10-Q





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____ to_____
Commission File Number: 001-36160 (Brixmor Property Group)
Commission File Number: 333-201464-01 (Brixmor Operating Partnership LP)

Brixmor Property Group Inc.
Brixmor Operating Partnership LP
(Exact Name of Registrant as Specified in Its Charter)

Maryland (Brixmor Property Group Inc.)
 
45-2433192
Delaware (Brixmor Operating Partnership LP)
 
80-0831163
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
450 Lexington Avenue, New York, New York 10017
(Address of Principal Executive Offices) (Zip Code)
212-869-3000
(Registrant’s Telephone Number, Including Area Code)

N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Brixmor Property Group Inc. Yes þ No ¨ Brixmor Operating Partnership LP Yes þ No ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer 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.
Brixmor Property Group Inc.
 
 
Brixmor Operating Partnership LP
Large accelerated filer
þ
Non-accelerated filer
¨
 
 
Large accelerated filer
¨
Non-accelerated filer
þ
Smaller reporting company
¨
Accelerated filer
¨
 
 
Smaller reporting company
¨
Accelerated filer
¨
(Do not check if a smaller reporting company)

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

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
As of October 1, 2015, Brixmor Property Group Inc. had 298,488,602 shares of common stock outstanding.





EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2015 of Brixmor Property Group Inc. and Brixmor Operating Partnership LP. Unless stated otherwise or the context otherwise requires, references to the “Parent Company” or “BPG” mean Brixmor Property Group Inc. and its consolidated subsidiaries; and references to the “Operating Partnership” mean Brixmor Operating Partnership LP and its consolidated subsidiaries. The terms the “Company,” “Brixmor,” “we,” “our” and “us” mean the Parent Company and the Operating Partnership, collectively.

The Parent Company is a real estate investment trust (“REIT”) which owns 100% of the common stock of BPG Subsidiary Inc. (“BPG Sub”), which, in turn, is the sole owner of Brixmor OP GP LLC, or the General Partner, the sole general partner of the Operating Partnership. As of September 30, 2015, the Parent Company beneficially owned, through its direct and indirect interest in BPG Sub and the General Partner, approximately 98.1% of the outstanding partnership common units of interest (the “OP Units”) in the Operating Partnership. Certain investments funds affiliated with The Blackstone Group L.P. and certain current and former members of the Company’s management collectively owned the remaining 1.9% interest in the Operating Partnership.

The Company believes combining the quarterly reports on Form 10-Q of the Parent Company and the Operating Partnership into this single report provides the following benefits:

Enhances investors’ understanding of the Parent Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
Eliminates duplicative disclosure and provides a more streamlined and readable presentation; and
Creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

Management operates the Parent Company and the Operating Partnership as one business. The management of the Parent Company consists of the same individuals as the management of the Operating Partnership. These individuals are officers of both the Parent Company and the Operating Partnership.

We believe it is important to understand the few differences between the Parent Company and the Operating Partnership in the context of how the Parent Company and the Operating Partnership operate as a consolidated company. The Parent Company is a REIT, whose only material asset is its indirect interest in the Operating Partnership. As a result, the Parent Company does not conduct business itself other than issuing public equity from time to time. The Parent Company does not incur any material indebtedness. The Operating Partnership holds substantially all of our assets. Except for net proceeds from public equity issuances by the Parent Company, which are contributed to the Operating Partnership in exchange for OP Units, the Operating Partnership generates all remaining capital required by the Company’s business. Sources of this capital include the Operating Partnership’s operations, its direct or indirect incurrence of indebtedness, and the issuance of OP Units.

Stockholders’ equity, partners’ capital, and non-controlling interests are the primary areas of difference between the unaudited condensed consolidated financial statements of the Parent Company and those of the Operating Partnership. The Operating Partnership’s capital includes OP Units owned by the Parent Company through BPG Sub and the General Partner as well as OP Units owned by certain investments funds affiliated with The Blackstone Group L.P. and certain current and former members of the our management. OP Units owned by third parties are accounted for in partners’ capital in the Operating Partnership’s financial statements and outside of stockholders’ equity in non-controlling interests in the Parent Company’s financial statements.

In order to highlight the differences between the Parent Company and the Operating Partnership, there are sections in this report that separately discuss the Parent Company and the Operating Partnership, including separate financial statements (but combined footnotes), separate controls and procedures sections, separate certification of periodic report under Section 302 of the Sarbanes-Oxley Act of 2002 and separate certification pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. In the sections that combine disclosure for the Parent Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company.

The Parent Company consolidates the Operating Partnership for financial reporting purposes, and the Parent Company does not have material assets other than its indirect investment in the Operating Partnership. Therefore, while stockholders’ equity and partners’ capital differ as discussed above, the assets and liabilities of the Parent Company and the Operating Partnership are materially the same on their respective financial statements.




TABLE OF CONTENTS

Item No.
 
Page
Part I - FINANCIAL INFORMATION
1.
Financial Statements
 
Brixmor Property Group Inc. (unaudited)
 
 
Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014
 
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2015 and 2014
 
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2015 and 2014
 
Condensed Consolidated Statements of Changes in Equity for the Nine Months Ended September 30, 2015 and 2014
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014
 
Brixmor Operating Partnership LP (unaudited)
 
 
Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014
 
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2015 and 2014
 
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2015 and 2014
 
Condensed Consolidated Statements of Changes in Capital for the Nine Months Ended September 30, 2015 and 2014
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014
 
Brixmor Property Group Inc. and Brixmor Operating Partnership LP (unaudited)
 
 
Notes to Condensed Consolidated Financial Statements
2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
3.
Quantitative and Qualitative Disclosures about Market Risk
4.
Controls and Procedures
Part II - OTHER INFORMATION
1.
Legal Proceedings
1A.
Risk Factors
2.
Unregistered Sales of Equity Securities and Use of Proceeds
3.
Defaults Upon Senior Securities
4.
Mine Safety Disclosures
5.
Other Information
6.
Exhibits




- 3 -




Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” “targets” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under the section entitled “Risk Factors” in our Form 10-K for the year ended December 31, 2014, as such factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission (the “SEC”), which are accessible on the SEC’s website at www.sec.gov. These factors include (1) changes in national, regional or local economic climates; (2) local conditions, including an oversupply of space in, or a reduction in 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 and expense reimbursements; (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. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our other periodic filings. The forward-looking statements speak only as of the date of this report, and we expressly disclaim any obligation or undertaking to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except to the extent otherwise required by law.



