Edgar Filing: Brixmor Property Group Inc.

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_____ to_____

Commission File Number: 001-36160 (Brixmor Property Group)

Commission File Number: 333-201464-01 (Brixmor Operating Partnership LP)

Brixmor Property Group Inc.

Brixmor Operating Partnership LP

(Exact Name of Registrant as Specified in Its Charter)



Maryland (Brixmor Property Group Inc.)		45-2433192
Delaware (Brixmor Operating Partnership LP)		80-0831163
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

450 Lexington Avenue, New York, New York 10017

(Address of Principal Executive Offices) (Zip Code)

212-869-3000

(Registrant’s Telephone Number, Including Area Code)

N/A

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Brixmor Property Group Inc. Yes þ No ☐ Brixmor Operating Partnership LP Yes þ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Brixmor Property Group Inc. Yes þ No ☐ Brixmor Operating Partnership LP Yes þ No ☐

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



Brixmor Property Group Inc.				Brixmor Operating Partnership LP
Large accelerated filer	þ	Non-accelerated filer	☐	Large accelerated filer	☐	Non-accelerated filer	þ
Smaller reporting company	☐	Accelerated filer	☐	Smaller reporting company	☐	Accelerated filer	☐
Emerging growth company	☐			Emerging growth company	☐
(Do not check if a smaller reporting company)

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

Brixmor Property Group Inc. ☐ Brixmor Operating Partnership LP ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Brixmor Property Group Inc. Yes ☐ No þ Brixmor Operating Partnership LP Yes ☐ No þ

(APPLICABLE ONLY TO CORPORATE ISSUERS)

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

As of October 1, 2017, Brixmor Property Group Inc. had 304,937,144 shares of common stock outstanding.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2017 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 (the "General Partner"), the sole general partner of the Operating Partnership. As of September 30, 2017, the Parent Company beneficially owned, through its direct and indirect interest in BPG Sub and the General Partner, 100% of the outstanding partnership common units of interest (the “OP Units”) in the Operating Partnership.

The Company believes combining the quarterly reports on Form 10-Q of the Parent Company and the Operating Partnership into this single report 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 currently includes OP Units owned by the Parent Company through BPG Sub and the General Partner and has in the past and may in the future include OP Units owned by third parties. OP Units owned by third parties, if any, are accounted for in partners’ capital in the Operating Partnership’s financial statements and outside of stockholders’ equity in non-controlling interests in the Parent Company’s financial statements.

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

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

TABLE OF CONTENTS



Item No.		Page
Part I - FINANCIAL INFORMATION
1.	Financial Statements	5
	Brixmor Property Group Inc. (unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016	5
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 2016	6
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016	7
	Condensed Consolidated Statements of Changes in Equity for the Nine Months Ended September 30, 2017 and 2016	8
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016	9
	Brixmor Operating Partnership LP (unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016	10
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 2016	11
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016	12
	Condensed Consolidated Statements of Changes in Capital for the Nine Months Ended September 30, 2017 and 2016	13
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016	14
	Brixmor Property Group Inc. and Brixmor Operating Partnership LP (unaudited)
	Notes to Condensed Consolidated Financial Statements	15
2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33
3.	Quantitative and Qualitative Disclosures about Market Risk	48
4.	Controls and Procedures	48
Part II - OTHER INFORMATION
1.	Legal Proceedings	49
1A.	Risk Factors	49
2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
3.	Defaults Upon Senior Securities	49
4.	Mine Safety Disclosures	49
5.	Other Information	49
6.	Exhibits	50

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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, 2016, as such factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission (the “SEC”), which are accessible on the SEC’s website at http://www.sec.gov. These factors include (1) changes in national, regional or local economic climates; (2) local market conditions, including an oversupply of space in, or a reduction in demand for, properties similar to those in our Portfolio; (3) changes in market rental rates; (4) changes in the regional demographics surrounding our properties; (5) competition from other available properties and the attractiveness of properties in our Portfolio to our tenants; (6) the financial stability of tenants, including the ability of tenants to pay rent and expense reimbursements; (7) in the case of percentage rent, the sales volume of our tenants; and (8) litigation and governmental investigations discussed under the heading “Legal Matters” in Note 13 - Commitments and Contingencies to our unaudited Condensed Consolidated Financial Statements in this report. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our other periodic filings. The forward-looking statements speak only as of the date of this report, and we expressly disclaim any obligation or undertaking to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except to the extent otherwise required by law.

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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, 2017			December 31, 2016
Assets
Real estate
Land	$	1,985,781		$	2,006,655
Buildings and improvements	8,944,738			9,002,403
	10,930,519			11,009,058
Accumulated depreciation and amortization	(2,320,090		)	(2,167,054		)
Real estate, net	8,610,429			8,842,004

Investments in and advances to unconsolidated joint venture	—			7,921
Cash and cash equivalents	29,978			51,402
Restricted cash	112,040			51,467
Marketable securities	28,840			25,573
Receivables, net of allowance for doubtful accounts of $16,177 and $16,756	219,873			178,216
Deferred charges and prepaid expenses, net	143,140			122,787
Other assets	51,920			40,315
Total assets	$	9,196,220		$	9,319,685


Liabilities
Debt obligations, net	$	5,713,688		$	5,838,889
Accounts payable, accrued expenses and other liabilities	561,191			553,636
Total liabilities	6,274,879			6,392,525

Commitments and contingencies (Note 13)

Equity
Common stock, $0.01 par value; authorized 3,000,000,000 shares; 304,937,144 and 304,343,141 shares outstanding	3,049			3,043
Additional paid-in capital	3,333,696			3,324,874
Accumulated other comprehensive income	20,054			21,519
Distributions in excess of net income	(435,458		)	(426,552		)
Total stockholders’ equity	2,921,341			2,922,884
Non-controlling interests	—			4,276
Total equity	2,921,341			2,927,160
Total liabilities and equity	$	9,196,220		$	9,319,685
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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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,
	2017			2016			2017			2016
Revenues
Rental income	$	246,578		$	247,859		$	749,976		$	744,580
Expense reimbursements	66,489			69,469			206,718			200,944
Other revenues	1,429			1,249			6,426			6,214
Total revenues	314,496			318,577			963,120			951,738

Operating expenses
Operating costs	30,505			31,041			100,955			97,507
Real estate taxes	45,076			47,812			135,607			130,886
Depreciation and amortization	94,239			98,337			285,040			294,634
Provision for doubtful accounts	1,216			2,218			4,023			6,579
Impairment of real estate assets	11,065			1,971			27,383			1,971
General and administrative	22,838			21,787			67,043			69,709
Total operating expenses	204,939			203,166			620,051			601,286

