Brixmor Property Group Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and the accompanying notes thereto. Historical results and percentage relationships set forth in the unaudited Condensed Consolidated Financial Statements and accompanying notes, including trends which might appear, should not be taken as indicative of future operations. Executive Summary Our Company Brixmor Property Group Inc. and subsidiaries (collectively, the “Parent Company” or “BPG”) is an internally-managed real estate investment trust (“REIT”). Brixmor Operating Partnership LP and subsidiaries (collectively, the “Operating Partnership”) is the entity through which the Parent Company conducts substantially all of its operations and owns substantially all of its assets. BPG owns 100% of the common stock of BPG Subsidiary Inc. (“BPG Sub”), which, in turn, is the sole member of Brixmor OP GP LLC (the “General Partner”), the sole general partner of the Operating Partnership. Unless stated otherwise or the context otherwise requires, “we,” “our,” and “us” mean BPG and the Operating Partnership, collectively. We believe we own and operate one of the largest open-air retail portfolios by gross leasable area (“GLA”) in the United States (“U.S.”), comprised primarily of community and neighborhood shopping centers. As of September 30, 2020, our portfolio was comprised of 395 shopping centers (the “Portfolio”) totaling approximately 69 million square feet of GLA. Our high-quality national Portfolio is primarily located within established trade areas in the top 50 Metropolitan Statistical Areas (“MSAs”) in the U.S., and our shopping centers are primarily anchored by non-discretionary and value-oriented retailers, as well as consumer-oriented service providers. As of September 30, 2020, our three largest tenants by annualized base rent (“ABR”) were The TJX Companies, Inc. (“TJX”), The Kroger Co. (“Kroger”), and Dollar Tree Stores, Inc. The Parent Company has been organized and operated in conformity with the requirements for qualification and taxation as a REIT under U.S. federal income tax laws, commencing with our taxable year ended December 31, 2011, has maintained such requirements through our taxable year ended December 31, 2019, and intends to satisfy such requirements for subsequent taxable years. Our primary objective is to maximize total returns to our stockholders through consistent, sustainable growth in cash flow. Our key strategies to achieve this objective include proactively managing our Portfolio to drive internal growth, pursuing value-enhancing reinvestment opportunities and prudently executing on acquisition and disposition activity, while also maintaining a flexible capital structure positioned for growth. In addition, as we execute on our key strategies, we do so guided by a commitment to be socially responsible as we realize our goal of owning and managing properties that are the centers of the communities we serve. We believe the following set of competitive advantages positions us to successfully execute on our key strategies: • Expansive Retailer Relationships – We believe that the scale of our asset base and our nationwide footprint represent competitive advantages in supporting the growth objectives of the nation’s largest and most successful retailers. We believe that we are one of the largest landlords by GLA to TJX and Kroger, as well as a key landlord to most major grocers and retail category leaders. We believe that our strong relationships with leading retailers afford us unique insight into their strategies and priority access to their expansion plans. • Fully-Integrated Operating Platform – We manage a fully-integrated operating platform, leveraging our national scope and demonstrating our commitment to operating with a strong regional and local presence. We provide our tenants with dedicated service through both our national accounts leasing team based in New York and our network of four regional offices in Atlanta, Chicago, Philadelphia and San Diego, as well as our 11 leasing and property management satellite offices throughout the country. We believe that this structure enables us to obtain critical national market intelligence, while also benefitting from the regional and local expertise of our leasing and operations team. • Experienced Management – Senior members of our management team are seasoned real estate operators with extensive public company leadership experience. Our management team has deep industry knowledge and well-established relationships with retailers, brokers and vendors through many years of operational and transactional experience, as well as significant capital markets capabilities and expertise in executing value-enhancing reinvestment opportunities. 30 Factors That May Influence Our Future Results We derive our rental income primarily from base rent and expense reimbursements paid by tenants to us under existing leases at each of our properties. Expense reimbursements primarily consist of payments made by tenants to us for their proportionate share of property operating expenses, including common area expenses, utilities, insurance and real estate taxes, and certain capital expenditures related to the maintenance of our properties. Our ability to maintain or increase rental income is primarily dependent on our ability to maintain or increase rental rates, renew expiring leases and/or lease available space. Increases in our property operating expenses, including repairs and maintenance, landscaping, snow removal, security, ground rent related to properties for which we are the lessee, utilities, insurance, real estate taxes and various other costs, to the extent they are not reimbursed by tenants or offset by increases in rental income, will adversely impact our overall performance. See “Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q for the factors that could affect our rental income and/or property operating expenses. As discussed below and in “Part II - Item 1A. Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q, the COVID-19 pandemic is significantly impacting many of these factors. Impacts on Business from COVID-19 The global outbreak of a novel strain of coronavirus (“COVID-19”) and the public health measures that have been undertaken in response have had a significant adverse impact on our business, our tenants and the global economy. The effects of COVID-19, including related government restrictions, border closings, quarantines, “shelter-in-place” orders and “social distancing” guidelines, have forced many of our tenants to close stores, reduce hours or significantly limit service, and have resulted in a dramatic increase in national unemployment and a significant economic contraction. Since we cannot estimate when the COVID-19 pandemic and the responsive measures to combat it will end, we cannot estimate the ultimate operational and financial impact of COVID-19 on our business. Approximately 70% of our shopping centers are anchored by grocery stores. Grocery stores and other essential tenants have remained open throughout this time and many have experienced stable or increased sales, which we believe will help to partially mitigate the adverse impact of COVID-19 on our business. COVID-19 has significantly impacted our operations during the second and third quarters of 2020, and the following operating trends, combined with macroeconomic trends such as significantly increased unemployment and changes in consumer spending, lead us to believe that our operating results for 2020 and 2021 will continue to be adversely affected by COVID-19. The following table presents information related to rent collection and store closures: As of October 30, 2020 Second Quarter 2020 Billed Base Rent Collected Third Quarter 2020 Billed Base Rent Collected Portfolio Composition By ABR Percent of ABR Currently Closed Essential retailers (1) 99 % 99 % 34 % 0 % Hybrid retailers (2) 82 % 88 % 25 % 4 % Other retailers or services (3) 65 % 80 % 41 % 5 % Weighted average 81 % 88 % 3 % (1) Businesses deemed necessary for day-to-day living. (2) Businesses deemed necessary for day-to-day living, but operating in a moderated capacity, and businesses deemed necessary for day-to-day living in many, but not all jurisdictions. (3) Businesses deemed non-essential for day-to-day living. • Timing of rental payments: Certain tenants experiencing economic difficulties during this pandemic have sought rent relief, which has been provided on a case-by-case basis primarily in the form of rent deferrals, and in more limited cases in the form of rent abatements. Rent deferrals have significantly increased our Receivables, net. We are in ongoing discussions with our tenants regarding rent that has not yet been collected or addressed through executed deferral or abatement agreements. • Leasing activity: While lease execution velocity notably slowed in the second quarter of 2020, it has since recovered to levels similar to those experienced in prior periods. 31 We have taken various steps to mitigate the impact of COVID-19 on our liquidity, including the deferral of approximately $100.0 million of capital expenditures originally anticipated in 2020 and the temporary suspension of our quarterly cash dividend for the second and third quarters of 2020. In June 2020 and August 2020, we issued an aggregate of $800.0 million principal amount of 4.050% Senior Notes due 2030, the net proceeds of which were used to repurchase a portion of our 3.875% Senior Notes due 2022, repay outstanding indebtedness under our $1.25 billion revolving credit facility (the “Revolving Facility”), and for general corporate purposes. As of October 30, 2020, we have approximately $660.0 million in cash, approximately $1.2 billion of remaining availability under the Revolving Facility, and no debt maturities until 2022. In addition, we have encouraged our tenants whose businesses have been impacted by COVID-19 to explore their eligibility for benefits under government assistance programs intended to provide financial support to affected businesses; the ultimate impact of such assistance on our tenants, however, is not yet clear. We expect the significance of the COVID-19 crisis and the resulting economic slowdown on our financial and operational results to be dictated by, among other things, the scope, severity and duration of the pandemic, the speed and effectiveness of vaccine and treatment developments, the direct and indirect economic effects of the pandemic and containment measures, and potential changes in consumer behavior. Adverse developments related to these conditions could increase the number of tenants that close their stores, that are unable to meet their lease obligations to us, and/or that file for bankruptcy protection, and could limit the demand for space from new tenants. These uncertainties make it difficult to predict operating results for our Portfolio for the remainder of 2020 and 2021. Therefore, there can be no assurances that we will not experience declines in revenues, net income or funds from operations, which could be material. See “Part II – Item 1A. Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q for additional information. Leasing Highlights As of September 30, 2020, billed and leased occupancy were 88.0% and 91.2%, respectively, as compared to 88.6% and 91.9%, respectively, as of September 30, 2019. The following table summarizes our executed leasing activity for the three months ended September 30, 2020 and 2019 (dollars in thousands, except for per square foot (“PSF”) amounts): For the Three Months Ended September 30, 2020 Leases GLA New ABR PSF Tenant Improvements and Allowances PSF Third Party Leasing Commissions PSF Rent Spread (1) New, renewal and option leases 418 3,155,433 $ 14.20 $ 2.55 $ 1.08 6.1 % New and renewal leases 368 2,152,872 15.53 3.71 1.58 5.7 % New leases 103 683,517 16.22 10.05 4.94 14.1 % Renewal leases 265 1,469,355 15.21 0.76 0.01 4.5 % Option leases 50 1,002,561 11.35 0.07 — 7.1 % For the Three Months Ended September 30, 2019 Leases GLA New ABR PSF Tenant Improvements and Allowances PSF Third Party Leasing Commissions PSF Rent Spread (1) New, renewal and option leases 509 3,623,347 $ 13.95 $ 6.92 $ 1.38 11.1 % New and renewal leases 438 2,252,432 16.63 11.12 2.22 13.3 % New leases 160 948,964 15.63 23.97 5.07 30.5 % Renewal leases 278 1,303,468 17.36 1.77 0.15 9.4 % Option leases 71 1,370,915 9.55 — — 6.5 % (1) Based on comparable leases only, which consist of new leases signed on units that were occupied within the prior 12 months and renewal leases signed with the same tenant in all or a portion of the same location or that include the expansion into space that was occupied within the prior 12 months. Excludes leases executed for terms of less than one year. ABR PSF includes the GLA of lessee-owned leasehold improvements. 