Fitch Assigns First Time Ratings to Brixmor Property Group, Inc.; Outlook Stable

Fitch Ratings has assigned an initial Issuer Default Rating (IDR) of 'BBB-' to Brixmor Property Group, Inc. (NYSE: BRX) and its operating partnership Brixmor Operating Partnership, L.P. (Brixmor or the company). A full list of Fitch's ratings for Brixmor and its affiliate Brixmor LLC can be found at the end of this release.

The Rating Outlook is Stable.

KEY RATING DRIVERS

Brixmor's ratings reflect the company's large and diverse portfolio of 522 shopping centers, its strong, cycle-tested management team, and fixed-charge coverage (FCC) and unencumbered asset coverage of unsecured debt (UA/UD) that is appropriate for a 'BBB-' rated REIT.

These positive rating elements are offset by elevated leverage and a modest near-term shortfall under Fitch's stressed liquidity analysis that assumes no incremental external capital raisings.

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). However, Fitch anticipates positive momentum in Brixmor's credit profile, based on the agency's expectation for the company to make steady progress against its mid-6.0x leverage target and aggressively unencumber assets through Fitch's 2016 forecast period.

Steadily De-Leveraging

Fitch expects BRX's leverage to improve to the mid-6.0x range by the end of 2016 through a combination of same store net operating income (SSNOI) growth, incremental NOI from redevelopments and modest internally funded debt repayments.

BRX's leverage (net debt as of Sept. 30, 2014 divided by recurring operating EBITDA, including recurring cash distributions from joint ventures, but excluding non-cash above and below market lease income) for the trailing 12 months (TTM) ended Sept. 30, 2014 was 7.4x, down from 7.7x for full year 2013.

Improved Liquidity Elements

BRX's enhanced liquidity, access to capital and financial position provide additional flexibility for the company to maintain and improve its properties. Fitch expects this to result in higher occupancies and above average SSNOI growth that will strengthen the company's credit metrics.

BRX strengthened its liquidity profile by obtaining a $2.8 billion credit facility in July 2013 and gaining access to the public equity markets in November 2013 through its IPO that generated $891.3 million of net proceeds. The company used revolver and term loan borrowings under its credit facility to unencumber assets by paying off $2.4 billion of mortgages. The company used the primary IPO proceeds to pay down its revolver.

BRX further demonstrated its access to unsecured debt through its $600 million term loan issuance in March 2014. Fitch expects the company to access the unsecured bond market during 2015 to help refinance its debt maturities.

Growing Unencumbered Pool

Fitch expects BRX's unencumbered assets will cover its unsecured debt (UA/UD) by approximately 2.0x over the rating horizon, based on the interplay between the company's aggressive asset unencumbrance plan (including pulling forward select mortgage maturities) and the related incremental unsecured borrowings.

Fitch calculates the company's UA/UD was 2.0x at Sept. 30, 2014. 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 appropriate for the 'BBB-' rating.

Improving Fixed-Charge Coverage

Fitch expects BRX's FCC to improve to the high-2.0x range in 2016, 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 2.2x and 2.1x for the TTM ended Sept. 30, 2014 and 2013, respectively. Fitch defines fixed-charge coverage 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 522 properties comprise 87 million 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% is in the top-50 MSAs. New York/Northern New Jersey metro was the company's largest market exposure at 6.6% of ABR.

The company has approximately 5,600 tenants in its portfolio with approximately 9,500 leases. BRX's top-20 tenants comprise 26% of its ABR as of Sept. 30, 2014. Fitch rates five of the tenants as investment grade, including The Kroger, Co. (IDR 'BBB'/Outlook Stable), which was the company's largest tenant at 3.3% of the company's ABR.

Solid Internal Growth

Fitch expects the company's SSNOI to grow by 4%, 3.5% and 3.5% in 2014, 2015 and 2016, respectively. Stronger anchor and small shop occupancy rates and positive spreads on new and renewal leases underpin Fitch's internal growth projections.