Other income (expense)
Dividends and interest	76			89			234			481
Interest expense	(57,410		)	(57,855		)	(170,584		)	(171,482		)
Gain on sale of real estate assets	25,942			2,450			54,920			10,232
Gain (loss) on extinguishment of debt, net	1,828			(1,042		)	488			(949		)
Other	(1,200		)	(1,370		)	(2,591		)	(4,258		)
Total other expense	(30,764		)	(57,728		)	(117,533		)	(165,976		)

Income before equity in income of unconsolidated joint venture	78,793			57,683			225,536			184,476
Equity in income of unconsolidated joint venture	31			122			381			348
Gain on disposition of unconsolidated joint venture interest	4,556			—			4,556			—

Net income	83,380			57,805			230,473			184,824

Net income attributable to non-controlling interests	—			(313		)	(76		)	(2,399		)

Net income attributable to Brixmor Property Group Inc.	83,380			57,492			230,397			182,425
Preferred stock dividends	—			—			(39		)	—
Net income attributable to common stockholders	$	83,380		$	57,492		$	230,358		$	182,425
Per common share:
Net income attributable to common stockholders:
Basic	$	0.27		$	0.19		$	0.76		$	0.61
Diluted	$	0.27		$	0.19		$	0.75		$	0.61
Weighted average shares:
Basic	304,936			303,013			304,810			300,697
Diluted	305,176			303,521			305,175			301,146
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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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,
	2017			2016			2017			2016
Net income	$	83,380		$	57,805		230,473			184,824
Other comprehensive income (loss)
Change in unrealized gain (loss) on interest rate swaps, net (Note 6)	(962		)	1,321			(1,434		)	2,413
Change in unrealized gain (loss) on marketable securities	(11		)	(54		)	(31		)	81
Total other comprehensive income (loss)	(973		)	1,267			(1,465		)	2,494
Comprehensive income	82,407			59,072			229,008			187,318
Comprehensive income attributable to non-controlling interests	—			(313		)	(76		)	(2,399		)
Comprehensive income attributable to common stockholders	$	82,407		$	58,759		$	228,932		$	184,919
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited, in thousands)
	Common Stock
	Number	Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Distributions in Excess of Net Income			Non-controlling Interests			Total
Beginning balance, January 1, 2016	299,138	$	2,991	$	3,270,246		$	(2,509	)	$	(400,945	)	$	50,519		$	2,920,302
Common stock dividends ($0.735 per common share)	—	—		—			—			(221,828		)	—			(221,828		)
Distributions to non-controlling interests	—	—		—			—			—			(2,304		)	(2,304		)
Equity based compensation expense	—	—		7,954			—			—			87			8,041
Issuance of common stock and OP Units	207	2		(1,395		)	—			—			1,604			211
Other comprehensive income	—	—		—			2,494			—			—			2,494
Conversion of Operating Partnership units into common stock	4,976	50		47,876			—			—			(47,926		)	—
Shared-based awards retained for taxes	—	—		(3,206		)	—			—			—			(3,206		)
Net income	—	—		—			—			182,425			2,399			184,824
Ending balance, September 30, 2016	304,321	$	3,043	$	3,321,475		$	(15	)	$	(440,348	)	$	4,379		$	2,888,534

Beginning balance, January 1, 2017	304,343	$	3,043	$	3,324,874		$	21,519		$	(426,552	)	$	4,276		$	2,927,160
Common stock dividends ($0.78 per common share)	—	—		—			—			(238,662		)	—			(238,662		)
Equity based compensation expense	—	—		7,835			—			—			3			7,838
Preferred stock redemptions/dividends	—	—		—			—			(641		)	(648		)	(1,289		)
Issuance of common stock and OP Units	191	6		—			—			—			(6		)	—
Other comprehensive loss	—	—		—			(1,465		)	—			—			(1,465		)
Conversion of Operating Partnership units into common stock	403	—		3,701			—			—			(3,701		)	—
Shared-based awards retained for taxes	—	—		(2,714		)	—			—			—			(2,714		)
Net income	—	—		—			—			230,397			76			230,473
Ending balance, September 30, 2017	304,937	$	3,049	$	3,333,696		$	20,054		$	(435,458	)	$	—		$	2,921,341
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
	Nine Months Ended September 30,
	2017			2016
Operating activities:
Net income	$	230,473		$	184,824
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	285,040			294,634
Debt premium and discount amortization	(4,371		)	(10,630		)
Deferred financing cost amortization	5,283			5,827
Above- and below-market lease intangible amortization	(23,012		)	(29,471		)
Provisions for impairment	27,383			1,971
Gain on disposition of operating properties	(54,920		)	(10,232		)
Gain on disposition of unconsolidated joint venture interest	(4,556		)	—
Equity based compensation	7,838			8,041
Other	1,836			797
(Gain) loss on extinguishment of debt, net	(494		)	937
Changes in operating assets and liabilities:
Receivables	(15,675		)	4,042
Deferred charges and prepaid expenses	(41,760		)	(33,101		)
Other assets	(3,753		)	350
Accounts payable, accrued expenses and other liabilities	11,801			3,202
Net cash provided by operating activities	421,113			421,191

Investing activities:
Improvements to and investments in real estate assets	(140,036		)	(135,868		)
Acquisitions of real estate assets	(111,790		)	(6,733		)
Proceeds from sales of real estate assets	228,680			31,068
Proceeds from sale of unconsolidated joint venture interest	12,369			—
Purchase of marketable securities	(23,998		)	(35,172		)
Proceeds from sale of marketable securities	20,640			31,622
Net cash used in investing activities	(14,135		)	(115,083		)

Financing activities:
Repayment of debt obligations and financing liabilities	(396,356		)	(865,918		)
Repayment of borrowings under unsecured revolving credit facility	(548,000		)	(805,000		)
Proceeds from borrowings under unsecured revolving credit facility	426,000			481,000
Proceeds from unsecured term loan and notes	1,193,916			1,094,648
Repayment of borrowings under unsecured term loan	(790,000		)	—
Deferred financing costs	(11,179		)	(17,698		)
Distributions to common stockholders	(238,106		)	(220,627		)
Distributions to non-controlling interests	(1,390		)	(3,492		)
Repurchase of common shares in conjunction with equity award plans	(2,714		)	(3,206		)
Net cash used in financing activities	(367,829		)	(340,293		)

Change in cash, cash equivalents and restricted cash	39,149			(34,185		)
Cash, cash equivalents and restricted cash at beginning of period	102,869			110,990
Cash, cash equivalents and restricted cash at end of period	$	142,018		$	76,805

Reconciliation to consolidated balance sheets
Cash and cash equivalents	$	29,978		$	31,143
Restricted cash	112,040			45,662
Cash, cash equivalents and restricted cash at end of period	$	142,018		$	76,805