32 The following table summarizes our executed leasing activity for the nine months ended September 30, 2020 and 2019 (dollars in thousands, except for per square foot (“PSF”) amounts): For the Nine Months Ended September 30, 2020 Leases GLA New ABR PSF Tenant Improvements and Allowances PSF Third Party Leasing Commissions PSF Rent Spread (1) New, renewal and option leases 1,035 7,344,267 $ 13.89 $ 3.23 $ 1.11 7.2 % New and renewal leases 886 4,839,357 15.17 4.87 1.68 7.1 % New leases 281 1,695,732 15.47 12.52 4.73 19.6 % Renewal leases 605 3,143,625 15.01 0.74 0.04 4.5 % Option leases 149 2,504,910 11.41 0.07 — 7.4 % For the Nine Months Ended September 30, 2019 Leases GLA New ABR PSF Tenant Improvements and Allowances PSF Third Party Leasing Commissions PSF Rent Spread (1) New, renewal and option leases 1,360 10,107,597 $ 13.82 $ 6.88 $ 1.44 10.9 % New and renewal leases 1,155 6,188,294 15.93 11.20 2.34 13.3 % New leases 483 2,669,762 16.42 23.75 5.27 31.0 % Renewal leases 672 3,518,532 15.56 1.68 0.12 8.3 % Option leases 205 3,919,303 10.48 0.05 — 7.2 % (1) Based on comparable leases only, which consist of new leases signed on units that were occupied within the prior 12 months and renewal leases signed with the same tenant in all or a portion of the same location or that include the expansion into space that was occupied within the prior 12 months. Excludes leases executed for terms of less than one year. ABR PSF includes the GLA of lessee-owned leasehold improvements. Acquisition Activity • During the nine months ended September 30, 2020, we acquired two land parcels for $3.4 million, including transaction costs. • During the nine months ended September 30, 2019, we acquired two shopping centers, two leases at an existing shopping center and one land parcel for an aggregate purchase price of $79.6 million, including transaction costs. Disposition Activity • During the nine months ended September 30, 2020, we disposed of eight shopping centers, three partial shopping centers and one land parcel for aggregate net proceeds of $81.9 million resulting in aggregate gain of $21.3 million and aggregate impairment of $6.0 million. In addition, during the nine months ended September 30, 2020, we received aggregate net proceeds of $1.0 million and resolved contingencies of $0.5 million from previously disposed assets resulting in aggregate gain of $1.5 million. • During the nine months ended September 30, 2019, we disposed of 18 shopping centers and four partial shopping centers for aggregate net proceeds of $239.4 million resulting in aggregate gain of $46.0 million and aggregate impairment of $14.4 million. In addition, during the nine months ended September 30, 2019, we received aggregate net proceeds of $0.4 million from previously disposed assets resulting in aggregate gain of $0.3 million. Results of Operations The results of operations discussion is combined for BPG and the Operating Partnership because there are no material differences in the results of operations between the two reporting entities. 33 Comparison of the Three Months Ended September 30, 2020 to the Three Months Ended September 30, 2019 Revenues (in thousands) Three Months Ended September 30, 2020 2019 $ Change Revenues Rental income $ 253,799 $ 292,732 $ (38,933) Other revenues 136 233 (97) Total revenues $ 253,935 $ 292,965 $ (39,030) Rental income The decrease in rental income for the three months ended September 30, 2020 of $38.9 million, as compared to the corresponding period in 2019, was due to a $7.3 million decrease in rental income due to net disposition activity and a $31.6 million decrease for the remaining portfolio. The decrease for the remaining portfolio was due to (i) a $19.3 million increase in revenues deemed uncollectible; (ii) a $9.8 million decrease in straight-line rental income, net; (iii) a $1.5 million decrease in expense reimbursements; (iv) a $1.2 million decrease in base rent; (v) a $0.4 million decrease in percentage rents; (vi) a $0.2 million decrease in ancillary and other rental income; and (vii) a $0.2 million decrease in accretion of above- and below-market leases and tenant inducements, net; partially offset by (viii) a $1.0 million increase in lease termination fees. The increase in revenues deemed uncollectible and decrease in straight-line rental income, net were primarily attributable to COVID-19. The $1.2 million decrease in base rent for the remaining portfolio was primarily due to COVID-19 rent deferrals accounted for as lease modifications and rent abatements, partially offset by contractual rent increases, an increase in weighted average billed occupancy, and positive rent spreads for new and renewal leases and option exercises of 7.2% during the nine months ended September 30, 2020 and 10.9% during the year ended December 31, 2019. Other revenues Other revenues remained generally consistent for the three months ended September 30, 2020 as compared to the corresponding period in 2019. Operating Expenses (in thousands) Three Months Ended September 30, 2020 2019 $ Change Operating expenses Operating costs $ 24,794 $ 29,573 $ (4,779) Real estate taxes 42,124 43,688 (1,564) Depreciation and amortization 87,488 82,837 4,651 Impairment of real estate assets 5,746 8,170 (2,424) General and administrative 27,748 24,550 3,198 Total operating expenses $ 187,900 $ 188,818 $ (918) Operating costs The decrease in operating costs for the three months ended September 30, 2020 of $4.8 million, as compared to the corresponding period in 2019, was primarily due to a $1.0 million decrease in operating costs due to net disposition activity and a $3.8 million decrease for the remaining portfolio primarily due to proactive cost reductions taken in response to COVID-19 and favorable insurance captive adjustments. Real estate taxes The decrease in real estate taxes for the three months ended September 30, 2020 of $1.6 million, as compared to the corresponding period in 2019, was primarily due to a $1.0 million decrease in real estate taxes due to net disposition activity and a $0.6 million decrease for the remaining portfolio primarily due to decreases in assessments from several jurisdictions. Depreciation and amortization The increase in depreciation and amortization for the three months ended September 30, 2020 of $4.7 million, as compared to the corresponding period in 2019, was primarily due to a $2.2 million decrease in depreciation and amortization due to net disposition activity, offset by a $6.9 million increase for the remaining portfolio primarily 34 related to tenant write-offs and value-enhancing reinvestment capital expenditures, partially offset by a decrease in depreciation and amortization for the remaining portfolio related to acquired in-place lease intangibles. Impairment of real estate assets During the three months ended September 30, 2020, aggregate impairment of $5.7 million was recognized