- 4 -



PART I - FINANCIAL INFORMATION

Item 1.    Financial Statements
BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited, in thousands, except share information)
 
September 30,
2015
 
December 31,
2014
Assets
 
 
 
Real estate
 
 
 
Land
$
2,015,176

 
$
2,000,415

Buildings and improvements
8,895,181

 
8,801,834

 
10,910,357

 
10,802,249

Accumulated depreciation and amortization
(1,798,676
)
 
(1,549,234
)
Real estate, net
9,111,681

 
9,253,015

 
 
 
 
Investments in and advances to unconsolidated joint ventures
5,047

 
5,072

Cash and cash equivalents
37,983

 
60,595

Restricted cash
52,763

 
53,164

Marketable securities
24,589

 
20,315

Receivables, net of allowance for doubtful accounts of $14,500 and $14,070
171,914

 
182,424

Deferred charges and prepaid expenses, net
106,512

 
94,269

Other assets
17,134

 
13,059

Total assets
$
9,527,623

 
$
9,681,913

 
 
 
 
 
 
 
 
Liabilities
 
 
 
Debt obligations, net
$
5,969,336

 
$
6,022,508

Accounts payable, accrued expenses and other liabilities
626,600

 
679,102

Total liabilities
6,595,936

 
6,701,610

 
 
 
 
Commitments and contingencies (Note 12)


 


 
 
 
 
Equity
 
 
 
Common stock, $0.01 par value; authorized 3,000,000,000 shares; 298,488,602 and
    296,552,142 shares outstanding
2,985

 
2,966

Additional paid in capital
3,260,930

 
3,223,941

Accumulated other comprehensive loss
(6,227
)
 
(4,435
)
Distributions in excess of net income/loss
(382,797
)
 
(318,762
)
Total stockholders’ equity
2,874,891

 
2,903,710

Non-controlling interests
56,796

 
76,593

Total equity
2,931,687

 
2,980,303

Total liabilities and equity
$
9,527,623

 
$
9,681,913

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



- 5 -



BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Revenues
 
 
 
 
 
 
 
Rental income
$
245,829

 
$
240,820

 
$
733,429

 
$
717,975

Expense reimbursements
65,304

 
63,479

 
200,570

 
197,730

Other revenues
1,892

 
2,170

 
6,430

 
6,290

Total revenues
313,025

 
306,469

 
940,429

 
921,995

 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
Operating costs
27,952

 
28,792

 
93,779

 
95,556

Real estate taxes
45,472

 
44,346

 
133,635

 
132,592

Depreciation and amortization
102,439

 
111,104

 
315,424

 
333,924

Provision for doubtful accounts
1,953

 
2,771

 
6,973

 
8,617

Impairment of real estate assets

 

 
807

 

General and administrative
22,030

 
19,624

 
73,030

 
59,221

Total operating expenses
199,846

 
206,637

 
623,648

 
629,910

 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
Dividends and interest
57

 
169

 
241

 
436

Interest expense
(61,567
)
 
(65,545
)
 
(186,289
)
 
(199,464
)
Gain on sale of real estate assets

 

 
9,224

 
378

Gain (loss) on extinguishment of debt, net
137

 
460

 
922

 
(2,573
)
Other
2,880

 
(1,205
)
 
(115
)
 
(5,335
)
Total other expense
(58,493
)
 
(66,121
)
 
(176,017
)
 
(206,558
)
 
 
 
 
 
 
 
 
Income before equity in income of unconsolidated joint ventures
54,686

 
33,711

 
140,764

 
85,527

Equity in income of unconsolidated joint ventures
133

 
112

 
358

 
248

Gain on disposition of investments in unconsolidated joint ventures

 

 

 
1,820

Income from continuing operations
54,819

 
33,823

 
141,122

 
87,595

 
 
 
 
 
 
 
 
Discontinued operations
 
 
 
 
 
 
 
Income from discontinued operations

 
41

 

 
4,881

Gain on disposition of operating properties

 

 

 
14,426

Income from discontinued operations

 
41

 

 
19,307

 
 
 
 
 
 
 
 
Net income
54,819

 
33,864

 
141,122

 
106,902

 
 
 
 
 
 
 
 
Net income attributable to non-controlling interests
(1,046
)
 
(6,834
)
 
(2,814
)
 
(40,998
)
 
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
53,773

 
$
27,030

 
$
138,308

 
$
65,904

Per common share:
 
 
 
 
 
 
 
Income from continuing operations:
 
 
 
 
 
 
 
Basic
$
0.18

 
$
0.11

 
$
0.46

 
$
0.28

Diluted
$
0.18

 
$
0.11

 
$
0.46

 
$
0.28

Net income attributable to common stockholders:
 
 
 
 
 
 
 
Basic
$
0.18

 
$
0.11

 
$
0.46

 
$
0.28

Diluted
$
0.18

 
$
0.11

 
$
0.46

 
$
0.28

Weighted average shares:
 
 
 
 
 
 
 
Basic
298,464

 
244,078

 
297,714

 
233,781

Diluted
298,936

 
244,835

 
304,706

 
234,920

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

- 6 -



BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
54,819

 
$
33,864

 
$
141,122

 
$
106,902

Other comprehensive income (loss)
 
 
 
 
 
 
 
Unrealized gain (loss) on interest rate hedges
(2,477
)
 
1,998

 
(9,150
)
 
(4,532
)
Amortization of interest rate swaps to interest expense
2,365

 
2,519

 
7,319

 
7,473

Unrealized gain (loss) on marketable securities
21

 
(18
)
 
39

 
5

Total other comprehensive income (loss)
(91
)
 
4,499

 
(1,792
)
 
2,946

Comprehensive income
54,728

 
38,363

 
139,330

 
109,848

Comprehensive income attributable to non-controlling interests
(1,046
)
 
(6,834
)
 
(2,814
)
 
(40,998
)
Comprehensive income attributable to the Company
$
53,682

 
$
31,529

 
$
136,516

 
$
68,850

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




- 7 -



BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited, in thousands)

 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
Number
 
Amount
 
Additional Paid in Capital
 
Accumulated
Other
Comprehensive
Loss
 
Distributions in Excess of Net Income/Loss
 
Non-controlling Interests
 
Total
Beginning balance, January 1, 2014
229,689

 
$
2,297

 
$
2,543,690

 
$
(6,812
)
 
$
(196,707
)
 
$
942,052

 
$
3,284,520

Common stock dividends ($0.60 per common share)

 

 

 

 
(144,240
)
 

 
(144,240
)
Distributions to non-controlling interests

 

 

 

 

 
(38,589
)
 
(38,589
)
Redemption of Series A

 

 
6,222

 

 

 
(201,400
)
 
(195,178
)
Equity based compensation expense

 

 
5,404

 

 

 
1,615

 
7,019

Acquisition of non-controlling interests

 

 
437

 

 

 
(1,437
)
 
(1,000
)
Other comprehensive income

 

 

 
2,946

 

 

 
2,946

Conversion of Operating Partnership units and BPG Sub shares into common stock
15,406

 
154

 
155,086

 

 

 
(155,240
)
 

Net income

 

 

 

 
65,904

 
40,032

 
105,936

Ending balance, September 30, 2014
245,095

 
$
2,451

 
$
2,710,839

 
$
(3,866
)
 
$
(275,043
)
 
$
587,033

 
$
3,021,414

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance, January 1, 2015
296,552

 
$
2,966

 
$
3,223,941

 
$
(4,435
)
 
$
(318,762
)
 
$
76,593

 
$
2,980,303

Common stock dividends ($0.675 per common share)

 

 

 

 
(202,343
)
 

