Company has in place five forward starting interest rate swap agreements that convert the floating interest rate on the term loan facility to a fixed, combined interest rate of 0.844% plus an interest spread of 160 basis points.

Debt Transactions
On February 27, 2013, certain indirect wholly owned subsidiaries of the Company (the “Borrowers”) obtained a $57.0 million mortgage loan (the "Mortgage Loan"). The Mortgage Loan is secured by three shopping centers and is guaranteed by BPG Sub as to certain customary recourse carveout liabilities.
The Mortgage Loan bears interest at a rate equal to LIBOR (subject to a floor of 25 basis points) plus a spread of 350 basis points, payable monthly, and is scheduled to mature on March 1, 2016, with two extension options that allow the Borrowers to extend the maturity through March 1, 2017 and then to March 1, 2018, subject in each case to the satisfaction of certain financial conditions.
In connection with the closing of the Mortgage Loan, approximately $42.0 million of mortgage loans of the Company were repaid.
On July 1, 2013, certain wholly-owned subsidiaries of the Company exercised the first extension option to extend the initial maturity date of an $80.0 million mortgage loan to July 1, 2014. In addition, the loan is no longer subject to LIBOR floor of 75 basis points. It bears interest at a rate equal to LIBOR, which was 0.18% as of September 30, 2013, plus a spread of 250 basis points.
On July 16, 2013, the Operating Partnership entered into an unsecured credit facility (the “Unsecured Credit Facility”) with JPMorgan Chase Bank, N.A., as administrative agent, Bank of America, N.A. and Wells Fargo Bank, National Association, as syndication agents and Barclays Capital plc, Citibank, N.A., Deutsche Bank Securities Inc. and Royal Bank of Canada, as documentation agents.

- 16 -

The Unsecured Credit Facility consists of (i) $1,250.0 million revolving credit facility (the “Revolving Facility), maturing on July 31, 2017, with a one-year extension option; and (ii) a $1,500.0 million term loan facility (the “Term Loan Facility”), which will mature on July 31, 2018. The obligations under the Unsecured Credit Facility are guaranteed by both BPG Sub and Brixmor OP GP LLC, the general partner of the Operating Partnership, (together, the "Parent Guarantors"), as well as by both Brixmor Residual Holding LLC and Brixmor GA America LLC (together, the "Material Subsidiary Guarantors"). The guarantees from the Material Subsidiary Guarantors are automatically released upon the occurrence of certain events, including upon the Operating Partnership obtaining an investment grade rating. The Revolving Facility includes borrowing capacity available for letters of credit and for short-term borrowings and an option for the Company to increase the size of the facility, raise incremental credit facilities, and extend the maturity date subject to certain limitations.
Unsecured Credit Facility borrowings bear interest, at the Operating Partnership’s option, at a rate equal to a margin over either (a) a base rate determined by reference to the highest of (1) the administrative agent’s prime lending rate, (2) the federal funds effective rate plus half of 1%, and (3) the LIBOR rate that would be payable on such day for a LIBOR rate loan with a one-month interest period plus 1% or (b) a LIBOR rate determined by reference to the BBA LIBOR rate for the interest period relevant to a particular borrowing.
The margin associated with Term Loan Facility borrowings is based on a total leverage based grid and ranges from 0.40% to 1.00%, for base rate loans, and 1.4% to 2.0% for LIBOR rate loans. The margin associated with Revolving Facility borrowings is also based on a total leverage based grid and ranges from 0.50% to 1.10%, for base rate loans, and 1.50% to 2.10%, for LIBOR rate loans.

The Operating Partnership, in addition to recurring interest payments, is required to pay a commitment fee to the lenders related to the Revolving Facility in respect of the unutilized commitments thereunder and customary letter of credit fees. The commitment fee is based on the daily-unused amount and is either 0.25% or 0.175% per annum. Voluntary prepayments are permitted at any time without premium or penalty, subject to certain minimum amounts and the payment of customary “breakage” costs in respect of LIBOR rate loans. The Unsecured Credit Facility requires no amortization payments.

As of September 30, 2013, approximately $2,379.1 million of the Unsecured Credit Facility had been drawn to repay certain of the Company's debt obligations. On November 5, 2013, all of the outstanding borrowings under the Revolving Facility were repaid primarily with proceeds from the IPO.

Debt Maturities
As of September 30, 2013 and December 31, 2012, the Company had accrued interest of $26.9 million and $29.9 million outstanding, respectively. At September 30, 2013, scheduled maturities of the Company's outstanding debt obligations were as follows:

Year ending December 31,
 
 
2013 (remaining three months)
 
$
58,524

2014
 
419,653

2015
 
782,154

2016
 
1,314,593

2017
 
1,213,888

Thereafter
 
2,613,587

Total debt maturities
 
6,402,399

Net unamortized premiums on mortgages
 
90,463

Net unamortized discount on notes
 
(15,605
)
Total debt obligations
 
$
6,477,257

The Company, among other things, is subject to maintenance of various covenants. The Company is currently in compliance with these covenants.


- 17 -

8.    Financing Liabilities
At September 30, 2013 and December 31, 2012, the Company had financing liabilities of $173.0 million and $174.4 million, respectively, net of unamortized premium of $2.5 million and $2.6 million, respectively.
On December 6, 2010, the Company formed a real estate venture with Inland American CP Investment, LLC (“Inland”). The Company contributed 25 shopping centers with a fair value of approximately $471.0 million and Inland contributed cash of $121.5 million, resulting in Inland receiving a 70% ownership interest with a cumulative preferential share of cash flow generated by the shopping centers at an 11% stated return. The Company received a 30% ownership interest, subordinated to Inland’s preferred interest. Due to the venture agreement providing Inland with the right to put its interest to the Company for an amount of cash equal to the amount it contributed plus accrued interest beginning December 6, 2015, the Company consolidates the real estate venture under the financing method which requires the amount Inland contributed to be reflected as a liability. The venture agreement also provided the Company with the right to call Inland’s interest, beginning December 6, 2014, for an amount of cash determined on the same basis as described above.
On November 11, 2008, a Class A Preferred Unit Holder (see Note 10 for further details) elected to redeem substantially all of its units. These units were redeemed in exchange for the fee interest in a property, and the Company entered into a 20 year master lease agreement at the date of transfer with the Class A Preferred Unit Holder. The carrying value of this agreement at September 30, 2013 and December 31, 2012 was $17.9 million and $18.0 million, respectively, including unamortized premium of $2.7 million and $2.8 million, respectively.
In addition to the two liabilities disclosed above, as of September 30, 2013 and December 31, 2012, financing liabilities include capital leases of $26.5 million and $27.1 million, net of unamortized discount of $0.2 million and $0.2 million respectively.

