S-11 1 d567358ds11.htm FORM S-11 Form S-11
Table of Contents

As filed with the Securities and Exchange Commission on July 18, 2013

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-11

FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933

OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES

 

 

Brixmor Property Group Inc.

(Exact name of registrant as specified in governing instruments)

 

 

Brixmor Property Group Inc.

420 Lexington Avenue

New York, New York 10170

Tel: (212) 869-3000

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

Steven F. Siegel

Executive Vice President and General Counsel

Brixmor Property Group Inc.

420 Lexington Avenue

New York, New York 10170

Tel: (212) 869-3000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

COPIES TO:

 

Joshua Ford Bonnie

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017-3954

Telephone: (212) 455-2000

Facsimile: (212) 455-2502

 

David J. Goldschmidt

Phyllis G. Korff

Skadden, Arps, Slate, Meagher & Flom LLP

Four Times Square

New York, New York 10036

Telephone: (212) 735-3000

Facsimile: (212) 735-2000

 

 

Approximate date of commencement of proposed sale to the public: As soon as is practicable after this Registration Statement becomes effective.

If any of the Securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.  ¨

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

 

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

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of securities

to be registered

 

Proposed

maximum

aggregate

offering price (1)(2)

 

Amount of

registration fee

Common Stock, par value $0.01 per share

  $100,000,000   $13,640

 

 

(1) Estimated solely for the purposes of calculating the registration fee pursuant to Rule 457(o) of the Securities Act of 1933.
(2) Includes shares subject to the underwriters’ option to purchase additional shares.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale thereof is not permitted.

 

Subject to Completion

Preliminary Prospectus dated July 18, 2013

PROSPECTUS

 

LOGO

             Shares

Brixmor Property Group Inc.

Common Stock

 

 

This is an initial public offering of shares of common stock of Brixmor Property Group Inc. We are offering all of the              shares of common stock to be sold in this offering.

It is currently estimated that the initial public offering price per share will be between $         and $         per share. Prior to this offering there has been no public market for the common stock. Brixmor Property Group Inc. intends to apply for listing of the common stock on the New York Stock Exchange, or NYSE, under the symbol “BRX”.

We are a Maryland corporation, and we have elected to qualify as a real estate investment trust, or REIT, for U.S. federal income tax purposes. Shares of our common stock are subject to limitations on ownership and transfer that are primarily intended to assist us in maintaining our qualification as a REIT. Our charter contains certain restrictions relating to the ownership and transfer of our common stock, including, subject to certain exceptions, a 9.8% limit, in value or by number of shares, whichever is more restrictive, on the ownership of outstanding shares of our common stock and a 9.8% limit, in value, on the ownership of shares of our outstanding stock. See “Description of Stock—Restrictions on Ownership and Transfer.”

After the completion of this offering, affiliates of The Blackstone Group L.P. will continue to own a majority of the voting power of shares eligible to vote in the election of our directors. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the NYSE. See “Management—Controlled Company Exception” and “Principal Stockholders.”

 

See “Risk Factors” beginning on page 24 to read about factors you should consider before buying shares of common stock.

 

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

     Per Share      Total  

Initial public offering price

   $                    $                

Underwriting discount

   $         $     

Proceeds, before expenses, to Brixmor Property Group Inc.

   $         $     

To the extent that the underwriters sell more than              shares of common stock, the underwriters have the option to purchase up to an additional              shares from us at the initial public offering price less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York, New York on                     , 2013.

 

 

Joint Bookrunning Managers

 

BofA Merrill Lynch   Citigroup   J.P. Morgan     Wells Fargo Securities   

 

 

Prospectus dated                     , 2013.


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LOGO


Table of Contents

TABLE OF CONTENTS

 

     Page  

Summary

     1   

Risk Factors

     24   

Forward-Looking Statements

     43   

Market and Industry Data

     43   

Organizational Structure

     44   

Use of Proceeds

     47   

Distribution Policy

     48   

Capitalization

     52   

Dilution

     54   

Unaudited Pro Forma Financial Information

     56   

Selected Financial Information

     67   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     69   

Industry Overview

     98   

Business

     104   

Management

     148   

Certain Relationships and Related Person Transactions

     178   

Policies with Respect to Certain Activities

     181   

Principal Stockholders

     184   

Description of Indebtedness

     186   

Description of Stock

     190   

Material Provisions of Maryland Law and of Our Charter and Bylaws

     195   

Description of the Partnership Agreement of Brixmor Operating Partnership LP

     202   

Shares Eligible for Future Sale

     205   

Material United States Federal Income Tax Considerations

     207   

Underwriting (Conflicts of Interest)

     230   

Legal Matters

     237   

Experts

     237   

Where You Can Find More Information

     237   

Index to Financial Statements

     F-1   

 

 

You should rely only on the information contained in this prospectus or in any free writing prospectus we may authorize to be delivered to you. Neither we nor the underwriters have authorized anyone to provide you with additional or different information. We and the underwriters are offering to sell, and seeking offers to buy, our shares only in jurisdictions where offers and sales thereof are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our shares.

Through and including                     , 2013 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

 

In connection with this offering, certain investment funds affiliated with The Blackstone Group L.P. (“Blackstone” or our “Sponsor”) will contribute certain properties (the “Acquired Properties”) to us, and we will distribute certain properties that we have historically held in our portfolio (the “Non-Core Properties”) to our Sponsor as described in “Organizational Structure—IPO Property Transfers.” We refer to these contributions and

 

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distributions as the “IPO Property Transfers” and to the properties we will own immediately following the IPO Property Transfers as our “IPO Portfolio.” Unless the context requires otherwise, when describing our portfolio of properties throughout this prospectus, we are referring to our IPO Portfolio. Throughout this prospectus, “Same Property Portfolio” refers to all properties in the IPO Portfolio that we owned on February 28, 2011, when our Sponsor agreed to acquire us (the “Sponsor Contract Date”), and that we continue to own as of the date of this prospectus. The Same Property Portfolio does not include any of the Acquired Properties or the Non-Core Properties.

We refer to our Sponsor, funds affiliated with Centerbridge Partners, L.P. (“Centerbridge”) and the members of our management, in each case, who own shares of our common stock and shares of the common stock of our majority-owned subsidiary, BPG Subsidiary Inc. (“BPG Subsidiary”), and who will receive units in Brixmor Operating Partnership LP (our “Operating Partnership”) as part of the IPO Property Transfers as our “pre-IPO owners.”

Except where the context requires otherwise, references in this prospectus to “Brixmor,” “we,” “our,” “us” and the “company” refer to Brixmor Property Group Inc., together with its consolidated subsidiaries. References to our “common stock” refer to the common stock, $0.01 par value per share, of Brixmor Property Group Inc., and references to “non-economic shares” refer to the shares of non-economic stock, $0.01 par value per share, of Brixmor Property Group Inc., which carry voting rights, but no rights to dividends or other distributions, including upon the liquidation, dissolution or winding up of Brixmor Property Group Inc. See “Description of Stock—Common Stock and Non-Economic Shares.”

In this prospectus:

 

   

“annualized base rent,” or “ABR,” as of a specified date means monthly base rent as of such date, under leases which have been signed or commenced as of the specified date multiplied by 12. Annualized base rent (i) excludes tenant reimbursements or expenses borne by the tenants, such as the expenses for real estate taxes and insurance and common area and other operating expenses, (ii) does not reflect amounts due per percentage rent lease terms, (iii) is calculated on a cash basis and differs from how we calculate rent in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for purposes of our financial statements and (iv) does not include any ancillary income at a property;

 

   

“ABR per sq. ft.,” or “ABR/SF,” is calculated as ABR divided by leased GLA, excluding ground leases;

 

   

“blended lease spreads” means combined spreads for new and renewal leases (including exercised options) on comparable leases;

 

   

“community shopping center” means a shopping center that we believe meets the International Council of Shopping Centers’ (“ICSC”) definition of community center. ICSC generally defines a community center as a shopping center with general merchandise or convenience-oriented merchandise. Although similar to a neighborhood center (as defined below), a community shopping center offers a wider range of apparel and other soft goods than a neighborhood center. Community centers range from 125,000 to 400,000 sq. ft. in GLA and are usually configured in a straight line as a strip and are commonly anchored by discount stores, supermarkets, drugstores and large specialty discount stores;

 

   

“comparable leases” include only those spaces that were occupied within the prior 12 months;

 

   

“gross leasable area,” or “GLA,” represents the total amount of property square footage that can generate income by being leased to tenants;

 

   

“leased GLA” includes the aggregate GLA of all leases in effect on a given date, including those that are fully executed but as to which the tenant has not yet opened for business and/or not yet commenced the payment of rent;

 

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“Metropolitan Statistical Area,” or “MSA,” is defined by the United States Office of Management and Budget (“OMB”) as a region associated with at least one urbanized area that has a population of at least 50,000 and comprises the central county or counties containing the core, plus adjacent outlying counties having a high degree of social and economic integration with the central county or counties as measured through commuting;

 

   

“neighborhood shopping center” means a shopping center that we believe meets ICSC’s definition of neighborhood center. ICSC generally defines a neighborhood center as a shopping center with offerings that are convenience-oriented. Neighborhood centers range from 30,000 to 125,000 sq. ft. in GLA and are generally anchored by a supermarket;

 

   

“net operating income,” or “NOI,” is a non-GAAP measure often used by real estate companies. We calculate NOI as total property revenues (minimum rent, percentage rents, and recoveries from tenants and other income) less direct property operating expenses (operating and maintenance and real estate taxes) from the properties owned by us. NOI excludes corporate level income (including management, transaction, and other fees). Other REITs may not calculate NOI in the same manner. Accordingly, our NOI may not be comparable to other REITs’ NOI. See “Summary—Summary Financial Information” for information regarding our use of NOI, which is a non-GAAP financial measure;

 

   

“NOI yield” is calculated as projected NOI over incremental cost of a given redevelopment project;

 

   

“occupancy” or “occupied,” in reference to percentage of GLA that is leased, includes lease agreements that have been signed but not yet commenced;

 

   

“PSF” means per square foot (“sq. ft.”) of GLA;

 

   

“redevelopment properties” are properties with significant building improvements, repositioning or GLA expansion underway, where the investment is expected to have a significant favorable impact on marketability;

 

   

“renewal leases” includes expiring leases renewed with the same tenant or the exercise of options by tenants to extend the term of expiring leases. All other leases are categorized as new;

 

   

“rent growth” is calculated as ABR in the final year of the lease compared to ABR in the first year of the new lease. New lease spreads include only those spaces that were occupied within the prior 12 months. Renewal and option lease spreads include leases rolling over with the same tenant in the same location;

 

   

“same property net operating income,” or “same property NOI,” is a non-GAAP measure often used by real estate companies as a supplemental measure of operating performance. We calculate same property NOI as total property revenues (minimum rent, percentage rents, and recoveries from tenants and other income) less direct property operating expenses (operating and maintenance and real estate taxes) from the properties owned by us. NOI excludes corporate level income (including transaction and other fees), lease termination income, straight-line rent and amortization of above-/below-market leases of the same property pool from the prior year reporting period to the current year reporting period. Same property NOI includes all properties in the IPO Portfolio that were owned as of the end of both the current and prior year reporting periods and for the entirety of both periods, excluding properties classified as discontinued operations. See “Summary—Summary Financial Information” for information regarding our use of same property NOI, which is a non-GAAP financial measure; and

 

   

“small shop space” means space of less than 10,000 sq. ft. of GLA.

The sums or percentages, as applicable, of certain tables and charts included in this prospectus may not foot due to rounding.

 

 

Except where the context requires otherwise, the information in this prospectus assumes no exercise by the underwriters of their option to purchase up to an additional              shares from us and that the shares to be sold in this offering are sold at $         per share, which is the mid-point of the price range indicated on the front cover of this prospectus.

 

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SUMMARY

This summary does not contain all of the information that you should consider before investing in shares of our common stock. You should read the entire prospectus carefully before making an investment decision, especially the risks discussed under “Risk Factors,” “Unaudited Pro Forma Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus.

Brixmor

Brixmor is an internally-managed REIT that owns and operates the largest wholly-owned portfolio of grocery-anchored community and neighborhood shopping centers in the United States. Our IPO Portfolio is comprised of 522 shopping centers totaling approximately 87 million sq. ft. of GLA. 521 of these shopping centers are 100% owned. Our high quality national portfolio is well diversified by geography, tenancy and retail format, with more than 70% of our shopping centers anchored by market-leading grocers. Our four largest tenants by ABR are The Kroger Co. (“Kroger”), The TJX Companies, Inc. (“TJX Companies”), Publix Super Markets, Inc. (“Publix”) and Wal-Mart Stores, Inc. (“Walmart”). Our community and neighborhood shopping centers provide a mix of necessity and value-oriented retailers and are primarily located in the top 50 MSAs, surrounded by dense populations in established trade areas. Our company is led by a proven management team that is supported by a fully-integrated, scalable retail real estate operating platform.

A number of trends and factors have driven, and we believe will continue to drive, our internal growth. Since February 28, 2011, when our Sponsor agreed to acquire us (the “Sponsor Contract Date”), for our Same Property Portfolio we have:

 

   

increased occupancy for nine consecutive quarters on a year-over-year basis to 91.3% at March 31, 2013;

 

   

increased our total ABR for 20 consecutive months through March 2013;

 

   

executed 1,391 new leases for approximately 7.5 million sq. ft. of GLA;

 

   

achieved positive new and renewal lease spreads over each of the past nine quarters, including 18% and 7%, respectively, in the three months ended March 31, 2013; and

 

   

realized NOI growth of 3.8% for the year ended December 31, 2012 and 4.0% for the quarter ended March 31, 2013, in each case in comparison to the corresponding prior year period. Additional information regarding NOI, including a reconciliation of NOI to net income (loss), is included below in “—Summary Financial and Other Data.”

We believe that our IPO Portfolio provides us with further opportunity for meaningful NOI growth over the coming years. The key drivers of this growth will be a combination of occupancy increases across both our anchor and small shop space, positive rent spreads from below-market in-place rents and significant near-term lease rollover, and the realization of embedded redevelopment opportunities.

Our Shopping Centers

Since the Sponsor Contract Date, we have improved the overall operating performance of our portfolio and have also significantly enhanced the quality of our shopping center portfolio through the IPO Property Transfers, other divestitures of other non-core assets and disciplined redevelopment.

 

 

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The following table provides summary information regarding our IPO Portfolio as of March 31, 2013.

Summary of IPO Portfolio

 

Number of shopping centers

     522   

Gross leasable area (sq. ft.)

     86.7 million   

Percent grocery-anchored shopping centers (1)

     70

Average shopping center GLA (sq. ft.)

     166,100   

Occupancy

     91

Average ABR/SF

     $    11.79   

Percent of ABR in top 50 U.S. MSAs

     63

Average effective age (2)

     14 years   

Percent of grocer tenants that are #1 or #2 in their respective markets (3)

     73

Average grocer sales PSF (4)

     $       498   

Average population density (5)

     182,487   

Average household income (5)

     $  77,975   

 

(1) Based on total number of shopping centers.
(2) Effective age is calculated based on the year of the most recent redevelopment of the shopping center or based on year built if no redevelopment has occurred.
(3) References in this prospectus to grocer tenants that are #1 or #2 include specialty grocers which are not ranked with general grocers.
(4) Year ended December 31, 2011. Includes only grocers reporting sales.
(5) Demographics based on five-mile radius and weighted by ABR. Based on U.S. Census information (June 2012).

Our Recent History

Since the Sponsor Contract Date, we have improved the overall operating performance of our portfolio, used our broader access to capital to significantly enhance the quality of our shopping center portfolio through capital investments and strengthened our overall operating platform. Additionally, we have executed significant divestitures of non-core assets over the last several years.

During the period of ownership under Centro Properties Group (“Centro”), our capital availability was constrained and limited to general upkeep at our shopping centers. We were unable to fund tenant improvements required for new leases, which severely limited our ability to attract and retain tenants and negatively impacted our occupancy rate. Since the Sponsor Contract Date, we have invested more than $310 million of primarily revenue-generating capital in our assets in order to both drive leasing and fund 39 value-creating redevelopment projects. Facilitated by this capital investment, since the Sponsor Contract Date we have executed 1,448 new leases in our IPO Portfolio for an aggregate of approximately 7.6 million sq. ft., including 168 new anchor leases for spaces of at least 10,000 sq. ft., of which 85 were new leases for spaces of at least 20,000 sq. ft. We believe that anchor leasing is a critical driver of further growth in our occupancy rate, as well as in leasing spreads for renewal leases.

In addition, during 2012 and 2013, we optimized our operating structure, enhanced our management team and reduced our general and administrative expenses by consolidating our operations into three regions from a previous eight and centralizing our accounting functions into one office in suburban Philadelphia. We believe that our organizational structure is properly aligned to provide superior service to our tenants and to meet the requirements of being a publicly traded company. We do not depend on our Sponsor for any shared services.

 

 

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Competitive Strengths

We believe the following strengths of our company differentiate us from other owners and operators of shopping centers in the United States and position us to execute on our business plan and growth strategies:

Pure Play, Wholly-Owned Portfolio Without Legacy Issues. We have constructed our IPO Portfolio through sales of shopping centers and the distribution of non-core assets, as well as the strategic selection of the Acquired Properties, with the goal of creating a portfolio that is (1) wholly-owned, (2) domestic only and (3) comprised of a single asset class of community and neighborhood shopping centers. Assets were selected for our IPO Portfolio based on growth potential, trade area and overall operating synergies.

Since 2005, we have sold or distributed 238 shopping centers, or 33% of the shopping centers originally acquired by Centro. The divested shopping centers were characterized by weaker average occupancies, demographics, grocer sales levels and tenant quality compared with our IPO Portfolio. Further, our Sponsor has invested additional capital of $310 million into the IPO Portfolio. In connection with this offering, our Sponsor is contributing 43 shopping centers to our IPO Portfolio, which have been managed by us since being acquired by our Sponsor in 2011 and 2012. These properties are located in markets where we already have a significant presence. The Acquired Properties are characterized by high average occupancies and high ABR/SF and are 84% grocery-anchored, including 20 Publix-anchored shopping centers. The following chart provides summary statistics of our IPO Portfolio as compared to (1) the shopping centers Centro acquired to build its U.S. portfolio, (2) properties eliminated from Centro’s portfolio, including the Non-Core Properties, (3) the Same Property Portfolio and (4) the Acquired Properties:

 

     Centro
Portfolio (1)
   

  Non-Core
Properties and
Other Properties
Sold (2)
   

  =  

  Same
Property
Portfolio (3)
   

 +  

  Acquired
Properties (3)
   

 =   

   IPO
Portfolio (3)
 

Number of shopping centers

     717          238          479          43           522   

Occupancy

     87       79       91       90        91

Average ABR/SF

   $ 10.80        $   8.81        $ 11.68        $ 13.74         $ 11.79   

Percent grocery-anchored (4)

     58       37       69       84        70

Average grocer sales PSF (5)

   $ 459          $ 349          $ 501          $ 477           $ 498   

 

(1) For properties owned by us as of March 31, 2013, information is presented as of March 31, 2013, except that average grocer sales reflect tenant-reported information for the year ended December 31, 2011. For properties no longer owned by us as of March 31, 2013, information is that which was most recently available to us before the dates of the sale of the relevant properties, except that average grocer sales reflect the last tenant-reported information before the dates of the sale of the relevant properties.
(2) Information is presented based on information as of the dates of the sale of the relevant properties, except that average grocer sales reflect the last tenant-reported information before the dates of the sale of the relevant properties.
(3) As of March 31, 2013, except that average grocer sales reflect tenant-reported information for the year ended December 31, 2011.
(4) Based on total number of shopping centers.
(5) Includes only grocers reporting sales.

We currently do not expect to execute a meaningful number of property sales in the foreseeable future, with future dispositions dictated by changes in market or property conditions. As such, our management will be able to focus on optimizing returns from our IPO Portfolio without the distraction that would otherwise accompany the execution of major property dispositions.

In addition, we believe that we have taken advantage of our time as a private company to position ourselves with our IPO Portfolio and with an efficient operating and management infrastructure to support it. As a publicly traded company we do not expect to face the legacy issues that many of our peers face as a result of the global financial crisis and strategic plan modifications, such as significant non-core asset sales, unresolved land banks, stalled new developments, resolving of joint ventures and operating platform modifications.

 

 

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Embedded Internal Growth Opportunity. Our Same Property Portfolio delivered NOI growth of 3.8% and 4.0% during the year ended December 31, 2012 and the quarter ended March 31, 2013, respectively, which exceeded the peer average of 3.2% and 3.4% for the year ended December 31, 2012 and the quarter ended March 31, 2013, respectively, in each case in comparison to the corresponding prior year period. We believe that we are well-positioned to continue to deliver meaningful same property NOI growth over the next several years. We expect such growth to be driven by a combination of occupancy increases across both our anchor and small shop space, the capture of positive rent spreads from below-market in-place rents and significant near-term lease rollover, through contractual rent increases and redevelopment efforts.

Since the Sponsor Contract Date, we have grown occupancy at our Same Property Portfolio from 90.1% to 91.3% at March 31, 2013. We continue to experience strong leasing momentum and, as of March 31, 2013, our IPO Portfolio contained 195 anchor and small shop leases that were signed but not yet commenced, representing approximately $16 million of contractually obligated ABR, which we expect to realize by the first half of 2014.

Since the Sponsor Contract Date, we have executed 168 new anchor leases for spaces of at least 10,000 sq. ft., including 85 new leases for spaces of at least 20,000 sq. ft., increasing overall anchor occupancy to 96% as of March 31, 2013. We believe that the commencement of anchor space leases drives strong new and renewal lease spreads and, because it enables us to lease additional small shop space, is instrumental to long-term small shop occupancy gains and NOI growth. Occupancy improved 2.5% during the 12 months ended March 31, 2013 for small shop spaces in shopping centers with at least one anchor commencement in the prior 12 months.

We believe our above-average lease expiration schedule, as compared to our historic annual expirations, with below-market expiring rents will enable us to renew leases or sign new leases at higher rates. During the 12 months ended March 31, 2013, we signed new and renewal leases in our IPO Portfolio at an average ABR/SF of $12.41. As we move forward into 2014 and through 2016, expiring rents will be lower on average than expiring rents in 2013. Twelve percent of our leased GLA expires in 2014, 15% in 2015 and 14% in 2016, with an average expiring rent of $10.92 per sq. ft. This represents a significant near-term opportunity to mark a substantial percentage of the IPO Portfolio to market. We would expect leasing spreads to widen over time as market rents continue to grow.