 
(202,343
)
Distributions to non-controlling interests

 

 

 

 

 
(4,554
)
 
(4,554
)
Equity based compensation expense

 

 
18,939

 

 

 
420

 
19,359

Issuance of common stock and OP Units
33

 

 
(743
)
 

 

 
765

 
22

Other comprehensive loss

 

 

 
(1,792
)
 

 

 
(1,792
)
Conversion of Operating Partnership units into common stock
1,903

 
19

 
19,223

 

 

 
(19,242
)
 

Shared-based awards retained for taxes

 

 
(430
)
 

 

 

 
(430
)
Net income

 

 

 

 
138,308

 
2,814

 
141,122

Ending balance, September 30, 2015
298,488

 
$
2,985

 
$
3,260,930

 
$
(6,227
)
 
$
(382,797
)
 
$
56,796

 
$
2,931,687

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



- 8 -



BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
Nine Months Ended
September 30,
 
2015
 
2014
Operating activities:
 
 
 
Net income
$
141,122

 
$
106,902

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
315,424

 
334,515

Debt premium and discount amortization
(13,972
)
 
(15,524
)
Deferred financing cost amortization
6,236

 
6,708

Above- and below-market lease intangible amortization
(34,367
)
 
(35,090
)
Provisions for impairment
807

 

 Gain on disposition of operating properties and disposition of investments in unconsolidated joint ventures
(9,224
)
 
(16,624
)
Equity based compensation
19,359

 
7,019

Other
106

 
(214
)
Gain on extinguishment of debt, net
(4,502
)
 
(4,245
)
Changes in operating assets and liabilities:
 
 
 
Restricted cash
(1,782
)
 
11,007

Receivables
10,502

 
6,513

Deferred charges and prepaid expenses
(23,932
)
 
(29,787
)
Other assets
(295
)
 
357

Accounts payable, accrued expenses and other liabilities
6,442

 
753

Net cash provided by operating activities
411,924

 
372,290

 
 
 
 
Investing activities:
 
 
 
Improvements to and investments in real estate assets
(147,393
)
 
(146,499
)
Acquisitions of real estate assets
(52,278
)
 

Proceeds from sales of real estate assets
41,795

 
2,778

Distributions from unconsolidated joint venture

 
187

Change in restricted cash attributable to investing activities
2,182

 
7,321

Purchase of marketable securities
(19,320
)
 
(20,250
)
Proceeds from sale of marketable securities
15,014

 
21,414

Net cash used in investing activities
(160,000
)
 
(135,049
)
 
 
 
 
Financing activities:
 
 
 
Repayment of debt obligations and financing liabilities
(733,815
)
 
(827,460
)
Repayment of borrowings under unsecured revolving credit facility
(1,118,475
)
 
(675,047
)
Proceeds from borrowings under unsecured revolving credit facility
619,000

 
826,343

Proceeds from unsecured term loan and notes
1,188,146

 
600,000

Deferred financing costs
(3,153
)
 
(2,995
)
Distributions to common stockholders
(201,398
)
 
(124,128
)
Distributions to non-controlling interests
(24,841
)
 
(55,111
)
Net cash used in financing activities
(274,536
)
 
(258,398
)
 
 
 
 
Change in cash and cash equivalents
(22,612
)
 
(21,157
)
Cash and cash equivalents at beginning of period
60,595

 
113,915

Cash and cash equivalents at end of period
$
37,983

 
$
92,758

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest, net of amount capitalized of $2,131 and $2,776
$
191,125

 
$
216,720

Supplemental non-cash investing and/or financing activities:
 
 
 
Net carrying value of properties distributed to non-controlling owners
$

 
$
178,969

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


- 9 -



BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited, in thousands, except unit information)
 
September 30,
2015
 
December 31,
2014
Assets
 
 
 
Real estate
 
 
 
Land
$
2,015,176

 
$
2,000,415

Buildings and improvements
8,895,181

 
8,801,834

 
10,910,357

 
10,802,249

Accumulated depreciation and amortization
(1,798,676
)
 
(1,549,234
)
Real estate, net
9,111,681

 
9,253,015

 
 
 
 
Investments in and advances to unconsolidated joint ventures
5,047

 
5,072

Cash and cash equivalents
37,947

 
60,450

Restricted cash
52,763

 
53,164

Marketable securities
24,378

 
20,113

Receivables, net of allowance for doubtful accounts of $14,500 and $14,070
171,914

 
182,424

Deferred charges and prepaid expenses, net
106,512

 
94,269

Other assets
17,134

 
13,059

Total assets
$
9,527,376

 
$
9,681,566

 
 
 
 
 
 
 
 
Liabilities
 
 
 
Debt obligations, net
$
5,969,336

 
$
6,022,508

Accounts payable, accrued expenses and other liabilities
626,600

 
679,102

Total liabilities
6,595,936

 
6,701,610

 
 
 
 
Commitments and contingencies (Note 12)


 


 
 
 
 
Capital
 
 
 
Partnership common units: 304,286,518 and 304,246,750 units outstanding
2,937,656

 
2,984,381

Accumulated other comprehensive loss
(6,216
)
 
(4,425
)
Total capital
2,931,440

 
2,979,956

Total liabilities and capital
$
9,527,376

 
$
9,681,566

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


- 10 -



BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per unit data)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Revenues
 
 
 
 
 
 
 
Rental income
$
245,829

 
$
240,820

 
$
733,429

 
$
717,975

Expense reimbursements
65,304

 
63,479

 
200,570

 
197,730

Other revenues
1,892

 
2,170

 
6,430

 
6,290

Total revenues
313,025

 
306,469

 
940,429

 
921,995

 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
Operating costs
27,952

 
28,792

 
93,779

 
95,556

Real estate taxes
45,472

 
44,346

 
133,635

 
132,592

Depreciation and amortization
102,439

 
111,104

 
315,424

 
333,924

Provision for doubtful accounts
1,953

 
2,771

 
6,973

 
8,617

Impairment of real estate assets

 

 
807

 

General and administrative
22,030

 
19,624

 
73,030

 
59,221

Total operating expenses
199,846

 
206,637

 
623,648

 
629,910

 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
Dividends and interest
57

 
169

 
241

 
436

Interest expense
(61,567
)
 
(65,545
)
 
(186,289
)
 
(199,464
)
Gain on sale of real estate assets

 

 
9,224

 
378

Gain (loss) on extinguishment of debt, net
137

 
460

 
922

 
(2,573
)
Other
2,880

 
(1,205
)
 
(115
)
 
(5,335
)
Total other expense
(58,493
)
 
(66,121
)
 
(176,017
)
 
(206,558
)
 
 
 
 
 
 
 
 
Income before equity in income of unconsolidated joint ventures
54,686

 
33,711

 
140,764

 
85,527

Equity in income of unconsolidated joint ventures
133

 
112

 
358

 
248

Gain on disposition of investments in unconsolidated joint ventures

 

 

 
1,820

Income from continuing operations
54,819

 
33,823

 
141,122

 
87,595

 
 
 
 
 
 
 
 
Discontinued operations
 
 
 