Supplemental disclosure of cash flow information:
Cash paid for interest, net of amount capitalized of $2,268 and $1,918	$	176,524		$	183,505
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except unit information)
	September 30, 2017			December 31, 2016
Assets
Real estate
Land	$	1,985,781		$	2,006,655
Buildings and improvements	8,944,738			9,002,403
	10,930,519			11,009,058
Accumulated depreciation and amortization	(2,320,090		)	(2,167,054		)
Real estate, net	8,610,429			8,842,004

Investments in and advances to unconsolidated joint venture	—			7,921
Cash and cash equivalents	29,948			51,368
Restricted cash	112,040			51,467
Marketable securities	28,622			25,356
Receivables, net of allowance for doubtful accounts of $16,177 and $16,756	219,873			178,216
Deferred charges and prepaid expenses, net	143,140			122,787
Other assets	51,920			40,315
Total assets	$	9,195,972		$	9,319,434


Liabilities
Debt obligations, net	$	5,713,688		$	5,838,889
Accounts payable, accrued expenses and other liabilities	561,191			553,636
Total liabilities	6,274,879			6,392,525

Commitments and contingencies (Note 13)

Capital
Partnership common units; 304,937,144 and 304,720,842 units issued and outstanding	2,901,026			2,905,378
Accumulated other comprehensive income	20,067			21,531
Total capital	2,921,093			2,926,909
Total liabilities and capital	$	9,195,972		$	9,319,434
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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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,
	2017			2016			2017			2016
Revenues
Rental income	$	246,578		$	247,859		$	749,976		$	744,580
Expense reimbursements	66,489			69,469			206,718			200,944
Other revenues	1,429			1,249			6,426			6,214
Total revenues	314,496			318,577			963,120			951,738

Operating expenses
Operating costs	30,505			31,041			100,955			97,507
Real estate taxes	45,076			47,812			135,607			130,886
Depreciation and amortization	94,239			98,337			285,040			294,634
Provision for doubtful accounts	1,216			2,218			4,023			6,579
Impairment of real estate assets	11,065			1,971			27,383			1,971
General and administrative	22,838			21,787			67,043			69,709
Total operating expenses	204,939			203,166			620,051			601,286

Other income (expense)
Dividends and interest	76			89			234			481
Interest expense	(57,410		)	(57,855		)	(170,584		)	(171,482		)
Gain on sale of real estate assets	25,942			2,450			54,920			10,232
Gain (loss) on extinguishment of debt, net	1,828			(1,042		)	488			(949		)
Other	(1,200		)	(1,370		)	(2,591		)	(4,258		)
Total other expense	(30,764		)	(57,728		)	(117,533		)	(165,976		)

Income before equity in income of unconsolidated joint venture	78,793			57,683			225,536			184,476
Equity in income of unconsolidated joint venture	31			122			381			348
Gain on disposition of unconsolidated joint venture interest	4,556			—			4,556			—

Net income attributable to Brixmor Operating Partnership LP	$	83,380		$	57,805		$	230,473		$	184,824
Per common unit:
Net income attributable to partnership common units:
Basic	$	0.27		$	0.19		$	0.76		$	0.61
Diluted	$	0.27		$	0.19		$	0.76		$	0.61
Weighted average number of partnership common units:
Basic	304,936			304,659			304,914			304,577
Diluted	305,176			305,167			305,175			305,026
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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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,
	2017			2016			2017			2016
Net income attributable to Brixmor Operating Partnership LP	$	83,380		$	57,805		$	230,473		$	184,824
Other comprehensive income (loss)
Change in unrealized gain (loss) on interest rate swaps, net (Note 6)	(962		)	1,321			(1,434		)	2,413
Change in unrealized gain (loss) on marketable securities	(10		)	(54		)	(30		)	76
Total other comprehensive income (loss)	(972		)	1,267			(1,464		)	2,489
Comprehensive income attributable to Brixmor Operating Partnership LP	$	82,408		$	59,072		$	229,009		$	187,313
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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

	Partnership Common Units			Accumulated Other Comprehensive Income (Loss)			Total
Beginning balance, January 1, 2016	$	2,922,565		$	(2,495	)	$	2,920,070
Distributions to partners	(224,148		)	—			(224,148		)
Equity based compensation expense	8,041			—			8,041
Other comprehensive income	—			2,489			2,489
Issuance of OP Units	211			—			211
Share-based awards retained for taxes	(3,206		)	—			(3,206		)
Net income attributable to Brixmor Operating Partnership LP	184,824			—			184,824
Ending balance, September 30, 2016	$	2,888,287		$	(6	)	$	2,888,281

Beginning balance, January 1, 2017	$	2,905,378		$	21,531		$	2,926,909
Distributions to partners	(239,949		)	—			(239,949		)
Equity based compensation expense	7,838			—			7,838
Other comprehensive loss	—			(1,464		)	(1,464		)
Share-based awards retained for taxes	(2,714		)	—			(2,714		)
Net income attributable to Brixmor Operating Partnership LP	230,473			—			230,473
Ending balance, September 30, 2017	$	2,901,026		$	20,067		$	2,921,093
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
	Nine Months Ended September 30,
	2017			2016
Operating activities:
Net income attributable to Brixmor Operating Partnership LP	$	230,473		$	184,824
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	285,040			294,634
Debt premium and discount amortization	(4,371		)	(10,630		)
Deferred financing cost amortization	5,283			5,827
Above- and below-market lease intangible amortization	(23,012		)	(29,471		)
Provisions for impairment	27,383			1,971
Gain on disposition of operating properties	(54,920		)	(10,232		)
Gain on disposition of unconsolidated joint venture interest	(4,556		)	—
Equity based compensation	7,838			8,041
Other	1,836			797
(Gain) loss on extinguishment of debt, net	(494		)	937
Changes in operating assets and liabilities:
Receivables	(15,675		)	4,042
Deferred charges and prepaid expenses	(41,760		)	(33,101		)
Other assets	(3,753		)	350
Accounts payable, accrued expenses and other liabilities	11,801			3,202
Net cash provided by operating activities	421,113			421,191

Investing activities:
Improvements to and investments in real estate assets	(140,036		)	(135,868		)
Acquisitions of real estate assets	(111,790		)	(6,733		)
Proceeds from sales of real estate assets	228,680			31,068
Proceeds from sale of unconsolidated joint venture interest	12,369			—
Purchase of marketable securities	(23,995		)	(35,163		)
Proceeds from sale of marketable securities	20,640			31,622
Net cash used in investing activities	(14,132		)	(115,074		)