Finally, our leases generally provide for contractual rent increases which average 1.1% annually across the portfolio. In addition, our leases generally include tenant reimbursements for common area costs, insurance and real estate taxes. Certain leases also provide for additional rental payments based on a percentage of tenant sales.

High Quality, Grocery-Anchored Asset Base Primarily Located in Top 50 MSAs. Our shopping centers are predominantly located in in-fill locations within established trade areas across the top 50 MSAs in the United States by population, with 63% of the ABR of our IPO Portfolio as of March 31, 2013 derived from these MSAs. Key areas of geographic concentration include the major MSAs of New York (6.0% of ABR); Philadelphia (5.7% of ABR); Houston (5.3% of ABR); Chicago (4.9% of ABR) and Dallas (4.3% of ABR). We believe that such geographic concentration allows for economies of scale and provides market leverage. The average age of the shopping centers in our IPO Portfolio is 30 years based on year built, which reflects the in-fill nature of our shopping centers in established trade areas with the appropriate ratio of anchor to small shop GLA. MSAs in which our shopping centers are located have characteristics that result in premium rents and high occupancy levels compared to other real estate markets in the United States. In particular, we believe these trade areas have, and will maintain over time, significant barriers to entry, such as limited opportunities and high costs for new development. Additionally, these markets have diversified and established tenant bases and are characterized by strong economic fundamentals.

Seventy percent of our portfolio is anchored by market-leading grocers, providing resilient consumer traffic to our shopping centers, with additional anchors being national and regional discount and general merchandise retailers. The top five grocers leasing space from us accounted for 10% of the total ABR of our IPO Portfolio as

 

 

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of March 31, 2013 and overall, grocers are the largest of all our tenant category types. During 2011, based on data reported to us by our tenants, our grocer tenants had average sales of $498 PSF, which is 35% above the average U.S. grocer sales PSF. Additionally, 73% of our grocer tenants ranked as the #1 or #2 grocer in their respective markets.

In addition, we believe that our shopping centers located outside of the top 50 MSAs are among the strongest centers in their respective markets based on their locations in prominent retail corridors, merchandise mix and physical condition. These properties were on average 92% occupied and 72% grocery-anchored at March 31, 2013. Seventy-nine percent of these grocery-anchored centers located outside of the top 50 MSAs were anchored by the #1 or #2 grocer in their respective markets, with strong sales of $495 PSF, according to the most recent tenant-reported data.

High Anchor Space Ownership. As of March 31, 2013, we owned 84% of our anchor spaces greater than 35,000 sq. ft., which we believe is substantially greater than other large publicly traded owners of community and neighborhood shopping centers. These spaces accounted for 42% of our total GLA and 31% of our ABR and primarily include retailers such as Ahold USA, Inc., Publix, Kroger and Walmart. We believe our focus on anchor space ownership provides us with important operational control in the positioning of our shopping centers in the event an anchor ceases to operate and provides flexibility in working with new and existing anchor tenants as they seek to expand or reposition their stores.

At March 31, 2013, the average ABR/SF of our IPO Portfolio was $11.79, with the average ABR/SF of spaces less than 35,000 sq. ft. at $14.25 and of spaces over 35,000 sq. ft. at $8.51. As these over-35,000 sq. ft. leases expire, we expect to generate positive rent increases on these spaces. Twenty-four leases for spaces over 35,000 sq. ft. will expire with no remaining options between April 1, 2013 and December 31, 2016 at an average ABR/SF of $4.51. The total GLA represented by these leases is approximately 1.6 million sq. ft., representing a significant opportunity to increase rents to market rates.

Redevelopment Expertise. We have been a top redeveloper over the past decade, according to Chain Store Age magazine, having completed projects totaling approximately $1 billion since January 1, 2003. Since the Sponsor Contract Date, we have completed 39 redevelopment projects, for a total cost of $122 million with a targeted NOI yield of over 18%. We currently have 25 active projects, with an expected aggregate cost of $96 million and a targeted NOI yield of 15%. Given the continual evolution of retailer concepts and store prototypes, as well as the lack of significant new development in the United States, we expect to maintain our current pace of redevelopment over the foreseeable future. We believe redevelopment is critical to the success of our company, as it provides incremental growth in NOI, drives small shop leasing, improves the value and quality of our shopping centers and increases consumer traffic. At shopping centers in our IPO Portfolio where we have completed a redevelopment during either the year ended December 31, 2012 or the quarter ended March 31, 2013, occupancy has increased on average almost 7.0% in comparison to the year ended December 31, 2011.

Expansive Retailer Relationships. We own and operate the largest wholly-owned portfolio of community and neighborhood shopping centers in the United States. We believe that, given the scale of our asset base and our nationwide footprint, we have a competitive advantage in supporting the growth plans of the nation’s largest retailers. We are committed to helping our retailers meet their real estate needs through creative leasing strategies, property management capabilities and redevelopment expertise. We believe that we are the largest landlord by GLA to Kroger and TJX Companies, as well as a key landlord to all major grocers and most major retail category leaders. We believe that our strong relationships with leading retailers afford us insight into their strategies and priority access to their expansion plans, enabling us to efficiently provide these retailers with space in multiple locations, often pursuant to a uniform lease form. Our role as a leading landlord to these retailers makes us an important counterparty to them.

 

 

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Proven Fully-Integrated Operating Platform. We operate with a fully-integrated, comprehensive platform including approximately 475 employees both leveraging our national presence and demonstrating our commitment to a regional and local presence. We provide our tenants with personalized service through our network of three regional offices in Atlanta, Chicago and Philadelphia, as well as via 12 leasing and property management satellite offices throughout the country. Each regional office is responsible for the day-to-day property-level operations and decision-making for shopping centers in its area, including leasing, property management and maintenance, as well as any related legal, construction or redevelopment efforts. We believe that this strategy enables us to obtain critical market intelligence and to benefit from the regional and local expertise of our workforce. Through our complementary in-house disciplines, we are able to consistently maintain high standards and levels of service at the operational and property level. In addition to our network of local and regional offices, we maintain centralized corporate and accounting functions, which drive efficiency, consistency and commonality in operations and reporting.

Experienced Management with Interests Aligned with Stockholders. Senior members of our management team are proven real estate operators with deep industry expertise and retailer relationships and have an average of 25 years of experience in the real estate industry and an average tenure of 13 years with the company. The majority of our seven member executive team has a long history with our IPO Portfolio, including having managed our business through a number of economic cycles. Our management team, led by Michael Carroll and Michael Pappagallo, is familiar with market conditions and investment opportunities in the major markets in which we operate and has extensive and long-standing business relationships with tenants, brokers and vendors established through many years of transactional experience, as well as significant expertise in redevelopment, which we believe will enhance our growth prospects. We believe that the extensive operating expertise of our management team enables us to maintain focused leasing programs, active asset and property management and first-class tenant service.

Our senior management team also has extensive capital markets and balance sheet management experience. Our management team has completed a large volume of capital transactions over the last two years. In addition, all members of our senior management team have extensive public company experience either with a predecessor company or with another publicly traded U.S. shopping center REIT.

The interests of our senior management team are highly aligned with those of our stockholders. Our management team collectively owns in excess of     % of the Brixmor Interests that will be outstanding after the completion of this offering and the IPO Property Transfers. In addition, we intend to continue to utilize equity-based compensation as part of our compensation program after this offering.

Our Business and Growth Strategies

Our primary objective is to maximize total returns to our stockholders through a combination of growth and value-creation at the asset level supported by stable cash flows. We seek to achieve this through ownership of a large high quality, diversified portfolio of primarily grocery-anchored community and neighborhood shopping centers. We intend to pursue the following strategies to achieve this objective:

Leveraging our Operating Expertise to Proactively Lease and Manage our Assets. We proactively manage our shopping centers with an emphasis on driving high occupancy rates with a solid base of nationally and regionally recognized tenants that generate substantial daily traffic. Our expansive relationships with leading retailers afford us early access to their strategies and expansion plans, as well as to their senior management. We believe these relationships, combined with the national breadth and scale of our portfolio, give us a competitive advantage as a key landlord able to support the real estate strategies of our diverse landscape of retailers. Our operating platform, along with the corresponding regional and local market expertise, enables us to efficiently capitalize on market and retailing trends. We also seek opportunities to refurbish, renovate and redevelop existing shopping centers, as appropriate, including expanding or repositioning existing tenants.

 

 

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We direct our leasing efforts at the corporate level through our national accounts team and at the regional level through our field network. We believe this strategy enables us to provide our national and regional retailers with a centralized, single point of contact, facilitates reviews of our entire shopping center portfolio and provides for standardized lease templates that streamline the lease execution process, while also accounting for market-specific trends.

Capitalizing on Below-Market Expiring Leases. Our focus is to unlock opportunity and create value at the asset level and increase cash flow by increasing rental rates through the renewal of expiring leases or re-leasing of space to new tenants with limited downtime. As part of our targeted leasing strategy, we constantly seek to maximize rental rates and improve the tenant quality and credit profile of our portfolio. We believe our above-average lease expiration schedule, as compared to our historic annual expirations, with below-market expiring rents will enable us to renew leases or sign new leases at higher rates. As we move forward into 2014 and through 2016, expiring rents will be lower on average than expiring rents in 2013. During 2012, we experienced new lease rent spreads for the IPO Portfolio of 20.4% and blended lease spreads of 6.1%. Strong performance continued in the first quarter of 2013, with new lease rent spreads of 19.2% and blended lease spreads of 7.6%. We believe that this performance will continue given our future expiration schedule of 12% of our leased GLA in 2014, 15% in 2015 and 14% in 2016, with an average expiring ABR/SF of $10.92 compared to an average ABR/SF of $12.41 for new and renewal leases signed during the 12 months ended March 31, 2013. This represents a significant near-term opportunity to mark a substantial percentage of the IPO Portfolio to market.

Pursue Value-Creating Redevelopment Opportunities. We evaluate our portfolio on an ongoing basis to identify value-creating redevelopment opportunities. These efforts are tenant-driven and focus on renovating, re-tenanting and repositioning assets and generally present higher risk-adjusted returns than new developments. Potential new projects include value-creation opportunities that have been previously identified within our portfolio, as well as new opportunities created by the lack of meaningful community and neighborhood shopping center development in the United States. We may occasionally seek to acquire non-owned anchor spaces and land parcels at, or adjacent, to our shopping centers in order to facilitate redevelopment projects. As a result of the historically low number of new shopping center developments in the United States, redevelopment opportunities are critical in allowing us to meet space requirements for new store growth and accommodate the evolving prototypes of our retailers.

During 2012, we completed 24 redevelopment projects in our IPO Portfolio, with average targeted NOI yields of 19%. The aggregate cost of these projects was approximately $65 million. During the quarter ended March 31, 2013, we completed 10 redevelopment projects in our IPO Portfolio, with average targeted NOI yields of 19% and an aggregate cost of approximately $43 million. We expect average targeted NOI yields of 15% and an aggregate cost of $96 million for our 25 currently active redevelopment projects. The average cost per redevelopment project completed since the Sponsor Contract Date is approximately $3 million, with an average time to completion of 11 months. We expect to continue to expand the number of redevelopment projects over time and intend to fund these efforts through cash from operations.

Portfolio Diversification. We seek to achieve diversification by the geographic distribution of our shopping centers and the breadth of our tenant base and tenant business lines. We believe this diversification serves to insulate us from macro-economic cycles and reduces our exposure to any single market or retailer.

The shopping centers in our portfolio are strategically located across 38 states and throughout more than 175 MSAs, with 63% of our ABR derived from shopping centers located in the top 50 MSAs with no one MSA accounting for more than 6% of our ABR, in each case as of March 31, 2013.

In total, we have approximately 5,300 diverse national, regional and local retailers with approximately 9,200 leases in our IPO Portfolio. As a result, our 10 largest tenants accounted for only 18% of our ABR, and our two largest tenants, Kroger and TJX Companies, accounted for only 3.4% and 3.3%, respectively, of our ABR, in each case, as of March 31, 2013. Our largest shopping center represents only 1.5% of our ABR as of March 31, 2013.

 

 

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Flexible Capital Structure Positioned for Growth. Our initial capital structure provides us with financial flexibility and capacity to fund our current growth capital needs, as well as future opportunities. We believe the recent completion of our $2.75 billion unsecured credit facility (the “Unsecured Credit Facility”) with a lending group comprised of top-tier financial institutions demonstrates our ability to access cost effective debt capital, provides us the opportunity to repay significant amounts of currently higher cost secured debt and gives us additional flexibility to further improve our financial position. We believe that the Unsecured Credit Facility is the largest ever debut credit facility in the REIT industry. We anticipate that we will have $         million of undrawn capacity under the Unsecured Credit Facility upon completion of this offering after giving effect to the use of proceeds therefrom.

We believe that becoming a publicly traded company will further enhance our access to multiple forms of capital, including follow-on offerings of our common stock, unsecured corporate level debt, preferred equity and additional credit facilities, which will provide us with a competitive advantage over smaller, more highly leveraged or privately-held shopping center companies.

We intend to continue to enhance our financial and operating flexibility through ongoing reduction of our secured debt over time and to pursue an investment grade credit rating with the major credit rating agencies.

Industry Overview

Rosen Consulting Group (“RCG”), a nationally recognized real estate consulting firm, anticipates that continued improvements in consumer and business confidence will drive demand for domestic goods and services in the medium term. RCG believes that these factors should stimulate personal consumption, fueling strong gross domestic product (“GDP”) growth and lead to increased retail sales and restaurant visits. Increased confidence is expected in all income groups going forward, which should form the basis for a broad-based increase in consumer spending and improvements in retail market fundamentals. Retailer demand for space should increase as job creation and population growth spur increased sales of necessity goods, housing-related products, and discretionary items. Category killers should be among the strongest performers going forward, leading to rapid income growth in community and neighborhood centers and regional mall properties where category killers function as anchor tenants. Grocery-anchored centers should also extend strong performance, as consumer foot traffic increases in centers that provide both necessities and discretionary items. RCG projects that a limited amount of new retail development will be delivered in the next five years, allowing for tightening market conditions and the potential for increased rents.

Private-sector job creation is outpacing the growth of the labor force, resulting in a decreasing trend in the unemployment rate and boosting consumer confidence. RCG expects job creation to drive the unemployment rate from 7.5% as of April 2013 to 7.1% by year-end 2013 and into the high-5% range in the medium term. Employment growth in the top 50 MSAs should outpace the national average during this period. In conjunction with improvements in business and consumer confidence, increased private-sector hiring is driving income growth and increased personal consumption expenditures, which comprise more than 70% of GDP. In the first quarter of 2013, real personal consumption expenditures, including services, increased by 2.1%, marking the 13th consecutive quarter of year-over-year growth. Rising disposable income should boost consumer spending and lead to increased retail sales in the coming years. The economic recovery is also fueling more rapid population growth and household formation. Many of the new households formed will be in dense, urban submarkets, driving increased population density. As the number of U.S. residents and households increases, so will the demand for consumer goods and retail sales.

Job creation and rising consumer confidence propelled retail sales growth in recent years, after a sharp pullback in consumer spending during the recession. Excluding automobile sales, nominal retail sales surpassed the prior annual peak in 2011 at $3.8 trillion. In 2012, this figure increased by 4.8% to $4.0 trillion. Consumer discretionary spending has rebounded robustly in recent years. Beginning in late 2010, the year-over-year

 

 

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increase in real consumer discretionary spending ranged from 2% to 4% per month, most recently reaching 2.9% in April 2013. Year-over-year in March 2013, retail inventories increased by 7.0% to more than $522 billion from a recessionary low of $423 billion in August 2009. By 2017, RCG expects fourth quarter retail sales excluding autos to approach $1.2 trillion.

RCG expects construction to gradually increase as vacant space is absorbed, but the level of achievable rents in many markets is not sufficient to support new development activity. Much of the excess space built leading up to the recession will need to be absorbed before developers undertake major new projects and significantly increase supply. With new supply constrained between 2013 and 2017, RCG expects that increasing retailer demand for space stimulated by rising retail sales as a result of the strengthening economy and housing market will drive the vacant space to pre-recession levels.

The combination of gradually strengthening tenant demand, limited new supply coming online, and removal or repurposing of outdated stock has caused the retail vacancy rate to decline from its recession-era high. The tenant retention rate at May 2013 increased for all types of retail properties from recessionary lows. Consequently, the retail vacancy rate tightened to 8.1% at year-end 2012 from a year-end peak of 8.8% in 2010. Looking forward, RCG predicts a slow, steady decline in the retail vacancy rate to 7.0% in 2017. The accelerating tenant demand will be concentrated in existing centers while the supply pipeline remains low. Increased retail sales should boost retailer confidence and tenant expansion activity, particularly in regions with positive economic and demographic fundamentals.

Well-positioned community and neighborhood centers outperformed in terms of rent growth during 2012, as rising sales and productivity increased tenant competition for space in these properties. Grocery-anchored properties, in particular, were relatively resilient during the recession and initial years of the recovery. On average, community and neighborhood center rental rates increased by 1.7% in 2012. Tightening rental market conditions and improving retailer confidence should allow landlords to raise asking rental rates for retail space in the coming years. Looking forward, community and neighborhood centers should outperform other types of real estate, with average annual rent growth of 2.7% from 2013 to 2017. Grocery-anchored community and neighborhood shopping centers should outperform the broader category, with even stronger rent growth.

Organizational Structure

IPO Property Transfers. In connection with this offering, we will effect the IPO Property Transfers described in greater detail in “Organizational Structure—IPO Property Transfers,” whereby certain investment funds affiliated with our Sponsor will contribute certain properties (the “Acquired Properties”) to us, and we will distribute certain properties that we have historically held in our portfolio (the “Non-Core Properties”) to our pre-IPO owners. We refer to these contributions and distributions as the “IPO Property Transfers” and to the properties we will own immediately following the IPO Property Transfers as our “IPO Portfolio.” Unless the context requires otherwise, when describing our portfolio of properties throughout this prospectus, we are referring to our IPO Portfolio.

Our Organizational Structure. All of our assets are held, and our operations conducted, by Brixmor Operating Partnership LP, our “Operating Partnership.” We own and control our Operating Partnership indirectly through our majority-owned subsidiary, BPG Subsidiary Inc., or “BPG Subsidiary.” Brixmor OP GP LLC, a wholly-owned subsidiary of BPG Subsidiary, serves as the sole general partner of our Operating Partnership.

In addition to owning shares of our common stock, our pre-IPO owners also own shares in BPG Subsidiary, which we refer to as “BPG Subsidiary Shares,” and, following the IPO Property Transfers, will own common units of partnership interest in our Operating Partnership, which we refer to as “OP Units.” Following this

 

 

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offering, holders of Outstanding BPG Subsidiary Shares may exchange their BPG Subsidiary shares for shares of our common stock on a one-for-one basis subject to customary conversion rate adjustments for splits, share dividends and reclassifications or, at our election, for cash based upon the market value of an equivalent number of shares of our common stock. In addition, following this offering, holders of Outstanding OP Units may redeem their OP Units for cash based upon the market value of an equivalent number of shares of our common stock or, at our election, exchange their OP Units for shares of our common stock on a one-for-one basis subject to customary conversion rate adjustments for splits, unit distributions and reclassifications. We refer to shares of our common stock, the BPG Subsidiary Shares and the OP Units, collectively, as “Brixmor Interests.” We use the term “Outstanding BPG Subsidiary Shares” to refer to the BPG Subsidiary Shares held by persons other than Brixmor Property Group Inc. and to the term “Outstanding OP Units” to refer to the OP Units not held by BPG Subsidiary or its wholly-owned subsidiary. We use the term “Outstanding Brixmor Interests” to refer, collectively, to the outstanding shares of our common stock, the Outstanding BPG Subsidiary Shares and the Outstanding OP Units.

After this offering, each holder of an Outstanding BPG Subsidiary Share or Outstanding OP Unit will also hold a non-economic share of Brixmor Property Group Inc. that will afford such holder voting power with respect to Brixmor Property Group Inc. commensurate with such holder’s equity ownership in our company and permit such holder to vote on matters presented to the common stockholders of Brixmor Property Group Inc. on an “as exchanged” basis. More specifically, non-economic shares entitle a holder thereof, without regard to the number of non-economic shares held, to cast a number of votes on matters presented to the common stockholders of Brixmor Property Group Inc. that is equal to the aggregate number of BPG Subsidiary Shares and OP Units held by such holder, subject to customary adjustments for stock splits, stock dividends and reclassifications. Holders of non-economic shares are not entitled to dividends or other distributions, including upon the liquidation, dissolution or winding up of Brixmor Property Group Inc. See “Description of Stock—Common Stock and Non-Economic Shares.”

Brixmor Property Group Inc. owns a majority of BPG Subsidiary Shares outstanding. Accordingly, through its power to elect all of BPG Subsidiary’s directors, Brixmor Property Group Inc. operates and controls all of the business and affairs of BPG Subsidiary and consolidates the financial results of BPG Subsidiary and its consolidated subsidiaries, including our Operating Partnership. The ownership interest of the minority stockholders of BPG Subsidiary is reflected as a non-controlling interest in Brixmor Property Group Inc.’s consolidated financial statements.

After completion of this offering and the IPO Property Transfers, BPG Subsidiary will own a majority of the OP Units of our Operating Partnership outstanding, and its wholly-owned subsidiary, Brixmor OP GP LLC, will serve as the sole general partner of our Operating Partnership. Accordingly, BPG Subsidiary will operate and control all of the business and affairs of our Operating Partnership and consolidates the financial results of our Operating Partnership and its consolidated subsidiaries. The ownership interest of the holders of OP Units to be held by our pre-IPO owners will also be reflected as a non-controlling interest in Brixmor Property Group Inc.’s consolidated financial statements.

 

 

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The following diagram depicts our organizational structure and equity ownership immediately following this offering. This chart is provided for illustrative purposes only and does not show all of our legal entities or ownership percentages of such entities. For additional details, see “Organizational Structure.”

 

LOGO

 

(1) Holders of Outstanding BPG Subsidiary Shares and Outstanding OP Units will hold non-economic shares of Brixmor Property Group Inc. Non-economic shares entitle a holder thereof, without regard to the number of non-economic shares held, to cast a number of votes on matters presented to the common stockholders of Brixmor Property Group Inc. that is equal to the aggregate number of BPG Subsidiary Shares and OP Units held by such holder, subject to customary adjustments for stock splits, stock dividends and reclassifications. See “Description of Stock—Common Stock and Non-Economic Shares.”
(2) BPG Subsidiary owns a portion of its interest in our Operating Partnership through Brixmor OP GP LLC, a wholly-owned subsidiary of BPG Subsidiary that serves as the sole general partner of our Operating Partnership.