on one shopping center as a result of disposition activity and one operating property. During the three months ended September 30, 2019, aggregate impairment of $8.2 million was recognized on three shopping centers and one partial shopping center as a result of disposition activity. Impairments recognized were due to changes in anticipated hold periods in connection with our capital recycling program. General and administrative The increase in general and administrative costs for the three months ended September 30, 2020 of $3.2 million, as compared to the corresponding period in 2019, was primarily due to an increase in litigation and other non-routine legal expenses, partially offset by a decrease in professional and travel costs due to COVID-19. During the three months ended September 30, 2020 and 2019, construction compensation costs of $3.8 million and $3.8 million, respectively, were capitalized to building and improvements and leasing legal costs of $0.1 million and $0.0 million, respectively and leasing commission costs of $1.4 million and $1.6 million, respectively, were capitalized to deferred charges and prepaid expenses, net. Other Income and Expenses (in thousands) Three Months Ended September 30, 2020 2019 $ Change Other income (expense) Dividends and interest $ 109 $ 128 $ (19) Interest expense (50,991) (47,698) (3,293) Gain on sale of real estate assets 13,621 25,621 (12,000) Loss on extinguishment of debt, net (50) (943) 893 Other (780) (401) (379) Total other expense $ (38,091) $ (23,293) $ (14,798) Dividends and interest Dividends and interest remained generally consistent for the three months ended September 30, 2020 as compared to the corresponding period in 2019. Interest expense The increase in interest expense for the three months ended September 30, 2020 of $3.3 million, as compared to the corresponding period in 2019, was primarily due to higher overall debt obligations as we bolstered liquidity in response to COVID-19. Gain on sale of real estate assets During the three months ended September 30, 2020, two shopping centers, one partial shopping center and one land parcel were disposed resulting in aggregate gain of $13.1 million. In addition, during the three months ended September 30, 2020, we received aggregate net proceeds of less than $0.1 million and resolved contingencies of $0.1 million from previously disposed assets resulting in aggregate gain of $0.1 million, and we received final insurance proceeds related to two shopping centers that were damaged by Hurricane Michael resulting in aggregate gain of $0.4 million. During the three months ended September 30, 2019, nine shopping centers were disposed resulting in aggregate gain of $25.5 million. In addition, during the three months ended September 30, 2019, we received aggregate net proceeds of $0.1 million from previously disposed assets resulting in aggregate gain of $0.1 million. Loss on extinguishment of debt, net During the three months ended September 30, 2020, we repurchased $0.7 million of our 3.875% Senior Notes due 2022 through a tender offer, resulting in a $0.1 million loss on extinguishment of debt, net. Loss on extinguishment of debt, net includes less than $0.1 million of prepayment fees and less than $0.1 million of accelerated unamortized 35 debt issuance costs and debt discounts. During the three months ended September 30, 2019, we repaid $300.0 million of an unsecured term loan under our senior unsecured credit facility agreement, as amended April 29, 2020 (the “Unsecured Credit Facility”), resulting in a $0.9 million loss on extinguishment of debt due to the acceleration of unamortized debt issuance costs. Other The increase in other expense for the three months ended September 30, 2020 of $0.4 million, as compared to the corresponding period in 2019, was primarily due to favorable tax adjustments in the prior year. Comparison of the Nine Months Ended September 30, 2020 to the Nine Months Ended September 30, 2019 Revenues (in thousands) Nine Months Ended September 30, 2020 2019 $ Change Revenues Rental income $ 781,635 $ 873,424 $ (91,789) Other revenues 2,221 1,685 536 Total revenues $ 783,856 $ 875,109 $ (91,253) Rental income The decrease in rental income for the nine months ended September 30, 2020 of $91.8 million, as compared to the corresponding period in 2019, was due to a $23.7 million decrease in rental income due to net disposition activity and a $68.1 million decrease for the remaining portfolio. The decrease for the remaining portfolio was due to (i) a $47.7 million increase in revenues deemed uncollectible; (ii) a $29.4 million decrease in straight-line rental income, net; (iii) a $2.4 million decrease in percentage rents; (iv) a $1.3 million decrease in accretion of above- and below-market leases and tenant inducements, net; (v) a $0.5 million decrease in ancillary and other rental income; and (vi) a $0.1 million decrease in expense reimbursements; partially offset by (vii) an $11.2 million increase in base rent; and (viii) a $2.1 million increase in lease termination fees. The increase in revenues deemed uncollectible and decrease in straight-line rental income, net were primarily attributable to COVID-19. The $11.2 million increase in base rent for the remaining portfolio was primarily due to contractual rent increases, an increase in weighted average billed occupancy, and positive rent spreads for new and renewal leases and option exercises of 7.2% during the nine months ended September 30, 2020 and 10.9% during the year ended December 31, 2019, partially offset by COVID-19 rent deferrals accounted for as lease modifications and rent abatements. Other revenues The increase in other revenues for the nine months ended September 30, 2020 of $0.5 million, as compared to the corresponding period in 2019, was primarily due to an increase in tax increment financing income. Operating Expenses (in thousands) Nine Months Ended September 30, 2020 2019 $ Change Operating expenses Operating costs $ 80,286 $ 90,138 $ (9,852) Real estate taxes 126,796 130,203 (3,407) Depreciation and amortization 251,334 249,825 1,509 Impairment of real estate assets 16,306 17,468 (1,162) General and administrative 74,781 75,168 (387) Total operating expenses $ 549,503 $ 562,802 $ (13,299) Operating costs The decrease in operating costs for the nine months ended September 30, 2020 of $9.9 million, as compared to the corresponding period in 2019, was primarily due to a $3.0 million decrease in operating costs due to net disposition activity and a $6.9 million decrease for the remaining portfolio primarily due to proactive cost reductions taken in response to COVID-19 and favorable insurance captive adjustments. 