9.    Fair Value Disclosures
All financial instruments of the Company are reflected in the accompanying Condensed Consolidated Balance Sheets at amounts which, in management's judgment, reasonably approximate their fair values, except those instruments listed below:

 
 
September 30, 2013
 
December 31, 2012
 
 
Carrying
Amounts
 
Fair
Value
 
Carrying
Amounts
 
Fair
Value
 
 
Mortgage and secured loans payable
$
3,709,142

 
$
3,817,269

 
$
6,115,269

 
$
6,161,656

 
Notes payable
389,007

 
400,723

 
384,087

 
395,280

 
Credit facility
2,379,108

 
2,379,026

 
—

 
—

 
Total debt obligations
$
6,477,257

 
$
6,597,018

 
$
6,499,356

 
$
6,556,936

 
 
 
 
 
 
 
 
 
 
Financing liabilities 
$
172,978

 
$
172,978

 
$
174,440

 
$
174,440


The valuation methodology used to estimate the fair value of the Company's fixed and variable-rate indebtedness and financing liabilities is based on discounted cash flows, with assumptions that include credit spreads, loan amounts and debt maturities. Such fair value estimates are not necessarily indicative of the amounts that would be realized upon disposition.
As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy is included in U.S. 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.
At September 30, 2013 and December 31, 2012, the fair values of the Company’s marketable securities, valued based on quoted market prices, were classified within Level 1 of the fair value hierarchy. Conversely, at September 30, 2013 and December 31, 2012, the fair values of the Company’s mortgage and secured loans, notes payable,

- 18 -

financing liabilities and interest rate caps, valued based on discounted cash flow or other similar methodologies were classified within Level 3 of the fair value hierarchy.

10.    Redeemable Non-controlling Interests
The redeemable non-controlling interests presented in these Condensed Consolidated Financial Statements relate to portions of a consolidated subsidiary held by non-controlling interest holders in a partnership ("ERP") that was formed to own certain real estate properties which were contributed to it in exchange for cash, the assumption of mortgage indebtedness and limited partnership units (or Class A Preferred Units).
The Company is entitled to receive 100% of all net income, gains before depreciation after the limited partners receive their preferred cash and gain allocations. As of September 30, 2013 and December 31, 2012, there were 648 thousand and 648 thousand Class A Preferred Units outstanding, respectively.
Holders of these Class A Preferred Units have a redemption right that provides the holder with the option to redeem their units for $33.15 per unit in cash plus all accrued and unpaid distributions. Due to this right, the portion of the partnership attributable to such outside interests has been classified as redeemable non-controlling interests within the Company's Condensed Consolidated Balance Sheets which, at September 30, 2013 and December 31, 2012 were $21.5 million and $21.5 million, respectively.
During the nine months ended September 30, 2013, no limited partners with Class A Preferred Units made a redemption election. During the nine months ended September 30, 2012, one Class A Preferred Unit Holder elected to redeem substantially all of its Class A Preferred Units for approximately $0.1 million in cash. Such redemption elections may be made at any time, and the Company is required to make any such redemption on the second to last business day of the quarter in which such election is made, provided that the Company receives the redemption election at least ten business days prior to such date.

The changes in redeemable non-controlling interests are as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Balance at beginning of period
$
21,467

 
$
21,559

 
$
21,467

 
$
21,559

Unit redemptions
—

 
(92
)
 
—

 
(92
)
Distributions to redeemable non-controlling interests
(322
)
 
(322
)
 
(966
)
 
(969
)
Preferred return
322

 
322

 
966

 
969

Balance at end of period
$
21,467

 
$
21,467

 
$
21,467

 
$
21,467



11. Non-controlling Interests
The non-controlling interests presented in these Condensed Consolidated Financial Statements relate to portions of consolidated subsidiaries held by the non-controlling interest holders.
The Company owns 75.65% of BPG Sub and is entitled to receive 75.65% of all net income and gains before depreciation. The remaining 24.35% is held by Blackstone Retail Transaction II Holdco L.P. (“Holdco II”) an affiliate of Blackstone Real Estate Partners VI, L.P. As of September 30, 2013 and December 31, 2012, there were 240,905,467 shares of BPG Sub outstanding, of which the Company owned 182,242,460 and the affiliated non-controlling interest owned 58,663,007.

12. Stock Based Compensation

The Company measures compensation cost for share-based payment awards granted to employees and non-employee directors at fair value using the Black-Scholes-Merton option-pricing model. Share-based compensation includes awards granted to employees and has been reported in General and administrative in the Company's Condensed Consolidated Statements of Operations.
Certain employees of the Company have been granted long term incentive awards which provide them with equity interests in the Company’s equity holders and ultimate parent investors (“Class B Units”). The awards were granted with service conditions and performance and market conditions. The fair value of the units with service conditions are

- 19 -

recognized ratably over the applicable service period. The units granted, subject to performance and market conditions, will be recognized as the applicable conditions are met. The awards granted are profits interests having economic characteristics similar to stock appreciation rights and representing the right to share in any increase in value that exceeds a specified threshold. Therefore, the Class B units only have value to the extent there is an appreciation in the value of the business from and after the applicable date of grant and the appreciation rights exceeds a specified threshold. The units granted, subject to performance and market conditions, vest on the date, if any, that the Company's Sponsor receives cash proceeds resulting in a 15% internal rate of return, subject to continued employment on such date.
The Class B Units granted to employees by the Partnerships were recorded as a contribution by the Partnerships, with amortization being recorded as a component of General and administrative expenses in the Condensed Consolidated Statements of Operations. During the three months ended September 30, 2013 and 2012, the Company recognized approximately $2.1 million and $1.6 million, respectively, of incentive-based compensation expense relating to these units as a component of General and administrative expense in the Condensed Consolidated Statements of Operations. During the nine months ended September 30, 2013 and 2012, the Company recognized approximately $3.7 million and $4.8 million, respectively, of incentive-based compensation expense relating to the Class B Units. The $3.7 million of expense recognized in the nine months ended September 30, 2013 reflects approximately $1.6 million of incentive-based compensation expense that was reversed as a result of Class B Units that were forfeited. The Company did not recognize expense related to the units subject to performance conditions as the applicable conditions have not yet been met. As of September 30, 2013 and December 31, 2012, the total compensation cost expected to be recognized over a weighted average period of four years as a result of awards not yet vested was $35.5 million and $35.6 million, respectively.
The Company calculates the fair value of share based compensation awards using the Black-Scholes-Merton option pricing model which requires the use of subjective assumptions, including share price volatility, the expected life of the award, risk free interest rate and expected dividend yield. In developing its assumptions the Company takes into account the following:
• As a result of its status as a private company for the last several years the Company does not have sufficient history to estimate the volatility of its common share price. The Company calculates the expected volatility based on reported data for selected reasonably similar publicly traded companies for which historical information is available. The Company plans to continue to use the guideline peer group volatility information until the historical volatility of its common shares is relevant to measure expected volatility for future award grants;
• The Company determines the risk free interest rate by reference to implied yields available from United States Treasury securities with a remaining term equal to the expected life assumed at the date of the grant;
• The Company's assumed dividend yield is based on its historical dividends paid, excluding dividends that resulted from activities to be one time in nature;
• The Company estimates the average expected life of the awards based on the projected liquidity event.
The assumptions used in the Black-Scholes-Merton option pricing model are set forth below:

 
 
2011
 
2013
Dividend yield
 
—
%
 
—
%
Risk free interest rate
 
0.9
%
 
0.2
%
Expected volatility
 
80.0
%
 
35.0
%
Expected life
 
5 years

 
1.6 years



- 20 -

The following table presents the grant dates and numbers of underlying shares granted to employees from
June 28, 2011 through September 30, 2013:
 
 
 
 
Estimated Fair Value Per Class B Units at Grant Date
 
Total Estimated Value of Class B Units at Grant Date (in millions)
Date of Grant
 
Number of Class B Units Granted (in millions)
 
Service Condition
 
Performance and Market Condition
 
Service Condition
 
Performance and Market Condition
 
 
 
 
 
 
 
 
 
 
 
November 1, 2011
 
96.8

 
$
0.450

 
$
0.440

 
$
21.8

 
$
21.3

March 29, 2013
 
9.1

 
$
0.445

 
$
0.444

 
$
2.0

 
$
2.0

April 30, 2013
 
1.8

 
$
0.445

 
$
0.444

 
$
0.4

 
$
0.4

May 20, 2013
 
20.6

 
$
0.289

 
$
0.289

 
$
3.0

 
$
3.0


Certain employees of the Company have been granted awards in affiliated entities that are managed by the Company. The awards granted to these employees are due to their employment and capacity at the Company. The Company records management fee income from the affiliated entities as well as additional compensation expense to reflect the fair value of the awards as they are earned by the employees.

Offering Price

The IPO price of $20.00 per share was based on a number of factors, including the Company's results of operations, the Company's future prospects, the economic conditions in and future prospects for the industry in which the Company competes, current market valuations of publicly traded companies considered comparable to the Company and the other factors described under the section entitled "Underwriting" in our prospectus, dated October 29, 2013 and filed with the SEC on October 31, 2013 pursuant to Rule 424(b)(4) under the Securities Act.

The methodology applied to determine the value of the awards at grant date and IPO would be substantially the same. The following table sets forth the value of the 2013 Class B Units at grant date and at the time of the IPO based on the IPO price of $20.00 per share.

Date of Grant
 
Value of Class B Units at Grant Date (in millions)
Assumed Value at IPO (in millions)
March 29, 2013
 
$
4.0

$
6.4

April 30, 2013
 
$
0.8

$
1.3

May 20, 2013
 
$
6.0

$
7.7


The increase in value between grant date and value at the IPO is due to improved operating results driven by an increase in underlying property performance and the impact of the July 2013 debt refinancing (specifically the new Unsecured Credit Facility, closed July 16, 2013).


13.    Earnings per Share
On October 29, 2013, the Company effected a stock split whereby each issued and outstanding share of the Company's common stock prior to the stock split ("Old Common Stock") was automatically reclassified and became 2,409.05312695 fully paid and nonassessable shares of common stock, without any action required on the part of the Company or the holders of Old Common Stock. All references to share and per share amounts in the Condensed Consolidated Financial Statements and accompanying notes thereto have been retroactively restated to reflect this stock split.

The following table sets forth the reconciliation of earnings and the weighted average number of shares used in the calculation of basic and diluted earnings per share (amounts presented in thousands except per share data):


- 21 -

 
Three Months Ended September 30,
Three Months Ended September 30,
 
Nine Months Ended September 30,
Nine Months Ended September 30,
 
2013
2012
 
2013
2012
Computation of Basic Earnings Per Share:
 
 
 
 
 
Loss from continuing operations
$
(23,463
)
$
(33,122
)
 
$
(94,153
)
$
(125,816
)
Allocation to non-controlling interests
(5,450
)
(7,819
)
 
(22,156
)
(29,896
)
Loss from continuing operations attributable to the common stockholders - basic
(18,013
)
(25,303
)
 
(71,997
)
(95,920
)
Loss from discontinued operations, net of non-controlling interests
(826
)
(3,045
)
 
(9,600
)
(4,458
)
Net income attributable to the Company’s common stockholders for basic earnings per share
$
(18,839
)
$
(28,348
)
 
$
(81,597
)
$
(100,378
)
 
 
 
 
 
 
Weighted average common shares outstanding
182,242

182,242

 
182,242

182,242

 
 
 
 
 
 
Basic Earnings Per Share Attributable to the Company’s Common Stockholders:
 
 
 
 
 
Loss from continuing operations attributable to the common stockholders
$
(0.10
)
$
(0.14
)
 
$
(0.40
)
$
(0.53
)
Loss from discontinued operations
—

(0.02
)
 
(0.05
)
(0.02
)
Net income
$
(0.10
)
$
(0.16
)
 
$
(0.45
)
$
(0.55
)
 
 
 
 
 
 
Computation of Diluted Earnings Per Share:
 
 
 
 
 
Loss from continuing operations attributable to the common stockholders - basic
$
(18,013
)
$
(25,303
)
 
$
(71,997
)
$
(95,920
)
Allocation to convertible non-controlling interests
(5,797
)
(8,145
)
 
(23,174
)
(30,874
)
Loss attributable to common stockholders - diluted
(23,810
)
(33,448
)
 
(95,171
)
(126,794
)
Loss from discontinued operations
(1,092
)
(4,024
)
 
(12,692
)
(5,896
)
Net income attributable to the Company’s common stockholders for diluted earnings per share
$
(24,902
)
$
(37,472
)
 
$
(107,863
)
$
(132,690
)
 
 
 
 
 
 
Weighted average common shares outstanding - basic
182,242

182,242

 
182,242

182,242

Effect of dilutive securities:
 
 
 
 
 
Conversion of OP units and subsidiary shares
58,663

58,663

 
58,663

58,663

Shares for diluted earnings per common share
240,905

240,905

 
240,905

240,905

 
 