 

 

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Our Sponsor

Blackstone (NYSE: BX) is one of the world’s leading investment and advisory firms. Blackstone’s alternative asset management businesses include the management of corporate private equity funds, real estate funds, hedge fund solutions, credit-oriented funds and closed-end mutual funds. Blackstone also provides various financial advisory services, including financial and strategic advisory, restructuring and reorganization advisory and fund placement services. Through its different businesses, Blackstone had total assets under management of approximately $218.2 billion as of March 31, 2013. Blackstone’s global real estate group is the largest private equity real estate manager in the world with $59.5 billion of investor capital under management as of March 31, 2013.

Summary Risk Factors

Investing in our common stock involves substantial risks, and our ability to successfully operate our business is subject to numerous risks, including those that are generally associated with operating in the real estate industry. Some of the more significant challenges and risks include the following:

 

   

adverse global, national and regional economic, market and real estate conditions may adversely affect our performance;

 

   

we face considerable competition in the leasing market and may be unable to renew leases or re-lease space as leases expire;

 

   

we face considerable competition for the tenancy of our leases and the business of retail shoppers;

 

   

our performance depends on the collection of rent from the tenants at the properties in our portfolio, those tenants’ financial condition and the ability of those tenants to maintain their leases;

 

   

real estate property investments are illiquid, and it may not be possible to dispose of assets when appropriate or on favorable terms;

 

   

we utilize a significant amount of indebtedness in the operation of our business;

 

   

we may be unable to obtain financing through the debt and equity markets;

 

   

our cash flows and operating results could be adversely affected by required payments of debt or related interest and other risks of our debt financing;

 

   

mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in a property or group of properties subject to mortgage debt;

 

   

covenants in our debt agreements may restrict our operating activities and adversely affect our financial condition;

 

   

current and future redevelopment or real estate property acquisitions may not yield expected returns;

 

   

an uninsured loss on properties or a loss that exceeds the limits of our insurance policies could result in a loss of our investment or related revenue in our portfolio;

 

   

our real estate assets may be subject to impairment charges;

 

   

we are controlled by our Sponsor; and

 

   

if we do not maintain our qualification as a REIT, we will be subject to tax as a regular corporation and could face a substantial tax liability.

Before you participate in this offering, you should carefully consider all of the information in this prospectus, including matters set forth under the heading “Risk Factors.”

 

 

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Distribution Policy

The Internal Revenue Code of 1986, as amended (the “Code”), generally requires that a REIT distribute annually at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains, and imposes tax on any taxable income retained by a REIT, including capital gains. To satisfy the requirements for qualification as a REIT and generally not be subject to U.S. federal income and excise tax, we intend to make regular quarterly distributions of all or substantially all of our REIT taxable income to holders of our common stock out of assets legally available for such purposes. Our future distributions will be at the sole discretion of our board of directors.

To the extent we are prevented by provisions of our financing arrangements or otherwise from distributing 100% of our REIT taxable income or otherwise do not distribute 100% of our REIT taxable income, we will be subject to income tax, and potentially excise tax, on the retained amounts. If our operations do not generate sufficient cash flow to allow us to satisfy the REIT distribution requirements, we may be required to fund distributions from working capital, borrow funds, sell assets or reduce such distributions. Our board of directors reviews the alternative funding sources available to us from time to time.

REIT Qualification

We made a tax election to be treated as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2011 and expect to continue to operate so as to qualify as a REIT. So long as we qualify as a REIT, we generally will not be subject to U.S. federal income tax on net taxable income that we distribute annually to our stockholders. In order to qualify as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other things, the real estate qualification of sources of our income, the composition and values of our assets, the amounts we distribute to our stockholders and the diversity of ownership of our stock. In order to comply with REIT requirements, we may need to forego otherwise attractive opportunities and limit our expansion opportunities and the manner in which we conduct our operations. See “Risk Factors—Risks Related to our REIT Status and Certain Other Tax Items.”

Restrictions on Ownership of our Stock

Subject to certain exceptions, our charter will provide that no person may own, or be deemed to own by virtue of the attribution provisions of the Code, more than 9.8% (in value or by number of shares, whichever is more restrictive) of our outstanding common stock or more than 9.8% in value of our outstanding stock, which we refer to as the “ownership limit,” and will impose certain other restrictions on ownership and transfer of our stock. Pursuant to the stockholders agreement with our Sponsor, we expect that, upon completion of this offering, our board of directors will grant an exemption from the ownership limit to our Sponsor and its affiliates.

Our charter also prohibits any person from, among other things:

 

   

owning shares of our stock that would result in our being “closely held” under Section 856(h) of the Code or otherwise cause us to fail to qualify as a REIT;

 

   

transferring shares of our stock if the transfer would result in shares of our stock being beneficially owned by fewer than 100 persons; and

 

   

beneficially owning shares of our stock to the extent such ownership would result in our failing to qualify as a “domestically controlled qualified investment entity” within the meaning of Section 897(h) of the Code.

 

 

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Any attempted transfer of our stock which, if effective, would result in violation of the above limitations or the ownership limit (except for a transfer which results in shares being owned by fewer than 100 persons, in which case such transfer will be void and of no force and effect and the intended transferee shall acquire no rights in such shares) will cause the number of shares causing the violation, rounded up to the nearest whole share, to be automatically transferred to a trust for the exclusive benefit of one or more charitable beneficiaries designated by us, and the intended transferee will not acquire any rights in the shares.

These restrictions are intended to assist with our REIT compliance under the Code and otherwise to promote our orderly governance, among other purposes. See “Description of Stock—Restrictions on Ownership and Transfer.”

 

 

Brixmor Property Group Inc. was incorporated in Delaware on May 27, 2011. Prior to this offering, we intend to change the jurisdiction of incorporation of Brixmor Property Group Inc. to Maryland. Our principal executive offices are located at 420 Lexington Avenue, New York, New York 10170, and our telephone number is (212) 869-3000.

 

 

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The Offering

 

Common stock offered

             shares (plus up to an additional              shares at the option of the underwriters).

 

Common stock outstanding after this offering

             shares (or              shares if all              Outstanding BPG Subsidiary Shares and all              Outstanding OP Units were exchanged for shares of our common stock).

 

Non-economic shares outstanding after this offering

             shares, or one share for each holder of Outstanding BPG Subsidiary Shares or Outstanding OP Units. Each holder of an Outstanding BPG Subsidiary Share or Outstanding OP Unit will also hold one non-economic share of Brixmor Property Group Inc. that entitles the holder, without regard to the number of non-economic shares held, to cast a number of votes on matters presented to common stockholders of Brixmor Property Group Inc. that is equal to the aggregate number of BPG Subsidiary Shares or OP Units held by such holder, subject to customary adjustments for stock splits, stock dividends and reclassifications. Holders of non-economic shares are not entitled to dividends or other distributions, including upon the liquidation, dissolution or winding up of Brixmor Property Group Inc.

 

Use of proceeds

Brixmor Property Group Inc. will contribute the net proceeds of this offering to BPG Subsidiary in exchange for a number of BPG Subsidiary Shares that is equal to the number of shares of common stock that we issue to investors in this offering. BPG Subsidiary will contribute its receipts from this contribution to our Operating Partnership in exchange for a number of OP Units that is equal to the number of BPG Subsidiary Shares that BPG Subsidiary issues to Brixmor Property Group Inc.

 

  Our Operating Partnership will primarily use the net proceeds from this offering to repay approximately $         of outstanding borrowings under the revolving portion of our Unsecured Credit Facility. We will also use approximately $         of net offering proceeds as described in note (G) under “Unaudited Pro Forma Financial Information.”

 

  Affiliates of each of the representatives of the underwriters are lenders under our Unsecured Credit Facility, which we intend to repay in part with the net proceeds of this offering.

 

Listing

We expect to apply to list our common stock on the NYSE under the symbol “BRX.”

 

 

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In this prospectus, unless otherwise indicated, the number of shares of common stock outstanding and the other information based thereon does not reflect:

 

   

             shares issuable upon exchange of              Outstanding BPG Subsidiary Shares;

 

   

             shares issuable upon exchange of              Outstanding OP Units that will be issued in connection with our acquisition from our Sponsor of interests in certain properties as described in “Organizational Structure—IPO Property Transfers.” The precise number of OP Units to be issued in connection with our acquisition of the Acquired Properties will be determined at the time that the initial public offering price per share in this offering is determined. Based on an assumed initial public offering price of $         per share (the midpoint of the estimated price range set forth on the cover page of this prospectus), we would issue to our Sponsor              OP Units in connection with the IPO Property Transfers. A $1.00 increase in the assumed initial public offering price of $         per share would increase the number of OP Units we would issue to our Sponsor to                     , and a $1.00 decrease in the assumed initial public offering price of $         per share would decrease the number of OP Units we would issue to our Sponsor to ;

 

   

             shares issuable upon exercise of the underwriters’ option to purchase additional shares of our common stock from us; or

 

   

             shares of our common stock issuable pursuant to the 2013 Brixmor Property Group Inc. Omnibus Incentive Plan, or our “2013 Omnibus Incentive Plan”. See “Management—2013 Omnibus Incentive Plan.”

 

 

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Summary Financial and Other Data

The summary consolidated financial and operating data set forth below as of December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated financial and operating data set forth below as of March 31, 2013 and for the three months ended March 31, 2013 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. Results for the three month period ended March 31, 2013 are not necessarily indicative of results that may be expected for the entire year. The summary consolidated financial and operating data set forth as of December 31, 2010, 2009 and 2008 and for the years ended December 31, 2009 and 2008 have been derived from our audited consolidated financial statements not included in this prospectus.

The unaudited summary consolidated pro forma financial data reflects our IPO Portfolio of 522 Properties, and gives pro forma effect to: (1) the IPO Property Transfers; (2) our acquisition of the interest we did not already hold in Arapahoe Crossings, L.P.; (3) borrowings under our Unsecured Credit Facility, including the use thereof; and (4) the estimated net proceeds, including the use thereof, expected to be received from this offering, as if they each occurred on January 1, 2012. The pro forma adjustments associated with the foregoing transactions assume that each transaction was completed as of January 1, 2012 for purposes of the unaudited pro forma condensed consolidated statements of operations information and as of March 31, 2013 for purposes of the unaudited pro forma condensed consolidated balance sheet information. The following unaudited summary consolidated pro forma statement of operations and balance sheet data is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the relevant transactions had been consummated on the date indicated, nor is it indicative of future operating results.

Because the information presented below is only a summary and does not provide all of the information contained in our historical consolidated financial statements, including the related notes, you should read it in conjunction with “Selected Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Financial Information” and our historical consolidated financial statements, including the related notes, included elsewhere in this prospectus. The amounts in the table are dollars in thousands.

 

 

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The Successor period in the following table reflects our selected financial data for the period following the acquisition of certain assets from Centro on June 28, 2011 (the “Acquisition”) through the end of the 2012 fiscal year, and the Predecessor period in the following table reflects our selected financial data for the periods prior to the Acquisition.

    Successor    

 

  Predecessor  
  Pro Forma
Three
Months
Ended
March 31,
2013
    Pro Forma
Year Ended
December 31,
2012
    Three Months Ended
March 31,
    Year Ended
December 31,
2012
    Period from
June 28, 2011
through
December 31,
2011
   

 

  Period from
January 1,
2011
through
June 27,
2011
    Year Ended
December 31,
2010
 
      2013     2012            
(in thousands)                                                     
    (unaudited)     (unaudited)     (unaudited)     (unaudited)                               

Revenue

                   

Rental income

    $                    $                    $221,867        $218,270        $882,848        $445,211            $428,371        $875,244   

Expense reimbursements

        61,955        58,778        235,386        116,746            119,416        238,300   

Other revenue

        3,251        3,559        11,458        5,713            8,054        16,325   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

 

Total revenues

        287,073        280,607        1,129,692        567,670            555,841        1,129,869   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

 
 

Operating expenses

                   

Operating costs

        31,899        32,244        126,403        63,152            68,471        128,888   

Real estate taxes

        43,962        41,133        163,742        81,361            80,292        166,183   

Depreciation and amortization

        115,480        134,827        506,634        295,373            175,118        393,509   

Impairment of real estate assets

        —          —          —          —              —          256,243   

Provision for doubtful accounts

        2,660        3,004        11,902        8,904            11,148        16,260   

Acquisition related costs

        —          —          541        41,362            5,647        4,821   

General and administrative

        24,029        24,263        88,870        50,437            57,443        94,649   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

 

Total operating expenses

        218,030        235,471        898,092        540,589            398,119        1,060,553   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

 
 

Other income (expenses)

                   

Dividends and interest

        181        334        1,138        641            814        2,203   

Gain on bargain purchase

        —          —          —          328,826            —          —     

Interest expense

        (92,022     (96,460     (387,078     (205,243         (192,140     (374,855

Gain on sale of real estate

        —          50        501        —              —          (111

Other

        45        42        (507     2,113            (4,694     5,476   

Total other income (expense)

        (91,796     (96,034     (385,946     126,337            (196,020     (367,287
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

 
 

Income (loss) before equity in earnings of unconsolidated joint venture and income taxes

        (22,753     (50,898     (154,346     153,418            (38,298     (297,971

Income tax benefit

        —          —          —          —              —          16,494   

Equity in income (loss) of unconsolidated joint ventures

        247        79        687        (160         (381     (2,116

Impairment of investment in unconsolidated joint ventures

        —          —          (314     —              —          (1,734
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

 

Income (loss) from continuing operations

        (22,506     (50,819     (153,973     153,258            (38,679     (285,327
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

 

 

 

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    Successor    

 

  Predecessor  
  Pro Forma
Three
Months
Ended
March 31,
2013
    Pro Forma
Year Ended
December 31,
2012
    Three Months Ended
March 31,
    Year Ended
December 31,
2012
    Period from
June 28, 2011
through
December 31,
2011
   

 

  Period from
January 1,
2011
through
June 27,
2011
    Year Ended
December 31,
2010
 
      2013     2012            
(in thousands)                                                     
    (unaudited)     (unaudited)     (unaudited)     (unaudited)                               
 

Discontinued operations:

                   

Income (loss) from discontinued operations

        93        75        1,490        (122         196        1,805   

Gain on disposition of properties

        —          939        5,369        —              —          —     

Impairment of real estate assets held for sale

        (3,033     —          (13,599     —              (8,608     (36,465
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 

Income (loss) from discontinued operations

        (2,940     1,014        (6,740     (122         (8,412     (34,660
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 
 

Net income (loss)

        (25,446     (49,805     (160,713     153,136            (47,091     (319,987
 

Net (income) loss attributable to non-controlling interests

        5,947        11,885        38,146        (37,785         (752     (1,400
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 
 

Net income (loss) attributable to Brixmor Property Group Inc.

    $                    $                    $(19,499     $(37,920     $(122,567     $115,351            $(47,843     $(321,387
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 

 

     Successor           Predecessor  
     Pro Forma
March 31, 2013
     March 31,
2013
     December 31,            December 31,
2010
 
(in thousands)          2012      2011           
     (unaudited)      (unaudited)                             

Selected Balance Sheet Data

                   

Real estate, net

     $                     $9,002,120         $9,098,130         $9,496,903              $9,873,096   

Total assets

     $                     $9,529,999         $9,603,729         $10,032,266              $10,711,209   

Debt obligations, net

     $                     $6,498,498         $6,499,356         $6,694,549              $7,700,237   

Total liabilities

     $                     $7,268,802         $7,305,908         $7,553,277              $8,731,832   

Total equity

     $                     $2,239,730         $2,276,354         $2,457,430              $1,957,818   

 

 

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Table of Contents
    Successor    

 

  Predecessor  
    Pro  Forma
Three
Months
Ended
March 31,
2013(1)
    Pro Forma
Year

Ended
December 31,
2012(1)_
    Three Months
Ended March 31,
    Year Ended
December 31,
2012
    Period from
June 28, 2011
through
December 31,
2011
   

 

  Period from
January 1,
2011
through
June 27,
2011
    Year Ended
December 31,
2010
 
        2013      2012            
    (unaudited)     (unaudited)                                            
(in millions)                                                      

Other Data

                    

Funds from operations (1)

    $                    $                    $92.9         $84.8        $356.3        $121.5            $139.7        $382.0   

Funds from operations as adjusted (1)

    $                    $                    $92.9         $84.7        $356.3        $162.9            $145.3        $386.9   

Same property NOI (2)

    $                    $                    $192.1         $185.6        $755.9        $371.8            $357.1        $735.4   

EBITDA (3)

    $                    $                    $183.0         $184.3        $739.0        $660.0            $334.0        $472.8   

Adjusted EBITDA (3)

    $                    $                    $186.0         $183.4        $747.5        $372.6            $348.2        $775.4   

 

(1) Funds From Operations (“FFO”) is a supplemental non-GAAP measure utilized to evaluate the operating performance of real estate companies. The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income/(loss) attributable to common stockholders computed in accordance with GAAP, excluding (i) gains or losses from sales of operating real estate assets and (ii) extraordinary items, plus (iii) depreciation and amortization of operating properties and (iv) impairment of depreciable real estate and in substance real estate equity investments and (v) after adjustments for unconsolidated partnerships and joint ventures calculated to reflect funds from operations on the same basis.

We present FFO as we consider it an important supplemental measure of our operating performance and we believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting results. Comparison of our presentation of FFO to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in the application of the NAREIT definition used by such REITs.

We also present FFO as adjusted as an additional supplemental measure as we believe it is more reflective of our core operating performance. We believe FFO as adjusted provides investors and analysts an additional measure in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. FFO as adjusted is generally calculated by us as FFO excluding certain transactional income and expenses and non-operating impairments which management believes are not reflective of the results within our operating real estate portfolio.

FFO is a supplemental non-GAAP financial measure of real estate companies’ operating performances, which does not represent cash generated from operating activities in accordance with GAAP and therefore should not be considered an alternative for net income as a measure of liquidity. Our method of calculating FFO and FFO as adjusted may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.

 

 

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The following table provides a reconciliation of net income (loss) to FFO and FFO as adjusted for the periods presented (in millions):

 

    Successor         Predecessor  
    Pro
Forma
Three
Months
Ended
March 31,
2013
    Pro Forma
Year Ended
December 31,
2012
    Three
Months
Ended
March 31,
2013
    Three
Months
Ended
March 31,
2012
    Year Ended
December 31,
2012
    Period from
June 28, 2011
through
December 31,
2011
   

 

  Period
from
January 1,
2011
through
June 27,
2011
    Year Ended
December 31,
2010
 

Net income (loss)

    $                    $                    $(25.4     $(49.8     $(160.7     $153.1            $(47.1     $(320.0

Gain on disposition of operating properties

        —          (0.9     (5.4     —              —          —     

(Gain)/loss on disposition of joint venture operating properties

        —          0.1        —          —              —          3.3   

Depreciation and amortization—real estate related-continuing operations

        115.0        134.0        503.9        293.4            173.0        389.4   

Depreciation and amortization—real estate related-discontinued operations

        0.2        1.3        3.8        3.3            4.3        11.1   

Depreciation and amortization—real estate joint ventures

        0.1        0.1        0.8        0.5            0.9        3.8   

Impairments of operating properties

        —          —          —          —              —          256.2   

Impairments of real estate held for sale

        3.0        —          13.6        —              8.6        36.5   

Impairments of real estate joint ventures

        —          —          0.3        —              —          1.7   
 

Gain on bargain purchase

        —          —          —          (328.8         —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 

FFO

        92.9        84.8        356.3        121.5            139.7        382.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

 

Gains from development/land sales

        —          (0.1     (0.5     —              —          0.1   

Acquisition-related costs

        —          —          0.5        41.4            5.6        4.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 

Total adjustments

        —          (0.1     —          41.4            5.6        4.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 

FFO as adjusted

    $                    $                    $92.9        $84.7        $356.3        $162.9            $145.3        $386.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

 

 

(2) Same property NOI, a non-GAAP measure, is often used by real estate companies as a supplemental measure of operating performance. Although same property NOI is not presented in accordance with GAAP, we believe it assists investors in understanding our business and operating results by providing useful supplemental data regarding the underlying economics of our business operations. Management uses same property NOI to review our operating results for comparative purposes with respect to previous periods or forecasts, and also to evaluate future prospects. Our same property NOI is not intended to be a performance measure that should be regarded as an alternative to, or more meaningful than, our GAAP financial measures. Non-GAAP financial measures have limitations as they do not include all items of income and expense that affect our operations, and, accordingly, should always be considered as supplemental to our financial results presented in accordance with GAAP.

 

 

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We believe that same property NOI is helpful to investors as a measure of our operational performance because it includes only the net operating income of properties owned for the full period presented, which eliminates disparities in net income due to the acquisition or disposition of properties during the period presented, and, therefore, provides a more consistent metric for comparing the performance of our properties. Same property NOI should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of our financial performance. In addition, our computation of same property NOI may differ from similarly titled measures reported by other companies and, therefore, may not be comparable to such other companies.

We calculate same property NOI as total property revenues (minimum rent, percentage rents, and recoveries from tenants and other income) less direct property operating expenses (operating and maintenance and real estate taxes) from the properties owned by us. NOI excludes corporate level income (including transaction and other fees), lease termination income, straight-line rent, amortization of above-/below-market leases of the same property pool from the prior year reporting period to the current year reporting period. Same property NOI includes all properties in the IPO Portfolio that were owned as of the end of both the current and prior year reporting periods and for the entirety of both periods, excluding properties classified as discontinued operations.

The following table provides a reconciliation of net (loss) income attributable to Brixmor Property Group Inc. to Same Property NOI for the periods presented (in millions):

 

    Successor          Predecessor  
    Pro
Forma
Three
Months
Ended
March 31,
2013
    Pro Forma
Year Ended
December 31,
2012
    Three Months
Ended
March 31,
    Year Ended
December 31,
2012
    Period from
June 28, 2011
through
December 31,
2011
   

 

  Period
from
January 1,
2011
through
June 27,
2011
    Year Ended
December 31,
2010
 
        2013     2012               

Net (loss) income attributable to Brixmor Property Group Inc.