36 Real estate taxes The decrease in real estate taxes for the nine months ended September 30, 2020 of $3.4 million, as compared to the corresponding period in 2019, was primarily due to a $3.2 million decrease in real estate taxes due to net disposition activity and a $0.2 million decrease for the remaining portfolio primarily due to an increase in capitalized real estate taxes. Depreciation and amortization The increase in depreciation and amortization for the nine months ended September 30, 2020 of $1.5 million, as compared to the corresponding period in 2019, was primarily due to a $6.5 million decrease in depreciation and amortization due to net disposition activity, offset by an $8.0 million increase for the remaining portfolio primarily related to tenant write-offs and value-enhancing reinvestment capital expenditures, partially offset by a decrease in depreciation and amortization for the remaining portfolio related to acquired in-place lease intangibles. Impairment of real estate assets During the nine months ended September 30, 2020, aggregate impairment of $16.3 million was recognized on two shopping centers and one partial shopping center as a result of disposition activity and two operating properties. During the nine months ended September 30, 2019, aggregate impairment of $17.5 million was recognized on three shopping centers and one partial shopping center as a result of disposition activity and one operating property. Impairments recognized were due to changes in anticipated hold periods primarily in connection with our capital recycling program. General and administrative The decrease in general and administrative costs for the nine months ended September 30, 2020 of $0.4 million, as compared to the corresponding period in 2019, was primarily due to a decrease in marketing, professional and travel costs due to COVID-19 and a decrease in net compensation costs, partially offset by an increase in litigation and other non-routine legal expenses. During the nine months ended September 30, 2020 and 2019, construction compensation costs of $10.9 million and $10.7 million, respectively, were capitalized to building and improvements and leasing legal costs of $0.2 million and $0.0 million, respectively and leasing commission costs of $4.0 million and $4.5 million, respectively, were capitalized to deferred charges and prepaid expenses, net. Other Income and Expenses (in thousands) Nine Months Ended September 30, 2020 2019 $ Change Other income (expense) Dividends and interest $ 335 $ 575 $ (240) Interest expense (148,197) (142,839) (5,358) Gain on sale of real estate assets 23,218 46,266 (23,048) Loss on extinguishment of debt, net (10,441) (1,620) (8,821) Other (2,499) (1,975) (524) Total other expense $ (137,584) $ (99,593) $ (37,991) Dividends and interest The decrease in dividends and interest for the nine months ended September 30, 2020 of $0.2 million, as compared to the corresponding period in 2019, was primarily due to a $0.2 million decrease in investment income from marketable securities. Interest expense The increase in interest expense for the nine months ended September 30, 2020 of $5.4 million, as compared to the corresponding period in 2019, was primarily due to higher overall debt obligations as we bolstered liquidity in response to COVID-19. 37 Gain on sale of real estate assets During the nine months ended September 30, 2020, six shopping centers, two partial shopping centers and one land parcel were disposed resulting in aggregate gain of $21.3 million. In addition, during the nine months ended September 30, 2020, we received aggregate net proceeds of $1.0 million and resolved contingencies of $0.5 million from previously disposed assets resulting in aggregate gain of $1.5 million, and we received final insurance proceeds related to two shopping centers that were damaged by Hurricane Michael resulting in aggregate gain of $0.4 million. During the nine months ended September 30, 2019, 15 shopping centers and three partial shopping centers were disposed resulting in aggregate gain of $46.0 million. In addition, during the nine months ended September 30, 2019, we received aggregate net proceeds of $0.4 million from previously disposed assets resulting in aggregate gain of $0.3 million. Loss on extinguishment of debt, net During the nine months ended September 30, 2020, we repurchased $183.2 million of our 3.875% Senior Notes due 2022 through a tender offer and repaid our $7.0 million secured loan, resulting in a $10.4 million loss on extinguishment of debt, net. Loss on extinguishment of debt, net includes $9.7 million of prepayment fees and $0.7 million of accelerated unamortized debt issuance costs and debt discounts, net of premiums. During the nine months ended September 30, 2019, we repaid $500.0 million of an unsecured term loan under the Unsecured Credit Facility, resulting in a $1.6 million loss on extinguishment of debt due to the acceleration of unamortized debt issuance costs. Other The increase in other expense for the nine months ended September 30, 2020 of $0.5 million, as compared to the corresponding period in 2019, was primarily due to an increase in transaction expenses and favorable tax adjustments in the prior year. Liquidity and Capital Resources We anticipate that our cash flows from the sources listed below will provide adequate capital for the next 12 months and beyond for all anticipated uses, including all scheduled payments on our outstanding debt, current and anticipated tenant and other capital improvements, stockholder distributions to maintain our qualification as a REIT and other obligations associated with conducting our business. Our primary expected sources and uses of capital are as follows: Sources • cash and cash equivalent balances; • operating cash flow; • available borrowings under the Unsecured Credit Facility; • dispositions; • issuance of long-term debt; and • issuance of equity securities. Uses • maintenance capital expenditures; • leasing capital expenditures; • debt repayments; • dividend/distribution payments; • value-enhancing reinvestment capital expenditures; • acquisitions; and • repurchases of equity securities. We believe our current capital structure provides us with the financial flexibility and capacity to fund our current capital needs as well as future growth opportunities. We have access to multiple forms of capital, including secured 38 property level debt, unsecured corporate level