Brixmor Property Group said Monday that three top insiders — including CFO Michael Pappagallo — had resigned after an internal review uncovered irregularities in its financial statements.
Shares in the shopping center owner and operator, which was taken public by Blackstone Group in 2013, tumbled more than 21% on news of the resignations of Pappagallo, CEO Michael Carroll, and chief accounting officer Steven Splain.
The internal 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 quarterly same property net operating income growth,” Brixmor said in a news release.
The company believes it will not be required to restate its financial results because the amounts involved were not material and that the matter will not affect its compliance with the financial covenants in its debt agreements.
Raider Hill Advisors LLC founder Daniel Hurwitz was named interim chief executive. “We are fortunate to be able to bring in a seasoned real estate executive of Dan Hurwitz’s caliber, who can lead the company through this period and effectively manage our portfolio as we move to identify a new CEO and CFO,” Brixmor said.
But Standard & Poor’s put Brixmor’s credit ratings on watch for a cut to below investment grade, saying there was a possibility for “other accounting issues to arise.”
The resignations are “a complete shock,” Alexander Goldfarb, an analyst at Sandler O’Neill & Partners, told Bloomberg. “The hard thing to get your head around is that these really well-respected managers would risk everything to fudge” these numbers.
CFO interviewed Pappagallo last July, when he discussed how Brixmor positions the simplicity of its business model and strategy as a centerpiece of its appeal to investors.
In its release on Monday, Brixmor said the review by its audit committee began in late December after the company received information through its established compliance processes.
“The board is disappointed to have learned of the conduct and lack of appropriate management supervision uncovered as a result of the audit committee review,” chairman John Schreiber said.
Brixmor owns 518 properties from California to Maine, with retailers TJX Cos. and Kroger among its major tenants. Pappagallo was appointed CFO in May 2013 after previously serving as chief operating officer of Kimco Realty Corp.