Fitch Rates Brixmor's $500MM Senior Unsecured Notes 'BBB-'

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned a 'BBB-' rating to the $500 million senior unsecured notes due 2023 issued by Brixmor Operating Partnership LP, the operating partnership of Brixmor Property Group, Inc. (NYSE: BRX). A full list of ratings follows at the end of this release.

KEY RATING DRIVERS

The 'BBB-' rating and Stable Outlook reflect BRX's large and diverse portfolio of 516 shopping centers and solid fixed charge coverage (FCC) and appropriate leverage for the rating level. These positive rating elements are offset by portfolio asset quality and unencumbered asset coverage of unsecured debt (UA/UD) that is moderately below its peers.

Leverage to Decline

Fitch expects BRX's leverage to improve to the mid-6x range by the end of 2018 through a combination of same store net operating income (SSNOI) growth, incremental net operating income (NOI) from redevelopments and retained cash flow. BRX's leverage (net debt as of June 30, 2016 divided by recurring operating EBITDA, including recurring cash distributions from joint ventures, but excluding non-cash above and below market lease income) was 7.0x.

Unencumbering Assets as Mortgages Mature

Brixmor's long-term goal is to have an entirely unencumbered portfolio. At June 30, 2016, 62.8% of the company's NOI was from unencumbered assets. The company has over $1 billion of mortgages maturing in the remainder of 2016 and 2017, and intends on repaying these mortgages with the proceeds from unsecured bond issuances.

Fitch expects BRX's unencumbered assets will cover its unsecured debt (UA/UD ratio) by approximately 1.8x over the rating horizon, based on the interplay between the company's asset unencumbrance plan and the related incremental unsecured borrowings.

Fitch calculates the company's UA/UD ratio was 1.7x at June 30, 2016. Fitch uses a direct capitalization approach of unencumbered property NOI (excluding non-cash rental revenues) assuming a stressed 8.5% capitalization rate. BRX's UA/UD is low for the 'BBB-' rating, as Fitch considers 2x coverage generally consistent with an investment-grade profile.

Improving FCC

Fitch expects BRX's FCC to sustain in the high 2.0x range through 2018, due to higher property NOI, partially offset by higher interest costs associated with refinancing lower cost variable rate and/or secured borrowings with higher cost fixed rate unsecured debt.

BRX's FCC was 3.1x and 3.0x for the quarter and trailing 12 months (TTM) ended June 30, 2016, compared to 2.9x and 2.4x for the years ended Dec. 31, 2015 and 2014, respectively. Fitch defines FCC as recurring operating EBITDA including recurring cash distributions from joint ventures less non-cash revenues and recurring capital expenditures divided by cash interest incurred.

Liquidity Surplus

BRX's base case liquidity coverage ratio is 1.6x pro forma for the bond offering. Liquidity coverage improves to 4.9x under a conservative mortgage refinancing approach whereby the company is only able to refinance 80% of upcoming mortgage maturities with new mortgages.

Fitch calculates liquidity coverage as sources (cash, availability under the unsecured revolving credit facility and retained cash flow from operations after dividends) divided by uses (debt maturities and recurring capital expenditures).

Simple Portfolio Management Story; Few Legacy Issues

BRX operates with a relatively straightforward business model that includes whole ownership of U.S.-based neighborhood and community shopping centers. The company has no material joint ventures and does not intend on making joint venture equity a focus of its growth strategy going forward.

BRX's external growth strategy will focus on anchor repositioning and redevelopment of its existing centers. The company does not plan on engaging in ground-up development and has no legacy stalled development projects to work through from the prior cycle.

Fitch has not provided for any property acquisitions in its projections, and only modest dispositions, targeting stabilized assets with fully-realized growth potential.

Below Peer Asset Quality

Fitch considers BRX's asset quality to be at or near the lower end of its publicly traded peers, based on the portfolio's current operating metrics, including per square foot lease signings, occupancy, surrounding population density and demographics.