    $                    $                    $(19.5     $(37.9     $(122.6     $115.4            $(47.8     $(321.4

Adjustments:

                   

Total other income

        (16.5     (23.0     (75.0     (337.6         (31.3     (72.9

Total other expenses

        234.2        259.8        995.8        558.9            435.4        880.3   

Equity in income (loss) of unconsolidated real estate joint ventures

        (0.2     (0.1     (0.7     0.2            0.4        2.1   

Impairment of investment in unconsolidated real estate joint ventures

        —          —          0.3        —              —          1.7   

Impairment of real estate assets

        —          —          —          —              —          256.2   

Non-same property NOI

        —          (1.3     (3.8     (2.9         (0.4     (12.0

Net (income) loss attributable to non-controlling interests

        (5.9     (11.9     (38.1     37.8            0.8        1.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

 

Same property NOI including redevelopment

    $                    $                    $192.1        $185.6        $755.9        $371.8            $357.1        $735.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

 

(3) EBITDA is calculated as the sum of net income (loss) before extraordinary items, depreciation and amortization, income taxes, interest expense, gains (losses) on sale of real estate, impairment or real estate and related investments and unrealized re-measurement adjustment of derivative instruments. Adjusted EBITDA represents EBITDA as adjusted for (i) acquisition-related costs, (ii) gain on bargain purchase, (iii) gain on disposition of operating properties, (iv) gains from development/land sales, (v) gains or losses on disposition of joint venture operating properties and (vi) impairments of operating properties, real estate held for sale and real estate joint ventures.

 

 

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Given the nature of our business as a real estate owner and operator, we believe that the use of EBITDA and Adjusted EBITDA in various financial ratios is helpful to investors as a measure of its operational performance because EBITDA and Adjusted EBITDA exclude various items that do not relate to or are not indicative of its operating performance such as gains (losses) from sales of real estate and depreciation and amortization on real estate assets, and includes the results of operations of real estate properties that have been sold or classified as real estate held for sale at the end of the reporting period. Accordingly, we believe that the use of EBITDA and Adjusted EBITDA in various ratios provides a meaningful performance measure as it relates to its ability to meet various coverage tests for the stated period. EBITDA and Adjusted EBITDA should not be considered as alternatives to net income (determined in accordance with GAAP) as indicators of our financial performance and are not alternatives to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity. In addition, our computation of EBITDA and Adjusted EBITDA may differ in certain respects from the methodology utilized by other REITS to calculate EBITDA and Adjusted EBITDA and, therefore, may not be comparable to such other REITS. Investors are cautioned that items excluded from EBITDA and Adjusted EBITDA are significant components in understanding and addressing our financial performance.

The following table provides a reconciliation of EBITDA and Adjusted EBITDA to net income (loss) for the periods presented (in millions):

 

    Successor          Predecessor  
    Pro
Forma
Three
Months
Ended
March 31,
2013
    Pro Forma
Year Ended
December 31,
2012
    Three Months
Ended
March 31,
    Year Ended
December 31,
2012
    Period from
June 28,

2011 through
December 31,

2011
         Period
from
January 1,
2011
through
June 27,
2011
    Year Ended
December 31,
2010
 
        2013     2012               

Net income (loss)

    $                    $                    $(25.4     $(49.8     $(160.7     $153.1            $(47.1     $(320.0

Interest expense—continuing operations

        92.0        96.5        387.1        205.2            192.1        374.9   

Interest expense—discontinued operations

        (0.1     0.1        0.3        0.2            0.2        3.2   

Interest expense—real estate joint ventures

        0.2        0.4        1.6        0.9            —          —     

Federal and state taxes

        1.0        1.7        2.2        3.4            10.6        10.4   

Depreciation and amortization—real estate related-continuing operations

        115.0        134.0        503.9        293.4            173.0        389.4   

Depreciation and amortization—real estate related-discontinued operations

        0.2        1.3        3.8        3.3            4.3        11.1   

Depreciation and amortization—real estate joint ventures

        0.1        0.1        0.8        0.5            0.9        3.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

 
 

EBITDA

    $                    $                    $183.0        $184.3        $739.0        $660.0            $334.0        $472.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

 

Acquisition-related costs

        —          —          0.5        41.4            5.6        4.8   

Gain on bargain purchase

        —          —          —          (328.8         —          —     

Gain on disposition of operating properties

        —          (0.9     (5.4     —              —          —     

Gains from development/land sales

        —          (0.1     (0.5     —              —          0.1   

(Gain)/loss on disposition of joint venture operating properties

        —          0.1        (—       —              —          3.3   

Impairments of operating properties

        —          —          —          —              —          256.2   

Impairments of real estate held for sale

        3.0        —          13.6        —              8.6        36.5   

Impairments of real estate joint ventures

        —          —          0.3        —              —          1.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

 

Total adjustments

        3.0        (0.9     8.5        (287.4         14.2        302.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

 

Adjusted EBITDA

    $                    $                    $186.0        $183.4        $747.5        $372.6            $348.2        $775.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

 

 

 

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RISK FACTORS

An investment in our shares involves risks. You should carefully consider the following information about these risks, together with the other information contained in this prospectus, before investing in our shares.

Risks Related to Our Properties and Our Business

Adverse global, national and regional economic, market and real estate conditions may adversely affect our performance.

Properties in our portfolio consist of community and neighborhood shopping centers. Our performance is, therefore, subject to risks associated with owning and operating these types of real estate assets, including: (1) changes in national, regional and local economic climates; (2) local conditions, including an oversupply of space in, or a reduction on demand for, properties similar to those in our portfolio; (3) the attractiveness of properties in our portfolio to tenants; (4) the financial stability of tenants, including the ability of tenants to pay rent; (5) competition from other available properties; (6) changes in market rental rates; (7) changes in demographics (including number of households and average household income) surrounding our properties; (8) the need to periodically fund the costs to repair, renovate and re-lease space; (9) changes in operating costs, including costs for maintenance, utilities, insurance and real estate taxes; (10) earthquakes, tornados, hurricanes and other natural disasters, civil unrest, terrorist acts or acts of war, which may result in uninsured or underinsured losses; (11) the fact that the expenses of owning and operating properties are not necessarily reduced when circumstances such as market factors and competition cause a reduction in income from the properties; and (12) changes in laws and governmental regulations, including those governing usage, zoning, the environment and taxes.

Additionally, because properties in our portfolio consist of shopping centers, our performance is linked to general economic conditions in the market for retail space. The market for retail space has been and may continue to be adversely affected by weakness in the national, regional and local economies, the adverse financial condition of some large retailing companies, the consolidation in the retail sector, the excess amount of retail space in certain markets and increasing consumer purchases via the internet. To the extent that any of these conditions worsen, they are likely to affect market rents and overall demand for retail space. In addition, we may face challenges in property management and maintenance or incur increased operating costs, such as real estate taxes, insurance and utilities, which may make properties unattractive to tenants. The loss of rental revenues from a number of our tenants and our inability to replace such tenants may adversely affect our profitability and ability to meet our debt and other financial obligations.

We face considerable competition in the leasing market and may be unable to renew leases or re-lease space as leases expire. Consequently, we may be required to make rent or other concessions and/or significant capital expenditures to improve our properties in order to retain and attract tenants, which could adversely affect our financial condition and results of operations.

We compete with a number of other companies in providing leases to prospective tenants and in re-leasing space to current tenants upon expiration of their respective leases. If our tenants decide not to renew or extend their leases upon expiration, we may not be able to re-lease the space. Even if the tenants do renew or we can re-lease the space, the terms of renewal or re-leasing, including the cost of required renovations or concessions to tenants, may be less favorable or more costly than current lease terms or than expectations for the space. As of March 31, 2013, leases are scheduled to expire on a total of approximately 8% of leased GLA at our properties in our IPO Portfolio during the remainder of 2013 and on an additional 12% of leased GLA during 2014. We may be unable to promptly renew the leases or re-lease this space, or the rental rates upon renewal or re-leasing may be significantly lower than expected rates, which could adversely affect our financial condition and results of operations.

 

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We face considerable competition for the tenancy of our lessees and the business of retail shoppers.

There are numerous shopping venues that compete with our properties in attracting retailers to lease space and shoppers to patronize their properties. In addition, tenants at our properties face continued competition from retailers at regional malls, outlet malls and other shopping centers, catalog companies and internet sales. In order to maintain our attractiveness to retailers and shoppers, we are required to reinvest in our properties in the form of tenant improvements. If we fail to reinvest in and redevelop our properties so as to maintain their attractiveness to retailers and shoppers, our revenue and profitability may suffer. If retailers or shoppers perceive that shopping at other venues, online or by phone is more convenient, cost-effective or otherwise more attractive, our revenues and profitability may also suffer.

Our performance depends on the collection of rent from the tenants at the properties in our portfolio, those tenants’ financial condition and the ability of those tenants to maintain their leases.

A substantial portion of our income is derived from rental income from real property. As a result, our performance depends on the collection of rent from tenants at the properties in our portfolio. Our income would be negatively affected if a significant number of the tenants at the properties in our portfolio or any major tenants, among other things: (1) decline to extend or renew leases upon expiration; (2) renew leases at lower rates; (3) fail to make rental payments when due; (4) experience a downturn in their business; or (5) become bankrupt or insolvent.

Any of these actions could result in the termination of the tenant’s lease and our loss of rental income. In addition, under certain lease agreements, lease terminations by an anchor tenant or a failure by that anchor tenant to occupy the premises could also result in lease terminations or reductions in rent by other tenants in such shopping centers. In these events, we cannot be certain that any tenant whose lease expires will renew or that we will be able to re-lease space on economically advantageous terms. The loss of rental revenues from a number of tenants and difficulty replacing such tenants, particularly in the case of a substantial tenant with leases in multiple locations, may adversely affect our profitability and our ability to meet debt and other financial obligations.

We may be unable to collect balances due from tenants that file for bankruptcy protection.

If a tenant or lease guarantor files for bankruptcy, we may not be able to collect all pre-bankruptcy amounts owed by that party. In addition, a tenant that files for bankruptcy protection may terminate its lease with us, in which event we would have a general unsecured claim against such tenant that would likely be worth less than the full amount owed to us for the remainder of the lease term, which could adversely affect our financial condition and results of operations.

Real estate property investments are illiquid, and it may not be possible to dispose of assets when appropriate or on favorable terms.

Real estate property investments generally cannot be disposed of quickly, and a return of capital and realization of gains, if any, from an investment generally occur upon the disposition or refinancing of the underlying property. Our ability to dispose of properties on advantageous terms depends on factors beyond our control, including competition from other sellers and the availability of attractive financing for potential buyers of our properties, and we cannot predict the various market conditions affecting real estate investments that will exist at any particular time in the future. Furthermore, we may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure our stockholders that we will have funds available to correct such defects or to make such improvements and, therefore, we may be unable to sell the property or may have to sell it at a reduced cost. As a result of these real estate market characteristics, we may be unable to realize our investment objectives by sale, other disposition or refinancing at attractive prices or within any desired period of time. The ability to sell assets in our portfolio may also be restricted by certain covenants in our debt agreements and the credit agreement governing our Unsecured Credit Facility. As a result, we may be required to dispose of assets on less than favorable terms, if at all, and we may be unable to vary our portfolio in response to economic or other conditions, which could adversely affect our financial position.

 

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Our expenses may remain constant or increase, even if income from our properties decreases, causing our financial condition and results of operations to be adversely affected.

Costs associated with our business, such as mortgage payments, real estate and personal property taxes, insurance, utilities and corporate expenses, are relatively inflexible and generally do not decrease, and may increase, when a property is not fully occupied, rental rates decrease, a tenant fails to pay rent or other circumstances cause our revenues to decrease. If we are unable to decrease our operating costs when our revenue declines, our financial condition, results of operations and ability to make distributions to our stockholders may be adversely affected. In addition, inflationary price increases could result in increased operating costs for us and our tenants and, to the extent we are unable to pass along those price increases or are unable to recover operating expenses from tenants, our operating expenses may increase, which could adversely affect our financial condition, results of operations and ability to make distributions to our stockholders. Conversely, deflation can result in a decline in general price levels caused by a decreased in the supply of money or credit. The predominant effects of deflation are high unemployment, credit contraction and weakened consumer demand.

Our cash flows and operating results could be adversely affected by required payments of debt or related interest and other risks of our debt financing.

We are generally subject to risks associated with debt financing. These risks include: (1) our cash flow may not be sufficient to satisfy required payments of principal and interest; (2) we may not be able to refinance existing indebtedness on our properties as necessary or the terms of the refinancing may be less favorable to us than the terms of existing debt; (3) required debt payments are not reduced if the economic performance of any property declines; (4) debt service obligations could reduce funds available for distribution to our stockholders and funds available for capital investment; (5) any default on our indebtedness could result in acceleration of those obligations and possible loss of property to foreclosure; and (6) the risk that necessary capital expenditures for purposes such as re-leasing space cannot be financed on favorable terms. If a property is mortgaged to secure payment of indebtedness and we cannot make the mortgage payments, we may have to surrender the property to the lender with a consequent loss of any prospective income and equity value from such property. Any of these risks could place strains on our cash flows, reduce our ability to grow and adversely affect our results of operations.

We utilize a significant amount of indebtedness in the operation of our business.

At March 31, 2013, as adjusted for completion of this offering and the IPO Property Transfers, we would have had approximately $         million aggregate principal amount of indebtedness outstanding. Our leverage could have important consequences to us. For example, it could (1) result in the acceleration of a significant amount of debt for non-compliance with the terms of such debt or, if such debt contains cross default or cross-acceleration provisions, other debt; (2) result in the loss of assets, including our shopping centers, due to foreclosure or sale on unfavorable terms, which could create taxable income without accompanying cash proceeds; (3) materially impair our ability to borrow unused amounts under existing financing arrangements or to obtain additional financing or refinancing on favorable terms or at all; (4) require us to dedicate a substantial portion of our cash flow to paying principal and interest on our indebtedness, reducing the cash flow available to fund our business, to pay dividends, including those necessary to maintain our REIT qualification, or to use for other purposes; (5) increase our vulnerability to an economic downturn; (6) limit our ability to withstand competitive pressures; or (7) reduce our flexibility to respond to changing business and economic conditions.

If any of the foregoing occurs, our business, financial condition, liquidity, results of operations and prospects could be materially and adversely affected, and the trading price of our common stock or other securities could decline significantly.

 

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We may be unable to obtain financing through the debt and equity markets, which would have a material adverse effect on our growth strategy and our financial condition and results of operations.

We cannot assure you that we will be able to access the capital and credit markets to obtain additional debt or equity financing or that we will be able to obtain financing on terms favorable to us. Our inability to obtain financing could have negative effects on our business. Among other things, we could have great difficulty acquiring, re-developing or maintaining our properties, which would materially and adversely affect our business strategy and portfolio, and may result in our (1) liquidity being adversely affected; (2) inability to repay or refinance our indebtedness on or before its maturity; (3) making higher interest and principal payments or selling some of our assets on terms unfavorable to us to service our indebtedness; or (4) issuing additional capital stock, which could further dilute the ownership of our existing stockholders.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Borrowings under our Unsecured Credit Facility bear interest at variable rates and expose us to interest rate risk. If interest rates were to increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows will correspondingly decrease. Assuming all loans under our Unsecured Credit Facility were fully drawn, each quarter point change in interest rates would result in a $6.9 million change in annual interest expense on our indebtedness under our new Unsecured Credit Facility. In the future, we may enter into interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to all of our variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk.

Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in a property or group of properties subject to mortgage debt.

Upon completion of this offering, we anticipate that our pro forma mortgage debt outstanding will be approximately $         million, excluding the impact of unamortized premiums. If a property or group of properties is mortgaged to secure payment of debt and we are unable to meet mortgage payments, the holder of the mortgage or lender could foreclose on the property, resulting in a loss of our investment. Alternatively, if we decide to sell assets in the current market to raise funds to repay matured debt, it is possible that these properties will be disposed of at a loss. Also, certain of the mortgages contain customary negative covenants which, among other things, limit our ability, without the prior consent of the lender, to further mortgage the property, to enter into new leases or materially modify existing leases with respect to the property.

Covenants in our debt agreements may restrict our operating activities and adversely affect our financial condition.

Our debt agreements contain financial and/or operating covenants, including, among other things, certain coverage ratios, as well as limitations on the ability to incur secured and unsecured debt. These covenants may limit our operational flexibility and acquisition and disposition activities. Moreover, if any of the covenants in these debt agreements are breached and not cured within the applicable cure period, we could be required to repay the debt immediately, even in the absence of a payment default. As a result, a default under applicable debt covenants could have an adverse effect on our financial condition or results of operations.

Current and future redevelopment or real estate property acquisitions may not yield expected returns.

We are involved in several redevelopment projects and may invest in additional redevelopment projects and property acquisitions in the future. Redevelopment and property acquisitions are subject to a number of risks, including: (1) abandonment of redevelopment or acquisition activities after expending resources to determine feasibility; (2) construction and/or lease-up delays; (3) cost overruns, including construction costs that exceed

 

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original estimates; (4) failure to achieve expected occupancy and/or rent levels within the projected time frame, if at all; (5) inability to operate successfully in new markets where new properties are located; (6) inability to successfully integrate new properties into existing operations; (7) difficulty obtaining financing on acceptable terms or paying operating expenses and debt service costs associated with redevelopment properties prior to sufficient occupancy; (8) delays or failures to obtain necessary zoning, occupancy, land use and other governmental permits; (9) exposure to fluctuations in the general economy due to the significant time lag between commencement and completion of redevelopment projects; and (10) changes in zoning and land use laws. If any of these events occur, overall project costs may significantly exceed initial cost estimates, which could result in reduced returns or losses from such investments. In addition, we may not have sufficient liquidity to fund such projects, and delays in the completion of a redevelopment project may provide various tenants the right to withdraw from a property.

An uninsured loss on properties or a loss that exceeds the limits of our insurance policies could result in a loss of our investment or related revenue in our portfolio.

We carry comprehensive liability, fire, extended coverage, rental loss and acts of terrorism insurance with policy specifications and insured limits customarily carried for similar properties. There are, however, certain types of losses, such as from hurricanes, tornados, floods, terrorism, wars or earthquakes, which may be uninsurable, or the cost of insuring against such losses may not be economically justifiable. In addition, tenants generally are required to indemnify and hold us harmless from liabilities resulting from injury to persons or damage to personal or real property, on the premises, due to activities conducted by tenants or their agents on the properties (including without limitation any environmental contamination), and at the tenant’s expense, to obtain and keep in full force during the term of the lease, liability and property damage insurance policies. However, tenants may not properly maintain their insurance policies or have the ability to pay the deductibles associated with such policies. In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged. Should a loss occur that is uninsured or in an amount exceeding the combined aggregate limits for the policies noted above, or in the event of a loss that is subject to a substantial deductible under an insurance policy, we could lose all or part of our capital invested in, and anticipated revenue from, one or more of the properties, which could have a material adverse effect on our operating results and financial condition.

Environmental conditions that exist at some of our properties could result in significant unexpected costs.

We are subject to federal, state and local environmental regulations that apply generally to the ownership of real property and the operations conducted on real property. Under various federal, state and local laws, ordinances and regulations, we may be considered an owner or operator of real property or may have arranged for the disposal or treatment of hazardous or toxic substances or petroleum product releases at a property and, therefore, may become liable for the costs of removal or remediation of certain hazardous substances released on or in our property or disposed of by us or our tenants, as well as certain other potential costs which could relate to hazardous or toxic substances (including governmental fines and injuries to persons and property). Such liability may be imposed whether or not we knew of, or were responsible for, the presence of these hazardous or toxic substances. As is common with community and neighborhood shopping centers, many of our properties had or have on-site dry cleaners and/or on-site gasoline retailing facilities. These operations could potentially result in environmental contamination at the properties. The cost of investigation, remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to properly remediate such substances, may adversely affect our ability to sell or rent such property or to borrow using such property as collateral.

We are aware that soil and groundwater contamination exists at some of our properties. The primary contaminants of concern at these properties include perchloroethylene and trichloroethylene (associated with the operations of on-site dry cleaners) and petroleum hydrocarbons (associated with the operations of on-site gasoline retailing facilities). There may also be asbestos-containing materials at some of our properties. While we

 

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do not expect the environmental conditions at our properties, considered as a whole, to have a material adverse effect on us, there can be no assurance that this will be the case. Further, no assurance can be given that any environmental studies performed have identified or will identify all material environmental conditions that may exist with respect to any of the properties in our portfolio.

Further information relating to recognition of remediation obligation in accordance with GAAP is provided in the consolidated financial statements and notes thereto included in this prospectus.

Compliance with the Americans with Disabilities Act and fire, safety and other regulations may require us to make expenditures that adversely affect our cash flows.

All of the properties in our portfolio are required to comply with the Americans with Disabilities Act (“ADA”). The ADA has separate compliance requirements for “public accommodations” and “commercial facilities,” but generally requires that buildings be made accessible to people with disabilities. Compliance with the ADA requirements could require removal of access barriers, and non-compliance could result in imposition of fines by the United States government or an award of damages to private litigants, or both. Although we believe the properties in our portfolio substantially comply with present requirements of the ADA, we have not conducted an audit or investigation of all of our properties to determine our compliance. While the tenants to whom our properties are leased are obligated by law to comply with the ADA provisions, and typically under tenant leases are obligated to cover costs associated with compliance, if required changes involve greater expenditures than anticipated, or if the changes must be made on a more accelerated basis than anticipated, the ability of these tenants to cover costs could be adversely affected. As a result, we could be required to expend funds to comply with the provisions of the ADA, which could adversely affect our results of operations and financial condition. In addition, we are required to operate the properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and bodies and become applicable to the properties. We may be required to make substantial capital expenditures to comply with, and we may be restricted in our ability to renovate the properties subject to, those requirements. The resulting expenditures and restrictions could have a material adverse effect on our ability to meet our financial obligations.

We have experienced losses in the past, and we may experience similar losses in the future.

For each of the year ended December 31, 2010, the period from January 1, 2011 through June 27, 2011, the year ended December 31, 2012 and the three months ended March 31, 2013, we experienced net losses. Our losses are primarily attributable to non-cash items, such as depreciation, amortization and impairments. Please see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the notes thereto included elsewhere in this prospectus for a discussion of our operational history and the factors accounting for such losses. We cannot assure you that, in the future, we will be profitable or that we will realize growth in the value of our assets.

Our real estate assets may be subject to impairment charges.

On a periodic basis, we assess whether there are any indicators that the value of our real estate assets and other investments may be impaired. A property’s value is considered to be impaired only if the estimated aggregate future cash flows (undiscounted and without interest charges) to be generated by the property are less than the carrying value of the property. In our estimate of cash flows, we consider factors such as expected future operating income, trends and prospects, the effects of demand, competition and other factors. If we are evaluating the potential sale of an asset or development alternatives, the undiscounted future cash flows considers the most likely course of action at the balance sheet date based on current plans, intended holding periods and available market information. We are required to make subjective assessments as to whether there are impairments in the value of our real estate assets and other investments. These assessments may have a direct impact on our earnings because recording an impairment charge results in an immediate negative adjustment to earnings. There can be no assurance that we will not take additional charges in the future related to the impairment of our assets. Any future impairment could have a material adverse effect on our results of operations in the period in which the charge is taken.