 
 
 
 
Income from discontinued operations

 
41

 

 
4,881

Gain on disposition of operating properties

 

 

 
14,426

Income from discontinued operations

 
41

 

 
19,307

 
 
 
 
 
 
 
 
Net income
54,819

 
33,864

 
141,122

 
106,902

 
 
 
 
 
 
 
 
Net income attributable to non-controlling interests

 
(322
)
 

 
(966
)
 
 
 
 
 
 
 
 
Net income attributable to Brixmor Operating Partnership LP
$
54,819

 
$
33,542

 
$
141,122

 
$
105,936

Net income attributable to:
 
 
 
 
 
 
 
  Series A interest
$

 
$

 
$

 
$
21,014

  Partnership common units
54,819

 
33,542

 
141,122

 
84,922

Net income attributable to Brixmor Operating Partnership LP
$
54,819

 
$
33,542

 
$
141,122

 
$
105,936

Per common unit:
 
 
 
 
 
 
 
Income from continuing operations:
 
 
 
 
 
 
 
Basic
$
0.18

 
$
0.11

 
$
0.46

 
$
0.28

Diluted
$
0.18

 
$
0.11

 
$
0.46

 
$
0.28

Net income attributable to partnership common units:
 
 
 
 
 
 
 
Basic
$
0.18

 
$
0.11

 
$
0.46

 
$
0.28

Diluted
$
0.18

 
$
0.11

 
$
0.46

 
$
0.28

Weighted average number of partnership common units:
 
 
 
 
 
 
 
Basic
304,270

 
302,890

 
303,899

 
302,407

Diluted
304,742

 
303,647

 
304,706

 
303,546

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

- 11 -



BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
54,819

 
$
33,864

 
$
141,122

 
$
106,902

Other comprehensive income (loss)
 
 
 
 
 
 
 
Unrealized gain (loss) on interest rate hedges
(2,477
)
 
1,998

 
(9,150
)
 
(4,532
)
Amortization of interest rate swaps to interest expense
2,365

 
2,519

 
7,319

 
7,473

Unrealized gain (loss) on marketable securities
21

 
(16
)
 
40

 
2

Total other comprehensive income (loss)
(91
)
 
4,501

 
(1,791
)
 
2,943

Comprehensive income
54,728

 
38,365

 
139,331

 
109,845

Comprehensive income attributable to non-controlling interests

 
(322
)
 

 
(966
)
Comprehensive income attributable to Brixmor Operating Partnership LP
$
54,728

 
$
38,043

 
$
139,331

 
$
108,879

Comprehensive income attributable to:
 
 
 
 
 
 
 
  Series A interest
$

 
$

 
$

 
$
21,014

  Partnership common units
54,728

 
38,043

 
139,331

 
87,865

Comprehensive income attributable to Brixmor Operating Partnership LP
$
54,728

 
$
38,043

 
$
139,331

 
$
108,879

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


- 12 -



BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL
(Unaudited, in thousands)

 
 
 
 
 
 
 
 
 
 
 
Partnership Common Units
 
Series A Interest
 
Accumulated Other Comprehensive Loss
 
Non-controlling Interests
 
Total
Beginning balance, January 1, 2014
$
3,108,398

 
$
180,386

 
$
(6,797
)
 
$
1,437

 
$
3,283,424

Distributions to partners
(182,079
)
 

 

 

 
(182,079
)
Redemption of Series A interest
6,222

 
(201,400
)
 

 

 
(195,178
)
Equity based compensation expense
7,019

 

 

 

 
7,019

Acquisition of non-controlling interests
437

 

 

 
(1,437
)
 
(1,000
)
Other comprehensive income

 

 
2,943

 

 
2,943

Net income
84,922

 
21,014

 

 

 
105,936

Ending balance, September 30, 2014
$
3,024,919

 
$

 
$
(3,854
)
 
$

 
$
3,021,065

 
 
 
 
 
 
 
 
 
 
Beginning balance, January 1, 2015
$
2,984,381

 
$

 
$
(4,425
)
 
$

 
$
2,979,956

Distributions to partners
(206,798
)
 

 

 

 
(206,798
)
Equity based compensation expense
19,359

 

 

 

 
19,359

Other comprehensive loss

 

 
(1,791
)
 

 
(1,791
)
Issuance of OP Units
22

 
 
 

 
 
 
22

Share-based awards retained for taxes
(430
)
 

 

 

 
(430
)
Net income
141,122

 

 

 

 
141,122

Ending balance, September 30, 2015
$
2,937,656

 
$

 
$
(6,216
)
 
$

 
$
2,931,440

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


- 13 -



BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
Nine Months Ended
September 30,
 
2015
 
2014
Operating activities:
 
 
 
Net income
$
141,122

 
$
106,902

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
315,424

 
334,515

Debt premium and discount amortization
(13,972
)
 
(15,524
)
Deferred financing cost amortization
6,236

 
6,708

Above- and below-market lease intangible amortization
(34,367
)
 
(35,090
)
Provisions for impairment
807

 

 Gain on disposition of operating properties and disposition of investments in unconsolidated joint ventures
(9,224
)
 
(16,624
)
Equity based compensation
19,359

 
7,019

Other
106

 
(214
)
Gain on extinguishment of debt, net
(4,502
)
 
(4,245
)
Changes in operating assets and liabilities:
 
 
 
Restricted cash
(1,782
)
 
11,007

Receivables
10,502

 
6,513

Deferred charges and prepaid expenses
(23,932
)
 
(29,787
)
Other assets
(295
)
 
357

Accounts payable, accrued expenses and other liabilities
6,444

 
760

Net cash provided by operating activities
411,926

 
372,297

 
 
 
 
Investing activities:
 
 
 
Improvements to and investments in real estate assets
(147,393
)
 
(146,499
)
Acquisitions of real estate assets
(52,278
)
 

Proceeds from sales of real estate assets
41,795

 
2,778

Distributions from unconsolidated joint venture

 
187

Change in restricted cash attributable to investing activities
2,182

 
7,321

Purchase of marketable securities
(19,316
)
 
(20,243
)
Proceeds from sale of marketable securities
15,014

 
21,414

Net cash used in investing activities
(159,996
)
 
(135,042
)
 
 
 
 
Financing activities:
 
 
 
Repayment of debt obligations and financing liabilities
(733,815
)
 
(827,460
)
Repayment of borrowings under unsecured revolving credit facility
(1,118,475
)
 
(675,047
)
Proceeds from borrowings under unsecured revolving credit facility
619,000

 
826,343

Proceeds from unsecured term loan and notes
1,188,146

 
600,000

Deferred financing costs
(3,153
)
 
(2,995
)
Partner distributions
(206,266
)
 
(177,531
)
Distributions to non-controlling interests
(19,870
)
 
(966
)
Net cash used in financing activities
(274,433
)
 
(257,656
)
 
 
 
 
Change in cash and cash equivalents
(22,503
)
 
(20,401
)
Cash and cash equivalents at beginning of period
60,450

 
113,006

Cash and cash equivalents at end of period
$
37,947

 
$
92,605

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest, net of amount capitalized of $2,131 and $2,776
$
191,125