 
 
 
 
Diluted Earnings Per Share Attributable to the Company’s Common Stockholders:
 
 
 
 
 
Loss from continuing operations
$
(0.10
)
$
(0.14
)
 
$
(0.40
)
$
(0.53
)
Loss from discontinued operations
—

(0.02
)
 
(0.05
)
(0.02
)
Net income
$
(0.10
)
$
(0.16
)
 
$
(0.45
)
$
(0.55
)

14.    Commitments and Contingencies
Leasing commitments
The Company periodically enters into leases in connection with ground leases for neighborhood and community shopping centers which it operates and as administrative space for the Company. During the three months ended September 30, 2013 and 2012, the Company recognized rent expense associated with these leases of $2.6 million and $2.5 million, respectively. During the nine months ended September 30, 2013 and 2012, the Company recognized rent expense associated with these leases of $7.4 million and $7.3 million, respectively. Minimum annual rental commitments associated with these leases during the next five years and thereafter are as follows: 2013 (remaining three months), $2.3 million; 2014, $8.8 million; 2015, $8.7 million; 2016, $8.3 million; 2017, $8.1 million and thereafter, $98.8 million.

- 22 -

Insurance captive
In April 2007, the Company formed a wholly owned captive insurance company, ERT-CIC, LLC (“ERT CIC”) which underwrote the first layer of general liability insurance programs for the Company’s wholly owned, majority owned and joint venture properties. The Company formed ERT-CIC as part of its overall risk management program and to stabilize insurance costs, manage exposure and recoup expenses through the functions of the captive program. The Company capitalized ERT CIC in accordance with the applicable regulatory requirements. ERT CIC established annual premiums based on projections derived from the past loss experience of the Company’s properties. ERT CIC engaged an independent third party to perform an actuarial estimate of future projected claims, related deductibles and projected expenses necessary to fund associated risk management programs. Premiums paid to ERT CIC may be adjusted based on this estimate and may be reimbursed by tenants pursuant to specific lease terms.
During 2012, the Company replaced ERT-CIC with a newly formed, wholly-owned captive insurance company, Brixmor Incap, LLC (“Incap”). Incap underwrites the first layer of general liability insurance programs for the Company’s wholly owned, majority owned and joint venture properties. The Company formed Incap as part of its overall risk management program and to stabilize insurance costs, manage exposure and recoup expenses through the functions of the captive program. The Company has capitalized Incap in accordance with the applicable regulatory requirements. Incap established annual premiums based on projections derived from the past loss experience of the Company’s properties. Incap has engaged an independent third party to perform an actuarial estimate of future projected claims, related deductibles and projected expenses necessary to fund associated risk management programs.
Premiums paid to Incap may be adjusted based on this estimate and may be reimbursed by tenants pursuant to specific lease terms.
Environmental matters
Under various federal, state and local laws, ordinances and regulations, the Company may be considered an owner or operator of real property or may have arranged for the disposal or treatment of hazardous or toxic substances. As a result, the Company may be liable for certain costs including removal, remediation, government fines and injuries to persons and property. The Company does not believe that any resulting liability from such matters will have a material adverse effect on the financial position, results of operations or liquidity of the Company.
Other legal matters
The Company is subject to various other legal proceedings and claims that arise in the ordinary course of business. Management believes that the final outcome of such matters will not have a material adverse effect on the financial position, results of operations or liquidity of the Company.

15.    Income Taxes
The Company has elected to qualify as a REIT in accordance with the Internal Revenue Code (the “Code”). To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its adjusted REIT taxable income to its stockholders. It is management’s intention to adhere to these requirements and maintain the Company’s REIT status.
As a REIT, the Company generally will not be subject to federal income tax, provided that distributions to its stockholders equal at least the amount of its REIT taxable income as defined under the Code. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years.
Even if the Company qualifies for taxation as a REIT, the Company is subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, taxable income from non-REIT activities managed through TRS is subject to federal, state and local income taxes.
The Company is also subject to certain state and local income taxes or franchise taxes. State and local income taxes or franchise taxes were approximately $0.9 million for the three months ended September 30, 2013, $2.8 million for the nine months ended September 30, 2013, $1.5 million for the three months ended September 30, 2012, and $4.6 million for the nine months ended September 30, 2012.
Taxable REIT Subsidiaries
TRS’ activities include real estate operations and an investment in an insurance company (see Note 13 for further information). In July 2013, one of the Company's TRS's converted its corporation to a limited liability company, and another TRS merged into the Operating Partnership. As such, the Company is no longer subject to federal, state and local taxes on the income earned from these entities.

- 23 -

Income taxes have been recorded based on the asset and liability method. Under the asset and liability method, deferred income taxes are recognized for the temporary differences between the financial reporting basis and the tax basis of taxable assets and liabilities.
At September 30, 2013 the TRS had no gross deferred tax assets or liabilities. At December 31, 2012, the TRS had gross deferred tax assets of $371.1 million and gross deferred tax liabilities of $0.6 million.  Deferred tax assets and liabilities are primarily attributable to real estate basis differences and net operating loss carry forwards. At September 30, 2013 and December 31, 2012, a valuation allowance of $0 and $370.5 million, respectively, had been established due to the uncertainty associated with realizing these deferred tax assets. Deferred tax assets and liabilities are included in Other assets and Accounts payable, accrued expenses and other liabilities, respectively, in the accompanying Condensed Consolidated Balance Sheets.

16.    Related-Party Transactions
In the ordinary course of conducting its business, the Company enters into customary agreements with its affiliates and unconsolidated joint ventures in relation to the leasing and management of its and/or its related parties real estate assets.
At September 30, 2013 and December 31, 2012, receivables from related parties were $6.4 million and $7.1 million, respectively, which are included in Receivables, net in the Condensed Consolidated Balance Sheets. At September 30, 2013 and December 31, 2012, there were no material payables to related parties.

17.    Subsequent Events
In preparing the Condensed Consolidated Financial Statements, the Company has evaluated events and transactions occurring after September 30, 2013 for recognition or disclosure purposes. Based on this evaluation, other than the transactions detailed in the section titled "Initial Public Offering and IPO Property Transfers" in Note 1, there were no subsequent events from September 30, 2013 through to the date the financial statements were issued.