 

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We face risks relating to cybersecurity attacks that could cause loss of confidential information and other business disruptions.

We rely extensively on computer systems to process transactions and manage our business, and our business is at risk from and may be impacted by cybersecurity attacks. These could include attempts to gain unauthorized access to our data and computer systems. Attacks can be both individual and/or highly organized attempts organized by very sophisticated hacking organizations. We employ a number of measures to prevent, detect and mitigate these threats, which include password protection, frequent password change events, firewall detection systems, frequent backups, a redundant data system for core applications and annual penetration testing; however, there is no guarantee such efforts will be successful in preventing a cyber attack. A cybersecurity attack could compromise the confidential information of our employees, tenants and vendors. A successful attack could disrupt and affect the business operations.

We are highly dependent upon senior management, and failure to attract and retain key members of senior management could have a material adverse effect on us.

We are highly dependent on the performance and continued efforts of the senior management team. Our future success is dependent on our ability to continue to attract and retain qualified executive officers and senior management. Any inability to manage our operations effectively could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

We face competition in pursuing acquisition opportunities that could increase our costs.

We continue to evaluate the market for available properties and may acquire properties when we believe strategic opportunities exist. Our ability to acquire properties on favorable terms and successfully operate or re-develop them is subject to a number of risks. We may be unable to acquire a desired property because of competition from other real estate investors with substantial capital, including from other REITs and institutional investment funds. Even if we are able to acquire a desired property, competition from other potential acquirers may significantly increase the purchase price.

Risks Related to Our Organization and Structure

We are controlled by our Sponsor.

Immediately following this offering, affiliates of our Sponsor will beneficially own shares of our common stock and non-economic shares providing them with an aggregate     % of the total voting power of Brixmor Property Group Inc., or     % if the underwriters exercise in full their option to purchase additional shares. See “Description of Stock—Common Stock and Non-Economic Shares.” Moreover, under our bylaws and the stockholders’ agreement with our Sponsor and its affiliates, while our pre-IPO owners and their affiliates retain significant ownership of us, we will agree to nominate to our board individuals designated by our Sponsor, whom we refer to as the “Sponsor Directors.” Even when the Sponsor and its affiliates cease to own shares of our stock representing a majority of the total voting power, the Sponsor will still be able to significantly influence the composition of our board of directors and the approval of actions requiring stockholder approval. Accordingly, until such time, the Sponsor will have significant influence with respect to our management, business plans and policies, including the appointment and removal of our officers. In particular, our Sponsor will be able to cause or prevent a change of control of our company or a change in the composition of our board of directors and could preclude any unsolicited acquisition of our company. The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of common stock as part of a sale of the Company and ultimately might affect the market price of our common stock.

We have agreed with our Sponsor that we will not undertake transactions that would result in our having to designate any portion of a dividend paid by us as a capital gain dividend until at least one year has passed since both our Sponsor has exchanged its BPG Subsidiary Shares and OP Units for shares of our common stock and its ownership of the total Outstanding Brixmor Interests falls below 25%. This restriction could limit our ability to enter into transactions, including certain sales of assets, at a time, or on terms, that would have been favorable to us absent such restriction.

 

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Upon the listing of our shares on the NYSE, we will be a “controlled company” within the meaning of the NYSE rules and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.

After completion of this offering, affiliates of Blackstone will continue to control a majority of the combined voting power of all classes of our stock entitled to vote generally in the election of directors. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the NYSE. Under these rules, a company of which more than 50% of the voting power in the election of directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirements that, within one year of the date of the listing of our common stock:

 

   

we have a board that is comprised of a majority of “independent directors,” as defined under the rules of such exchange;

 

   

we have a compensation committee that is comprised entirely of independent directors; and

 

   

we have a nominating and corporate governance committee that is comprised entirely of independent directors.

Following this offering, we intend to utilize these exemptions. As a result, a majority of the directors on our board will not be independent. In addition, the Compensation Committee and the Nominating and Corporate Governance Committee of our board of directors will not consist entirely of independent directors or be subject to annual performance evaluations. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.

We will assume existing liabilities of the Acquired Properties acquired in conjunction with the IPO Property Transfers.

As part of the IPO Property Transfers, we will assume existing liabilities of the Acquired Properties and of the legal entities that own these properties. Although we currently manage these properties for our Sponsor and are generally aware of their liabilities, as well as the insurance in place to address such risks, our recourse against our Sponsor will be limited by the terms of the agreements entered into with our Sponsor in connection with the IPO Property Transfers. Because many liabilities, including tax liabilities, may not be identified within such period, we may have no recourse against our Sponsor for our assumed liabilities. In addition, such indemnification is capped and may not be sufficient to cover all liabilities assumed. Moreover, we may choose not to enforce, or to enforce less vigorously, our rights under these indemnification agreements due to our ongoing relationship with our Sponsor. We are not entitled to indemnification from any other sources in connection with the IPO Property Transfers.

Certain provisions of Maryland law may limit the ability of a third party to acquire control of our company.

In addition to the significant influence over us that may be exerted by our pre-IPO owners and the ownership limitations in our charter, certain provisions of the Maryland General Corporation Law (the “MGCL”) may have the effect of inhibiting a third party from making a proposal to acquire us or impeding a change of control under circumstances that otherwise could provide our stockholders with the opportunity to realize a premium over the then-prevailing market price of our common stock. These provisions include:

 

   

“business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our stock or an affiliate thereof) for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter impose certain supermajority stockholder approval requirements and appraisal rights on these combinations; and

 

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“control share” provisions that provide that holders of “control shares” (defined as shares that, when aggregated with all other shares that the stockholder is entitled to vote, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights with respect to their control shares except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

As permitted under the statutes, our board of directors has adopted a resolution exempting any transaction between us and any other person from the “business combination” provisions, and our bylaws contain a provision exempting any acquisition of our stock by any person from the “control share” provisions. For so long as our pre-IPO owners and their affiliates together continue to beneficially own at least 5% of the total Outstanding Brixmor Interests, our board of directors may not amend or revoke these exemptions without the consent of our Sponsor.

The MGCL also permits our board of directors, notwithstanding any contrary provision of our charter or bylaws and without a stockholder vote, to elect to be subject to any or all of five provisions of the MGCL, which provide for:

 

   

a classified board of directors;

 

   

a two-thirds vote of outstanding shares to remove a director;

 

   

a requirement that only our board of directors may fix the number of directors;

 

   

a requirement that a vacancy on our board of directors may be filled only by the remaining directors and for the remainder of the full term of the class of directors in which the vacancy occurred; and

 

   

a requirement that a special meeting of stockholders must be called upon stockholder request only if requested by stockholders entitled to cast a majority of all the votes entitled to be cast at the meeting.

Our charter provides that, as soon as we become eligible (which we expect will be upon the completion of this offering), we will be subject to the elective provision of the MGCL that requires that vacancies on our board of directors be filled only by the remaining directors. Our board of directors may, by resolution, authorize us to elect to be subject to any or all of the other foregoing elective provisions, including the provision that would classify our board of directors, without stockholder approval, which may delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders. However, so long as our pre-IPO owners and their affiliates together continue to beneficially own at least 5% of the total Outstanding Brixmor Interests, our board may not authorize us to elect to be subject to any of these other elective provisions without the consent of our Sponsor.

Our board of directors may approve the issuance of stock, including preferred stock, with terms that may discourage a third party from acquiring us.

Our charter permits our board of directors to authorize the issuance of stock in one or more classes or series. Our board of directors may also classify or reclassify any unissued stock and establish the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of any such stock, which rights may be superior to those of our common stock. Thus, our board of directors could authorize the issuance of shares of a class or series of stock with terms and conditions which could have the effect of discouraging a takeover or other transaction in which holders of some or a majority of our outstanding common stock might receive a premium for their shares over the then current market price of our common stock. See “Description of Stock—Power to Reclassify and Issue Stock.”

 

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Certain provisions in the organizational documents of BPG Subsidiary and the partnership agreement for our Operating Partnership may delay or prevent unsolicited acquisitions of us.

Provisions in the organizational documents of BPG Subsidiary and the partnership agreement for our Operating Partnership may delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock. These provisions could discourage third parties from making proposals involving an unsolicited acquisition of us or change of our control, although some stockholders might consider such proposals, if made, desirable. These provisions include, among others:

 

   

redemption or exchange rights of qualifying parties;

 

   

transfer restrictions on the BPG Subsidiary Shares held by Brixmor Property Group Inc. and OP Units held directly or indirectly by Brixmor Property Group Inc. or BPG Subsidiary;

 

   

our inability in some cases to amend the charter documents of BPG Subsidiary or the partnership agreement of our Operating Partnership without the consent of the holders of the Outstanding BPG Subsidiary Shares or the Outstanding OP Units;

 

   

the right of the holders of the Outstanding BPG Subsidiary Shares or the Outstanding OP Units to consent to mergers involving us under specified circumstances; and

 

   

the right of our pre-IPO owners to consent to transfers of the general partnership interest.

Any potential change of control transaction may be further limited as a result of provisions of the partnership unit designation for the OP Units, which require us to preserve the rights of OP Unit holders and may restrict us from amending the partnership agreement of our Operating Partnership in a manner that would have an adverse effect on the rights of our Sponsor or other OP Unit holders. In addition, the charter and bylaws of BPG Subsidiary require us to preserve the rights of the holders of BPG Subsidiary Shares and these provisions may prevent us from amending the charter or bylaws for BPG Subsidiary in a manner that would have an adverse effect on the rights of the holders of BPG Subsidiary Shares.

Our bylaws may only be amended by our board of directors, which could limit your control of certain aspects of our corporate governance.

Our charter provides that our board of directors has the sole power to amend our bylaws, provided that, so long as the stockholders’ agreement remains in effect, certain amendments to our bylaws require the consent of our Sponsor. Thus, our board may amend the Bylaws in a way that may be detrimental to your interests.

Our board of directors may change significant corporate policies without stockholder approval.

Our investment, financing, borrowing and dividend policies and our policies with respect to all other activities, including growth, debt, capitalization and operations, will be determined by our board of directors. These policies may be amended or revised at any time and from time to time at the discretion of our board of directors without a vote of our stockholders. Our charter also provides that our board of directors may revoke or otherwise terminate our REIT election without approval of our stockholders, if it determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT. In addition, our board of directors may change our policies with respect to conflicts of interest provided that such changes are consistent with applicable legal requirements. A change in these policies or the termination of our REIT election could have an adverse effect on our financial condition, our results of operations, our cash flow, the per share trading price of our common stock and our ability to satisfy our debt service obligations and to pay dividends to our stockholders.

 

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Our rights and the rights of our stockholders to take action against our directors and officers are limited.

Our charter eliminates the liability of our directors and officers to us and our stockholders for money damages to the maximum extent permitted under Maryland law. Under current Maryland law and our charter, our directors and officers will not have any liability to us or our stockholders for money damages other than liability resulting from:

 

   

actual receipt of an improper benefit or profit in money, property or services; or

 

   

active and deliberate dishonesty by the director or officer that was established by a final judgment and is material to the cause of action adjudicated.

Our charter authorizes us and our bylaws require us to indemnify each of our directors or officers who is or is threatened to be made a party to or witness in a proceeding by reason of his or her service in those or certain other capacities, to the maximum extent permitted by Maryland law, from and against any claim or liability to which such person may become subject or which such person may incur by reason of his or her status as a present or former director or officer of us. In addition, we may be obligated to pay or reimburse the expenses incurred by our present and former directors and officers without requiring a preliminary determination of their ultimate entitlement to indemnification. As a result, we and our stockholders may have more limited rights to recover money damages from our directors and officers than might otherwise exist absent these provisions in our charter and bylaws or that might exist with other companies, which could limit your recourse in the event of actions that are not in our best interests.

Our Sponsor may compete with us, and our charter contains a provision that expressly permits our non-employee directors to compete with us.

Our Sponsor may compete with us for investments in properties and for tenants. There is no assurance that any conflicts of interest created by such competition will be resolved in our favor. Moreover, Blackstone is in the business of making investments in companies and acquires and holds interests in businesses that compete directly or indirectly with us. Our charter will provide that, to the maximum extent permitted from time to time by Maryland law, we renounce any interest or expectancy that we have in, or any right to be offered an opportunity to participate in, any business opportunities that are from time to time presented to our directors or their affiliates, other than to those directors who are employed by us or our subsidiaries, unless the business opportunity is expressly offered to such person in his or her capacity as a director, and none of our Sponsor or any of its affiliates, or any director who is not employed by us or any of his or her affiliates, will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we or our affiliates engage or propose to engage or to refrain from otherwise competing with us or our affiliates. Our Sponsor also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.

Our charter provides that, to the maximum extent permitted from time to time by Maryland law, each of our non-employee directors (including those designated by our Sponsor) may:

 

   

acquire, hold and dispose of shares of our stock, the BPG Subsidiary Shares or OP Units for his or her own account or for the account of others, and exercise all of the rights of a stockholder of Brixmor Property Group Inc. or BGP Subsidiary, or a limited partner of our Operating Partnership, to the same extent and in the same manner as if he or she were not our director; and

 

   

in his or her personal capacity or in his or her capacity as a director, officer, trustee, stockholder, partner, member, equity owner, manager, advisor or employee of any other person, have business interests and engage in business activities that are similar to ours or compete with us, that involve a business opportunity that we could seize and develop or that include the acquisition, syndication, holding, management, development, operation or disposition of interests in mortgages, real property or persons engaged in the real estate business.

 

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Our charter also provides that, to the maximum extent permitted from time to time by Maryland law, in the event that our Sponsor or any non-employee director acquires knowledge of a potential transaction or other business opportunity, such person will have no duty to communicate or offer such transaction or business opportunity to us or any of our affiliates and may take any such opportunity for itself, himself or herself or offer it to another person or entity unless the business opportunity is expressly offered to such person in his or her capacity as our director. These provisions may limit our ability to pursue business or investment opportunities that we might otherwise have had the opportunity to pursue, which could have an adverse effect on our financial condition, our results of operations, our cash flow, the per share trading price of our common stock and our ability to satisfy our debt service obligations and to pay dividends to our stockholders.

Conflicts of interest could arise in the future between the interests of our stockholders and the interests of holders of OP Units.

After the consummation of this offering, because we control the general partner of our Operating Partnership, we will have fiduciary duties to the other limited partners in the operating partnership, the discharge of which may conflict with the interests of our stockholders. The limited partners of our Operating Partnership have agreed that, in the event of a conflict between the duties owed by our directors to us and, in our capacity as the controlling stockholder of the sole member of the general partner of our Operating Partnership, the fiduciary duties owed by the general partner of our Operating Partnership to such limited partners, we are under no obligation to give priority to the interests of such limited partners. However, those persons holding OP Units will have the right to vote on certain amendments to the operating partnership agreement (which require approval by a majority in interest of the limited partners, including BPG Subsidiary) and individually to approve certain amendments that would adversely affect their rights. These voting rights may be exercised in a manner that conflicts with the interests of our stockholders. For example, we are unable to modify the rights of limited partners to receive distributions as set forth in the operating partnership agreement in a manner that adversely affects their rights without their consent, even though such modification might be in the best interest of our stockholders.

We will be required to disclose in our periodic reports filed with the Securities and Exchange Commission specified activities engaged in by our “affiliates.”

In August 2012, Congress enacted the Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRSHRA”), which expands the scope of U.S. sanctions against Iran. More specifically, Section 219 of the ITRSHRA amended the Securities Exchange Act of 1934, as amended (the “Exchange Act”) to require companies subject to Securities and Exchange Commission (“SEC”) reporting obligations under Section 13 of the Exchange Act to disclose in their periodic reports specified dealings or transactions involving Iran or other individuals and entities targeted by certain Office of Foreign Assets Control sanctions engaged in by the reporting company or any of its affiliates during the period covered by the relevant periodic report. In some cases, ITRSHRA requires companies to disclose these types of transactions even if they would otherwise be permissible under U.S. law. These companies are required to separately file with the SEC a notice that such activities have been disclosed in the relevant periodic report, and the SEC is required to post this notice of disclosure on its website and send the report to the U.S. President and certain U.S. Congressional committees. The U.S. President thereafter is required to initiate an investigation and, within 180 days of initiating such an investigation, to determine whether sanctions should be imposed. Under ITRSHRA, we would be required to report if we or any of our “affiliates” knowingly engaged in certain specified activities during the period covered by the report. Because the SEC defines the term “affiliate” broadly, it includes any entity controlled by us as well as any person or entity that controls us or is under common control with us. Because we may be deemed to be a controlled affiliate of our Sponsor, affiliates of our Sponsor may also be considered our affiliates. Disclosure of such activity, even if such activity is not subject to sanctions under applicable law, and any sanctions actually imposed on us or our affiliates as a result of these activities, could harm our reputation and have a negative impact on our business.

 

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Risks Related to our REIT Status and Certain Other Tax Items

If we do not maintain our qualification as a REIT, we will be subject to tax as a regular corporation and could face a substantial tax liability.

We expect to continue to operate so as to qualify as a REIT under the Code. However, qualification as a REIT involves the application of highly technical and complex Code provisions for which only a limited number of judicial or administrative interpretations exist. Notwithstanding the availability of cure provisions in the Code, we could fail to meet various compliance requirements, which could jeopardize our REIT status. Furthermore, new tax legislation, administrative guidance or court decisions, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to qualify as a REIT. If we fail to qualify as a REIT in any tax year, then:

 

   

we would be taxed as a regular domestic corporation, which under current laws, among other things, means being unable to deduct distributions to stockholders in computing taxable income and being subject to federal income tax on our taxable income at regular corporate income tax rates;

 

   

any resulting tax liability could be substantial and could have a material adverse effect on our book value;

 

   

unless we were entitled to relief under applicable statutory provisions, we would be required to pay taxes, and thus, our cash available for distribution to stockholders would be reduced for each of the years during which we did not qualify as a REIT and for which we had taxable income; and

 

   

we generally would not be eligible to requalify as a REIT for the subsequent four full taxable years.

REITs, in certain circumstances, may incur tax liabilities that would reduce our cash available for distribution to you.

Even if we qualify and maintain our status as a REIT, we may become subject to U.S. federal income taxes and related state and local taxes. For example, net income from the sale of properties that are “dealer” properties sold by a REIT (a “prohibited transaction” under the Code) will be subject to a 100% tax. We may not make sufficient distributions to avoid excise taxes applicable to REITs. Similarly, if we were to fail an income test (and did not lose our REIT status because such failure was due to reasonable cause and not willful neglect) we would be subject to tax on the income that does not meet the income test requirements. We also may decide to retain net capital gain we earn from the sale or other disposition of our investments and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability unless they file U.S. federal income tax returns and thereon seek a refund of such tax. We also may be subject to state and local taxes on our income or property, including franchise, payroll, mortgage recording and transfer taxes, either directly or at the level of the other companies through which we indirectly own our assets, such as our TRSs, which are subject to full U.S. federal, state, local and foreign corporate-level income taxes. Any taxes we pay directly or indirectly will reduce our cash available for distribution to you.

Complying with REIT requirements may cause us to forego otherwise attractive opportunities and limit our expansion opportunities.

In order to qualify as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other things, our sources of income, the nature of our investments in commercial real estate and related assets, the amounts we distribute to our stockholders and the ownership of our stock. We may also be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. Thus, compliance with REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

 

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Complying with REIT requirements may force us to liquidate or restructure otherwise attractive investments.

In order to qualify as a REIT, we must also ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets. The remainder of our investments in securities cannot include more than 10% of the outstanding voting securities of any one issuer or 10% of the total value of the outstanding securities of any one issuer unless we and such issuer jointly elect for such issuer to be treated as a “taxable REIT subsidiary” under the Code. The total value of all of our investments in taxable REIT subsidiaries cannot exceed 25% of the value of our total assets. In addition, no more than 5% of the value of our assets can consist of the securities of any one issuer other than a taxable REIT subsidiary. If we fail to comply with these requirements, we must dispose of a portion of our assets within 30 days after the end of the calendar quarter in order to avoid losing our REIT status and suffering adverse tax consequences.

Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.

The REIT provisions of the Code substantially limit our ability to hedge our liabilities. Any income from a hedging transaction we enter into to manage risk of interest rate changes with respect to borrowings made or to be made to acquire or carry real estate assets, if not clearly identified under applicable Treasury Regulations, does not constitute “gross income” for purposes of the 75% or 95% gross income tests that we must satisfy in order to maintain our qualification as a REIT. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both of the gross income tests. See “Material United States Federal Income Tax Considerations—Income Tests.” As a result of these rules, we intend to limit our use of advantageous hedging techniques or implement those hedges through a domestic TRS. This could increase the cost of our hedging activities because our TRS would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in our TRS will generally not provide any tax benefit, except for being carried forward against future taxable income in the TRS.

Complying with REIT requirements may force us to borrow to make distributions to stockholders.

From time to time, our taxable income may be greater than our cash flow available for distribution to stockholders. If we do not have other funds available in these situations, we may be unable to distribute substantially all of our taxable income as required by the REIT provisions of the Code. Thus, we could be required to borrow funds, sell a portion of our assets at disadvantageous prices or find another alternative. These options could increase our costs or reduce our equity.

Our charter does not permit any person to own more than 9.8% of our outstanding common stock or of our outstanding stock of all classes or series, and attempts to acquire our common stock or our stock of all other classes or series in excess of these 9.8% limits would not be effective without an exemption from these limits by our board of directors.

For us to qualify as a REIT under the Code, not more than 50% of the value of our outstanding stock may be owned directly or indirectly, by five or fewer individuals (including certain entities treated as individuals for this purpose) during the last half of a taxable year. For the purpose of preserving our qualification as a REIT for federal income tax purposes, among other purposes, our charter prohibits beneficial or constructive ownership by any person of more than a certain percentage, currently 9.8%, in value or by number of shares, whichever is more restrictive, of the outstanding shares of our common stock or 9.8% in value of the outstanding shares of our stock, which we refer to as the “ownership limit.” The constructive ownership rules under the Code and our charter are complex and may cause shares of the outstanding common stock owned by a group of related persons to be deemed to be constructively owned by one person. As a result, the acquisition of less than 9.8% of our outstanding common stock or our stock by a person could cause a person to own constructively in excess of 9.8% of our outstanding common stock or our stock, respectively, and thus violate the ownership limit. There can be

 

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no assurance that our board of directors, as permitted in the charter, will not decrease this ownership limit in the future. Any attempt to own or transfer shares of our common stock in excess of the ownership limit without the consent of our board of directors will result either in the shares in excess of the limit being transferred by operation of the charter to a charitable trust, and the person who attempted to acquire such excess shares will not have any rights in such excess shares, or in the transfer being void.

