Dec 17 - Fitch Ratings has affirmed the credit ratings of Brixmor LLC
(Brixmor) as follows:
--Issuer Default Rating (IDR) at 'BB-';
--Senior unsecured notes at 'BB-'.
The Rating Outlook is Stable.
The affirmation is driven by improving portfolio performance and a favorable
refinancing environment that are contributing to moderately improving credit
metrics expected to remain consistent with a 'BB-' rating in the near to medium
term. The ratings are also supported by a laddered debt maturity schedule and a
large, diversified portfolio of grocery anchored shopping centers.
Brixmor is better capitalized and is able to fund tenant improvements and
leasing commissions (TIs and LCs), subsequent to the acquisition of Brixmor and
the remaining U.S. platform of Centro Properties Group by Brixmor Property Group
('BPG,' an affiliate of Blackstone Real Estate Partners VI L.P.) in June 2011.
As such, occupancy increased 150 basis points (bps) to 84.5% for the
consolidated portfolio and leasing spreads on new and renewal leases have
averaged 6.3% in 2012 YTD. The strong leasing performance has driven SSNOI
growth of 6.2% in 2012 YTD.
Leverage was 7.9x as of Sept. 30, 2012, which is strong for the rating. Fitch
projects that leverage will decline below 7.0x in 2014, driven by healthy
operating fundamentals and moderate debt paydowns. Fitch defines leverage as net
debt to recurring operating EBITDA (adjusted for Fitch's estimates of general
and administrative expense distributions to BPG and recurring operating
distributions from joint ventures).
The company also benefits from a well staggered debt maturity schedule with just
12.6% and 9.4% of total debt maturing in 2013 and 2014, respectively for Brixmor
on a consolidated basis. However, approximately 94% of Brixmor's $405 million of
unsecured debt matures or has put options by the end of 2015, placing pressure
on the company's liquidity.
Further supporting the rating is a well-diversified portfolio of 574 grocery
anchored shopping centers (including interests in joint ventures) consisting of
90.8 million square feet across 39 states. The portfolio contains over 4,000
national, regional and local tenants and the largest tenant represents just 3.2%
of annualized base revenue (ABR). The top ten tenants represent just 17.2% of
ABR, limiting individual tenant risk.
The ratings are partially offset by low fixed charge coverage, low unencumbered
asset coverage of unsecured debt, near term maturity of almost all unsecured
bonds, and a liquidity shortfall on a standalone basis.
Brixmor's fixed charge coverage, calculated as recurring operating EBITDA less
straight line rents and recurring capital expenditures divided by total interest
incurred was 1.2x for the TTM ended Sept. 30, 2012, which is low for the rating,
due in part to elevated recurring capital expenditures. The high level of
recurring capital expenditures is driven by a previous lack of investment due to
historical capital constraints, and management's current efforts to proactively
lease-up the portfolio. Fitch projects fixed charge coverage will rise above
1.5x through 2014, driven primarily by increasing occupancy and positive leasing
spreads, leading to moderate SSNOI growth combined with greatly reduced
recurring capital expenditures going forward.
Brixmor's unencumbered asset coverage of unsecured debt based on annualized
3Q'12 unencumbered NOI and applying an 8.0% cap rate was low for the 'BB-'
rating, as many unencumbered assets were previously transferred to affiliated
joint ventures by Brixmor's previous parent entity.
Brixmor has a liquidity shortfall, as total sources of liquidity (cash and
projected retained cash flows from operations) minus total uses of liquidity
(debt maturities and recurring capital expenditures) result in a $198 million
shortfall, or a liquidity coverage ratio of 0.4x. This shortfall is driven by
Brixmor's lack of an unsecured revolving credit facility and unsecured bond
Assuming that the company is able to refinance 80% of secured debt, liquidity
coverage improves to 0.7x, and the company has demonstrated the ability to
replace maturing unsecured debt with secured debt and utilizing equity
contributions from BPG, which minimizes refinance risk. BPG would likely fund
any liquidity shortfall that Brixmor may experience, given a common treasury
demonstrated by the company; however there is no contractual obligation to do
The Stable Rating Outlook is driven by slightly improving retail real estate
fundamentals supported by Brixmor's financial flexibility to aggressively
lease-up the portfolio.
The following factors may have a positive impact on the rating and/or Rating
--A sustained liquidity surplus;
--Fitch's expectation of fixed charge coverage sustaining above 1.5x (coverage
was 1.2x for the TTM ended Sept. 30, 2012);
--Fitch's expectation of leverage sustaining below 7.0x (leverage was 7.9x as of
Sept. 30, 2012);
--Demonstrated access to the unsecured bond market.
The following factors may have a negative impact on the rating and/or Rating
--A material deterioration in liquidity;
--Fixed charge coverage sustaining below 1.3x;
--Leverage sustaining above 8.5x.
Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Recovery Rating and Notching Criteria for REITs' (Nov. 12, 2012);
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012);
--'Criteria for Rating U.S. Equity REITs and REOCs' (Feb. 27, 2012).
Applicable Criteria and Related Research:
Criteria for Rating U.S. Equity REITs and REOCs
Recovery Ratings and Notching Criteria for Equity REITs
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage
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