Financing activities:
Repayment of debt obligations and financing liabilities	(396,356		)	(865,918		)
Repayment of borrowings under unsecured revolving credit facility	(548,000		)	(805,000		)
Proceeds from borrowings under unsecured revolving credit facility	426,000			481,000
Proceeds from unsecured term loan and notes	1,193,916			1,094,648
Repayment of borrowings under unsecured term loan	(790,000		)	—
Deferred financing costs	(11,179		)	(17,698		)
Partner distributions	(242,209		)	(227,348		)
Net cash used in financing activities	(367,828		)	(340,316		)

Change in cash, cash equivalents and restricted cash	39,153			(34,199		)
Cash, cash equivalents and restricted cash at beginning of period	102,835			110,968
Cash, cash equivalents and restricted cash at end of period	$	141,988		$	76,769

Reconciliation to consolidated balance sheets
Cash and cash equivalents	$	29,948		$	31,107
Restricted cash	112,040			45,662
Cash, cash equivalents and restricted cash at end of period	$	141,988		$	76,769

Supplemental disclosure of cash flow information:
Cash paid for interest, net of amount capitalized of $2,268 and $1,918	$	176,524		$	183,505
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BRIXMOR PROPERTY GROUP INC. AND BRIXMOR OPERATING PARTNERSHIP LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, dollars in thousands, unless otherwise stated)

1. Nature of Business and Financial Statement Presentation

Description of Business

Brixmor Property Group Inc. and subsidiaries (collectively, the “Parent Company”) is an internally-managed real estate investment trust (“REIT”). Brixmor Operating Partnership LP and subsidiaries (collectively, the “Operating Partnership”) is the entity through which the Parent Company conducts substantially all of its operations and owns substantially all of its assets. The Parent Company owns 100% of the common stock of BPG Subsidiary Inc. (“BPG Sub”), which, in turn, is the sole member of Brixmor OP GP LLC (the “General Partner”), the sole general partner of the Operating Partnership. The Parent Company engages in the ownership, management, leasing, acquisition, disposition and redevelopment of retail shopping centers through the Operating Partnership, and has no other substantial assets or liabilities other than through its investment in the Operating Partnership. The Parent Company, the Operating Partnership and their controlled subsidiaries on a consolidated basis (collectively the “Company” or “Brixmor”) believes it owns and operates one of the largest open air retail portfolios by gross leasable area ("GLA") in the United States, comprised primarily of community and neighborhood shopping centers. As of September 30, 2017, the Company's portfolio was comprised of 498 wholly owned shopping centers totaling approximately 84 million square feet of gross leasable area (the “Portfolio”). In addition, the Company has one land parcel currently under development. The Company’s high-quality national Portfolio is primarily located within established trade areas in the top 50 Metropolitan Statistical Areas, and our shopping centers are primarily anchored by non-discretionary and value-oriented retailers, as well as consumer-oriented service providers.

The Company does not distinguish its principal business or group its operations on a geographical basis for purposes of measuring performance. Accordingly, the Company has a single reportable segment for disclosure purposes in accordance with U.S. generally accepted accounting principles (“GAAP”).

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for the fair presentation of the unaudited Condensed Consolidated Financial Statements for the periods presented have been included. The Company has determined that it is preferable to present underwriter fees associated with the Company’s issuance of unsecured senior notes in the line item Deferred financing costs as opposed to deducting the amount of the fees within the line item Proceeds from unsecured term loans and notes within financing activities in the accompanying unaudited Condensed Consolidated Statement of Cash Flows. In connection with this revised presentation, certain prior period balances have been adjusted to conform to the current period presentation described above. The operating results for the periods presented are not necessarily indicative of the results that may be expected for a full fiscal year. These financial statements should be read in conjunction with the financial statements for the year ended December 31, 2016 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 13, 2017.

Principles of Consolidation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of the Parent Company, the Operating Partnership, each of their wholly owned subsidiaries and all other entities in which they have a controlling financial interest. The portions of consolidated entities not owned by the Parent Company and the Operating Partnership are presented as non-controlling interests as of and during the periods presented. All intercompany transactions have been eliminated.

Real Estate

Real estate assets are recognized in the Company's unaudited Condensed Consolidated Balance Sheets at historical cost, less accumulated depreciation and amortization. Upon acquisition of real estate operating properties, management estimates the fair value of acquired tangible assets (consisting of land, buildings, and tenant improvements), identifiable intangible assets and liabilities (consisting of above and below-market leases, in-place leases and tenant relationships) and assumed debt based on an evaluation of available information. Based on these estimates, the estimated fair value

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is allocated to the acquired assets and assumed liabilities. Transaction costs incurred during the acquisition process are capitalized as a component of the asset’s value.

The fair value of tangible assets is determined as if the acquired property is vacant. Fair value is determined using an exit price approach, which contemplates the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. If subsequent information regarding the fair value of the assets acquired and liabilities assumed is received and estimates are refined, the appropriate adjustments are made to the purchase price allocation on a prospective basis.

In allocating the fair value to identifiable intangible assets and liabilities of an acquired operating property, the value of above-market and below-market leases is estimated based on the present value (using a discount rate reflecting the risks associated with leases acquired) of the difference between: (i) the contractual amounts to be paid pursuant to the leases negotiated and in-place at the time of acquisition and (ii) management’s estimate of fair market lease rates for the property or an equivalent property, measured over a period equal to the remaining non-cancelable term of the lease, which includes renewal periods with fixed rental terms that are considered to be below-market. The capitalized above-market or below-market intangible is amortized as a reduction of, or increase to, rental income over the remaining non-cancelable term of each lease.

In determining the value of in-place leases and tenant relationships, management evaluates the specific characteristics of each lease and the Company’s overall relationship with each tenant. Factors considered include, but are not limited to: the nature of the existing relationship with a tenant, the credit risk associated with a tenant, expectations surrounding lease renewals, estimated carrying costs of a property during a hypothetical expected lease-up period, current market conditions and costs to execute similar leases. Management also considers information obtained about a property in connection with its pre-acquisition due diligence. Estimated carrying costs include: property operating costs, insurance, real estate taxes and estimates of lost rentals at market rates. Costs to execute similar leases include leasing commissions and legal costs to the extent that such costs are not already incurred with a new lease that has been negotiated in connection with the purchase of a property. The values assigned to in-place leases and tenant relationships are amortized to Depreciation and amortization expense over the remaining term of each lease.

Certain real estate assets are depreciated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows:



Building and building and land improvements	20 - 40 years
Furniture, fixtures, and equipment	5 - 10 years
Tenant improvements	The shorter of the term of the related lease or useful life

Costs to fund major replacements and betterments, which extend the life of the asset, are capitalized and depreciated over their respective useful lives, while costs for ordinary repairs and maintenance activities are expensed as incurred.

