IPO Preview: Brixmor Property Group

Oct.30.13 | About: Brixmor Property (BRX)

Based in New York, NY, Brixmor Property Group (NYSE:BRX) scheduled a $750 million IPO with a market capitalization of $5.9 billion at a price mid-point of $20 for Wednesday, October 30, 2013.

Nine operating company IPOs are scheduled for this week. The full IPO calendar can be found at IPOpremium.

S-11/A filed October 17, 2013.

Manager, Joint Managers: BofA Merrill Lynch, Citi, J.P. Morgan, Wells Fargo Securities, Barclays, Deutsche Bank, RBC Capital Markets and UBS Investment Bank.
Co-Managers: Blackstone Capital Markets, Evercore Partners, KeyBanc Capital Markets, Mitsubishi UFJ Securities, PNC Capital Markets, Sandler O'Neill, Stifel, SunTrust Robinson Humphrey

Summary

BRX is a Blackstone (NYSE:BX) sponsored neighborhood shopping center REIT.

Valuation

Valuation Ratios

Mrkt

Price /

Price /

Price /

% offered

annualizing June 6 mos

Cap (MM)

Sls

Yield

BkVlue

TanBV

in IPO

Brixmor Property Group

$5,880

4.9

4.00%

2.0

2.2

13%

Valuation Ratios

Mrkt

Price /

Price /

Price /

annualizing June 6 mos

Cap

Sls

Yield

BkVlue

TanBV

Sorted by yield

Simon Property Group (NYSE:SPG)

$49,500

10.1

2.89%

8.5

8.5

Equity One (NYSE:EQY)

$2,840

8.4

3.70%

2.0

2.2

Brixmor Property Group

$5,880

4.9

4.00%

2.0

2.2

Retail Properties of America (NYSE:RPAI)

$4,100

7.3

4.69%

1.7

1.8

Realty Income (NYSE:O)

$9,050

12.7

5.34%

1.8

2.2

Click to enlarge

Sorting by yields, BRX is in the middle, RX has the lowest price-to-sales ratio and the price-to-book value is in range.

Glossary

Conclusion

BRX is refurbishing its properties and expects to increase rents and occupancy, somewhat similar to Empire State Realty Trust (NYSE:ESRT).

The rating on BRX is neutral to slightly positive. Neutral because REITs often trade around their IPO price for a while, slightly positive because over time looks like the yield can be increased.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above:

Business

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. BRX's IPO Portfolio is comprised of 522 shopping centers totaling about 87 million square feet of GLA. 521 of these shopping centers are 100% owned.

Its high quality national portfolio is well diversified by geography, tenancy and retail format, with more than 70% of its shopping centers anchored by market-leading grocers.

The 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").

BRX's 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.

Acquisition

On February 28, 2011, BRX agreed to purchase certain United States assets and management platform of Centro Properties Group and its managed funds. On June 28, 2011, the Acquisition was consummated for $9.0 billion, net of cash acquired of $0.1 billion. The consideration for the Acquisition included $1.2 billion in cash and $7.8 billion of assumed indebtedness.

Recent history

Since the Sponsor Contract Date, BRX invested $339 million of primarily revenue-generating capital in assets in order to both drive leasing and fund 43 value-creating redevelopment projects.

Facilitated by this capital investment, since the Sponsor Contract Date, BRX has executed 1,682 new leases in its IPO Portfolio for an aggregate of approximately 8.5 million sq. ft., including 192 new anchor leases for spaces of at least 10,000 sq. ft., of which 92 were new leases for spaces of at least 20,000 sq. ft.

BRX believes that anchor leasing is a critical driver of further growth in occupancy rate, as well as in leasing spreads for renewal leases.

Recent Developments

The IPO Portfolio has continued to grow in recent months. Total occupancy of the IPO Portfolio increased from 91.6% at June 30, 2013 to 92.1% with total ABR/SF of $11.87 at September 30, 2013.

Year to date through September 30, 2013, BRX executed 588 new leases for 2.6 million sq. ft. of GLA and have achieved positive blended lease spreads of 9%, including new and renewal lease spreads of 32% and 7%, respectively.

For the quarter ended September 30, 2013, BRX executed 217 new leases for 975,000 sq. ft. of GLA and have achieved positive blended lease spreads of 12%, including new and renewal lease spreads of 51% and 8%, respectively.

At September 30, 2013, the IPO portfolio contained 267 leases that were signed but not yet commenced, representing $23 million of contractually obligated ABR.

Additionally, as of September 30, 2013, BRX has 188 new leases in the IPO Portfolio pipeline totaling 1.3 million sq. ft. of GLA with an average ABR/SF of $14.57.

Embedded Internal Growth Opportunity

BRX's Same Property Portfolio delivered same property NOI growth of 3.8% and 4.2% during the year ended December 31, 2012 and the six months ended June 30, 2013, respectively, which exceeded the peer average of 3.2% and 3.5% for the year ended December 31, 2012 and the six months ended June 30, 2013, respectively, in each case in comparison to the corresponding prior year period.

Distribution policy

BRX intends to distribute $.20 per quarter, $.80 per year, which is a 4% annual yield at the mid-range price point of $20.

5% stockholders pre-IPO

Blackstone, 80%
Centerbridge, 6%

Blackstone is one of the world's leading investment and advisory firms.

Use of proceeds

BRX expects to net $703 million from its IPO. Proceeds are allocated to buy shares in a subsidiary, and those proceeds will be used to repay debt.

Disclaimer: This BRX IPO report is based on a reading and analysis of BRX's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.