 
$
216,720

Supplemental non-cash investing and/or financing activities:
 
 
 
Net carrying value of properties distributed to non-controlling owners
$

 
$
178,969

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


- 14 -



BRIXMOR PROPERTY GROUP INC. AND BRIXMOR OPERATING PARTNERSHIP LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, unless otherwise stated)

1. Nature of Business and Financial Statement Presentation
Description of Business
Brixmor Property Group Inc. and subsidiaries (collectively, the “Parent Company”) is an internally-managed REIT. Brixmor Operating Partnership LP and subsidiaries (collectively, the “Operating Partnership”) is the entity through which the Parent Company conducts substantially all of its operations and owns substantially all of its assets. The Parent Company owns 100% of the common stock of BPG Subsidiary Inc. (“BPG Sub”), which, in turn, is the sole member of Brixmor OP GP LLC (the “General Partner”), the sole general partner of the Operating Partnership. The Parent Company engages in the ownership, management, leasing, acquisition and development of retail shopping centers through the Operating Partnership, and has no other substantial assets or liabilities other than through its investment in the Operating Partnership. The Parent Company, the Operating Partnership and their controlled subsidiaries on a consolidated basis (collectively the “Company” or “Brixmor”) owns and operates the largest wholly-owned portfolio of grocery-anchored community and neighborhood shopping centers in the United States.

As of September 30, 2015, the Parent Company beneficially owned, through its direct and indirect interest in BPG Sub and the General Partner, 98.1% of the outstanding partnership common units of interest in the Operating Partnership (“OP Units”). Certain investments funds affiliated with The Blackstone Group L.P. (together with such affiliated funds, “Blackstone”) and certain members of the Parent Company’s current and former management collectively owned the remaining 1.9% of the outstanding OP Units. Holders of OP Units (other than the Parent Company, BPG Sub and the General Partner) may redeem their OP Units for cash based upon the market value of an equivalent number of shares of the Parent Company’s common stock or, at the Parent Company’s election, exchange their OP Units for shares of the Parent Company’s common stock on a one-for-one basis subject to customary conversion rate adjustments for splits, unit distributions and reclassifications. The number of OP Units in the Operating Partnership beneficially owned by the Parent Company is equivalent to the number of outstanding shares of the Parent Company’s common stock, and the entitlement of all OP Units to quarterly distributions and payments in liquidation is substantially the same as those of the Parent Company’s common stockholders.

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”).

Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for the fair presentation of the unaudited Condensed Consolidated Financial Statements for the periods presented have been included. The operating results for the periods presented are not necessarily indicative of the results that may be expected for a full fiscal year. These financial statements should be read in conjunction with the financial statements for the year ended December 31, 2014 and accompanying notes included in the Company's annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 19, 2015.

Certain prior period balances in the accompanying unaudited Condensed Consolidated Statements of Operations have been reclassified to conform to the current period presentation for the results of discontinued operations and certain prior period balances in the accompanying unaudited Condensed Consolidated Balance Sheets have been reclassified to conform to the current period presentation for the adoption of Accounting Standards Update (“ASU”) 2015-03,“Interest - Imputation of Interest (Topic 835): Simplifying the Presentation of Debt Issuance Costs.”

Principles of Consolidation
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of the Parent Company, the Operating Partnership, each of their wholly owned subsidiaries and all other entities in which they have a controlling financial interest. The portions of consolidated entities not owned by the Parent Company and the Operating

- 15 -



Partnership are presented as non-controlling interests as of and during the periods presented. All intercompany transactions have been eliminated.

Subsequent Events
In preparing the unaudited Condensed Consolidated Financial Statements, the Company has evaluated events and transactions occurring after September 30, 2015 for recognition or disclosure purposes. Based on this evaluation, there were no subsequent events from September 30, 2015 through the date the financial statements were issued.

Income Taxes
The Parent Company has elected to qualify as a REIT in accordance with the Internal Revenue Code (the “Code”). To qualify as a REIT, the Parent Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute 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 Parent Company’s REIT status.

As a REIT, the Parent 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 Parent 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.

The Parent Company does not have any taxable REIT subsidiaries, but may in the future elect to treat newly formed subsidiaries as taxable REIT subsidiaries which would be subject to income tax. Taxable REIT subsidiaries may participate in non-real estate-related activities and/or perform non-customary services for tenants and are subject to United States federal and state income tax at regular corporate tax rates.

The Operating Partnership is organized as a limited partnership and is generally not subject to federal income tax. Accordingly, no provision for federal income taxes has been reflected in the accompanying unaudited Condensed Consolidated Financial Statements. The Operating Partnership, however, may be subject to certain state and local income taxes or franchise taxes. During the three and nine months ended September 30, 2015, the Company recognized $3.9 million of income related to certain federal and state tax contingencies. These amounts are included in Other on the Company's unaudited Condensed Consolidated Statements of Operations.

The Company has analyzed the tax position taken on income tax returns for the open 2012 through 2014 tax years and has concluded that no provision for income taxes related to uncertain tax positions is required in the Company’s unaudited Condensed Consolidated Financial Statements as of September 30, 2015 and December 31, 2014.

New Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board ("FASB") issued ASU 2015-03, “Interest - Imputation of Interest (Topic 835): Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. ASU 2015-03 is effective for annual reporting periods beginning after December 15, 2015. Early adoption is permitted. The Company elected to early adopt ASU 2015-03 beginning with the period ending June 30, 2015 (see Note 6). The adoption of ASU 2015-03 did not have a material impact on the Company’s financial position or results of operations.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” ASU No. 2014-09 contains a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.  The guidance in ASU No. 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards.  The core principle of the guidance is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  For public entities, ASU No. 2014-09, as amended by ASU No. 2015-14, is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.  Early application is not permitted.  The Company is currently in the process of evaluating the impact the adoption of ASU No. 2014-09 will have on the unaudited Condensed Consolidated Financial Statements of the Company. 
 

- 16 -



Any other recently issued accounting standards or pronouncements not disclosed above have been excluded as they either are not relevant to the Company, or they are not expected to have a material effect on the unaudited Condensed Consolidated Financial Statements of the Company.