When a real estate asset is identified by management as held-for-sale, the Company discontinues depreciating the asset and estimates its sales price, net of estimated selling costs. If the estimated net sales price of an asset is less than its net carrying value, a loss is recognized to reflect the estimated fair value. Properties classified as real estate held-for-sale generally represent properties that are under contract for sale and are expected to close within 12 months.

On a periodic basis, management assesses whether there are indicators, including property operating performance, changes in anticipated holding period and general market conditions, that the value of the Company’s real estate assets (including any related intangible assets or liabilities) may be impaired.

If an indicator is identified, a real estate asset is considered impaired only if management’s estimate of current and projected operating cash flows (undiscounted and unleveraged), taking into account the anticipated and probability weighted holding period, are less than a real estate asset’s carrying value. Various factors are considered in the estimation process, including trends and prospects and the effects of demand, competition, and other economic factors. Changes in any estimates and/or assumptions, including the anticipated holding period, could have a material impact on the projected operating cash flows. If management determines that the carrying value of a real estate asset is impaired, a loss is recognized for the excess of its carrying amount over its fair value.

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In situations in which a lease or leases associated with a significant tenant have been, or are expected to be, terminated early, the Company evaluates the remaining useful lives of depreciable or amortizable assets in the asset group related to the lease that will be terminated (i.e., tenant improvements, above and below market lease intangibles, in-place lease value and leasing commissions). Based upon consideration of the facts and circumstances surrounding the termination, the Company may accelerate the depreciation and amortization associated with the asset group.

Income Taxes

The Parent Company has elected to qualify as a REIT in accordance with the Internal Revenue Code of 1986, as amended (the “Code”). To qualify as a REIT, the Parent Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains, 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 United States 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.

On April 3, 2017, BPG Sub’s status as a REIT terminated when BPG Sub became a disregarded subsidiary of the Parent Company for United States federal income tax purposes. Prior to its termination of REIT status, BPG Sub had also elected to qualify as a REIT under the Code and was subject to the same tax requirements and tax treatment as the Parent Company.

The Parent Company and BPG Sub have formed taxable REIT subsidiaries, and the Parent Company 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.

The Company has analyzed the tax position taken on income tax returns for the open 2013 through 2017 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, 2017 and December 31, 2016.

New Accounting Pronouncements

In August 2017, the FASB issued Accounting Standards Update ("ASU") 2017-12 "Derivatives and Hedging (Topic 815)." ASU 2017-12 amends guidance to more closely align the results of cash flow and fair value hedge accounting with risk management activities through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in the financial statements. The standard is effective on January 1, 2019, with early adoption permitted. The Company does not expect the adoption of ASU 2017-12 to have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company.

In May 2017, the FASB issued ASU 2017-09, "Compensation - Stock Compensation (Topic 718)." ASU 2017-09 clarifies guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The standard is effective on January 1, 2018, with early adoption permitted. The Company does not expect the adoption of ASU 2017-09 to have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company.

In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805)." ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new guidance will result in many real estate transactions being classified as an asset acquisition and transaction costs being capitalized. The standard is effective on January 1, 2018, with early adoption permitted. ASU 2017-01 was early adopted by the Company on

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January 1, 2017. As a result of adopting ASU 2017-01 the Company has begun capitalizing transaction costs associated with the acquisition of real estate assets. During the three months ended September 30, 2017, the Company did not capitalize any transaction costs. During the nine months ended September 30, 2017, the Company capitalized $0.4 million of transaction costs. The Company determined that these amounts did not have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company.

In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230)." ASU 2016-18 requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard is effective on January 1, 2018, with early adoption permitted. ASU 2016-18 was early adopted by the Company on January 1, 2017. As a result of adopting ASU 2016-18 the Company now presents the unaudited Condensed Consolidated Statement of Cash Flows inclusive of restricted cash balances and also provides a reconciliation to the cash and cash equivalents and restricted cash amounts presented on the unaudited Condensed Consolidated Balance Sheets. The Company determined that these changes did not have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company.

In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230)." ASU 2016-15 provides classification guidance for certain cash receipts and cash payments including payment of debt extinguishment costs, settlement of zero-coupon debt instruments, insurance claim payments and distributions from equity method investees. The standard is effective on January 1, 2018, with early adoption permitted. The Company does not expect the adoption of ASU 2016-15 to have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company.

In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718)." ASU 2016-09 sets out amendments to Employee Share-Based Payment Accounting. The new standard impacts certain aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statements of cash flows. The new standard became effective for the Company on January 1, 2017. As a result of adopting ASU 2016-09 the Company has elected to account for share-based award forfeitures on an actual basis as opposed to the use of an estimated forfeiture rate. The Company determined these changes did not have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." ASU 2016-02 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to recognize a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The pronouncement requires a modified retrospective method of adoption and is effective on January 1, 2019, with early adoption permitted. The Company will continue to evaluate the effect the adoption of ASU 2016-02 will have on the unaudited Condensed Consolidated Financial Statements of the Company. However, the Company currently believes that the adoption of ASU 2016-02 will not have a material impact for operating leases where it is a lessor and will continue to record revenues from rental properties for its operating leases on a straight-line basis. However, for leases where the Company is a lessee, primarily for the Company’s ground leases and administrative office leases, the Company will be required to record a lease liability and a right of use asset on its unaudited Condensed Consolidated Balance Sheets at fair value upon adoption. In addition, direct internal leasing overhead costs will continue to be capitalized, however, indirect internal leasing overhead costs previously capitalized will be expensed under ASU 2016-02.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 contains a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The guidance in ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into

- 18 -

contracts for the transfer of non-financial assets unless those contracts are within the scope of other standards. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The pronouncement allows either a full or modified retrospective method of adoption and is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted for reporting periods beginning after December 15, 2016. A majority of the Company’s tenant-related revenue is recognized pursuant to lease agreements and will be governed by the recently issued leasing guidance discussed above. The Company continues to evaluate the effect the adoption of ASU 2014-09 will have on the Company’s other sources of revenue. These include reimbursement amounts the Company receives from tenants for operating expenses such as real estate taxes, insurance and other common area expenses. However, the Company currently does not believe the adoption of ASU 2014-09 will significantly affect the timing of the recognition of the Company’s reimbursement revenue.