The ownership limit may have the effect of precluding a change in control of us by a third party, even if such change in control would be in the best interests of our stockholders or would result in receipt of a premium to the price of our common stock (and even if such change in control would not reasonably jeopardize our REIT status). The exemptions to the ownership limit granted to date may limit our board of directors’ power to increase the ownership limit or grant further exemptions in the future.

We may choose to make distributions in our own stock, in which case you may be required to pay income taxes without receiving any cash dividends.

In connection with our qualification as a REIT, we are required to annually distribute to our stockholders at least 90% of our REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. In order to satisfy this requirement, we may make distributions that are payable in cash and/or shares of our common stock (which could account for up to 90% of the aggregate amount of such distributions) at the election of each stockholder. Taxable stockholders receiving such distributions will be required to include the full amount of such distributions as ordinary dividend income to the extent of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. As a result, U.S. stockholders may be required to pay income taxes with respect to such distributions in excess of the cash portion of the distribution received. Accordingly, U.S. holders receiving a distribution of our shares may be required to sell shares received in such distribution or may be required to sell other stock or assets owned by them, at a time that may be disadvantageous, in order to satisfy any tax imposed on such distribution. If a U.S. stockholder sells the stock that it receives as part of the distribution in order to pay this tax, the sales proceeds may be less than the amount it must include in income with respect to the distribution, depending on the market price of our stock at the time of the sale. Furthermore, with respect to certain non-U.S. holders, we may be required to withhold U.S. tax with respect to such distribution, including in respect of all or a portion of such distribution that is payable in stock, by withholding or disposing of part of the shares included in such distribution and using the proceeds of such disposition to satisfy the withholding tax imposed. In addition, if a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividend income, such sale may put downward pressure on the market price of our common stock.

Various tax aspects of such a taxable cash/stock distribution are uncertain and have not yet been addressed by the Internal Revenue Service (“IRS”). No assurance can be given that the IRS will not impose requirements in the future with respect to taxable cash/stock distributions, including on a retroactive basis, or assert that the requirements for such taxable cash/stock distributions have not been met.

Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.

The maximum tax rate applicable to qualified dividend income payable to certain non-corporate U.S. stockholders has been reduced by legislation to 20%. Dividends payable by REITs, however, generally are not eligible for the reduced rates. Although this legislation does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends could cause certain non-corporate investors to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock.

 

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We will be dependent on external sources of capital to finance our growth.

As with other REITs, but unlike corporations generally, our ability to finance our growth must largely be funded by external sources of capital because we generally will have to distribute to our stockholders 90% of our taxable income in order to qualify as a REIT, including taxable income where we do not receive corresponding cash. Our access to external capital will depend upon a number of factors, including general market conditions, the market’s perception of our growth potential, our current and potential future earnings, cash distributions and the market price of our common stock.

We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability, reduce our operating flexibility and reduce the price of our common stock.

In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of U.S. federal income tax laws applicable to investments similar to an investment in shares of our common stock. Additional changes to the tax laws are likely to continue to occur, and we cannot assure you that any such changes will not adversely affect the taxation of a stockholder. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. You are urged to consult with your tax advisor with respect to the impact of recent legislation on your investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares. Although REITs generally receive certain tax advantages compared to entities taxed as regular corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for U.S. federal income tax purposes as a corporation. As a result, our charter provides our board of directors with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a regular corporation, without the approval of our stockholders.

Liquidation of assets may jeopardize our REIT qualification.

To qualify as a REIT, we must comply with requirements regarding our assets and our sources of income. If we are compelled to liquidate our investments to repay obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our qualification as a REIT, or we may be subject to a 100% tax on any resultant gain if we sell assets that are treated as dealer property or inventory.

Our ownership of and relationship with any TRS will be restricted, and a failure to comply with the restrictions would jeopardize our REIT status and may result in the application of a 100% excise tax.

A REIT may own up to 100% of the stock of one or more TRSs. A TRS may earn income that would not be qualifying income if earned directly by the parent REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 25% of the value of a REIT’s assets may consist of stock or securities of one or more TRSs. The value of our interests in and thus the amount of assets held in a TRS may also be restricted by our need to qualify for an exclusion from regulation as an investment company under the Investment Company Act. A TRS will pay federal, state and local income tax at regular corporate rates on any income that it earns. In addition, the TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis.

Any TRS we own, as a domestic TRS, will pay federal, state and local income tax on its taxable income, and its after-tax net income is available for distribution to us but is not required to be distributed to us. The aggregate value of the TRS stock and securities owned by us cannot exceed 25% of the value of our total assets (including the TRS stock and securities). Although we plan to monitor our investments in TRSs, there can be no assurance that we will be able to comply with the 25% limitation discussed above or to avoid application of the 100% excise tax discussed above.

 

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Risks Related to this Offering and Ownership of Our Common Stock

The cash available for distribution to stockholders may not be sufficient to pay dividends at expected levels, nor can we assure you of our ability to make distributions in the future. We may use borrowed funds to make distributions.

Our expected annual distributions for the 12 months following the consummation of this offering of $         per share are expected to be approximately     % of estimated cash available for distribution (or     % of estimated cash available for distribution if the underwriters exercise their option to purchase additional shares in full). We expect that our initial estimated annual distributions will not exceed cash available from operations. If cash available for distribution generated by our assets for such twelve month period is less than our estimate, or if such cash available for distribution decreases in future periods from expected levels, our inability to make the expected distributions could result in a decrease in the market price of our common stock. See “Distribution Policy.” All distributions will be made at the discretion of our board of directors and will depend on our earnings, our financial condition, maintenance of our REIT qualification and other factors as our board of directors may deem relevant from time to time. We may not be able to make distributions in the future. In addition, some of our distributions may include a return of capital. To the extent that we decide to make distributions in excess of our current and accumulated earnings and profits, such distributions would generally be considered a return of capital for federal income tax purposes to the extent of the holder’s adjusted tax basis in their shares. A return of capital is not taxable, but it has the effect of reducing the holder’s adjusted tax basis in its investment. To the extent that distributions exceed the adjusted tax basis of a holder’s shares, they will be treated as gain from the sale or exchange of such stock. See “Material United States Federal Income Tax Considerations—Taxation of United States Holders of Our Common Stock—Distributions Generally.” If we borrow to fund distributions, our future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been.

No public market for our shares currently exists, an active trading market for our shares may not develop and the market price of our shares may decline substantially and quickly.

Prior to this offering, there has been no public market for our shares. Although we intend to apply to list our shares on the NYSE, we cannot predict the extent to which a trading market will develop or how liquid that market might become. The estimated initial public offering price for our shares was determined by negotiations between us and the representative of the underwriters and may not be indicative of prices that will prevail in the trading market. An active trading market may not develop following the closing of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the market price of your shares. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire additional properties or other businesses by using our shares as consideration, which in turn could materially adversely affect our business. In addition, the stock market in general, and the NYSE and REITs in particular, have recently experienced extreme price and volume fluctuations. These broad market and industry factors may decrease the market price of our shares, regardless of our actual operating performance. For these reasons, among others, the market price of the shares you purchase in this offering may decline substantially and quickly.

Our share price may decline due to the large number of our shares eligible for future sale.

The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market after this offering or the perception that such sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell shares of our common stock in the future at a time and at a price that we deem appropriate. Upon completion of this offering we will have a total of              shares of our common stock outstanding, or              shares of our common stock assuming the underwriters exercise in full their option to purchase additional shares of our common stock. All of the              shares of our common stock sold in this offering, or              shares of our common stock assuming the

 

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underwriters exercise in full their option to purchase additional shares of our common stock, will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the “Securities Act”), by persons other than our “affiliates.” See “Shares Eligible for Future Sale.”

The remaining shares of our common stock outstanding will be “restricted securities” within the meaning of Rule 144 under the Securities Act and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available, including the exemptions contained in Rule 144. Our pre-IPO owners will own all of the              remaining outstanding shares of our common stock that will be outstanding immediately following this offering and have advised us that they intend to sell these shares over time. As a result of the registration rights agreement that we will enter into with our pre-IPO owners, however, all of these shares of our common stock will, subject to applicable lock-up arrangements, be eligible for future sale. From and after the first anniversary of the date of the closing of this offering, the BPG Subsidiary Shares held by our pre-IPO owners will be exchangeable at the option of the holder for an equivalent number of shares of our common stock or, at our option, cash based upon the value of an equivalent number of shares of our common stock, subject to the ownership limit and other restrictions on ownership and transfer set forth in our charter and described under the section entitled “Description of Stock—Restrictions on Ownership and Transfer.” In addition, from and after the first anniversary of the date of the closing of this offering, limited partners of our Operating Partnership will have the right to require our Operating Partnership to redeem part or all of their OP Units for cash, based upon the value of an equivalent number of shares of our common stock at the time of the election to redeem, or, at our election, exchange them for an equivalent number of shares of our common stock, subject to the ownership limit and other restrictions on ownership and transfer set forth in our charter and described under the section entitled “Description of Stock—Restrictions on Ownership and Transfer.” Notwithstanding the foregoing, our Sponsor and Centerbridge are generally permitted to exchange BPG Subsidiary Shares and redeem their OP Units at any time. Any shares we issue upon such exchanges would be “restricted securities” as defined in Rule 144 unless we register such issuances. However, we will enter into a registration rights agreement that will require us to register under the Securities Act these shares. See “Shares Eligible For Future Sale—Registration Rights” and “Certain Relationships and Related Person Transactions—Registration Rights Agreement.”

We intend to file one or more registration statements on Form S-8 under the Securities Act to register shares of our common stock or securities convertible into or exchangeable for shares of our common stock issued pursuant to our 2013 Omnibus Incentive Plan. Any such Form S-8 registration statements will automatically become effective upon filing. Accordingly, shares registered under such registration statements will be available for sale in the open market. We expect that the initial registration statement on Form S-8 will cover              shares of our common stock.

Our charter provides that we may issue up to 3,000,000,000 shares of common stock and 300,000,000 shares of preferred stock, 150 of which are designated as Series A Redeemable Preferred Stock, $0.01 par value per share (“Existing Preferred Stock”) (all of which we intend to redeem shortly after the completion of this offering). Moreover, under Maryland law and our charter our board of directors has the power to increase the aggregate number of shares of stock or the number of shares of stock of any class or series that we are authorized to issue without stockholder approval. See “Description of Stock.” Similarly, the agreement of limited partnership of our Operating Partnership authorizes us to issue an unlimited number of additional OP Units of our Operating Partnership, which may be exchangeable for shares of our common stock. In addition, the charter of BPG Subsidiary authorizes BPG Subsidiary to issue 200,000 BPG Subsidiary Shares, which may be exchangeable for shares of our common stock, or, at our option, cash based on the value of an equivalent number of shares of our common stock, and 1,000 shares of preferred stock.

The market price of our common stock could be adversely affected by market conditions and by our actual and expected future earnings and level of cash dividends.

Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of shares without regard to our operating performance. For example, the trading prices of equity securities issued by REITs have

 

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historically been affected by changes in market interest rates. One of the factors that may influence the market price of our common stock is the annual yield from distributions on our common stock as compared to yields on other financial instruments. An increase in market interest rates, or a decrease in our distributions to stockholders, may lead prospective purchasers of shares of our common stock to demand a higher distribution rate or seek alternative investments. As a result, if interest rates rise, it is likely that the market price of our common stock will decrease as market rates on interest-bearing securities increase. In addition, our operating results could be below the expectations of public market analysts and investors, and in response the market price of our shares could decrease significantly. The market value of the equity securities of a REIT is also based upon the market’s perception of the REIT’s growth potential and its current and potential future cash distributions, whether from operations, sales or refinancings, and is secondarily based upon the real estate market value of the underlying assets. For that reason, our common stock may trade at prices that are higher or lower than our net asset value per share. To the extent we retain operating cash flow for investment purposes, working capital reserves or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of our common stock. Our failure to meet the market’s expectations with regard to future earnings and cash distributions likely would adversely affect the market price of our common stock and, in such instances, you may be unable to resell your shares at or above the initial public offering price.

 

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FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements, 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,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under “Risk Factors.” These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this prospectus. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

MARKET AND INDUSTRY DATA

We have obtained the information under “Summary—Industry Overview” and “Industry Overview” from the market study prepared for us by Rosen Consulting Group (“RCG”), a nationally recognized real estate consulting firm, and such information is included in this prospectus in reliance on RCG’s authority as an expert in such matters. See “Experts.” In addition, this prospectus includes market and industry data and forecasts that we have derived from independent consultant reports, publicly available information, various industry publications, other published industry sources and our internal data and estimates. Independent consultant reports, industry publications and other published industry sources generally indicate that the information contained therein was obtained from sources believed to be reliable.

Our internal data and estimates are based upon information obtained from trade and business organizations and other contacts in the markets in which we operate and our management’s understanding of industry conditions.

 

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ORGANIZATIONAL STRUCTURE

IPO Property Transfers

In connection with this offering, we will acquire interests in 43 properties (the “Acquired Properties”) from our Sponsor in exchange for OP Units having a value equivalent to the value of these interests. The precise number of OP Units to be issued in connection with our acquisition of the Acquired Properties will be determined at the time that the initial public offering price per share in this offering is determined. Based on an assumed initial public offering price of $         per share (the midpoint of the estimated price range set forth on the cover page of this prospectus), we would issue to our Sponsor              OP Units in exchange for its interests in the Acquired Properties. A $1.00 increase in the assumed initial public offering price of $         per share would increase the number of OP Units we would issue to our Sponsor to             , and a $1.00 decrease in the assumed initial public offering price of $         per share would decrease the number of OP Units we would issue to our Sponsor to             .

Also in connection with this offering, we will distribute to our pre-IPO owners interests in 47 properties that we have historically held in our portfolio (the “Non-Core Properties”). Certain of the Non-Core Properties are subject to transfer restrictions under the indentures governing unsecured notes issued by our subsidiary, Brixmor LLC, until January 15, 2014. Accordingly, we intend to effect the distribution of the Non-Core Properties to our pre-IPO owners in two steps. First, at the time of this offering we will issue to our pre-IPO owners a separate series of interest in our Operating Partnership that allocates to them all of the economic consequences of ownership of the Non-Core Properties. This separate series of interest in our Operating Partnership will be redeemable by us at any time by transferring to the holders of such series the underlying Non-Core Properties. Second, following the expiration of the applicable transfer restrictions on January 15, 2014, we intend to transfer to our pre-IPO owners the Non-Core Properties in redemption of the separate series of interest in our Operating Partnership relating to these properties. Following this offering and the IPO Property Transfers, we will continue to manage the Non-Core Properties for which we expect to receive customary management, leasing and other fees.

We refer to the above-described contributions and distributions as the “IPO Property Transfers.” For additional information, see “Unaudited Pro Forma Financial Information—IPO Property Transfers.”

Our Organizational Structure

All of our assets are held, and our operations conducted, by our Operating Partnership. We own and control our Operating Partnership indirectly through our ownership in BPG Subsidiary. Brixmor OP GP LLC, a wholly-owned subsidiary of BPG Subsidiary, serves as the sole general partner of our Operating Partnership.

In addition to owning shares of our common stock, our Pre-IPO owners also own Outstanding BPG Subsidiary Shares and, following the IPO Property Transfers, Outstanding OP Units. We have entered into an exchange agreement with the holders of the Outstanding BPG Subsidiary Shares so that these holders may, from and after the first anniversary of the date of the closing of this offering (subject to the terms of the exchange agreement), exchange their BPG Subsidiary Shares for shares of our common stock on a one-for-one basis subject to customary conversion rate adjustments for splits, share dividends and reclassifications, or, at our election, for cash. In addition, holders of Outstanding OP Units may, from and after the first anniversary of the date of the closing of this offering (subject to the terms of the partnership agreement of our Operating Partnership), redeem their OP Units for cash or, at our election, exchange their OP Units for shares of our common stock on a one-for-one basis subject to customary conversion rate adjustments for splits, unit distributions and reclassifications. Notwithstanding the foregoing, our Sponsor and Centerbridge are generally permitted to exchange BPG Subsidiary Shares and redeem their OP Units at any time.

We refer to shares of our common stock, the BPG Subsidiary Shares and the OP Units, collectively, as “Brixmor Interests.” We use the term “Outstanding BPG Subsidiary Shares” to refer to the BPG Subsidiary

 

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Shares held by persons other than Brixmor Property Group Inc. and the term “Outstanding OP Units” to refer to the OP Units not held by BPG Subsidiary or its wholly-owned subsidiary, respectively. We use the term “Outstanding Brixmor Interests” to refer, collectively, to the outstanding shares of our common stock, the Outstanding BPG Subsidiary Shares and the Outstanding OP Units.

After this offering, each holder of an Outstanding BPG Subsidiary Share or Outstanding OP Unit will also hold one non-economic share of Brixmor Property Group Inc. that will afford such holder voting power with respect to Brixmor Property Inc. commensurate with such holder’s equity ownership in BPG Subsidiary and our Operating Partnership and permit such holder to vote on matters presented to the common stockholders of Brixmor Property Group Inc. on an “as exchanged” basis. More specifically, non-economic shares entitle the holder thereof, without regard to the number of non-economic shares held, to cast a number of votes on matters presented to the common stockholders of Brixmor Property Group Inc. that is equal to the aggregate number of BPG Subsidiary Shares and OP Units held by such holder, subject to customary adjustments for stock splits, stock dividends and reclassifications. Holders of non-economic shares are not entitled to dividends or other distributions, including upon the liquidation, dissolution or winding up of Brixmor Property Group Inc. See “Description of Stock—Common Stock and Non-Economic Shares.”

Brixmor Property Group Inc. owns a majority of BPG Subsidiary Shares outstanding. Accordingly, through its power to elect all of BPG Subsidiary’s directors, Brixmor Property Group Inc. operates and controls all of the business and affairs of BPG Subsidiary and consolidates the financial results of BPG Subsidiary and its consolidated subsidiaries, including our Operating Partnership. The ownership interest of the minority stockholders of BPG Subsidiary is reflected as a non-controlling interest in Brixmor Property Group Inc.’s consolidated financial statements.

After completion of this offering and the IPO Property Transfers, BPG Subsidiary will own a majority of the OP Units of our Operating Partnership outstanding, and its wholly-owned subsidiary, Brixmor OP GP LLC, will serve as the sole general partner of our Operating Partnership. Accordingly, BPG Subsidiary will operate and control all of the business and affairs of our Operating Partnership and consolidate the financial results of our Operating Partnership and its consolidated subsidiaries. The ownership interest of the holders of OP Units to be held by our pre-IPO owners will also be reflected as a non-controlling interest in Brixmor Property Group Inc.’s consolidated financial statements.

As of March 31, 2013, Brixmor Property Group Inc. had outstanding 125 shares of Existing Preferred Stock held by 125 holders, having a liquidation preference of $10,000 per share. For a description of the Existing Preferred Stock, see “Description of Stock—Preferred Stock.” We intend to redeem for cash all outstanding shares of our Existing Preferred Stock shortly after the completion of this offering.

As of March 31, 2013, BPG Subsidiary Inc. had outstanding 125 shares of Series A Redeemable Preferred Stock, par value $0.01 per share, held by 125 holders, having a liquidation preference of $10,000 per share. The outstanding preferred stock of BPG Subsidiary Inc. will remain outstanding after this offering.

 

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The following diagram depicts our organizational structure and equity ownership immediately following this offering. This chart is provided for illustrative purposes only and does not show all of our legal entities or ownership percentages of such entities.

 

LOGO

 

(1) Holders of Outstanding BPG Subsidiary Shares and Outstanding OP Units will hold non-economic shares of Brixmor Property Group Inc. Non-economic shares entitle a holder thereof, without regard to the number of non-economic shares held, to cast a number of votes on matters presented to the common stockholders of Brixmor Property Group Inc. that is equal to the aggregate number of BPG Subsidiary Shares and OP Units held by such holder, subject to customary adjustments for stock splits, stock dividends and reclassifications. See “Description of Stock—Common Stock and Non-Economic Shares.”
(2) BPG Subsidiary owns a portion of its interest in our Operating Partnership through Brixmor OP GP LLC, a wholly-owned subsidiary of BPG Subsidiary that serves as the sole general partner of our Operating Partnership.

 

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USE OF PROCEEDS

We estimate that the net proceeds we will receive from this offering, after deducting estimated underwriting discounts and estimated offering expenses payable by us, will be approximately $        , or approximately $         if the underwriters exercise in full their option to purchase additional shares from us, assuming an initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus. A $1.00 increase (decrease) in the assumed initial public offering price of $         per share would increase (decrease) net proceeds to us from this offering by approximately $        , assuming the number of shares offered by us as set forth on the cover page of this prospectus remains the same.

Brixmor Property Group Inc. will contribute the net proceeds of this offering to BPG Subsidiary in exchange for a number of BPG Subsidiary Shares that is equal to the number of shares that we issue to investors in this offering. BPG Subsidiary will in turn contribute this amount to our Operating Partnership in exchange for a number of OP Units that is equal to the number of BPG Subsidiary Shares that BPG Subsidiary so issues to Brixmor Property Group Inc.

Our Operating Partnership will primarily use the net proceeds from this offering to repay $         of outstanding borrowings under the revolving portion of the Unsecured Credit Facility, which will mature in 2017. Borrowings under the revolving facility currently bear interest at LIBOR plus     %. The borrowings under the revolving credit facility to be repaid with proceeds from this offering will have been used to repay indebtedness of our Operating Partnership and its subsidiaries and for general corporate purposes. See “Description of Indebtedness.” Affiliates of each of the representatives of the underwriters are lenders under our Unsecured Credit Facility, which we intend to repay in part with the net proceeds of this offering. We will also use approximately $         of net offering proceeds as described in note (G) under “Unaudited Pro Forma Financial Information.”

 

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DISTRIBUTION POLICY

We intend to continue to qualify as a REIT for U.S. federal income tax purposes. The Code generally requires that a REIT annually distribute at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gain, and imposes tax on any taxable income retained by a REIT, including capital gains.

