- CEO Carroll, CFO Pappagallo among employees who left Brixmor
- Shopping-center landlord's stock has biggest decline on record
Brixmor Property Group Inc. shares plunged after Chief Executive Officer Michael Carroll and two other executives resigned following a discovery by the company’s audit committee that employees were “smoothing” income to make quarterly results more consistent.
The New York-based shopping-center landlord named Daniel Hurwitz, former CEO of DDR Corp., interim CEO. He also will be appointed to the company’s board of directors, Brixmor said in a statement Monday.
The changes follow a review that began when the company received information in late December through its compliance process. “The review led the board to conclude that specific company accounting and financial reporting personnel, in certain instances, were smoothing income items, both up and down, between reporting periods in an effort to achieve consistent” net operating income results, Brixmor said in the statement. Blackstone Group LP, the company’s largest shareholder, took Brixmor public in October 2013 after acquiring properties from Australia’s debt-laden Centro Properties Group for about $9 billion in 2011.
The resignations are “a complete shock,” said Alexander Goldfarb, an analyst at Sandler O’Neill & Partners LP in New York who downgraded Brixmor’s shares to hold from buy. “The hard thing to get your head around is that these really well-respected managers would risk everything to fudge” these numbers.
Brixmor shares dropped 20 percent to $21.10, their biggest decline on record.
Among the employees who resigned were Chief Financial Officer Michael Pappagallo and Chief Accounting Officer Steven Splain, along with an unidentified accounting employee. Brixmor said it doesn’t expect to have to restate its historical financial results. The company, which was slated to publish fourth-quarter earnings results Monday, rescheduled its release for Feb. 29.
“The issues addressed in the press release are unrelated to any asset-level performance,” Hurwitz said Monday on a conference call to address the resignations. “It’s important to keep in mind that the strength and the quality of the portfolio is unchanged. The tenant performance at the assets and credit quality of cash flow is unaffected.”
Standard & Poor’s put Brixmor’s credit rating on watch for a cut to below investment grade, citing the possibility that additional infractions may come to light. RBC Capital Markets downgraded Brixmor’s shares to underperform from outperform, while Wells Fargo Securities cut them to market perform from outperform. KeyBanc Capital Markets Inc. and SunTrust Robinson Humphrey analysts also lowered their ratings on Brixmor.