BRX's occupancy and rent spreads have improved during the last three years. Occupancy at Sept. 30, 2014, was 92.7% - up 60 basis points (bps) from the comparable year-ago period. Spreads on new and renewal leases (including options exercised) were positive 27.1% and 8.9%, respectively for the TTM ended Sept. 30, 2014.

Brixmor has an elevated amount of lease expirations through 2016, with over a quarter of its leased GLA scheduled to expire (excl. 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 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 or sales in its forecast model. However, Fitch considers it more likely that BRX may begin a small disposition program, targeting stabilized assets with fully-realized growth potential.

Experienced Management and Sponsor

BRX has a cycle-tested management team with extensive real estate operating and capital markets experience, including prior executive-level roles at other publicly traded retail REITs. BRX management is committed to improving its balance sheet as part of its broader strategy of regaining access to the public unsecured bond markets.

Near-Term Liquidity Shortfall

Fitch's base case analysis shows a $405 million shortfall between BRX's sources and uses of liquidity from Oct. 1, 2014 through Dec. 31, 2016 ($446 million including planned redevelopment expenditures).

BRX's liquidity coverage improves to 2.2x (2.1x including redevelopment) under an alternate scenario in which the company refinances its secured maturities at an 80% advance rate. However, Fitch views this scenario as less likely given the company's strategy to unencumber assets.

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).

Asset Quality Lower than Peers

Fitch considers BRX's asset quality to be at or near the low end of its publicly traded peers, based on the portfolio's current operating metrics, including occupancy and rent per square foot, surrounding demographics and exposure to tertiary markets.

Deferred maintenance due to lack of reinvestment under financially stressed previous owner Centro Properties is partly responsible for BRX's weak relative operating metrics. 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

Blackstone remains the largest owner of Brixmor through several of its sponsored funds, notwithstanding the two secondary offerings completed during 2014 that have reduced its voting and economic interests to 55.2% and 56.3%, respectively from 70.3% and 77.2% subsequent to the company's fourth quarter of 2013 (4Q'13) IPO.

On the positive side, BRX likely benefits from Blackstone's extensive CRE experience and network of relationships. Although Blackstone representatives control the majority (five of nine) of its board seats, 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. Blackstone plans to exit its investment in BRX during the next one to two years. This 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.

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

--Fitch's expectation of leverage sustaining in the mid-6.0x range (leverage was 7.4x for the TTM ended Sept. 30, 2014);

--Fitch's expectation of FCC sustaining above 2.3x (coverage was 2.2x for the TTM ended Sept. 30, 2014);

--Fitch's expectation of unencumbered asset coverage of unsecured debt sustaining above 2.0x (unencumbered assets - valued as 3Q'14 annualized unencumbered NOI divided by a stressed capitalization rate of 8.5% to unsecured debt was 2.0x).

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

--Fitch's expectation of FCC sustaining below 2.0x;

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

--Base case liquidity coverage sustaining below 1.25x.

Fitch rates Brixmor as follows:

Brixmor Property Group, Inc.

--IDR at 'BBB-'.

Brixmor Operating Partnership, L.P.

--IDR at 'BBB-';

--Senior unsecured revolver at 'BBB-';

--Senior unsecured term loans at 'BBB-'.

Brixmor LLC

--IDR at 'BBB-';

--Senior unsecured notes at 'BBB-'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Recovery Ratings and Notching Criteria for REITs' (Nov. 18, 2014);

--'Corporate Rating Methodology' (May 28, 2014);

--'Rating U.S. Equity REITs and REOCs: Sector Credit Factors,' Feb. 26, 2014' (Feb. 26, 2014).

Applicable Criteria and Related Research:

Recovery Ratings and Notching Criteria for Equity REITs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=813628

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Rating U.S. Equity REITs and REOCs (Sector Credit Factors)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=737957

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=944555

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