We intend to make a pro rata distribution with respect to the quarter during which this offering occurs, based on a distribution rate of $         per share of our common stock for a full quarter. On an annualized basis, this would be $         per share of our common stock, or an annualized distribution rate of approximately     % based on the midpoint of the price range set forth on the cover of this prospectus. We estimate that this initial annual distribution rate will represent approximately     % of estimated cash available for distribution for the 12 months ending March 31, 2014. We do not intend to reduce the annualized distribution per share of our common stock if the underwriters exercise their option to purchase additional shares. Our intended initial annual distribution rate has been established based on our estimate of cash available for distribution for the 12 months ending March 31, 2014, which we have calculated based on adjustments to our pro forma net income for the 12 months ended March 31, 2013. This estimate was based on our pro forma operating results and does not take into account our long-term business and growth strategies, nor does it take into account any unanticipated expenditures that we may have to make or any financings for such expenditures. In estimating our cash available for distribution for the 12 months ending March 31, 2014, we have made certain assumptions reflected in the table and footnotes below, including that there will be no terminations of existing leases in our portfolio after March 31, 2013 (other than scheduled lease expirations) or lease renewals or new leases (other than month-to-month leases) after March 31, 2013 unless a new or renewal lease has been entered into prior to the date of this prospectus.

Our estimate of cash available for distribution does not reflect the effect of any changes in our working capital after March 31, 2013, other than the amount of cash estimated to be used for tenant improvement and leasing commission costs related to leases that may be entered into prior to the date of this prospectus. It also does not reflect the amount of cash estimated to be used for investing activities for acquisition and other activities, other than estimated capital expenditures, or the amount of cash estimated to be used for financing activities, other than scheduled mortgage loan principal repayments on mortgage indebtedness that will be outstanding upon consummation of this offering. Although we have included all material investing and financing activities that we have commitments to undertake as of March 31, 2013, we may undertake other investing and/or financing activities in the future. Any such investing and/or financing activities may have a material effect on our estimate of cash available for distribution. Because we have made the assumptions set forth above in estimating cash available for distribution, we do not intend this estimate to be a projection or forecast of our actual results of operations or liquidity. Our estimate of cash available for distribution should not be considered as an alternative to cash flow from operating activities (computed in accordance with GAAP) or as an indicator of our liquidity or ability to pay dividends or make distributions. In addition, the methodology upon which we made the adjustments described below is not necessarily intended to be a basis for calculating cash available for distribution.

Notwithstanding the estimate set forth below, our future distributions will be at the sole discretion of our board of directors. When determining the amount of future distributions, we expect that our board of directors will consider, among other factors, (1) the amount of cash generated from our operating activities, (2) our expectations of future cash flows, (3) our determination of near-term cash needs for debt repayments, existing or future share repurchases, and selective acquisitions of new properties, (4) the timing of significant redevelopment and re-leasing activities and the establishment of additional cash reserves for anticipated tenant improvements and general property capital improvements, (5) our ability to continue to access additional sources of capital, (6) the amount required to be distributed to maintain our status as a REIT and to reduce any income and excise taxes that we otherwise would be required to pay, (7) any limitations on our distributions contained in our credit or other agreements, including, without limitation, in our Unsecured Credit Facility, and (8) the sufficiency of legally-available assets.

 

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If our operations do not generate sufficient cash flow to allow us to satisfy the REIT distribution requirements, we may be required to fund distributions from working capital, borrow funds, sell assets or reduce such distributions. Our board of directors reviews the alternative funding sources available to us from time to time. Our actual results of operations will be affected by a number of factors, including the revenues we receive from our properties, our operating expenses, interest expense, the ability of our tenants to meet their obligations and unanticipated expenditures. For more information regarding risk factors that could materially adversely affect our actual results of operations, please see “Risk Factors.”

Because Brixmor Property Group Inc. is a holding company and has no material assets other than its ownership of the BPG Subsidiary Shares and no material operations other than those conducted by BPG Subsidiary, we will fund any distributions from legally-available assets authorized by our board of directors in three steps:

 

   

first, our Operating Partnership will make distributions to those of its partners which are holders of OP Units, including BPG Subsidiary. If our Operating Partnership makes such distributions, then in addition to BPG Subsidiary and its wholly-owned subsidiary, the other partners of our Operating Partnership will also be entitled to receive equivalent distributions pro rata based on their partnership interests in our Operating Partnership;

 

   

second, BPG Subsidiary will distribute to Brixmor Property Group Inc. its share of such distributions. If BPG Subsidiary makes such distributions, then in addition to Brixmor Property Group Inc., the other stockholders of BPG Subsidiary will also be entitled to receive equivalent distributions pro rata based on their interests in BPG Subsidiary; and

 

   

third, Brixmor Property Group Inc. will distribute the amount authorized by its board of directors and declared by Brixmor Property Group Inc. to its common stockholders on a pro rata basis.

We did not pay any dividends to the holders of our common stock or Outstanding BPG Subsidiary Shares during the period from June 28, 2011 to December 31, 2011. During 2012 and to date in 2013 we have paid an aggregate of $25.0 million and $25.0 million, respectively, of dividends to the holders of our common stock or Outstanding BPG Subsidiary Shares.

The following table describes Brixmor Property Group Inc.’s pro forma net income available to holders of its common stock for the 12 months ended December 31, 2012 and March 31, 2013, and the adjustments it has made thereto in order to estimate its initial cash available for distribution for the 12 months ending March 31, 2014 (amounts in thousands except share and per share data, square footage data and percentages). Pro forma net income reflects adjustments for certain transactions, as described in “Unaudited Pro Forma Financial Information.” Other than such adjustments, these calculations do not assume any changes to Brixmor Property Group Inc.’s operations or any acquisitions or dispositions or other developments or occurrences which could affect operating results and cash flows, or changes in outstanding shares of our common stock. We cannot assure you that actual results will be the same as or comparable to the calculations below.

 

Pro forma net income for the 12 months ended December 31, 2012

   $                

Less: Pro forma net income for the three months ended March 31, 2012

  

Add: Pro forma net income for the three months ended March 31, 2013

  

Pro forma net income for the 12 months ended March 31, 2013

   $     

Add: Pro forma real estate depreciation and amortization

  

Add: Net increases in contractual rent income (1)

  

Less: Net decreases in contractual rent income due to lease expirations, assuming no renewals (2)

  

Less: Net effects of straight-line rent adjustments to tenant leases (3)

  

Add: Net effects of above- and below-market rent adjustments (4)

  

Add: Non-cash compensation expense

  

Add: Non-cash ground rent expense

  

Estimated cash flow from operating activities for the 12 months ending March 31, 2014

   $     

Less: Estimated provision for tenant improvements costs and leasing commissions not expected to be funded under our Unsecured Credit Facility (5)

  

Total estimated cash flows used in investing activities

   $     

 

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Estimated cash flow used in financing activities

  

Less: Scheduled mortgage loan principal repayments (6)

  

Estimated cash flow used in financing activities for the 12 months ending March 31, 2014

   $     

Estimated cash available for distribution for the 12 months ending March 31, 2014

   $     

Less: Non-controlling interests’ (other) share of estimated cash available for distribution

  

Estimated cash available to our Operating Partnership for distribution for the 12 months ended March 31, 2014

   $                

Share of estimated cash available to our Operating Partnership for distribution attributable to holders of Outstanding OP units

  

Share of estimated cash available to our Operating Partnership for distribution attributable to holders of Outstanding BPG Subsidiary Shares

  

Share of estimated cash available to our Operating Partnership for distribution attributable to Brixmor Property Group Inc.

  

Total estimated initial annual distribution to our stockholders and to holders of Outstanding BPG Subsidiary Shares and Outstanding OP Units

   $     

Total estimated initial annual distribution to holders of Outstanding OP Units

   $     

Total estimated initial annual distribution to holders of Outstanding BPG Subsidiary Shares

   $     

Total estimated initial annual distribution to our stockholders

   $     

Estimated initial annual distributions per share of our common stock (7)

   $     

Payout ratio based on the company’s share of estimated cash available for distribution (8)

         

 

(1) Represents the net increases in contractual rental income net of expenses from existing leases and from new leases and renewals through the date hereof that were not in effect for the entire 12 month period ended March 31, 2013 or that were signed prior to the date of this prospectus but that will go into effect during the 12 months ending March 31, 2014.
(2) Assumes no lease renewals or new leases (other than month-to-month leases) for leases expiring after March 31, 2013 unless a new or renewal lease had been entered into prior to the date of this prospectus.
(3) Represents the conversion of estimated rental revenues for the 12 months ending March 31, 2014 from a straight-line accrual basis to a cash basis of revenue recognition.
(4) Represents the elimination of non-cash adjustments for above-market and below-market leases for the 12 months ended March 31, 2013. This is calculated as follows:

 

     12 months ended
March 31, 2013
 

Add: Net effects of above- and below-market rent adjustments

   $ (a

(a) Calculated as follows:

  

Effects of above-market rent adjustments

   $                

Effects of below-market rent adjustments

  
   $     

 

(5) For purposes of calculating the distribution in the above table, we have assumed we will incur approximately $             million of tenant improvements and leasing commission costs related solely to tenant improvements and leasing commission costs incurred or expected to be incurred in the 12 months ending March 31, 2014 that we are contractually obligated to provide pursuant to          leases, or the contractual leases, entered into prior to the date of this prospectus. While we are contractually obligated to perform the renovation work relating to these leases, we have estimated the costs to complete such work based on our current budgets.

 

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(6) Represents scheduled payments of mortgage loan principal due during the 12 months ending March 31, 2014. Does not include $ million of debt maturities during the 12 months ending March 31, 2014 based on the assumptions that we will be able to renew those mortgage loans under terms similar to those currently in place.
(7) Based on a total of              shares of our common stock,              Outstanding BPG Subsidiary Shares and              Outstanding OP Units to be outstanding after this offering.
(8) Calculated as estimated initial annual distribution per share divided by the Brixmor Property Group Inc.’s share of estimated cash available for distribution per share for the 12 months ending March 31, 2014.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2013:

 

   

on an actual basis; and

 

   

on a pro forma basis giving effect to the transactions described in “Unaudited Pro Forma Financial Information,” including this offering (at an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover of this prospectus) and the intended application of the net proceeds therefrom as described in “Use of Proceeds.”

You should read this table together with the other information contained in this prospectus, including “Our Organizational Structure,” “Use of Proceeds,” “Unaudited Pro Forma Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and related notes that appear elsewhere in this prospectus.

 

(amounts in thousands, except shares and per share data)    March 31, 2013  
   Actual     Pro forma  

Cash and cash equivalents

   $ 106,392      $                

Restricted cash

     93,946     
  

 

 

   

 

 

 

Total cash

   $ 200,338      $     
  

 

 

   

 

 

 

Debt:

    

Mortgage and secured loans (1)

   $ 6,112,771      $     

Unsecured Credit Facility (2)

     —       

Brixmor LLC unsecured notes (3)

     385,727     
  

 

 

   

 

 

 

Total debt

     6,498,498     
  

 

 

   

 

 

 

Stockholders’ equity:

    

Common stock, par value $0.01 per share;              shares authorized, actual;              shares issued and outstanding, actual;              shares authorized, as adjusted;              shares issued and outstanding, as adjusted;

     1     

Non-economic stock, par value $0.01 per share;              shares authorized, as adjusted;              shares issued and outstanding, as adjusted;

     —       

Preferred stock, par value $0.01 per share;              shares authorized, actual;              shares issued and outstanding, actual;              shares authorized, as adjusted; no shares issued and none outstanding, as adjusted;

     —       

Additional paid in capital

     1,749,306     

Accumulated other comprehensive loss

     —       

Distributions in excess of accumulated loss

     (55,514  
  

 

 

   

 

 

 

Total stockholders’ equity (4)

     1,693,793     

Non-controlling interests

     545,937     
  

 

 

   

 

 

 

Total equity

     2,239,730     
  

 

 

   

 

 

 

Total capitalization (4)

   $ 8,738,228      $     
  

 

 

   

 

 

 

 

(1) Actual amount includes unamortized premium of $106.7 million.
(2) On July 16, 2013, we entered into the Unsecured Credit Facility, which consists of a $1,250.0 million revolving credit facility, which will mature on July 31, 2017, with a one-year extension option and a $1,500.0 million term loan facility, which will mature on July 31, 2018.
(3) Actual amount includes unamortized discount of $18.9 million.
(4)

To the extent we change the number of shares of common stock sold by us in this offering from the shares we expect to sell or we change the initial public offering price from the $         per share assumed initial

 

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  public offering price, representing the midpoint of the price range set forth on the cover page of this prospectus, or any combination of these events occurs, the net proceeds to us from this offering and each of total stockholders’ equity and total capitalization may increase or decrease. A $1.00 increase (decrease) in the assumed initial public offering price per share of the common stock, assuming no change in the number of shares of common stock to be sold, would increase (decrease) the net proceeds that we receive in this offering and each of total stockholders’ equity and total capitalization by approximately $         million. An increase (decrease) of 1,000,000 shares in the expected number of shares to be sold in the offering, assuming no change in the assumed initial offering price per share, would increase (decrease) our net proceeds from this offering and our total stockholders’ equity and total capitalization by approximately $         million. If the underwriters’ option to purchase additional shares is exercised in full, the pro forma amount of each of cash, total cash, additional paid-in capital, total stockholders’ equity, total equity and total capitalization would increase by approximately $         million, after deducting underwriting discounts and estimated operating expenses, and we would have              shares of our common stock issued and outstanding, as adjusted.

 

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DILUTION

If you invest in our shares, your interest will be diluted to the extent of the difference between the initial public offering price per share and the pro forma net tangible book value per share immediately after the completion of this offering.

Our pro forma net tangible book value as of March 31, 2013 was approximately $         or $         per share. Pro forma net tangible book value represents the amount of total tangible assets less total liabilities, after giving effect to the IPO Property Transfers, and pro forma net tangible book value per share represents pro forma net tangible book value divided by the number of shares outstanding, after giving effect to the IPO Property Transfers and the transactions described in “Unaudited Pro Forma Financial Information” and assuming that all of the Outstanding BPG Subsidiary Shares and the Outstanding OP Units are exchanged for newly-issued shares of our common stock on a one-for-one basis.

After giving effect to the IPO Property Transfers, including this offering (at an assumed initial public offering price of $         per share) and the intended application of the net proceeds therefrom as described in “Use of Proceeds,” our pro forma net tangible book value as of March 31, 2013 would have been $        , or $         per share. This represents an immediate increase in the net tangible book value of $         per share and an immediate dilution of $         per share to new investors purchasing shares in this offering. The following table illustrates this dilution per share:

 

Assumed initial offering price per share

      $                

Pro forma net tangible book value per share as of March 31, 2013

   $        

Increase in pro forma net tangible book value per share attributable to investors in this offering

     
  

 

 

    

Pro forma net tangible book value per share after this offering

     
     

 

 

 

Dilution in pro forma net tangible book value per share to investors in this offering

      $     
     

 

 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $         per share would increase (decrease) the amount of pro forma net tangible book value attributable to investors in this offering by $         per share, and the dilution to investors in this offering by $         per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and no exercise of the underwriters’ option to purchase additional shares.

The following table summarizes, on the same pro forma basis as of March 31, 2013, the total number of shares purchased from us, the total cash consideration paid to us and the average price per share paid by our pre-IPO owners and by new investors purchasing shares in this offering, assuming that all of the Outstanding BPG Subsidiary Shares and the Outstanding OP Units are exchanged for newly-issued shares of our common stock on a one-for-one basis.

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 
     Number    Percentage     Amount      Percentage    
     (in millions)          ($ in millions)               

Pre-IPO owners

               $                  $     

Investors in this offering

               $                  $     

Total

               $                             $                

A $1.00 increase (decrease) in the assumed initial public offering price of $         per share would increase (decrease) the total consideration paid by the investors in this offering by $        , increase (decrease) the percent of total consideration paid by the investors by approximately     %, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and no exercise of the underwriters’ option to purchase additional shares).

 

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If the underwriters’ option to purchase additional shares is exercised in full, the following will occur:

 

   

the number of shares purchased by investors in this offering will increase to              shares, or approximately     % of the total number of shares outstanding;

 

   

the immediate dilution experienced by investors in this offering will be $         per share and the pro forma net tangible book value per share will be $         per share; and

 

   

a $1.00 increase (decrease) in the initial offering price of $         per share would increase (decrease) the dilution experienced by investors in this offering by $         per share.

 

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UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma condensed consolidated financial statements reflect the pro forma financial condition and results of operations of Brixmor Property Group Inc. after giving effect to (i) the IPO Property Transfers (as described below), (ii) the acquisition of the interests we did not already hold in Arapahoe Crossings, L.P. (as described below), (iii) borrowings under the Unsecured Credit Facility, including use thereof, (as described below) and (iv) the estimated net proceeds, including use thereof, expected to be received from this offering. The pro forma adjustments associated with these transactions assume that each transaction was completed as of March 31, 2013 for purposes of the unaudited pro forma condensed consolidated balance sheet and as of January 1, 2012 for purposes of the unaudited pro forma condensed consolidated statements of operations.

Our pro forma condensed consolidated financial statements are presented for informational purposes only and are based on information and assumptions that we consider appropriate and reasonable. These pro forma condensed consolidated financial statements do not purport to (i) represent our financial position had this offering, and the other transactions described in these pro forma condensed consolidated financial statements, occurred on March 31, 2013, (ii) represent the results of our operations had this offering, and the other transactions described in these pro forma condensed consolidated financial statements, occurred on January 1, 2012 or (iii) project or forecast our financial position or results of operations as of any future date or for any future period, as applicable.

You should read the information below along with all other financial information and analysis presented in this prospectus, including the sections captioned “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our historical financial statements and related notes included elsewhere in this prospectus.

IPO Property Transfers

In connection with this offering, certain investment funds affiliated with our Sponsor will contribute their ownership interests in 43 properties (the “Acquired Properties”) to us, and we will distribute 47 properties that we have historically held in our portfolio (the “Non-Core Properties”) to our pre-IPO owners. We refer to our Sponsor, funds affiliated with Centerbridge and the members of our management who own shares of our common stock and shares of the common stock of our majority-owned subsidiary, BPG Subsidiary Inc., and who will receive units in Brixmor Operating Partnership LP as part of the IPO Property Transfers as our “pre-IPO owners.”

Our acquisition of the Acquired Properties will be accounted for as a business combination resulting in the consideration exchanged for the Acquired Properties being allocated to the acquired assets and assumed liabilities based on their fair values on the date of acquisition, including identifiable intangible assets and liabilities.

The distribution of our ownership interests in the Non-Core Properties to our Sponsor is expected to be effected through the consummation of two separate transactions due to the existence of transfer restrictions governing certain of our unsecured notes that are in effect through January 15, 2014. The first transaction, which will occur at the time of this offering, will consist of our Operating Partnership issuing a special class of units to our pre-IPO owners thereby providing our pre-IPO owners with all economic rights and obligations associated with ownership of the Non-Core Properties. The second transaction, expected to be consummated following the expiration of the aforementioned transfer restrictions, will consist of our Operating Partnership redeeming the special class of units in exchange for the Non-Core Properties pursuant to certain redemption provisions providing us with the right to redeem such units at any time. The distribution of the Non-Core Properties will be accounted for at fair value with any resulting gain or loss recognized in earnings. Following this offering and the IPO Property Transfers, we will continue to manage the Non-Core Properties for which we will receive customary management, leasing and other fees from our Sponsor.

 

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Acquisition of Arapahoe Crossings, L.P.

As of March 31, 2013, we owned a 30% ownership interest in Arapahoe Crossings, L.P. (“Arapahoe”), an unconsolidated real estate joint venture, which owns a single shopping center in the Denver, Colorado MSA having 466,363 sq. ft. of GLA. On May 15, 2013, we entered into an agreement with our joint venture partner to acquire the remaining 70% interest not owned by us in exchange for $20.0 million in cash, subject to a $41.9 million mortgage encumbering the asset. The transaction is expected to close in the third quarter of 2013 and will be accounted for as a business combination with any resulting gain or loss associated with our previously held equity interest being recognized in earnings.

Unsecured Credit Facility

On July 16, 2013, we entered into a new $2,750.0 million Unsecured Credit Facility with a syndicate of lenders consisting of a $1,500.0 million term loan and a $1,250.0 million revolving credit facility. We expect to use the $1,500.0 million term loan and approximately $868.7 million of borrowings under the revolving credit facility to repay an equal amount of our existing indebtedness.

Offering Proceeds

We estimate that the net proceeds to us from this offering will be approximately $         million, or $         million if the underwriters exercise their option to purchase additional shares in full (assuming shares are sold at $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus) after deducting underwriting discounts and other estimated expenses of this offering. Net proceeds of this offering will be used (i) to repay outstanding borrowings under the Unsecured Credit Facility, (ii) to repay indebtedness owed to our Sponsor that is attributable to certain of the Acquired Properties, (iii) to pay transaction costs associated with the IPO Property Transfers and (iv) to pay transfer fees associated with our outstanding mortgage loans.