2. Acquisition of Real Estate
During the nine months ended September 30, 2015, the Company acquired the following properties, in separate transactions (dollars in thousands):
 
 
 
 
Purchase Price
Property Name
Location
Month Acquired
 
Cash
 
Debt Assumed
 
Total
 
GLA
Retail Building at Bardin Place Center
Arlington, TX
Jun-15
 
$
9,258

 
$

 
$
9,258

 
96,127

Larchmont Centre
Mt. Laurel, NJ
Jun-15
 
11,000

 
7,000

 
18,000

 
103,787

Webster Square Shopping Center
Marshfield, MA
Jun-15
 
31,950

 

 
31,950

 
182,756

 
 
 
 
$
52,208

 
$
7,000

 
$
59,208

 
382,670


The purchase price for these acquisitions has been allocated to real estate and related intangible assets acquired and liabilities assumed, as applicable, in accordance with our accounting policies for business combinations. The aggregate purchase price of the properties acquired during the nine months ended September 30, 2015, has been allocated as follows: 
Assets
 
 
 
Land
$
13,004

 
 
Buildings
35,606

 
 
Building Improvements
4,671

 
 
Tenant Improvements
2,335

 
 
Above Market Rents
95

 
 
In-Place Leases
4,101

 
Real estate, net
59,812

 
Deferred charges and prepaid expenses, net
1,792

Total assets
$
61,604

 
 
 
 
Liabilities
 
 
 
Mortgage payable
$
7,000

 
 
Mortgage Fair Value Adjustment
440

 
Debt obligations, net
7,440

 
Accounts payable, accrued expenses and other liabilities (Below Market Leases)
1,956

Total liabilities
9,396

Net Assets Acquired
$
52,208


In addition the Company acquired the following land parcels adjacent to existing Company owned shopping centers in connection with its repositioning activities at those centers: (i) during the three months ended September 30, 2015, two land parcels for an aggregate purchase price of $6.5 million; (ii) during the nine months ended September 30, 2015, four land parcels for an aggregate purchase price of $8.6 million; and (iii) during the nine months ended September 30, 2014, three land parcels for an aggregate purchase price of $12.3 million.

The real estate operations acquired were not considered material to the Company, individually or in the aggregate, and therefore pro forma financial information is not necessary.

During the nine months ended September 30, 2015 the Company incurred acquisition related expenses of $1.6 million. These amounts are included in Other on the unaudited Condensed Consolidated Statements of Operations.
 



- 17 -


3.    Disposals, Discontinued Operations and Assets Held for Sale
During the nine months ended September 30, 2015, the Company disposed of four shopping centers and two outparcels for net proceeds of $41.8 million resulting in an aggregate gain of $9.2 million and an aggregate impairment of $0.8 million. The impairment charge was based upon the sales price in the signed contract with the third party buyer, adjusted to reflect associated disposition costs. These inputs are classified as Level 3 of the fair value hierarchy.
The Company had no properties held for sale as of September 30, 2015.

As a result of adopting ASU No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,” there were no discontinued operations for the three and nine months ended September 30, 2015 as none of the current year disposals represented a strategic shift in the Company’s business that would qualify as discontinued operations. The following table provides a summary of revenues and expenses from properties included in discontinued operations during the three and nine months ended September 30, 2014:

 
Three Months Ended September 30, 2014
 
Nine Months Ended September 30, 2014
Discontinued operations:
 
 
 
Revenues
$
123

 
$
637

Operating expenses
(82
)
 
(1,571
)
Other income (expense), net

 
5,815

Income from discontinued operating properties
41

 
4,881

Gain on disposition of operating properties

 
14,426

Income from discontinued operations
$
41

 
$
19,307


Discontinued operations includes the results of 34 shopping centers disposed of during the year ended December 31, 2014, including 33 shopping centers distributed to Blackstone in connection with the Company's initial public offering ("IPO").

4.    Real Estate
The Company’s components of Real estate, net consisted of the following:
 
September 30, 2015
 
December 31, 2014
Land
$
2,015,176

 
$
2,000,415

Buildings and improvements:
 
 
 
Building
7,355,922

 
7,332,073

Building and tenant improvements
652,530

 
552,351

Other rental property (1)
886,729

 
917,410

 
10,910,357

 
10,802,249

Accumulated depreciation and amortization (1)
(1,798,676
)
 
(1,549,234
)
Total
$
9,111,681

 
$
9,253,015

(1) 
At September 30, 2015 and December 31, 2014, Other rental property consisted of intangible assets including: (i) $805.7 million and $833.3 million, respectively, of in-place lease value, (ii) $81.1 million and $84.1 million, respectively, of above-market leases, and (iii) $592.7 million and $550.4 million, respectively, of accumulated amortization. These intangible assets are amortized over the term of each related lease.

In addition, at September 30, 2015 and December 31, 2014, the Company had intangible liabilities relating to below-market leases of $515.2 million and $528.7 million, respectively, and accumulated amortization of $230.9 million and $202.7 million, respectively. These intangible liabilities, which are included in Accounts payable, accrued expenses and other liabilities in the Company’s unaudited Condensed Consolidated Balance Sheets, are accreted 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, 2015 and 2014 was $10.8 million and $18.1 million, respectively. Amortization expense associated with the above mentioned intangible assets and liabilities recognized for the nine months ended September 30, 2015 and 2014 was $33.5 million and $58.4 million, respectively. The estimated net amortization expense associated

- 18 -


with the Company’s intangible assets and liabilities for the next five years is as follows:
Year Ended December 31,
 
Estimated net amortization expense
2015 (remaining three months)
 
$
9,400

2016
 
22,995

2017
 
11,161

2018
 
5,029

2019
 
2,908


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.

5.    Financial Instruments - Derivatives and Hedging
The Company’s use of derivative instruments is limited to the utilization of interest rate agreements or other instruments to manage interest rate risk exposures and not for speculative purposes. In certain situations, the Company may enter into derivative financial instruments such as interest rate swap and interest rate cap agreements 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
The Company uses interest rate swaps to manage its exposure to changes in benchmark interest rates. 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 three and nine months ended September 30, 2015 and 2014, the Company did not enter into any new interest rate swap agreements.

A detail of the Company’s interest rate derivatives designated as cash flow hedges outstanding as of September 30, 2015 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 unaudited 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, 2015 and December 31, 2014, respectively, is as follows:
 
 
Fair Value of Derivative Instruments
Interest rate swaps classified as:
 
September 30, 2015
 
December 31, 2014
Gross derivative assets
 
$

 
$

Gross derivative liabilities
 
(6,255
)
 
(4,423
)
Net derivative liability
 
$
(6,255
)
 
$
(4,423
)

The gross derivative liabilities are included in accounts payable, accrued expenses and other liabilities on the unaudited Condensed Consolidated Balance Sheets. All of the Company’s outstanding interest rate swap agreements for the periods presented were designated as cash flow hedges of interest rate risk. The fair value of the Company's interest rate derivatives is determined using market standard valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. These inputs are classified as Level 2 of the fair value hierarchy. The effective portion of changes in the fair value of derivatives designated as, and that qualify as, cash flow hedges is recorded in other comprehensive income (“OCI”)

- 19 -



and is reclassified into earnings as interest expense in the period that the hedged forecasted transaction affects earnings. The Company estimates that approximately $6.3 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, 2015 and 2014.

Non-Designated (Mark-to Market) Hedges of Interest Rate Risk
The Company does not use derivatives for trading or speculative purposes. As of September 30, 2015 and December 31, 2014, the Company did not have any material non-designated hedges.

Credit-risk-related Contingent Features
The Company has agreements with its derivative counterparties that contain a provision whereby if the Company defaults on 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 $7.0 million.

