OREANDA-NEWS. 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.