 

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Brixmor Property Group Inc. and Subsidiaries

Pro Forma Condensed Consolidated Balance Sheet

March 31, 2013

(Unaudited and in thousands)

 

          Acquisitions and Distributions                          
    Brixmor
Property Group
Inc. and
Subsidiaries
    Acquired
Properties
  Arapahoe
Acquisition
  Non-Core
Properties
Distribution
  Other Pro
Forma
Adjustments
&
Eliminations
        Pro Forma
Before Offering
  Proceeds
from
Offering
  Use of
Proceeds
  Pro Forma
          (A)   (B)   (C)                 (F)   (G)    

Assets

                   

Real estate, net

  $ 9,002,120                     

Investments in advances to unconsolidated real estate joint ventures

    16,175                     

Cash and cash equivalents

    106,392                (D        

Restricted cash

    93,946                (D        

Marketable securities

    25,331                     

Receivables, net

    170,548                (E        

Deferred charges and prepaid expenses, net

    96,402                (D        

Other assets

    19,085                     
 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Total assets

  $ 9,529,999                     
 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Liabilities

                   

Debt obligations, net

  $ 6,498,498                (D)           

Financing liabilities, net

    174,194                     

Accounts payable, accrued expenses and other liabilities

    596,110                (E)           
 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Total liabilities

  $ 7,268,802                     
 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Redeemable non-controlling interests

    21,467                     
 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Equity:

                   

Preferred stock

    —                       

Common stock

    1                     

Additional paid in capital

    1,749,306                     

Accumulated other comprehensive (loss) income

    —                       

Distributions in excess of accumulated loss (income)

    (55,514             (D        
 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Total stockholders equity

    1,693,793                     

Non-controlling interests

    545,937                     
 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Total equity

    2,239,730                     
 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Total liabilities and equity

  $ 9,529,999                     
 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

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Brixmor Property Group Inc. and Subsidiaries

Pro Forma Condensed Consolidated Statement of Operations

For the Three Months Ended March 31, 2013

(Unaudited and in thousands, except per share data)

 

    Brixmor
Property
Group Inc.
and
Subsidiaries
    Acquired
Properties
  Arapahoe
Acquisition
  Non-Core
Properties
Distribution
  Other Pro
Forma
Adjustments &
Eliminations
        Pro Forma
          (AA)   (BB)   (CC)              

Revenue

             

Rental income

  $ 221,867               

Expense reimbursements

    61,955               

Other revenues

    3,251                (DD  
 

 

 

   

 

 

 

 

 

 

 

   

 

Total revenues

    287,073               
 

 

 

   

 

 

 

 

 

 

 

   

 

Operating expenses

             

Operating costs

    31,899                (DD  

Real estate taxes

    43,962               

Depreciation and amortization

    115,480               

Provision for doubtful accounts

    2,660               

General and administrative

    24,029               
 

 

 

   

 

 

 

 

 

 

 

   

 

Total operating expenses

    218,030               
 

 

 

   

 

 

 

 

 

 

 

   

 

Other income (expenses)

             

Dividends and interest

    181               

Interest expense

    (92,022             (EE  

Other

    45               
 

 

 

   

 

 

 

 

 

 

 

   

 

Total other income (expense), net

    (91,796            
 

 

 

   

 

 

 

 

 

 

 

   

 

(Loss) income before equity in earnings of unconsolidated subsidiaries

    (22,753            

Equity (loss) income of unconsolidated real estate joint ventures

    247               
 

 

 

   

 

 

 

 

 

 

 

   

 

(Loss) income from continuing operations

  $ (22,506            
 

 

 

   

 

 

 

 

 

 

 

   

 

Pro forma loss from continuing operations per share basic

             
             

 

Pro forma loss from continuing operations per share diluted

             
             

 

Pro forma weighted average shares basic

             
             

 

Pro forma weighted average shares diluted

             
             

 

 

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Brixmor Property Group Inc. and Subsidiaries

Pro Forma Condensed Consolidated Statement of Operations

For the Year Ended December 31, 2012

(Unaudited and in thousands, except per share data)

 

    Brixmor
Property
Group Inc.
and
Subsidiaries
    Acquired
Properties
  Arapahoe
Acquisition
  Non-Core
Properties
Distribution
  Other Pro
Forma
Adjustments
&
Eliminations
        Pro Forma
          (AA)   (BB)   (CC)              

Revenue

             

Rental income

  $ 882,848               

Expense reimbursements

    235,386               

Other revenues

    11,458                (DD)     
 

 

 

   

 

 

 

 

 

 

 

   

 

Total revenues

    1,129,692               
 

 

 

   

 

 

 

 

 

 

 

   

 

Operating expenses

             

Operating costs

    126,403                (DD)     

Real estate taxes

    163,742               

Depreciation and amortization

    506,634               

Provision for doubtful accounts

    11,902               

Acquisition related costs

    541               

General and administrative

    88,870               
 

 

 

   

 

 

 

 

 

 

 

   

 

Total operating expenses

    898,092               
 

 

 

   

 

 

 

 

 

 

 

   

 

Other income (expenses)

             

Dividends and interest

    1,138               

Interest expense

    (387,078             (EE)     

Gain (loss) on sale of real estate

    501               

Other

    (507            
 

 

 

   

 

 

 

 

 

 

 

   

 

Total other income (expense), net

    (385,946            
 

 

 

   

 

 

 

 

 

 

 

   

 

(Loss) income before equity in earnings of unconsolidated subsidiaries

    (154,346            

Equity income of unconsolidated real estate joint ventures

    687               

Impairment of investment in unconsolidated real estate joint ventures

    (314            
 

 

 

   

 

 

 

 

 

 

 

   

 

(Loss) Income from continuing operations

  $ (153,973            
 

 

 

   

 

 

 

 

 

 

 

   

 

             

Pro forma loss from continuing operations per share basic

             
             

 

Pro forma loss from continuing operations per share diluted

             
             

 

Pro forma weighted average shares outstanding basic

             
             

 

Pro forma weighted average shares outstanding diluted

             
             

 

 

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1. Adjustments to the Pro Forma Condensed Consolidated Balance Sheet

(A) Reflects the acquisition by us of 100% of the ownership interests in 43 properties from our Sponsor in exchange for              OP Units with a value of $         million based on an assumed initial public offering price of $         per share (which is the midpoint of the price range set forth on the cover page of this prospectus) and the assumption of $         million of related indebtedness.

The allocation of consideration exchanged to the assets acquired and liabilities assumed is based on our preliminary estimates and is subject to change based on the final determination of the fair value attributable to the acquired assets and assumed liabilities at the time the acquisition is consummated. The estimated fair value of Real estate, net includes the following components (in thousands):

 

Land

   $              

Building and improvements

  

Above-market leases

  

In-place lease value

  
  

 

 

 

Total

   $     
  

 

 

 

These estimates were based on our preliminary analysis and comparable market transactions, which included a preliminary evaluation of the fair values ascribed to component assets relative to overall transaction value in comparable market transactions. Upon completion of the acquisition, the methodologies and significant inputs and assumptions used in deriving final estimates of fair value will vary based on the nature of the tangible or intangible asset. For land, estimates of fair value will likely be derived using a market approach which contemplates an evaluation of recent transactions involving comparable assets. For building and improvements, estimates of fair value will likely be derived using a cost approach which contemplates an evaluation of the costs required to construct or acquire such assets with adjustments made to account for the effects of physical depreciation, and functional and/or economic obsolescence, each as applicable. Estimates of fair value associated with identifiable intangible assets will likely be derived using generally accepted methodologies under the income approach. Significant inputs and assumptions associated with these approaches include estimates of future operating cash flows, as contemplated in deriving the acquisition consideration and discount and capitalization rates based on an evaluation of observable market data.

In connection with the acquisition, we expect to incur transaction costs of $         million, which relate to, among other things, transfer taxes, title costs and advisor fees. These transactions costs will, for accounting purposes, be reflected as expenses except for those costs directly attributable to the issuance of the OP Units which will be accounted for as a reduction in the carrying value of the Non-controlling interest. Accordingly, for purposes of the pro forma condensed consolidated balance sheet, $         million of the transaction costs have been reflected as a reduction to the carrying value of the Non-controlling interest and the remaining $         million of transaction costs have been reflected as an addition to Distributions in excess of accumulated loss.

Debt obligations, net reflects the assumption of $         million of debt with an estimated fair value of $         million. No adjustments were made to the historical carrying value of Cash and cash equivalents; Restricted cash; Receivables, net; Other assets; and Accounts payable, accrued expenses and other liabilities as the estimated fair values of such items were preliminarily determined to approximate their historical carrying values. These preliminary determinations were based on their short term nature and/or the stated terms approximating current market terms.

(B) Reflects the probable acquisition by us of the 70% ownership interest in Arapahoe in exchange for $         million cash and the assumption of $         million of related indebtedness which is expected to be repaid upon closing of the acquisition using borrowings under the Unsecured Credit Facility as discussed in Note (D) below. For purposes of the pro forma condensed consolidated balance sheet, the $         million of cash

 

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consideration, which will be paid by us, is reflected as a reduction of Arapahoe’s cash and cash equivalents balance and the $         million gain expected to result upon remeasurement of our existing 30% equity interest is reflected as a reduction of Distributions in excess of accumulated loss (income).

The allocation of consideration exchanged to the assets acquired and liabilities assumed is based on our preliminary estimates of fair value and are subject to change based on the final determination of the fair value attributable to the acquired assets and assumed liabilities at the time the acquisition is consummated. The estimated fair value of real estate, net includes the following components (in thousands):

 

Land

   $                

Building and improvements

  

Above-market leases

  

In-place lease value

  
  

 

 

 

Total

   $     
  

 

 

 

See clause (A) for additional information in respect of the methodologies used to derive these preliminary estimates and those methodologies expected to be utilized in connection with deriving final estimates of fair value, including significant inputs and assumptions.

No adjustments were made to the historical carrying value of Cash and cash equivalents; Restricted cash; Receivables, net; Other assets; Debt obligations, net and Accounts payable, accrued expenses and other liabilities as the estimated fair values of such items were preliminarily determined to approximate their historical carrying values. These preliminary determinations were based on their short term nature and/or the stated terms approximating current market terms.

In connection with the acquisition, we expect to incur transaction costs of $         million, which relate to, among other things, transfer taxes, title costs and advisor fees. These transactions will, for accounting purposes, be reflected as expenses. Accordingly, for purposes of the pro forma condensed consolidated balance sheet, these transaction costs have been reflected as an addition to Distributions in excess of accumulated loss (income).

(C) Reflects the distribution by us of the ownership interests in the Non-Core Properties subsequent to our redemption of the special class of units issued to our Sponsor which we have determined is probable. The estimated fair value of the distributed net assets is $         million, resulting in a gain or loss of $         million which is reflected as an increase or decrease to Distributions in excess of accumulated loss.

(D) Reflects the closing of our $2,750.0 million Unsecured Credit Facility on July 16, 2013, which consists of a $1,500.0 million term loan and a $1,250.0 million revolving credit facility. Prior to the closing of this offering, we expect to use the $1,500.0 million term loan and $         million of borrowings under the revolving credit facility to repay an equivalent amount of our existing indebtedness.

We incurred approximately $19.4 million of issuance costs related to the Unsecured Credit Facility consisting of $19.1 million of fees paid to the lenders in the Unsecured Credit Facility and $0.3 million of fees paid to third parties for legal and advisory services. These costs have been capitalized within the pro forma condensed consolidated balance sheet and offset by approximately $         million of accelerated amortization attributable to capitalized costs related to the repaid indebtedness resulting in a $         million net decrease to Deferred charges and prepaid expenses, net. Capitalized issuance costs associated with the Unsecured Credit Facility will be amortized as additional interest expense over the Unsecured Credit Facility’s term.

In connection with repaying this indebtedness, we accelerated the amortization of the related premium resulting in a $         million reduction to Distributions in excess of accumulated loss (income). In addition, $         million of restricted cash was released to us by the lenders which is reflected as a decrease to Restricted cash and a corresponding increase to Cash and cash equivalents.

 

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The $         million addition to Distributions in excess of accumulated loss is comprised of the $25.8 million in accelerated issuance cost amortization net of the $         million in accelerated premium amortization attributable to the repaid indebtedness.

(E) Reflects the elimination of accounts receivable of $         million comprised of $         million of management and other fees due from the Acquired Properties and $         million of management and other fees due from Arapahoe.

(F) Reflects gross proceeds in this offering of $         million, which will be reduced by $         million, net of amounts paid to date, to reflect underwriting discounts, legal and other costs payable by us, resulting in net proceeds of $         million. These costs will be charged against the gross offering proceeds upon completion of this offering.

(G) In connection with this offering, we anticipate using the net proceeds as follows: (i) to repay $         million of outstanding borrowings under the revolving portion of the Unsecured Credit Facility, (ii) to repay $         million of indebtedness to our Sponsor attributable to certain of the Acquired Properties; (iii) to pay $         million of transaction costs related to the IPO Property Transfers, which relate to, among other things, transfer taxes and loan consent fees (These transaction costs will be reflected as expenses except for those costs directly attributable to the issuance of the OP Units which will be accounted for as a reduction in the carrying value of the Non-controlling interest. Accordingly, $         million of the transaction costs have been reflected as a reduction to the carrying value of the Non-controlling interest and the remaining $         million of transaction costs have been reflected as an addition to Distributions in excess of accumulated loss.); and (iv) to pay $         million of transfer fees due to lenders on several of our outstanding mortgage loans that are payable in connection with this offering. Of the $         million of consent and/or transfer fees, $         million will be capitalized as an addition to Deferred charges and prepaid expense, net and amortized into interest expense over the remaining term of the underlying mortgage loans, and the remaining $         million will be expensed as it relates to certain Non-Core Property mortgages distributed to our Sponsor. A summary is as followings (in thousands):

 

Repayment of Unsecured Credit Facility   

Repayment of indebtedness attributable to Acquired Properties

   $                

IPO Property Transfers transaction costs

  

Loan transfer and consent fees

  
  

 

 

 
   $     
  

 

 

 

2. Adjustments to the Pro Forma Condensed Consolidated Statement of Operations

(AA) Reflects the results of operations associated with the Acquired Properties as discussed in Note (A) above. The consideration allocated to (i) buildings and improvements will be depreciated over the estimated average remaining useful lives ranging from              to              years, (ii) above- and below-market leases and in-place lease value will be amortized over the weighted average lives of the related leases ranging from              to              years; and (iii) the premium or discount, as applicable, attributable to recording the assumed indebtedness at fair value will be amortized to interest expense over the weighted average remaining term of such indebtedness of years.

 

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The pro forma adjustments shown below for the Acquired Properties are based on our preliminary estimates and are subject to change based on the final determination of the fair value of assets and liabilities acquired.

 

    For the Three Months Ended March 31, 2013   For the Year Ended December 31, 2012
    Acquired
Properties
Historical
  Pro Forma
Adjustments
        Acquired
Properties Pro
Forma
  Acquired
Properties
Historical
  Pro Forma
Adjustments
  Acquired
Properties Pro
Forma
    (Unaudited and in thousands)

Revenue

             

Rental income

        (1)           

Expense reimbursements

             

Other revenues

             
 

 

 

 

   

 

 

 

 

 

 

 

Total revenues

             
 

 

 

 

   

 

 

 

 

 

 

 

Operating expenses

             

Operating costs

             

Real estate taxes

             

Depreciation and amortization

        (2)           

Provision for doubtful accounts

             

Acquisition related costs

        (3)           

General and administrative

             
 

 

 

 

   

 

 

 

 

 

 

 

Total operating expenses

             
 

 

 

 

   

 

 

 

 

 

 

 

Other income (expenses)

             

Dividends and interest

             

Interest expense

        (4)           

Gain on sale of real estate

             

Other

             
 

 

 

 

   

 

 

 

 

 

 

 

Total other income (expense), net

             
 

 

 

 

   

 

 

 

 

 

 

 

(Loss) income before equity in earnings of unconsolidated subsidiaries

             

Equity (loss) income of unconsolidated real estate joint ventures

             

Impairment of investment in unconsolidated real estate joint ventures

             
 

 

 

 

   

 

 

 

 

 

 

 

(Loss) income from continuing operations

             
 

 

 

 

   

 

 

 

 

 

 

 

 

(1) Adjusts above-/below-market lease amortization and straight line rent.
(2) Adjusts depreciation and amortization based on the allocation of the fair value to tangible and identified intangible assets acquired.
(3) Removes acquisition related costs incurred by our Sponsor related to our Sponsor’s acquisition in 2012 of certain of the Acquired Properties.
(4) Adjusts interest expense to reflect the following: (i) remove debt issuance costs for the acquiredloans (ii) assumption fees paid as part of the loan agreement are amortized and included as part of interest expense, and (iii) amortization of the fair value adjustment on assumed loans.

 

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(BB) Reflects the results of operations associated with Arapahoe as discussed in Note (B) above. The consideration allocated to (i) buildings and improvements will be depreciated over the estimated useful lives of the respective assets which range from              to              years and (ii) above- and below-market leases and in-place lease value will be amortized over the weighted average lives of the related leases ranging from              to              years.

The pro forma adjustments shown below are based on our preliminary estimates and are subject to change based on the final determination of the fair value of assets and liabilities acquired.

 

    For the Three Months Ended March 31, 2013   For the Year Ended December 31, 2012
    Arapahoe
Historical
  Pro Forma
Adjustments
        Arapahoe Pro
Forma
  Arapahoe
Historical
  Pro Forma
Adjustments
        Arapahoe Pro
Forma
    (Unaudited and in thousands)

Revenue

               

Rental income

        (1)              (1)     

Expense reimbursements

               

Other revenues

               
 

 

 

 

   

 

 

 

 

 

   

 

Total revenues

               
 

 

 

 

   

 

 

 

 

 

   

 

Operating expenses

               

Operating costs

               

Real estate taxes

               

Depreciation and amortization

        (2)              (2)     

Provision for doubtful accounts

               

Acquisition related costs

               

General and administrative

               
 

 

 

 

   

 

 

 

 

 

   

 

Total operating expenses

               
 

 

 

 

   

 

 

 

 

 

   

 

Other income (expenses)

               

Dividends and interest

               

Interest expense

        (3)              (3)     

Gain (loss) on sale of real estate

               

Other

               
 

 

 

 

   

 

 

 

 

 

   

 

Total other income (expense), net

               
 

 

 

 

   

 

 

 

 

 

   

 

(Loss) income before equity in earnings of unconsolidated subsidiaries

               

Equity (loss) income of unconsolidated real estate joint ventures

               

Impairment of investment in unconsolidated real estate joint ventures

               
 

 

 

 

   

 

 

 

 

 

   

 

(Loss) income from continuing operations

               
 

 

 

 

   

 

 

 

 

 

   

 

 

(1) Adjusts above-/below-market lease amortization and straight line rent.
(2) Adjust depreciation and amortization based on the allocation of the fair value to tangible and identified intangible assets acquired.
(3) Interest expense is adjusted to reflect the removal of amortization of debt issuance costs on acquired debt. There are no new debt issuance costs associated with the acquired debt.

 

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(CC) Reflects the elimination of the results of operations associated with the Non-Core Properties as discussed in Note (C) above. As of March 31, 2013 and December 31, 2012, one of the Non-Core Properties was classified as held for sale and its results from operations are included in discontinued operations on the Company’s historical statements of operations. Therefore, the results of operations for this property are not reflected in this adjustment for both the three months ended March 31, 2013 and the year ended December 31, 2012.

(DD) For the three months ended March 31, 2013, Other revenues reflects $         million of estimated management and other fees that will be earned from our Sponsor for the management of the Non-Core Properties following the offering partially offset by the elimination of $         million of management and other fees from the Acquired Properties. For the three months ended March 31, 2013, Operating costs reflects the elimination of $         million of management and other fees earned by us from the Acquired Properties.

For the year ended December 31, 2012, Other revenues reflects $         million of estimated management and other fees that will be earned from our Sponsor for the management of the Non-Core Properties following the offering partially offset by the elimination of $         million of management and other fees from the Acquired Properties. For the year ended December 31, 2012, Operating costs reflects the elimination of $         million of management and other fees earned by us from the Acquired Properties.

We expect to incur approximately $         million in incremental annual costs associated with being a publicly traded company, which have not been reflected as an adjustment in the pro forma condensed consolidated financial statements because such amounts are not contractually obligated.

(EE) Reflects the reduction of interest expense attributable to the following, (i) repayment of outstanding indebtedness with the proceeds of our Unsecured Credit Facility as discussed in Note (D) above in the amounts of $         million and $         million, which are inclusive of the amortization of issuance costs related to the Unsecured Credit Facility, for the three months ended March 31, 2013 and the year ended December 31, 2012, respectively, (ii) repayment of our Unsecured Credit Facility in the amount of $         with the net proceeds of this offering, (iii) the reduction of interest expense as a result of the payment of $         million to our Sponsor upon consummation of the IPO Property Transfers for the repayment of intercompany loans between three of the Acquired Properties and our Sponsor as discussed in Note (H) above in the amounts of $         million and $         million for the three months ended March 31, 2013 and the year ended December 31, 2012, respectively, and (iv) reduction of interest expense as a result of the repayment of $         million of indebtedness on the Acquired Properties in the amounts of $         million and $         million for the three months ended March 31, 2013 and the year ended December 31, 2012, respectively.

Borrowings under the Unsecured Credit Facility bear interest, at our option, at a rate equal to a margin over either (a) a base rate determined by reference to the highest of (1) the administrative agent’s prime lending rate, (2) the federal funds effective rate plus 0.5% and (3) the LIBOR rate that would be payable on such day for a LIBOR rate loan with a one-month interest period plus 1% or (b) a LIBOR rate determined by reference to the BBA LIBOR rate for the interest period relevant to such borrowing. The margin for the term loans is based on a total leverage based grid and ranges from 0.40% to 1.00%, in the case of base rate loans, and 1.40% to 2.00%, in the case of LIBOR rate loans. The margin for the revolving credit facility is also based on a total leverage based grid and ranges from 0.50% to 1.10%, in the case of base rate loans, and 1.50% to 2.10%, in the case of LIBOR rate loans.

 

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SELECTED FINANCIAL INFORMATION

The selected consolidated financial and operating data set forth below as of December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The audited consolidated financial statements as of December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010 have been audited by Ernst & Young LLP, an independent registered public accounting firm. The selected consolidated financial and operating data set forth below as of March 31, 2013 and for the three months ended March 31, 2013 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. Results for the three month period ended March 31, 2013 are not necessarily indicative of results that may be expected for the entire year. The selected consolidated financial and operating data set forth below as of December 31, 2010 have been derived from our audited consolidated financial statements not included in this prospectus. The selected consolidated financial and operating data set forth below as of December 31, 2009 and 2008 and for the years ended December 31, 2009 and 2008 have been derived from our unaudited consolidated financial statements not included in this prospectus.

Because the information presented below is only a summary and does not provide all of the information contained in our historical consolidated financial statements, including the related notes, you should read it in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Financial Information” and our historical consolidated financial statements, including the related notes, included elsewhere in this prospectus. The amounts in the table are dollars in thousands.

The Successor period in the following tables reflects our selected financial data for the period following the acquisition of certain assets from the Acquisition through the end of the 2012 fiscal year, and the Predecessor period in the following tables reflects our selected financial data for the periods prior to the Acquisition.

 

    Successor          Predecessor  
    Three Months Ended
March  31,
    Year Ended
December 31,
2012
    Period
from
June 28,
2011
through
December  31,
2011
         Period
from

January  1,
2011

through
June  27,
2011
    Year Ended December 31,  
    2013     2012                2010     2009     2008  
(in thousands)   (unaudited)     (unaudited)                                  (unaudited)     (unaudited)  

Revenue

                   

Rental income

  $ 221,867      $ 218,270      $ 882,848      $ 445,211          $ 428,371      $ 875,244      $ 901,363      $ 953,902   

Expense reimbursements

    61,955        58,778        235,386        116,746            119,416        238,300        242,908        261,360   

Other revenue

    3,251        3,559        11,458        5,713            8,054        16,325        20,502        20,580   
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    287,073        280,607        1,129,692        567,670            555,841        1,129,869        1,164,773        1,235,842   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

   

 

 

   

 

 

 
 

Operating expenses

                   

Operating costs

    31,899        32,244        126,403        63,152            68,471        128,888        129,908        149,386   

Real estate taxes

    43,962        41,133        163,742        81,361            80,292        166,183        167,637        160,487   

Depreciation and amortization