6.    Debt Obligations
As of September 30, 2015 and December 31, 2014, the Company had the following indebtedness outstanding:
 
 
Carrying Value as of
 
 
 
 
 
 
September 30,
2015
 
December 31, 2014
 
Stated
Interest
Rates
 
Scheduled
Maturity
Date
Mortgage and secured loans(1)
 
 
 
 
 
 
 
 
Fixed rate mortgage and secured loans(2)
 
$
2,615,067

 
$
3,116,882

 
4.40% - 8.00%
 
2016 – 2024
Net unamortized premium
 
45,745

 
66,340

 
 
 
 
Net unamortized debt issuance cost(5)
 
(2,435
)
 
(4,381
)
 
 
 
 
Total mortgage and secured loans, net
 
$
2,658,377

 
$
3,178,841

 
 
 
 
 
 
 
 
 
 
 
 
 
Notes payables
 
 
 
 
 
 
 
 
Unsecured notes(3)
 
$
1,218,453

 
$
243,453

 
3.85% - 7.97%
 
2022 - 2029
Net unamortized discount
 
(4,834
)
 
(3,153
)
 
 
 
 
Net unamortized debt issuance cost(5)
 
(10,302
)
 

 
 
 
 
Total notes payable, net
 
$
1,203,317

 
$
240,300

 
 
 
 
 
 
 
 
 
 
 
 
 
Unsecured Credit Facility and Term Loan
 
 
 
 
 
 
 
 
Unsecured Credit Facility(4)
 
$
1,520,000

 
$
2,019,475

 
1.65%
 
2017 – 2018
Unsecured Term Loan
 
600,000

 
600,000

 
1.65%
 
2019
Net unamortized debt issuance cost(5)
 
(12,358
)
 
(16,108
)
 
 
 
 
Total Unsecured Credit Facility and Term Loan
 
$
2,107,642

 
$
2,603,367

 
 
 
 
 
 
 
 
 
 
 
 
 
Total debt obligations, net
 
$
5,969,336

 
$
6,022,508

 
 
 
 
(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, 2015 of approximately $3.9 billion.
(2) 
The weighted average interest rate on the Company’s fixed rate mortgage and secured loans was 5.93% as of September 30, 2015.
(3) 
The weighted average interest rate on the Company’s unsecured notes was 3.91% as of September 30, 2015.
(4) 
The Unsecured Credit Facility (as defined below) consists of a $1.25 billion revolving credit facility and a $1.5 billion term loan facility. The Company has in place five forward starting interest rate swap agreements that convert the floating interest rate on the $1.5 billion term loan facility to a fixed, combined interest rate of 0.844% plus an interest spread of 140 basis points. In February 2015, the Unsecured Credit Facility was amended to terminate the guarantees and release and discharge the Parent Guarantors from their respective obligations under the guarantees.
(5) 
In April 2015, the FASB issued ASU 2015-03, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Beginning with the period ending June 30, 2015, the Company elected to early adopt ASU 2015-03 and appropriately and retrospectively applied the guidance to its debt obligations for all periods presented. These amounts were previously included in Deferred charges and prepaid expenses, net on the Company’s Condensed Consolidated Balance Sheets.


- 20 -


2015 Debt Transactions
In January 2015, the Operating Partnership issued $700.0 million aggregate principal amount of 3.850% Senior Notes due 2025 (the “2025 Notes”), the proceeds of which were used to repay outstanding borrowings under its $1.25 billion unsecured revolving credit facility that had been used to repay indebtedness and financial liabilities over the course of 2014.   The 2025 Notes bear interest at a rate of 3.850% per annum, payable semi-annually on February 1 and August 1 of each year. The 2025 Notes will mature on February 1, 2025. The 2025 Notes are the Operating Partnership’s unsecured and unsubordinated obligations and rank equally in right of payment with all of the Operating Partnership’s existing and future senior unsecured and unsubordinated indebtedness. The Operating Partnership may redeem the 2025 Notes at any time in whole or from time to time in part at the applicable make-whole redemption price specified in the Indenture with respect to the 2025 Notes.  If the 2025 Notes are redeemed on or after November 1, 2024 (three months prior to the maturity date), the redemption price will be equal to 100% of the principal amount of the 2025 Notes being redeemed plus accrued and unpaid interest thereon to, but not including, the redemption date.

In August 2015, the Operating Partnership issued $500.0 million aggregate principal amount of 3.875% Senior Notes due 2022 (the “2022 Notes”), the proceeds of which were utilized to repay outstanding indebtedness, including borrowings under the Company's $1.25 billion unsecured revolving credit facility and $125 million aggregate principal amount of senior unsecured notes held at an indirect subsidiary of the Company, Brixmor LLC.  The 2022 Notes bear interest at a rate of 3.875% per annum, payable semi-annually on February 15 and August 15 of each year, commencing February 15, 2016. The 2022 Notes will mature on August 15, 2022. The 2022 Notes are the Operating Partnership’s unsecured and unsubordinated obligations and rank equally in right of payment with all of the Operating Partnership’s existing and future senior unsecured and unsubordinated indebtedness. The Operating Partnership may redeem the 2022 Notes at any time in whole or from time to time in part at the applicable make-whole redemption price specified in the Indenture with respect to the 2022 Notes.  If the 2022 Notes are redeemed on or after June 15, 2022 (two months prior to the maturity date), the redemption price will be equal to 100% of the principal amount of the 2022 Notes being redeemed plus accrued and unpaid interest thereon to, but not including, the redemption date.

In addition, during the nine months ended September 30, 2015, the Company repaid $487.7 million of mortgages and secured loans and $225.0 million of unsecured notes, resulting in a $0.9 million net gain on extinguishment of debt. These repayments were funded primarily from borrowings under the Company’s Unsecured Credit Facility.

Pursuant to the terms of an unsecured $600.0 million term loan (the “Term Loan”), a $2.75 billion senior unsecured credit facility (the “Unsecured Credit Facility”), the 2022 Notes and the 2025 Notes, the Company among other things is subject to maintenance of various financial covenants. The Company is currently in compliance with these covenants.

Debt Maturities
As of September 30, 2015 and December 31, 2014, the Company had accrued interest of $23.3 million and $20.4 million outstanding, respectively. As of September 30, 2015, scheduled maturities of the Company’s outstanding debt obligations were as follows:
Year ending December 31,
 
 
2015 (remaining three months)
 
$
8,142

2016
 
1,257,862

2017
 
369,659

2018
 
1,519,476

2019
 
620,126

Thereafter
 
2,178,255

Total debt maturities
 
5,953,520

Net unamortized premiums on mortgages
 
45,745

Net unamortized discount on notes
 
(4,834
)
Net unamortized debt issuance costs
 
(25,095
)
Total debt obligations
 
$
5,969,336





- 21 -


7.     Fair Value Disclosures
All financial instruments of the Company are reflected in the accompanying unaudited Condensed Consolidated Balance Sheets at amounts which, in management’s judgment, reasonably approximate their fair values, except those instruments listed below:
 
 
September 30, 2015
 
December 31, 2014
 
 
Carrying
Amounts
 
Fair
Value
 
Carrying
Amounts
 
Fair
Value
 
 
Mortgage and secured loans payable
$
2,658,377

 
$
2,793,090

 
$
3,178,841

 
$
3,337,250

 
Notes payable
1,203,317

 
1,209,590

 
240,300

 
252,441

 
Unsecured credit facility and term loan
2,107,642

 
2,120,000

 
2,603,367

 
2,619,475

 
Total debt obligations
$
5,969,336

 
$
6,122,680

 
$
6,022,508

 
$
6,209,166


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

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

The valuation methodology used to estimate the fair value of the Company’s debt obligations is based on discounted cash flows, with assumptions that include credit spreads, loan amounts and debt maturities. The Company determined that the valuations of its debt obligations are classified within Level 3 of the fair value hierarchy. Such fair value estimates are not necessarily indicative of the amounts that would be realized upon disposition.
 
