OREANDA-NEWS. Fitch Ratings has affirmed the ratings of Brixmor Property Group, Inc. (NYSE: BRX) and its operating partnership, Brixmor Operating Partnership, L.P. (collectively, Brixmor) at 'BBB-'.

Fitch has also affirmed and withdrawn all ratings for Brixmor LLC as such ratings are no longer relevant to Fitch's coverage. All future unsecured debt issuance will be effected via Brixmor Operating Partnership, L.P., and Brixmor LLC only has $18 million of unsecured bonds currently outstanding. A full list of rating actions follows at the end of this release.

The Rating Outlook is Stable.

KEY RATING DRIVERS
The affirmation of BRX's ratings reflects the company's large and diverse portfolio of 518 shopping centers and solid fixed charge coverage (FCC). These positive rating elements are offset by concerns regarding the company's ability to access the unsecured debt capital markets to further its unencumbering strategy and address liquidity needs in light of recent senior management departures and the identification of material weakness in its internal control over financial reporting. Further, the company has slightly low unencumbered asset coverage of unsecured debt (UA/UD).

Interim Management Could Limit Market Access
Following the resignation of the company's CEO, CFO and CAO in February 2016, Brixmor installed interim management until more permanent successors are named. Brixmor immediately appointed Daniel Hurwitz as Interim CEO and subsequently named Barry Lefkowitz as Interim CFO. Messrs. Hurwitz and Lefkowitz are well-known and highly regarded by REIT investors based on their prior tenures in similar positions at DDR Corp. and Mack-Cali Realty Corp., respectively. However, the uncertainty regarding the timing and naming of permanent executives could create investor uncertainty as to portfolio and financial strategy, which may limit the company's ability to access the unsecured bond market on attractive terms.

Slight Liquidity Shortfall; Unencumbering Strategy Potentially Delayed
BRX's base case liquidity coverage ratio is 1.0x, which assumes the company has no access to uncommitted external sources of liquidity. Liquidity uses consist primarily of secured debt maturities, which the company intends to repay with the issuance of unsecured bonds. In light of significant bond spread widening due to the recent senior executive resignations, near-term access to attractively-priced unsecured bonds will be challenging. As an alternative, the company should be able to refinance upcoming mortgages via issuance of new mortgages at higher loan-to-values (LTVs), which will enable the company to add incremental assets to the unencumbered pool. Liquidity coverage improves to 3.0x 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).

Expected Steady De-Leveraging
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 Dec. 31, 2015 divided by recurring operating EBITDA, including recurring cash distributions from joint ventures, but excluding non-cash above and below market lease income) was 7.2x, down from 7.4x and 7.7x as of year-end 2014 and 2013, respectively.

Significant Unencumbered Pool Growth Likely Delayed
The company endeavors to have an entirely unencumbered asset base, and as of Dec. 31, 2015, 62% of the company's NOI was from unencumbered assets. The company has over $1.2 billion of mortgages maturing in 2016-2017, and intends on repaying these mortgages with the proceeds from unsecured bond issuances. Fitch expects the company will be able to access the unsecured bond market during the rating horizon; however, this will likely be dependent in part on the market's sentiment toward non-interim executive management (once named) and the go-forward portfolio and financing strategy.

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 was 1.7x at Dec. 31, 2015. 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 slightly low for the 'BBB-' rating, as Fitch considers 2.0x 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 2.8x and 2.3x 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.

Highly Diversified Portfolio
BRX's credit profile benefits from widespread cash flow diversification by geography, assets, tenants and leases. The company's 518 properties comprise 87 million square feet (sf) and are located in 38 states and over 170 metropolitan statistical areas (MSAs). BRX's largest shopping center by annualized base rent (ABR) comprised only 1.5% of portfolio rents. Thirty-seven percent of its ABR is located in the top-10 U.S. MSAs by population and 65.3% is in the top-50 MSAs. New York/Northern New Jersey metro was the company's largest market exposure at 6.7% of ABR. The company has approximately 5,500 tenants in its portfolio with approximately 10,000 leases. BRX's top-20 tenants comprise 26.7% of its ABR as of Dec. 31, 2015. Fitch rates five of the tenants as investment grade, including The Kroger Co.'s (IDR 'BBB'/Outlook Stable), which was the company's largest tenant at 3.4% of the company's ABR.

Solid Internal Growth
Fitch expects the company's SSNOI to grow in the mid-2.0% range throughout 2016-2018. Positive spreads on new and renewal leases underpin Fitch's internal growth projections. Occupancy at Dec. 31, 2015, was 92.6% - down 20 basis points (bps) from the comparable year-ago period due to a decline in anchor occupancy as a result of the company purposefully taking some space off-line to improve tenant mix. Spreads on new and renewal leases (including options exercised) were positive 41.6% and 10.5%, respectively, for the year ended Dec. 31, 2015. Brixmor has an elevated amount of lease expirations through 2018, with over 40% of its leased gross leasable area (GLA) scheduled to expire (excluding extension options). Fitch is comfortable with BRX's leasing risk profile given the below-market rents for existing leases and generally favorable retail CRE fundamentals. Healthy demand and low levels of new supply are supporting occupancy and rental rate growth for shopping centers in most U.S. markets.

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.

Asset Quality Lower than Peers
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.

Concentrated Ownership, Albeit Dissipating
Blackstone remains the largest owner of Brixmor through several of its sponsored funds, notwithstanding the two secondary offerings completed during 2015 (in addition to the three in 2014) that have reduced its ownership to 36.2% as of Dec. 31, 2015 from 77.2% subsequent to the company's fourth quarter of 2013 (4Q13) IPO. On the positive side, BRX likely benefits from Blackstone's extensive CRE experience and network of capital provider relationships. Blackstone representatives hold 2 of nine board seats (down from five at 4Q13), and BRX has a strong set of corporate governance practices, including a non-staggered board, no shareholder rights plan and opting out of Maryland unsolicited takeover laws that generally favor management entrenchment.

However, Fitch expects Blackstone to favor maximizing value for shareholders over bondholders, if forced to choose. Fitch expects Blackstone to exit its investment in BRX during the next one to two years, although this exit may be delayed given the net asset value discount at which BRX's shares trade. This overhang could limit the company's flexibility to issue equity, which may be in competition with selling by Blackstone. REITs have historically relied on the equity capital markets to fund new investments, as well as to meet maturing debt obligations during times of economic and financial stress.

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 higher rating. However, Fitch does not expect positive rating momentum until the company is able to access the public unsecured bond market to address debt maturities.

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 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 7.2x for the year ended Dec. 31, 2015);
--Fitch's expectation of fixed charge coverage sustaining above 2.3x (coverage was 2.8x for the year ended Dec. 31, 2015);
--Fitch's expectation of unencumbered asset coverage of net unsecured debt sustaining above 2x (unencumbered assets - valued as 4Q15 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:

--Not identifying a non-interim CEO and CFO, which could lead to uncertainty regarding portfolio and/or financial strategy;
--Failing to demonstrate access to the unsecured bond market for an extended period;
--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 has affirmed the following ratings:

Brixmor Property Group, Inc.
--Long-term Issuer Default Rating (IDR) at 'BBB-'.

Brixmor Operating Partnership, L.P.
--Long-term IDR at 'BBB-';
--Senior unsecured revolver at 'BBB-';
--Senior unsecured term loans at 'BBB-';
--Senior unsecured notes at 'BBB-'.

Fitch has affirmed and withdrawn the following ratings:

Brixmor LLC
--Long-term IDR at 'BBB-';
--Senior unsecured notes at 'BBB-'.