debt, preferred equity, and common equity, which will allow us to efficiently execute on our strategic and operational objectives. We currently have investment grade credit ratings from all three major credit rating agencies. As of September 30, 2020, we had $1.2 billion of available liquidity under the Revolving Facility and $609.8 million in cash and cash equivalents. We intend to continue to enhance our financial and operational flexibility through the additional extension of the duration of our debt. As previously discussed under the header “Impacts on Business from COVID-19”, the COVID-19 pandemic has had, and we expect will continue to have, an adverse impact on our liquidity and capital resources. Future decreases in cash flow from operations resulting from rent deferrals, tenant defaults, or decreases in rental rates or occupancy, would decrease the cash available for the capital uses described above, including payment of dividends. The decline in our stock price since the onset of the pandemic has significantly decreased the likelihood of utilizing our at-the-market equity offering program in the near future. In June 2020 and August 2020, we issued an aggregate of $800.0 million principal amount of 4.050% Senior Notes due 2030, the net proceeds of which were used to repurchase a portion of our 3.875% Senior Notes due 2022, repay outstanding indebtedness under the Revolving Facility, and for general corporate purposes. However, the impacts of COVID-19 may increase risks related to the pricing and availability of future debt financing. In addition, a significant decline in our operating performance in the future could result in us not satisfying the financial covenants applicable to our debt and/or defaulting on our debt, which could impact our ability to incur additional debt, including the remaining capacity on our Revolving Facility. We have taken various steps to mitigate the impact of COVID-19 on our liquidity, including the deferral of approximately $100.0 million of capital expenditures originally anticipated in 2020 and the temporary suspension of our quarterly cash dividend for the second and third quarters of 2020. In addition, we have no debt maturities until 2022. However, since we do not know the ultimate severity, scope or duration of the pandemic, and thus cannot predict the impact it will ultimately have on our tenants and on the debt and equity capital markets, we cannot estimate the impact it will have on our liquidity and capital resources. In order to continue to qualify as a REIT for federal income tax purposes, we must distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains. We intend to continue to satisfy this requirement and maintain our REIT status. Cash dividends paid to common stockholders for the nine months ended September 30, 2020 and 2019 were $170.4 million and $251.3 million, respectively. In response to COVID-19, our Board of Directors temporarily suspended the dividend for the second and third quarters of 2020. In October 2020, our Board of Directors declared a quarterly cash dividend of $0.215 per common share for the fourth quarter of 2020. The dividend is payable on January 15, 2021 to shareholders of record on January 6, 2021. Our Board of Directors will reevaluate the dividend on a quarterly basis, taking into account a variety of relevant factors including REIT taxable income. Our cash flow activities are summarized as follows (dollars in thousands): Brixmor Property Group Inc . Nine Months Ended September 30, 2020 2019 Cash flows provided by operating activities $ 323,632 $ 399,933 Cash flows used in investing activities (140,254) (110,543) Cash flows provided by (used in) financing activities 406,319 (308,674) Brixmor Operating Partnership LP Nine Months Ended September 30, 2020 2019 Cash flows provided by operating activities $ 323,632 $ 399,933 Cash flows used in investing activities (140,254) (110,540) Cash flows provided by (used in) financing activities 396,321 (308,569) Cash and cash equivalents and restricted cash for BPG were $611.2 million and $31.5 million as of September 30, 2020 and 2019, respectively. Cash and cash equivalents and restricted cash for the Operating Partnership were $601.2 million and $31.5 million as of September 30, 2020 and 2019, respectively. 39 Operating Activities Net cash provided by operating activities primarily consists of cash inflows from tenant rental payments and expense reimbursements and cash outflows for property operating expenses, general and administrative expenses and interest expense. During the nine months ended September 30, 2020, our net cash provided by operating activities decreased $76.3 million as compared to the corresponding period in 2019. The decrease is primarily due to (i) a decrease from net working capital primarily due to decreased cash collection levels as a result of COVID-19; (ii) a decrease in net operating income due to net disposition activity; (iii) an increase in cash outflows for interest expense; and (iv) an increase in cash outflows for general and administrative expense; partially offset by (v) an increase in lease termination fees. Investing Activities Net cash used in investing activities is impacted by the nature, timing and magnitude of acquisition and disposition activity and improvements to and investments in our shopping centers, including capital expenditures associated with our value-enhancing reinvestment efforts. During the nine months ended September 30, 2020, our net cash used in investing activities increased $29.7 million as compared to the corresponding period in 2019. The increase was primarily due to (i) a decrease of $156.9 million in net proceeds from sales of real estate assets; and (ii) a $13.3 million decrease in net proceeds from sales of marketable securities, net of purchases; partially offset by (iii) a decrease of $76.2 million in acquisitions of real estate assets; and (iv) a decrease of $64.3 million in improvements to and investments in real estate assets. Improvements to and investments in real estate assets During the nine months ended September 30, 2020 and 2019, we expended $217.9 million and $282.2 million, respectively, on improvements to and investments in real estate assets. In addition, during the nine months ended September 30, 2020 and 2019, insurance proceeds of $7.3 million and $5.0 million, respectively, were received and included in improvements to and investments in real estate assets. Maintenance capital expenditures represent costs to fund major replacements and betterments to our properties. Leasing related