The Company’s marketable securities and interest rate derivatives are measured at fair value on a recurring basis. At September 30, 2015 and December 31, 2014, the fair values of the marketable securities are based on published values, securities dealers’ estimated market values or comparable market sales and fall within Level 2 of the fair value hierarchy. See Note 5 for fair value information on the interest rate derivatives.

The Company’s impairment charges are measured at fair value on a non-recurring basis. See Note 3 for fair value information on the impairment charges.

8. Equity and Capital
During the nine months ended September 30, 2015, the Parent Company entered into an at-the-market equity offering program ("ATM") through which the Parent Company may sell from time to time up to an aggregate of $400.0 million of its common stock through sales agents over a three-year period. There were no shares issued under the ATM for the three and nine months ended September 30, 2015. As of September 30, 2015, $400.0 million of common stock remained available for issuance under the ATM.

During the three months ended September 30, 2015 and 2014, the Company declared common stock dividends and OP unit distributions of $0.225 per share and $0.20 per share, respectively. During the nine months ended September 30, 2015 and 2014, the Company declared common stock dividends and OP unit distributions of $0.675 per share and $0.60 per share, respectively. As of September 30, 2015 and December 31, 2014, the Company had declared but unpaid common stock dividends and OP unit distributions of $69.7 million and $68.8 million, respectively. These amounts are included in accounts payable, accrued expenses and other liabilities on the Company's unaudited Condensed Consolidated Balance Sheets.

The non-controlling interests presented in these unaudited Condensed Consolidated Financial Statements relate to portions of consolidated subsidiaries held by the non-controlling interest holders.

Certain investments funds affiliated with The Blackstone Group L.P. and certain members of the Company’s management collectively owned 1.91% and 2.54% of the Operating Partnership’s outstanding vested partnership

- 22 -


common units as of September 30, 2015 and December 31, 2014, respectively. During the nine months ended September 30, 2015, 1.9 million OP Units were converted to an equal number of the Company’s common shares.

9. Stock Based Compensation
In 2011 and 2013 prior to the IPO, certain employees of the Company were granted long-term incentive awards which provided them with equity interests as an incentive to remain in the Company’s service and align executives’ interests with those of the Company’s equity holders. The awards were granted to such employees by the Partnerships, in the form of Class B Units in each of the Partnerships. The awards were granted with service, performance and market conditions. In connection with the IPO, certain of these awards vested and the vested awards were exchanged for a combination of vested common shares of the Company and vested shares of BPG Sub. The remaining unvested Class B Units as of the IPO effective date were exchanged for a combination of unvested restricted common shares of the Company and unvested restricted common shares of BPG Sub, (collectively, the “RSAs”). The RSAs are subject to the same vesting terms as those applicable to the exchanged Class B Units. During the nine months ended September 30, 2015, the achievement of the performance condition became probable and the Company recognized $9.9 million of equity based compensation expense as a component of General and administrative expense in the Consolidated Statements of Operations.

In connection with the IPO, the Board of Directors approved the 2013 Omnibus Incentive Plan (the “Plan”). The Plan provides for a maximum of 15.0 million shares of the Company’s common stock to be issued for qualified and non-qualified options, stock appreciation rights, restricted stock and restricted stock units, OP Units in the Operating Partnership, performance awards and other stock-based awards.

During the nine months ended September 30, 2015 and year ended December 31, 2014, the Company granted restricted stock units (“RSUs”) in the Company to certain employees, or at the election of certain employees, long-term incentive plan units (“LTIP Units”) in the Operating Partnership. The RSUs and LTIP Units are divided into multiple tranches, with each tranche subject to separate performance-based vesting conditions, market-based vesting conditions and service-based vesting conditions. Each award contains a threshold, target, and maximum number of units in respect to each tranche. The number of units actually earned for each tranche is determined based on performance during a specified performance period, and the earned units are then further subject to time-based vesting conditions. The aggregate number of RSUs and LTIP Units granted, assuming that the target level of performance is achieved, was 0.6 million and 0.6 million for the nine months ended September 30, 2015 and year ended December 31, 2014, respectively, with service periods ranging from one to five years.

The Company recognized $3.8 million and $1.9 million of equity based compensation expense for the three months ended September 30, 2015 and 2014, respectively. The Company recognized $19.3 million and $7.0 million of equity based compensation expense for the nine months ended September 30, 2015 and 2014, respectively. As of September 30, 2015, the Company had $14.6 million of total unrecognized compensation cost related to unvested stock compensation expected to be recognized over a weighted average period of approximately 2.3 years.

10.     Earnings per Share
Basic earnings per share (“EPS”) is calculated by dividing net income attributable to the Company’s common stockholders, including participating securities, by the weighted average number of shares outstanding for the period. Certain restricted shares issued pursuant to the Company’s share-based compensation program are considered participating securities, as such shares have rights to receive non-forfeitable dividends. Unvested restricted shares are not allocated net losses and/or any excess of dividends declared over net income, as such amounts are allocated entirely to the common stockholders. Fully-diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into shares of common stock.







- 23 -


The following table provides a reconciliation of the numerator and denominator of the EPS calculations for the three and nine months ended September 30, 2015 and 2014:
 
Three Month Ended September 30,
 
Nine Month Ended September 30,
 
2015
 
2014
 
2015
 
2014
 Computation of Basic Earnings Per Share:
 
 
 
 
 
 
 
 Income from continuing operations
$
54,819

 
$
33,823

 
$
141,122

 
$
87,595

 Income attributable to non-controlling interests
(1,046
)
 
(6,826
)
 
(2,814
)
 
(21,778
)
 Non-forfeitable dividends on unvested restricted shares
(6
)
 
(268
)
 
(17
)
 
(805
)
 Income from continuing operations attributable to common stockholders
53,767

 
26,729

 
138,291

 
65,012

 Income from discontinued operations, net of non-controlling interests

 
33

 

 
87

 Net income attributable to the Company’s common stockholders for basic earnings per share
$
53,767

 
$
26,762

 
$
138,291

 
$
65,099

 
 
 
 
 
 
 
 
 Weighted average number shares outstanding - basic
298,464

 
244,078

 
297,714

 
233,781

 
 
 
 
 
 
 
 
 Basic Earnings Per Share Attributable to the Company’s Common Stockholders:
 
 
 
 
 
 
 
 Income from continuing operations
$
0.18

 
$
0.11

 
$
0.46