Fitch expects BRX to continue the program of reinvestment in its properties started under Blackstone's ownership. Longer term, Fitch expects BRX to reduce its exposure to secondary and tertiary markets by selling assets and recycling capital into primary markets.

Although BRX's asset quality is below its publicly traded REIT peers, it compares favorably with the stock of U.S. retail properties, generally.

Blackstone Exits Brixmor Investment

Blackstone completed the sale of its remaining stake in BRX in June and August 2016. Blackstone representatives now hold just one of nine board seats. Blackstone previously held 77.2% of BRX, and five of nine board seats, subsequent to the company's fourth quarter 2013 IPO.

Stable Outlook

The Stable Outlook reflects Fitch's expectation that BRX's financial profile will remain appropriate for a 'BBB-' REIT during the rating horizon (typically one to two years). Fitch expects the company will reduce leverage from the low-7.0x range into the mid-6.0x range by 2018, which would be in line with a Positive Rating Outlook and/or higher rating.

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuer include:

--SSNOI growth of 2.6%, 2.7%, 2.6% in 2016 - 2018, respectively;

--No acquisitions during the forecast period; dispositions of $125 million in 2016;

--Approximately $100 million of capital spending per year related to re-tenanting and redevelopment initiatives;

--$140 million of maintenance and capitalized leasing costs from 2016 - 2018;

--$1.2 billion in contractual mortgage maturities from 2016 -2018 refinanced with unsecured debt;

--Unsecured debt issuance of $1.35 billion in both 2017 and 2018;

--No primary equity offerings.

RATING SENSITIVITIES

The following factors may collectively, or individually, result in positive ratings momentum for BRX:

--Fitch's expectation of leverage sustaining in the mid-6x range (leverage was 7.0x as of June 30, 2016);

--Fitch's expectation of fixed charge coverage sustaining above 2.3x (coverage was 3.0x for the TTM ended June 30, 2016);

--Fitch's expectation of unencumbered asset coverage of net unsecured debt sustaining above 2x (unencumbered assets - valued as 2Q16 annualized unencumbered NOI divided by a stressed capitalization rate of 8.5% to net unsecured debt was 1.7x).

The following factors may collectively, or individually, result in negative ratings momentum for BRX:

--Fitch's expectation of fixed charge coverage sustaining below 2x;

--Fitch's expectation of leverage sustaining above 7.5x;

--Base case liquidity coverage sustaining below 1.25x.

FULL LIST OF RATING ACTIONS

Fitch currently rates Brixmor as follows:

Brixmor Property Group, Inc.

--Long-Term Issuer Default Rating (IDR) 'BBB-'.

Brixmor Operating Partnership, L.P.

--Long-Term IDR 'BBB-';

--Senior unsecured revolver 'BBB-';

--Senior unsecured term loans 'BBB-';

--Senior unsecured notes 'BBB-'.

The Rating Outlook is Stable.

Date of Relevant Rating Committee: March 18, 2016

Additional information is available on www.fitchratings.com.

Summary of Financial Statement Adjustments - Financial statement adjustments that depart materially from those contained in the published financial statements of the relevant rated entity or obligor are disclosed below:

--Fitch has adjusted the historical and projected net debt by assuming the issuer requires $30 million of cash for working capital purposes that is otherwise unavailable to repay debt.

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1010410

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160815006198/en/

Fitch Ratings
Primary Analyst
Steven Marks
Managing Director
+1-212-908-9161
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Stephen Boyd, CFA
Senior Director
+1-212-908-0153
or
Committee Chairperson
Sharon Bonelli
Senior Director
+1-212-908-0581
or
Media Relations
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Short sellers pile into SpaceX ahead of earnings, lockup expiration
• We The Billions Launches Personalized Cognitive Care Focused on How Each Brain Works
• Penny Stock, Microcap and Institutional Investors: As Markets Reach Historic Highs, ELEKTROS Highlights a Rare Opportunity Across Lithium, Critical Minerals and Advanced EV Charging