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, 2017, the Company acquired the following for an aggregate purchase price, including transaction costs, of (dollars in thousands):



				Aggregate Purchase Price
Description	Location	Month Acquired	GLA	Cash		Debt Assumed		Total
Outparcel building adjacent to Annex of Arlington	Arlington Heights, IL	Feb-17	5,760	$	1,006	$	—	$	1,006
Outparcel adjacent to Northeast Plaza	Atlanta, GA	Feb-17	N/A	1,537		—		1,537
Arborland Center	Ann Arbor, MI	Mar-17	403,536	102,268		—		102,268
Building adjacent to Preston Park	Plano, TX	Apr-17	31,080	4,015		—		4,015
Outparcel building adjacent to Cobblestone Village	St. Augustine, FL	May-17	4,403	1,306		—		1,306
Outparcel adjacent to Wynnewood Village	Dallas, TX	May-17	N/A	1,658		—		1,658
			444,779	$	111,790	$	—	$	111,790

The aggregate purchase price of the properties acquired during the nine months ended September 30, 2017, has been allocated as follows:



			Nine Months Ended September 30, 2017
Assets			Nine Months Ended September 30, 2017
		Land	$	19,240
		Buildings	75,286
		Building and tenant improvements	9,177
		Above market rents	2,381
		In-place leases	8,608
Total assets			114,692

Liabilities
	Accounts payable, accrued expenses and other liabilities (below market leases)		2,902
Total liabilities			2,902
Net Assets Acquired			$	111,790

In addition, during the nine months ended September 30, 2016, the Company acquired two land parcels and one outparcel building for an aggregate purchase price of $1.2 million. These amounts are included in Improvements to and investments in real estate assets on the Company’s unaudited Condensed Consolidated Statement of Cash Flows.

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3. Dispositions and Assets Held for Sale

During the three months ended September 30, 2017, the Company disposed of eight wholly owned shopping centers for net proceeds of $121.4 million resulting in a gain of $25.9 million and impairment of $0.4 million. During the nine months ended September 30, 2017, the Company disposed of 14 wholly owned shopping centers and two outparcel buildings for net proceeds of $228.7 million resulting in a gain of $54.9 million and impairment of $0.4 million. During the three and nine months ended September 30, 2017, the Company disposed of its unconsolidated joint venture interest for net proceeds of $12.4 million resulting in a gain of $4.6 million. The Company had one property held for sale as of September 30, 2017 with a carrying value of $8.2 million.

During the three months ended September 30, 2016, the Company disposed of two shopping centers for net proceeds of $10.6 million resulting in a gain of $2.5 million. During the nine months ended September 30, 2016, the Company disposed of four shopping centers and one outparcel building for net proceeds of $31.1 million resulting in a gain of $10.2 million and an impairment of less than $0.1 million. The Company had two properties held for sale as of September 30, 2016 with a carrying value of $24.1 million. In connection with these properties becoming held for sale, the Company recognized a $2.0 million impairment to reduce the carrying value of one of the properties to its estimated net realizable value. The impairment charge was based upon the sales price in the signed contract with the third party buyer, adjusted to reflect associated disposition costs.

There were no discontinued operations for the three and nine months ended September 30, 2017 and 2016 as none of the dispositions represented a strategic shift in the Company's business that would qualify as discontinued operations.

4. Real Estate

The Company’s components of Real estate, net consisted of the following:



	September 30, 2017			December 31, 2016
Land	$	1,985,781		$	2,006,655
Buildings and improvements:
Buildings and tenant improvements	8,143,978			8,165,672
Lease intangibles ⁽¹⁾	800,760			836,731
	10,930,519			11,009,058
Accumulated depreciation and amortization ⁽²⁾	(2,320,090		)	(2,167,054		)
Total	$	8,610,429		$	8,842,004


⁽¹⁾	At September 30, 2017 and December 31, 2016, Lease intangibles consisted of $723.2 million and $758.0 million, respectively, of in-place leases and $77.6 million and $78.7 million, respectively, of above-market leases. These intangible assets are amortized over the term of each related lease.


⁽²⁾	At September 30, 2017 and December 31, 2016, Accumulated depreciation and amortization included $630.0 million and $632.8 million, respectively, of accumulated amortization related to Lease intangibles.

In addition, at September 30, 2017 and December 31, 2016, the Company had intangible liabilities relating to below-market leases of $468.6 million and $485.2 million, respectively, and accumulated accretion of $277.2 million and $261.7 million, respectively. These intangible liabilities are included in Accounts payable, accrued expenses and other liabilities in the Company’s unaudited Condensed Consolidated Balance Sheets.

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Net above and below market lease intangible accretion income for the three months ended September 30, 2017 and 2016 was $7.6 million and $9.4 million, respectively. Net above and below market lease intangible accretion income for the nine months ended September 30, 2017 and 2016 was $23.0 million and $29.5 million, respectively. These amounts are included in Rental income in the Company's unaudited Condensed Consolidated Statements of Operations. Amortization expense associated with in-place lease value for the three months ended September 30, 2017 and 2016 was $10.8 million and $14.5 million, respectively. Amortization expense associated with in-place lease value for the nine months ended September 30, 2017 and 2016 was $36.3 million and $47.7 million, respectively. These amounts are included in Depreciation and amortization in the Company's unaudited Condensed Consolidated Statements of Operations. The estimated net accretion (income) and amortization expense associated with the Company’s above and below market leases and in-place leases for the next five years are as follows:



Year ending December 31,	Above- and below-market lease accretion (income), net			In-place lease amortization expense
2017 (remaining three months)	$	(6,590	)	$	9,642
2018	(24,797		)	33,291
2019	(20,882		)	26,284
2020	(17,036		)	19,611
2021	(14,066		)	14,151

5. Impairments

On a periodic basis, management assesses whether there are any indicators, including property operating performance, changes in anticipated holding period and general market conditions, that the value of the Company’s real estate assets (including any related intangible assets or liabilities) may be impaired. If management determines that the carrying value of a real estate asset is impaired, a loss is recognized for the excess of its carrying amount over its fair value. The Company recognized the following impairments during the three months ended September 30, 2017:



Three Months Ended September 30, 2017
Property Name	Location	GLA	Impairment Charge
Lexington Road Plaza⁽¹⁾	Versailles, KY	197,668	$	6,393
Shops at Seneca Mall⁽¹⁾	Liverpool, NY	231,024	1,507
Remount Village Shopping Center⁽¹⁾	North Charleston, SC	60,238	599
Fashion Square⁽¹⁾	Orange Park, FL	36,029	2,125
Renaissance Center East⁽¹⁾⁽²⁾	Las Vegas, NV	144,216	52
The Shoppes at North Ridgeville⁽¹⁾⁽²⁾	North Ridgeville, OH	59,852	389
		729,027	$	11,065


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


⁽²⁾	The Company disposed of this property during the three months ended September 30, 2017.