capital expenditures represent tenant specific costs incurred to lease space, including tenant improvements and tenant allowances. In addition, we evaluate our Portfolio on an ongoing basis to identify value-enhancing reinvestment opportunities. Such initiatives are tenant driven and focus on upgrading our centers with strong, best-in-class retailers and enhancing the overall merchandise mix and tenant quality of our Portfolio. As of September 30, 2020, we had 54 in-process anchor space repositioning, redevelopment and outparcel development projects with an aggregate anticipated cost of $373.0 million, of which $198.1 million had been incurred as of September 30, 2020. Acquisitions of and proceeds from sales of real estate assets We continue to evaluate the market for acquisition opportunities and we may acquire shopping centers when we believe strategic opportunities exist, particularly where we can further concentrate our Portfolio in attractive retail submarkets and optimize the quality and long-term growth rate of our asset base. During the nine months ended September 30, 2020, we acquired two land parcels for $3.4 million, including transaction costs. During the nine months ended September 30, 2019, we acquired two shopping centers, two leases at an existing shopping center and one land parcel for an aggregate purchase price of $79.6 million, including transaction costs. We may also dispose of properties when we believe value has been maximized, where there is downside risk, or where we have limited ability or desire to build critical mass in a particular submarket. During the nine months ended September 30, 2020, we disposed of eight shopping centers, three partial shopping centers and one land parcel for aggregate net proceeds of $81.9 million. In addition, during the nine months ended September 30, 2020, we received aggregate net proceeds of $1.0 million from previously disposed assets. During the nine months ended September 30, 2019, we disposed of 18 shopping centers and four partial shopping centers for aggregate net proceeds of $239.4 million. In addition, during the nine months ended September 30, 2019, we received aggregate net proceeds of $0.4 million from previously disposed assets. 40 Financing Activities Net cash provided by (used in) financing activities is impacted by the nature, timing and magnitude of issuances and repurchases of debt and equity securities, as well as principal payments associated with our outstanding indebtedness and distributions made to our common stockholders. During the nine months ended September 30, 2020, our net cash provided by financing activities increased $715.0 million as compared to the corresponding period in 2019. The increase was primarily due to (i) a $657.7 million increase in debt borrowings, net of repayments; and (ii) an $80.9 million decrease in distributions to common stockholders; partially offset by (iii) a $12.3 million increase in repurchases of common stock; and (iv) an $11.3 million increase in deferred financing and debt extinguishment costs. The increase in debt borrowings is primarily related to net proceeds from the issuances of our 4.050% Senior Notes due 2030, net of the repurchases of a portion of our 3.875% Senior Notes due 2022. Contractual Obligations Our contractual obligations relate to our debt, including unsecured notes payable and unsecured credit facilities, with maturities ranging from one year to 10 years, in addition to non-cancelable operating leases pertaining to our ground leases and administrative office leases. The following table summarizes our debt maturities (excluding extension options), interest payment obligations (excluding debt premiums and discounts and deferred financing costs) and obligations under non-cancelable operating leases (excluding renewal options) as of September 30, 2020: Contractual Obligations (in thousands) Payment due by period 2020 2021 2022 2023 2024 Thereafter Total Debt (1) $ — $ — $ 566,849 $ 850,000 $ 800,000 $ 3,268,453 $ 5,485,302 Interest payments (2) 43,097 200,721 195,551 182,732 147,682 427,517 1,197,300 Operating leases 1,762 6,257 6,028 5,339 5,246 30,073 54,705 Total $ 44,859 $ 206,978 $ 768,428 $ 1,038,071 $ 952,928 $ 3,726,043 $ 6,737,307 (1) Debt includes scheduled maturities for unsecured notes payable and unsecured credit facilities. (2) As of September 30, 2020, we incur variable rate interest on (i) a $350.0 million term loan; (iii) a $300.0 million term loan; and (iv) $250.0 million of Floating Rate Senior Notes due 2022. We have in place seven interest rate swap agreements with an aggregate notional value of $800.0 million, which effectively convert variable interest payments to fixed interest payments. See Item 7A. “Quantitative and Qualitative Disclosures” in our annual report on Form 10-K for the year ended December 31, 2019 for a further discussion of these and other factors that could impact interest payments. Interest payments for these variable rate loans are presented using rates (including the impact of interest rate swaps) as of September 30, 2020. Non-GAAP Performance Measures We present the non-GAAP performance measures set forth below. These measures should not be considered as alternatives to, or more meaningful than, net income (calculated in accordance with GAAP) or other GAAP financial measures, as an indicator of financial performance and are not alternatives to, or more meaningful than, cash flow from operating activities (calculated in accordance with GAAP) as a measure of liquidity. Non-GAAP performance measures have limitations as they do not include all items of income and expense that affect operations, and accordingly, should always be considered as supplemental financial results to those calculated in accordance with GAAP. Our computation of these non-GAAP performance measures may differ in certain respects from the methodology utilized by other REITs and, therefore, may not be comparable to similarly titled measures presented by such other REITs. Investors are cautioned that items excluded from these non-GAAP performance measures are relevant to understanding and addressing financial performance. Funds From Operations NAREIT FFO (defined hereafter) is a supplemental, non-GAAP performance measure utilized to evaluate the operating and financial performance of real estate companies. The National Association of Real Estate Investment Trusts (“NAREIT”) defines funds from operations (“FFO”) as net income (loss), calculated in accordance with GAAP, excluding (i) depreciation and amortization related to real estate, (ii) gains