- 24 -


Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and the accompanying notes thereto. Historical results and percentage relationships set forth in the Condensed Consolidated Statements of Operations and contained in the Condensed Consolidated Financial Statements and accompanying notes, including trends which might appear, should not be taken as indicative of future operations.
Unless otherwise expressly stated to the contrary, our financial condition and results of operations as of and for the periods presented in this report do not reflect the transactions described below under the caption “Initial Public Offering and IPO Property Transfers” which were effected subsequent to September 30, 2013.
Executive Summary

Our Company

We are an internally-managed real estate investment trust ("REIT") that owns and operates the largest wholly-owned portfolio of grocery-anchored community and neighborhood shopping centers in the United States. Our high quality national portfolio is diversified by geography, tenancy and retail format, and our shopping centers are primarily anchored by market-leading grocers. We have been organized and operated in conformity with the requirements for qualification and taxation as a REIT under the United States federal income tax laws, commencing with our taxable year ended December 31, 2011, and we expect to satisfy the requirements for qualification and taxation as a REIT under the United States income tax laws for our taxable year ending December 31, 2013, and subsequent taxable years.
Factors That May Influence our Future Results
We derive our revenues primarily from rents (including percentage rents based on tenants' sales levels) and expense reimbursements due to us from tenants under existing leases at each of our properties. Expense reimbursements consist of payments made by tenants to us under contractual lease obligations for their proportional share of the property's operating expenses, insurance and real estate taxes.
The amount of rental income and expense reimbursements we receive is primarily dependent on our ability to maintain or increase rental rates and on our ability to lease available space including renewing expiring leases. Factors that could affect our rental income include: (1) changes in national, regional or local economic climates; (2) local conditions, including an oversupply of space in, or a reduction on demand for, properties similar to those in our portfolio; (3) the attractiveness of properties in our portfolio to our tenants; (4) the financial stability of tenants, including the ability of tenants to pay rents; (5) in the case of percentage rents, our tenants' sales volumes; (6) competition from other available properties; (7) changes in market rental rates; and (8) changes in the regional demographics of our properties.
Other revenues primarily consist of percentage rents and management, development and leasing fees earned from our unconsolidated joint ventures as well as management and leasing fees earned from operating properties we manage but do not own.
Our operating expenses include property-related costs including repairs and maintenance, roof repair, landscaping, parking lot repair, snow removal, utilities, property insurance costs, security, ground rent expense related to ground lease payments for which we are the lessee and various other property related costs. Increases in our operating expenses, to the extent they are not offset by revenue increases, would impact our overall performance.

Portfolio and Financial Highlights

The information below presents historical property and financial information as of and for the periods presented.

•
As of September 30, 2013, we owned interests in 523 shopping centers, including 519 wholly-owned shopping centers (the "Consolidated Portfolio") and four shopping centers held through unconsolidated joint ventures.


- 25 -


•
Billed occupancy for the Consolidated Portfolio was 88.7% as of September 30, 2013 and December 31, 2012. Leased occupancy for the Consolidated Portfolio increased from approximately 90.0% at December 31, 2012 to 90.5% at September 30, 2013.

•
During the three months ended September 30, 2013, we executed 607 leases in our Consolidated Portfolio totaling 4.0 million square feet of gross leasable area ("GLA"), including 200 new leases totaling 1.0 million square feet of GLA and 407 renewals totaling 3.0 million square feet of GLA. The average ABR under the new leases increased 56.7% from the prior tenant’s ABR and increased 12.1% for both new and renewal leases on comparable space from the prior tenant’s ABR. The average ABR per square foot of these new leases in our Consolidated Portfolio is $12.84 and the average ABR per leased square foot of these new and renewal leases in our Consolidated Portfolio is $11.68. The cost per square foot for tenant improvements and leasing commissions for new leases was $11.16 and $2.84, respectively. The cost per square foot for tenant improvements and leasing commissions for renewal leases was $0.74 and $0.06, respectively.

•
During the nine months ended September 30, 2013, we executed 1,630 leases in our Consolidated Portfolio totaling 9.5 million square feet of GLA, including 552 new leases totaling 2.5 million square feet of GLA and 1,078 renewals totaling 7.0 million square feet of GLA. The average ABR under the new leases increased 33.3% from the prior tenant’s ABR and increased 9.7% for both new and renewal leases on comparable space from the prior tenant’s ABR. The average ABR per leased square foot of these new leases in our Consolidated Portfolio is $12.74 and the average ABR per leased square foot of these new and renewal leases in our Consolidated Portfolio is $12.02. The cost per square foot for tenant improvements and leasing commissions for new leases was $11.11 and $2.63, respectively. The cost per square foot for tenant improvements and leasing commissions for renewal leases was $0.51 and $0.04, respectively.

•
Net loss attributable to Brixmor Property Group Inc. was $(18.8) million for the three months ended September 30, 2013, as compared to $(28.3) million for the three months ended September 30, 2012. Net loss attributable to Brixmor Property Group Inc. was $(81.6) million for the nine months ended September 30, 2013, as compared to $(100.4) million for the nine months ended September 30, 2012.

•
Net cash provided by operating activities was $214.6 million for the nine months ended September 30, 2013 as compared to $185.3 million for the nine months ended September 30, 2012.

•
Funds from Operations ("FFO") as adjusted, decreased $4.3 million, or 4.8%, from $89.6 million for the three months ended September 30, 2012 to $85.3 million for the three months ended September 30, 2013. FFO as adjusted, increased $11.4 million, or 4.4%, from $257.7 million for the nine months ended September 30, 2012 to $269.1 million for the nine months ended September 30, 2013. Additional information regarding FFO, a non-GAAP measure, including a reconciliation of net income (loss) to FFO, is included under "Funds From Operations."

•
Same property net operating income, as described below, (“Same Property NOI”) in our Consolidated Portfolio increased by $6.5 million or 3.5%, from $186.5 million for the three months ended September 30, 2012 to $193.0 million for the three months ended September 30, 2013. Same Property NOI in our Consolidated Portfolio increased by $22.1 million or 4.0%, from $550.6 million for the nine months ended September 30, 2012 to $572.7 million for the nine months ended September 30, 2013. Additional information regarding Same Property NOI, a non-GAAP measure, including a reconciliation of net income (loss) attributable to Brixmor Property Group Inc. to Same Property NOI, is included under "Same Property Net Operating Income".

Acquisition Activity

•
During the nine months ended September 30, 2013, we acquired one retail building which was adjacent to one of our existing shopping centers for a purchase price of $5.1 million and the remaining 70% interest in a shopping center held through an unconsolidated joint venture for a net purchase price $18.7 million.

•
During the nine months ended September 30, 2012, we acquired two retail buildings which were adjacent buildings at certain of our existing shopping centers, for approximately $4.5 million. In addition, we

- 26 -


acquired the remaining 50% ownership interest in a 41.6 acre land parcel for a purchase price of $0.5 million.