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The Company recognized the following impairments during the nine months ended September 30, 2017:



Nine Months Ended September 30, 2017
Property Name	Location	GLA	Impairment Charge
The Plaza at Salmon Run⁽¹⁾	Watertown, NY	68,761	$	3,486
Smith's⁽¹⁾	Socorro, NM	48,000	2,200
The Manchester Collection⁽¹⁾	Manchester, CT	342,247	9,026
Renaissance Center East⁽¹⁾⁽²⁾	Las Vegas, NV	144,216	1,658
Lexington Road Plaza⁽¹⁾	Versailles, KY	197,668	6,393
Shops at Seneca Mall⁽¹⁾	Liverpool, NY	231,024	1,507
Remount Village Shopping Center⁽¹⁾	North Charleston, SC	60,238	599
Fashion Square⁽¹⁾	Orange Park, FL	36,029	2,125
The Shoppes at North Ridgeville⁽¹⁾⁽²⁾	North Ridgeville, OH	59,852	389
		1,188,035	$	27,383


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


⁽²⁾	The Company disposed of this property during the nine months ended September 30, 2017.

The Company recognized the following impairments during the three and nine months ended September 30, 2016:



Three and Nine Months Ended September 30, 2016
Property Name	Location	GLA	Impairment Charge
Inwood Forest⁽¹⁾	Houston, TX	77,553	$	52
Plymouth Plaza⁽²⁾	Plymouth Meeting, PA	30,013	1,990
Other	-	N/A	(71		)
		107,566	$	1,971


⁽¹⁾	The Company disposed of this property during the three and nine months ended September 30, 2016.


⁽²⁾	The Company recognized impairment charges based upon a change in the estimated hold period of these properties in connection with the Company's capital recycling program.

The Company can provide no assurance that material impairment charges with respect to its Portfolio will not occur in future periods. See Note 8 for additional information regarding the fair value of impairments taken on operating properties.

6. Financial Instruments - Derivatives and Hedging

The Company’s use of derivative instruments is limited to the utilization of interest rate agreements or other instruments to manage interest rate risk exposures and not for speculative purposes. In certain situations, the Company may enter into derivative financial instruments such as interest rate swap and interest rate cap agreements that result in the receipt 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 three and nine months ended September 30, 2017, the Company did not enter into any new interest rate swap agreements. During the year ended December 31, 2016, the Company entered into nine forward starting interest rate swap agreements (the “Swaps”) with an effective date of November 1, 2016 and an aggregate notional value of $1.4 billion to partially hedge the variable cash flows associated with variable LIBOR based interest rate debt.

- 22 -

Detail of the Company’s interest rate derivatives designated as cash flow hedges outstanding as of September 30, 2017 and December 31, 2016 is as follows:



	Number of Instruments		Notional Amount
	September 30, 2017	December 31, 2016	September 30, 2017		December 31, 2016
Interest Rate Swaps	9	9	$	1,400,000	$	1,400,000

The Company has elected to present its interest rate derivatives on its unaudited Condensed Consolidated Balance Sheets on a gross basis as interest rate swap assets and interest rate swap liabilities. Detail on the Company’s fair value of interest rate derivatives on a gross and net basis as of September 30, 2017 and December 31, 2016, respectively, is as follows:



	Fair Value of Derivative Instruments
Interest rate swaps classified as:	September 30, 2017		December 31, 2016
Gross derivative assets	$	20,171	$	21,605
Gross derivative liabilities	—		—
Net derivative assets	$	20,171	$	21,605

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

The effective portion of the Company's interest rate swaps that was recognized in the Company’s unaudited Condensed Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016 is as follows:



Derivatives in Cash Flow Hedging Relationships (Interest Rate Swaps)	Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017			2016
Change in unrealized gain (loss) on interest rate swaps	$	132		$	79	$	(532	)	$	(1,704	)
Amortization of interest rate swaps to interest expense	(1,094		)	1,242		(902		)	4,117
Change in unrealized gain (loss) on interest rate swaps, net	$	(962	)	$	1,321	$	(1,434	)	$	2,413

The Company estimates that $7.0 million will be reclassified from accumulated other comprehensive income as a decrease to interest expense over the next twelve months. No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on the Company’s cash flow hedges during the three and nine months ended September 30, 2017 and 2016.

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, 2017 and December 31, 2016, the Company did not have any non-designated hedges.

Credit-risk-related Contingent Features

The Company has agreements with its derivative counterparties that contain a provision whereby if the Company defaults on certain of its indebtedness and the indebtedness has been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. If the Company were to breach any of the contractual provisions of the derivative contracts, it would be required to settle its obligations under the agreements at their termination value including accrued interest.

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7. Debt Obligations

As of September 30, 2017 and December 31, 2016, the Company had the following indebtedness outstanding:



	Carrying Value as of
	September 30, 2017			December 31, 2016			Stated Interest Rates ⁽⁷⁾	Scheduled Maturity Date
Secured loans
Secured loans⁽¹⁾⁽²⁾	$	915,936		$	1,312,292		4.40% - 7.89%	2017 – 2024
Net unamortized premium	16,803			25,189
Net unamortized debt issuance cost	(150		)	(387		)
Total secured loans, net	$	932,589		$	1,337,094

Notes payable
Unsecured notes⁽³⁾	$	3,218,453		$	2,318,453		3.25% - 7.97%	2022 - 2029
Net unamortized discount	(13,965		)	(9,097		)
Net unamortized debt issuance cost	(23,306		)	(17,402		)
Total notes payable, net	$	3,181,182		$	2,291,954

Unsecured Credit Facility and Term Loan
Unsecured Credit Facility⁽⁴⁾	$	710,000		$	1,622,000		2.60%	2018 – 2021
Unsecured $600 Million Term Loan⁽⁵⁾	600,000			600,000			2.65%	2019
Unsecured $300 Million Term Loan⁽⁶⁾	300,000			—			3.14%	2024
Net unamortized debt issuance cost	(10,083		)	(12,159		)
Total Unsecured Credit Facility and Term Loan	$	1,599,917		$	2,209,841

Total debt obligations, net	$	5,713,688		$	5,838,889


⁽¹⁾	The Company’s secured loans are collateralized by certain properties and the equity interests of certain subsidiaries. These properties had a carrying value as of September 30, 2017 of approximately $1.8 billion.


⁽²⁾	The weighted average interest rate on the Company’s fixed rate secured loans was 6.16% as of September 30, 2017.


⁽³⁾	The weighted average interest rate on the Company’s unsecured notes was 3.81% as of September 30, 2017.

⁽⁴⁾

Effective November 1, 2016, the Company has in place one interest rate swap agreement that converts the variable interest rate on $210.0 million of a term loan under the Company's $2.75 billion senior unsecured credit facility as amended July 25, 2016, (the "Unsecured Credit Facility") to a fixed interest rate of 0.82% (plus a spread of 135 bps) through July 31, 2018, and three interest rate swap agreements that convert the variable interest rate on a $500.0 million term loan under the Unsecured Credit Facility to a fixed interest rate of 1.11% (plus a spread of 135 bps) through July 30, 2021.

