|[December 17, 2012]
Fitch Affirms Brixmor LLC's IDR at 'BB-'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings has affirmed the credit ratings of Brixmor LLC (Brixmor)
--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
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 carge 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
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 maturities.
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 so.
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
--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
--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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