Disposition Activity

•
During the nine months ended September 30, 2013, we disposed of 10 shopping centers and three land parcels from the Consolidated Portfolio for aggregate proceeds of $44.9 million.

•
During the nine months ended September 30, 2012, we disposed of 10 shopping centers, one retail building and one land parcel from the Consolidated Portfolio for aggregate proceeds of $24.4 million.


Initial Public Offering and IPO Property Transfers

On November 4, 2013, Brixmor Property Group Inc. completed an initial public offering ("IPO") in which it sold approximately 47.4 million shares of its common stock at an IPO price of $20.00 per share. We received net proceeds of approximately $891.3 million, after deducting $57.4 million in underwriting discounts, expenses and transaction costs, from the sale of shares in the IPO. Of the total proceeds received, $824.7 million was used to pay down amounts outstanding under our unsecured credit facility (see Note 7 for additional information).

In connection with the IPO, we acquired interests in 43 properties (the "Acquired Properties") from certain investment funds affiliated with The Blackstone Group L.P. ("Blackstone" or the "Sponsor") in exchange for 15,877,791 common units of partnership interest (the "OP Units") in Brixmor Operating Partnership LP (the "Operating Partnership") having a value equivalent to the value of these interests. In connection with the acquisition of the Acquired Properties, we will repay approximately $74.1 million of indebtedness to the Sponsor attributable to certain of the Acquired Properties, approximately $66.6 million of which will be repaid with a portion of the net proceeds of the IPO and approximately $7.5 million of which will be repaid approximately one year following the IPO.

Also in connection with the IPO, we created a separate series of interest in the Operating Partnership that allocates to certain funds affiliated with Blackstone and Centerbridge Partners L.P. (owners of the Operating Partnership prior to the IPO) (the "pre-IPO owners") all of the economic consequences of ownership of the Operating Partnership's interests in 47 properties that the Operating Partnership has historically held in its portfolio (the “Non Core Properties”). This Operating Partnership intends to cause the Non-Core Properties to be transferred to the pre-IPO Owners in redemption of this separate series of interest in the Operating Partnership relating to the Non-Core Properties on January 15, 2014.

Results of operations

Comparison of the three months ended September 30, 2013 to the three months ended September 30, 2012

Revenues (in thousands)
 
Three months ended September 30,
 
 
 
2013
 
2012
 
$ Change
Revenues
 
 
 
 
 
Rental income
$
228,775

 
$
220,243

 
$
8,532

Expense reimbursements
62,227

 
57,754

 
4,473

Other revenues
2,366

 
2,495

 
(129
)
Total revenues
$
293,368

 
$
280,492

 
$
12,876


Rental income
The increase in rental income for the three months ended September 30, 2013 of approximately $8.5 million, as compared to the corresponding period in 2012, was due to a $6.2 million increase in ABR driven by an increase in billed occupancy of the Consolidated portfolio from 88.2% as of September 30, 2012 to 88.7% as of September 30,

- 27 -


2013, an increase in leasing spreads of 12.1% for both new and renewal leases and a net increase of $1.8 million net increase in the amortization of above and below market lease intangibles and lease settlement income.
Expense reimbursements
The increase in expense reimbursements for the three months ended September 30, 2013 of approximately $4.5 million, as compared to the corresponding period in 2012, was primarily due to an increase in reimbursable expenses and an increase in the recovery percentage which increased to approximately 85.3% for the three months ended September 30, 2013, as compared to 82.7% for the same period in 2012. The increased percentage of recoveries from tenants is primarily attributable to higher occupancy coupled with an increase in real estate taxes which have a higher recovery rate than operating expenses.
Other revenues
Other revenues remained approximately the same for the three months ended September 30, 2013, as compared to the corresponding period in 2012.

Operating expenses (in thousands)
 
Three months ended September 30,
 
 
 
2013
 
2012
 
$ Change
Operating expenses:
 
 
 
 
 
Operating costs
$
29,267

 
$
29,983

 
$
(716
)
Real estate taxes
43,656

 
39,888

 
3,768

Depreciation and amortization
110,582

 
121,494

 
(10,912
)
Provision for doubtful accounts
3,314

 
3,003

 
311

General and administrative
23,605

 
20,506

 
3,099

Total operating expenses
$
210,424

 
$
214,874

 
$
(4,450
)


Operating costs
The decrease in operating costs during the three months ended September 30, 2013 of approximately $0.7 million, as compared to the corresponding period in 2012, was due to decreased insurance costs of approximately $1.0 million and decreased legal expenses for property related matters of $0.4 million. These decreases were partially offset by increased repairs and maintenance expenses of $0.7 million.
Real estate taxes
Real estate taxes for the three months ended September 30, 2013 increased by $3.8 million, as compared to the corresponding period in 2012, primarily due to increased assessments at certain properties, primarily in Illinois and Texas.
Depreciation and amortization
Depreciation and amortization for the three months ended September 30, 2013 decreased by $10.9 million from the corresponding period in 2012, primarily due to a $10.4 million decrease in amortization expense associated with tenant lease expirations and lease terminations for tenant improvements and in-place lease value intangible assets recorded in connection with a portfolio acquisition in 2011.
Provision for doubtful accounts
The increase of $0.3 million in the provision for doubtful accounts for the three months ended September 30, 2013, as compared to the corresponding period in 2012, was primarily due to higher billed receivables balances which, before the allowance for bad debt, increased from $62.2 million as of September 30, 2012 to $66.7 million as of September 30, 2013. Moreover, the provision for doubtful accounts as a percentage of total revenues increased from 1.07% for the three months ended September 30, 2012 to 1.13% for the three months ended September 30, 2013.
General and administrative

- 28 -


General and administrative costs increased by $3.1 million for the three months ended September 30, 2013, as compared to the corresponding period in 2012, due to (i) $0.4 million of increased professional fees, including legal, accounting and consulting fees, (ii) increased personnel costs of approximately $0.7 million due to a one-time bonus payment, (iii) increased stock-based compensation expense of $0.5 million and (iv) increased severance and hiring costs of $1.3 million due to our realignment

Other Income (expense) (in thousands)

 
Three months ended September 30,
 
 
 
2013
 
2012
 
$ Change
Other income (expense)
 
 
 
 
 
Dividends and interest
$
209

 
$
281

 
$
(72
)
Interest expense
(86,134
)
 
(97,385
)
 
11,251

Gain on sale of real estate assets and acquisition of unconsolidated joint venture
1,502

 
—

 
1,502

Other
(22,231
)
 
(1,754
)
 
(20,477
)
Total other income (expense)
$
(106,654
)
 
$
(98,858
)
 