⁽⁵⁾

Effective November 1, 2016, the Company has in place two interest rate swap agreements that convert the variable interest rate on $200.0 million of the Company's $600 million term loan as amended July 25, 2016, (the "$600 million Term Loan") to a fixed, combined interest rate of 0.82% (plus a spread of 140 bps) through July 31, 2018, and three interest rate swap agreements that convert the variable interest rate on $400.0 million of the $600 million Term Loan to a fixed interest rate of 0.88% (plus a spread of 140 bps) through March 18, 2019.


⁽⁶⁾	Effective July 28, 2017, the Company has in place one interest rate swap agreement that converts the variable interest rate on $90.0 million of the $300 Million Term Loan (defined below) to a fixed interest rate of 0.82% (plus a spread of 190 bps) through July 31, 2018.


⁽⁷⁾	The stated interest rates are as of September 30, 2017 and do not include the impact of any interest rate swap agreements.

2017 Debt Transactions

In March 2017, the Operating Partnership issued $400.0 million aggregate principal amount of 3.90% Senior Notes due 2027 (the “2027 Notes”), the proceeds of which were utilized to repay outstanding indebtedness, including borrowings under the Company's Unsecured Credit Facility, and for general corporate purposes. The 2027 Notes bear interest at a rate of 3.90% per annum, payable semi-annually on March 15 and September 15 of each year, commencing September 15, 2017. The 2027 Notes will mature on March 15, 2027. The 2027 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 2027 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 2027 Notes. If the 2027 Notes are redeemed on or after December 15, 2026 (three months prior to the maturity date), the redemption price will be equal to 100% of the principal amount of the 2027 Notes being redeemed plus accrued and unpaid interest thereon to, but not including, the redemption date.

- 24 -

In June 2017, the Operating Partnership issued $500.0 million aggregate principal amount of 3.65% Senior Notes due 2024 (the “2024 Notes”), the proceeds of which were utilized to repay outstanding indebtedness, including borrowings under the Company's Unsecured Credit Facility, and for general corporate purposes. The 2024 Notes bear interest at a rate of 3.65% per annum, payable semi-annually on June 15 and December 15 of each year, commencing December 15, 2017. The 2024 Notes will mature on June 15, 2024. The 2024 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 2024 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 2024 Notes. If the 2024 Notes are redeemed on or after April 15, 2024 (two months prior to the maturity date), the redemption price will be equal to 100% of the principal amount of the 2024 Notes being redeemed plus accrued and unpaid interest thereon to, but not including, the redemption date.

In July 2017, the Operating Partnership entered into a $300.0 million variable rate unsecured term loan facility (the "$300 Million Term Loan"). The $300 Million Term Loan has a seven-year term maturing on July 26, 2024, with no available extension options, and bears interest at a rate of LIBOR plus 190 basis points (based on the Operating Partnership’s current credit ratings). Proceeds from the $300 Million Term Loan were used to prepay $300.0 million of an unsecured term loan under the Company's Unsecured Credit Facility maturing July 31, 2018.

During the nine months ended September 30, 2017, the Company repaid $380.3 million of secured loans and $790.0 million of an unsecured term loan under the Company's Unsecured Credit Facility, resulting in a $0.5 million gain on extinguishment of debt, net. These repayments were funded primarily with proceeds from the issuance of the 2027 Notes, 2024 Notes and $300 Million Term Loan. In addition, during the nine months ended September 30, 2017, the Company repaid $122.0 million, net of borrowings on the Revolving Facility.

Pursuant to the terms of the Company’s unsecured debt agreements, the Company among other things is subject to maintenance of various financial covenants. The Company was in compliance with these covenants as of September 30, 2017.

Debt Maturities

As of September 30, 2017 and December 31, 2016, the Company had accrued interest of $27.2 million and $34.1 million outstanding, respectively. As of September 30, 2017, scheduled amortization and maturities of the Company’s outstanding debt obligations were as follows:



Year ending December 31,
2017 (remaining three months)	$	13,165
2018	227,892
2019	618,437
2020	673,217
2021	686,225
Thereafter	3,525,453
Total debt maturities	5,744,389
Net unamortized premiums and discounts	2,838
Net unamortized debt issuance costs	(33,539		)
Total debt obligations, net	$	5,713,688

- 25 -

8. Fair Value Disclosures

All financial instruments of the Company are reflected in the accompanying unaudited Condensed Consolidated Balance Sheets at amounts which, in management’s judgment, reasonably approximate their fair values, except those instruments listed below:



	September 30, 2017				December 31, 2016
	Carrying Amounts		Fair Value		Carrying Amounts		Fair Value
	Carrying Amounts		Fair Value		Carrying Amounts		Fair Value
Secured loans	$	932,589	$	989,296	$	1,337,094	$	1,410,698
Notes payable	3,181,182		3,231,275		2,291,954		2,302,048
Unsecured Credit Facility and Term Loans	1,599,917		1,611,802		2,209,841		2,223,807
Total debt obligations, net	$	5,713,688	$	5,832,373	$	5,838,889	$	5,936,553

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

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

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

Recurring Fair Value

The Company’s marketable securities and interest rate derivatives are measured and recognized at fair value on a recurring basis. The fair value of marketable securities are based primarily on publicly traded market values in active markets and are classified within Level 1 or 2 of the fair value hierarchy. See Note 6 for fair value information regarding the Company's interest rate derivatives.

The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured and recognized at fair value on a recurring basis:



	Fair Value Measurements as of September 30, 2017
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Marketable securities⁽¹⁾	$	28,840	$	986	$	27,854	$	—
Interest rate derivatives	$	20,171	$	—	$	20,171	$	—

	Fair Value Measurements as of December 31, 2016
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Marketable securities⁽¹⁾	$	25,573	$	5,679	$	19,894	$	—
Interest rate derivatives	$	21,605	$	—	$	21,605	$	—


⁽¹⁾	As of September 30, 2017 and December 31, 2016 marketable securities included $0.1 million of net unrealized losses.

- 26 -

Non-Recurring Fair Value

On a non-recurring basis, the Company evaluates the carrying value of its properties when events or changes in circumstances indicate that the carrying value may not be recoverable. Fair value is determined by purchase price offers, market comparable data, third party appraisals or by discounted cash flow analysis using the income approach. These cash flows are comprised of unobservable inputs which include forecasted rental revenue and expenses based upon market conditions and future expectations. Capitalization rates and discount rates utilized in these models are based upon unobservable rates that we believe to be within a reasonable range of current market rates for the respective properties. Based on these inputs, the Company has determined that the valuation of these properties is classified within Level 3 of the fair value hierarchy.

The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a non-recurring basis. The table includes information related to properties remeasured to fair value as a result of impairment testing:



	Fair Value Measurements as of September 30, 2017
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Properties⁽¹⁾⁽²⁾	$	69,652	$	—	$	—