and losses from the sale of certain real estate assets, (iii) gains and losses from change in control, (iv) impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of 41 depreciable real estate held by the entity and (v) after adjustments for unconsolidated joint ventures calculated to reflect FFO on the same basis. Considering the nature of our business as a real estate owner and operator, we believe that NAREIT FFO is useful to investors in measuring our operating and financial performance because the definition excludes items included in net income that do not relate to or are not indicative of our operating and financial performance, such as depreciation and amortization related to real estate, and items which can make periodic and peer analyses of operating and financial performance more difficult, such as gains and losses from the sale of certain real estate assets and impairment write-downs of certain real estate assets. Our reconciliation of net income to NAREIT FFO for the three and nine months ended September 30, 2020 and 2019 is as follows (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Net income $ 27,944 $ 80,854 $ 96,769 $ 212,714 Depreciation and amortization related to real estate 86,486 81,869 248,274 246,887 Gain on sale of real estate assets (13,621) (25,621) (23,218) (46,266) Impairment of real estate assets 5,746 8,170 16,306 17,468 NAREIT FFO $ 106,555 $ 145,272 $ 338,131 $ 430,803 NAREIT FFO per diluted share $ 0.36 $ 0.49 $ 1.14 $ 1.44 Weighted average diluted shares outstanding 296,862 298,879 297,317 298,927 Same Property Net Operating Income Same property net operating income (“NOI”) is a supplemental, non-GAAP performance measure utilized to evaluate the operating performance of real estate companies. Same property NOI is calculated (using properties owned for the entirety of both periods and excluding properties under development and completed new development properties which have been stabilized for less than one year) as total property revenues (base rent, expense reimbursements, adjustments for revenues deemed uncollectible, ancillary and other rental income, percentage rents and other revenues) less direct property operating expenses (operating costs and real estate taxes). Same property NOI excludes (i) corporate level expenses (including general and administrative), (ii) lease termination fees, (iii) straight-line rental income, net, (iv) accretion of above- and below-market leases and tenant inducements, net, (v) straight-line ground rent expense, and (vi) income (expense) associated with our captive insurance company. Considering the nature of our business as a real estate owner and operator, we believe that same property NOI is useful to investors in measuring the operating performance of our property portfolio because the definition excludes various items included in net income that do not relate to, or are not indicative of, the operating performance of our properties, such as depreciation and amortization and corporate level expenses (including general and administrative), and because it eliminates disparities in NOI due to the acquisition or disposition of properties or the stabilization of completed new development properties during the period presented and therefore provides a more consistent metric for comparing the operating performance of our real estate between periods. 42 Comparison of the Three and Nine Months Ended September 30, 2020 to the Three and Nine Months Ended September 30, 2019 Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 Change 2020 2019 Change Number of properties 392 392 — 389 389 — Percent billed 88.2 % 88.8 % (0.6 %) 88.3 % 89.0 % (0.7 %) Percent leased 91.4 % 92.2 % (0.8 %) 91.6 % 92.5 % (0.9 %) Revenues Rental income $ 249,043 $ 270,455 $ (21,412) $ 762,051 $ 797,971 $ (35,920) Other revenues 136 221 (85) 2,208 1,618 590 249,179 270,676 (21,497) 764,259 799,589 (35,330) Operating expenses Operating costs (25,701) (27,929) 2,228 (79,288) (84,546) 5,258 Real estate taxes (41,493) (42,018) 525 (123,350) (123,517) 167 (67,194) (69,947) 2,753 (202,638) (208,063) 5,425 Same property NOI $ 181,985 $ 200,729 $ (18,744) $ 561,621 $ 591,526 $ (29,905) The following table provides a reconciliation of net income to same property NOI for the periods presented (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Net income $ 27,944 $ 80,854 $ 96,769 $ 212,714 Adjustments: Non-same property NOI (3,366) (8,130) (12,461) (31,188) Lease termination fees (1,394) (423) (4,528) (2,706) Straight-line rental income, net 2,974 (6,831) 11,533 (18,051) Accretion of above- and below-market leases and tenant inducements, net (3,281) (3,622) (9,802) (11,391) Straight-line ground rent expense 35 31 105 94 Depreciation and amortization 87,488 82,837 251,334 249,825 Impairment of real estate assets 5,746 8,170 16,306 17,468 General and administrative 27,748 24,550 74,781 75,168 Total other expense 38,091 23,293 137,584 99,593 Same property NOI $ 181,985 $ 200,729 $ 561,621 $ 591,526 Inflation For the last several years inflation has been low and has had a minimal impact on the operating performance of our shopping centers; however, inflation may increase in the future. Most of our long-term leases contain provisions designed to mitigate the adverse impact of inflation, including contractual rent escalations and requirements for tenants to pay their proportionate share of property operating expenses, including common area expenses, utilities, insurance and real estate taxes, and certain capital expenditures related to the maintenance of our properties, thereby reducing our exposure to increases in property-level costs resulting from inflation. In addition, we believe that many of our existing rental rates are below current market rates for comparable space and that upon renewal or re-leasing, such rates may be increased to be consistent with, or closer to, current market rates. With respect to our outstanding indebtedness, we periodically evaluate our exposure to interest rate fluctuations, and may continue to enter into interest rate protection agreements which mitigate, but do not eliminate, the impact of changes in interest rates on our variable rate loans. Off-Balance Sheet Arrangements We had no material off-balance sheet arrangements as of September 30, 2020. 43 Item 3 . Quantitative and Qualitative Disclosures about Market Risk There have been no material changes from the quantitative and qualitative disclosures about market risk disclosed in Item 7A of Part II of our annual report on Form 10-K for the year ended December 31, 2019.