$
(7,796
)

Dividends and interest
Dividends and interest remained approximately the same for the three months ended September 30, 2013, as compared to the corresponding period in 2012.
Interest expense
Interest expense decreased by $11.3 million for the three months ended September 30, 2013, as compared to the corresponding period in 2012, primarily due to the following: (i) the repayment of approximately $2.4 billion of secured mortgage and term loans, which decreased interest expense during the three months ended September 30, 2013 by approximately $13.8 million, (ii) the repayment in 2012 of unsecured notes in the amount of $75.5 million which decreased interest expense during the three months ended September 30, 2013 by approximately $0.8 million, and (iii) increased capitalized interest which decreased interest expense during the three months ended September 30, 2013 by approximately $0.8 million partially offset by interest incurred on a $2.4 billion unsecured credit facility that we entered into during the three months ended September 30, 2013, which increased interest expenses by approximately $4.5 million.
Gain on sale of real estate assets
During the three months ended September 30, 2013, we disposed of one land parcel for aggregate proceeds of $0.5 million and a gain of $0.4 million. In addition, we purchased the remaining 70% interest in a shopping center held through an unconsolidated joint venture. As such, a gain of $1.1 million on the step-up of its original 30% interest was recognized.
Other
Other increased by $20.5 million for the three months ended September 30, 2013, as compared to the corresponding period in 2012, primarily due to the write-off of unamortized debt issuance costs, as well as the write-off of unamortized debt premium/discounts associated with repayments during the quarter of certain of our debt obligations.

Equity in income of unconsolidated joint ventures (in thousands)

 
Three months ended September 30,
 
 
 
2013
 
2012
 
$ Change
Equity in income of unconsolidated joint ventures
 
 
 
 
 
Equity in income of unconsolidated joint ventures
$
247

 
$
118

 
$
129



- 29 -


Equity in income of unconsolidated joint ventures increased by $0.1 million for the three months ended September 30, 2013, as compared to corresponding period in 2012 primarily due to increased operating performance of certain of our unconsolidated joint ventures.


Discontinued operations (in thousands)

 
Three months ended September 30,
 
 
 
2013
 
2012
 
$ Change
Discontinued operations:
 
 
 
 
 
Income from discontinued operations
$
191

 
$
296

 
$
(105
)
Gain on disposition of operating properties
—

 
3,315

 
(3,315
)
Impairment of real estate assets held for sale
(1,283
)
 
(7,635
)
 
6,352

Income (loss) from discontinued operations
$
(1,092
)
 
$
(4,024
)
 
$
2,932


Income from discontinued operations
Results from discontinued operations include the results from the following: (i) 19 shopping centers sold during the year ended December 31, 2012, (ii) ten shopping centers sold during the nine months ended September 30, 2013, and (iii) six shopping centers classified as held for sale at September 30, 2013.
Gain on disposition of operating properties
During the three months ended September 30, 2012, the gain on disposition of operating properties was attributable to the sale of four shopping centers for aggregate proceeds of $17.8 million.
Impairment of real estate assets held for sale
During the three months ended September 30, 2013, we recognized provisions for impairment of (i) $1.2 million on four shopping centers classified as held for sale, and (ii) $0.1 million on three shopping centers sold during the period. During the three months ended September 30, 2012, we recognized provisions for impairment of $7.6 million on seven properties. For purposes of measuring the provision, fair value was determined based upon the contracts with buyers and then adjusted to reflect associated disposition costs.

Net income (loss) attributable to us (in thousands)

    
 
Three months ended September 30,
 
 
 
2013
 
2012
 
$ Change
Net loss attributable to Brixmor Property Group Inc.
$
(18,839
)
 
$
(28,348
)
 
$
9,509


The decrease in net loss attributable to us for the three months ended September 30, 2013 of approximately $9.5 million, as compared to the corresponding period in 2012, was primarily due to (i) increases in both rental income and expense reimbursements, (ii) a decrease in interest expense, (iii) a decrease in depreciation and amortization expense, (iv) gain on sale of real estate assets and gain on acquisition of unconsolidated joint venture and (v) an increase in earnings from discontinued operations. These changes were partially offset by increases in other, real estate taxes and general and administrative.

Comparison of the nine months ended September 30, 2013 to the nine months ended September 30, 2012

Revenues (in thousands)

- 30 -


 
Nine months ended September 30,
 
 
 
2013
 
2012
 
$ Change
Revenues
 
 
 
 
 
Rental income
$
670,781

 
$
653,226

 
$
17,555

Expense reimbursements
184,808

 
173,298

 
11,510

Other revenues
8,333

 
8,622

 
(289
)
Total revenues
$
863,922

 
$
835,146

 
$
28,776


Rental income
The increase in rental income for the nine months ended September 30, 2013 of approximately $17.6 million, as compared to the corresponding period in 2012, was primarily due to a $17.0 million increase in ABR driven by an increase in billed occupancy from 88.2% as of September 30, 2012 to 88.7% as of September 30, 2013, an increase in leasing spreads of 9.7% for both new and renewal leases, and a net increase in the amortization of above and below market lease intangibles and lease settlement income of approximately $2.1 million. These increases were partially offset by a $1.7 million decrease in straight line rent.

Expense reimbursements
The increase in expense reimbursements for the nine months ended September 30, 2013 of approximately $11.5 million, as compared to the corresponding period in 2012, was primarily due to an increase in reimbursable expenses and an increase in the recovery percentage which increased to approximately 84.2% for the three months ended September 30, 2013, as compared to 81.7% for the same period in 2012. The increased percentage of recoveries from tenants is primarily attributable to higher occupancy of our portfolio coupled with an increase in real estate taxes which have a higher recovery rate than operating expenses.
Other revenues
Other revenues remained approximately the same for the nine months ended September 30, 2013, as compared to the corresponding period in 2012.
Operating Expenses (in thousands)
 
Nine months ended September 30,
 
 
 
2013
 
2012
 
$ Change
Operating expenses:
 
 
 
 
 
Operating costs
$
89,760

 
$
91,186

 
$
(1,426
)
Real estate taxes
129,856

 
121,006

 
8,850

Depreciation and amortization
336,239

 
379,381

 
(43,142
)
Provision for doubtful accounts
8,641

 
8,791

 
(150
)
Impairment of real estate assets
29,113

 
—

 
29,113

General and administrative
65,401

 
67,031

 
(1,630
)
Total operating expenses
$
659,010

 
$
667,395

 
$
(8,385
)


Operating costs
The decrease in operating costs during the nine months ended September 30, 2013 of approximately $1.4 million, as compared to the corresponding period in 2012, was due to decreased snow removal costs of $0.8 million, decreased tenant related legal costs of $1.7 million and decreased insurance costs of $0.8 million. These decreases were partially offset by a $1.7 million increase in repairs and maintenance expenses.
Real estate taxes
Real estate taxes for the nine months ended September 30, 2013 increased by $8.9 million, as compared to the corresponding period in 2012, primarily due to increased assessments at certain properties, primarily in California,

- 31 -


Illinois, Texas and New York, partially offset by decreases in assessments due to successful appeals of assessed values.
Depreciation and amortization
Depreciation and amortization for the nine months ended September 30, 2013 decreased by $43.1 million from the corresponding period in 2012, primarily due to tenant lease expirations and lease terminations associated with tenant improvements and in-place lease value intangible assets recorded in connection with the acquisition.
Provision for doubtful accounts
The provision for doubtful accounts remained approximately the same for the nine months ended September 30, 2013, as compared to the corresponding period in 2012.
Impairment of real estate assets
During the nine months ended September 30, 2013, as a result of our strategy to dispose of certain shopping centers, we recognized provisions for impairment on real estate assets of $29.1 million (excluding impairments included in discontinued operations). The impairments were the result of the reduction in expected undiscounted cash flows from these assets due to an estimated shortened holding period. After considering the shortened hold period’s impact on the cash flow from these assets, we determined that the undiscounted cash flows were below the assets’ carrying values. Accordingly, we proceeded to record impairments for each of these assets to reflect the difference between the historical carrying values and the fair values as of September 30, 2013. No impairments were recognized on real estate properties during the nine months ended September 30, 2012.
General and administrative
General and administrative costs decreased by $1.6 million for the nine months ended September 30, 2013, as compared to the corresponding period in 2012, due to (i) $4.5 million of decreased salaries due to staff reductions, (ii) decreased stock-based compensation expense of $1.2 million primarily due to the forfeiture of long-term incentive awards granted to certain of our employees in November 2011 and (iii) decreased professional fees of $0.8 million. These decreases were partially offset by (i) increased severance and hiring costs as a result of our realignment of $2.7 million and (ii) decreased capitalized leasing and development costs of approximately $2.0 million.

Other Income and Expenses (in thousands)

 
Nine months ended September 30,
 
 
 
2013
 
2012
 
$ Change
Other income (expense)
 
 
 
 
 
Dividends and interest
$
628

 
$
864

 
$
(236
)
Interest expense
(276,005
)
 
(290,396
)
 
14,391

Gain on sales of real estate assets
2,223

 
50

 
2,173

Other
(26,912
)
 
(4,771
)
 
(22,141
)
Total other income (expense)
$
(300,066
)
 
$
(294,253
)
 
$
(5,813
)

Dividends and interest
Dividends and interest remained approximately the same for the nine months ended September 30, 2013 as compared to the corresponding period in 2012.
Interest expense
Interest expense decreased by $14.4 million for the nine months ended September 30, 2013, as compared to the corresponding period in 2012, primarily due to (i) the repayment in 2012 of unsecured notes in the amount of $75.5 million, which decreased interest expense by approximately $2.9 million, (ii) one-time interest expense of $1.8 million for one property that was recorded during the nine months ended September 30, 2012, (iii) increased capitalized interest of $2.2 million due to increased redevelopment activities and (iv) the repayment of approximately $2.4 billion of secured mortgage and term loans, which decreased interest expense by approximately $17.6 million. These decreases were partially offset by a (i) $1.4 million increase in amortization of debt issuance

- 32 -


costs due to costs incurred related to refinancings and (ii) interest incurred on a $2.4 billion unsecured credit facility that we entered into during the three months ended September 30, 2013, which increased interest expense by approximately $4.5 million.
Gain on sales of real estate assets
During the nine months ended September 30, 2013, we disposed of two land parcels for aggregate proceeds of $1.4 million. In addition, we purchased the remaining 70% interest in a shopping center held through an unconsolidated joint venture. As such, a gain of $1.1 million on the step-up of its original 30% interest was recognized.
During the nine months ended September 30, 2012, we disposed of one land parcel for aggregate proceeds of $0.1 million.
Other
Other increased by $22.1 million for the nine months ended September 30, 2013, as compared to the corresponding period in 2012, primarily due to the write-off of unamortized debt issuance costs as well as the write-off of debt premium/discounts associated with repayments of certain of our debt obligations.

Equity in Income of Unconsolidated Joint Ventures (in thousands)

 
Nine months ended September 30,
 
 
 
2013
 
2012
 
$ Change
Equity in income of unconsolidated joint ventures
 
 
 
 
 
Equity in income of unconsolidated joint ventures
$
1,001

 
$
686

 
$
315


Equity in income of unconsolidated joint ventures increased by $0.3 million for the nine months ended September 30, 2013, as compared to corresponding period in 2012. The increase was primarily due to increased operating performance of certain of our unconsolidated joint ventures.

Discontinued Operations (in thousands)

 
Nine months ended September 30,
 
 
 
2013
 
2012
 
$ Change
Discontinued operations:
 
 
 
 
 
Income from discontinued operations
$
418

 
$
105

 
$
313

Gain on disposition of operating properties
2,631

 
4,544

 
(1,913
)
Impairment of real estate assets held for sale
(15,741
)
 
(10,545
)
 
(5,196
)
Loss from discontinued operations
$
(12,692
)
 
$
(5,896
)
 
$
(6,796
)

Income from discontinued operations
Results from discontinued operations include the results from the following: (i) 19 shopping centers disposed during the year ended December 31, 2012, (ii) ten shopping centers sold during the nine months ended September 30, 2013, and (iii) six shopping centers classified as held for sale at September 30, 2013.
Gain on disposition of operating properties
During the nine months ended September 30, 2013, the gain on disposition of operating properties was attributable to the sale of three shopping centers for aggregate proceeds of $10.7 million.
During the nine months ended September 30, 2012, the gain on disposition of operating properties was attributable to the sale of five shopping centers and one retail building for aggregate proceeds of $20.2 million.
Impairment of real estate assets held for sale
During the nine months ended September 30, 2013, we recognized provisions for impairment of (i) $8.9 relating to seven shopping centers sold during the period and (ii) $6.8 million relating to three shopping centers classified as held for sale as of September 30, 2013. During the nine months ended September 30, 2012, we recognized

- 33 -


provisions for impairment of $10.5 million on 11 shopping centers. For purposes of measuring the provision, fair value was determined based upon the contracts with buyers and then adjusted to reflect associated disposition costs.

Net income (loss) attributable to us (in thousands)
    
 
Nine months ended September 30,