Fitch Ratings has upgraded the Long-Term Issuer Default Rating (IDR) for
In addition, Fitch has affirmed
The ratings and Outlook reflect
Key Rating Drivers
Investment-Grade Credit Metrics: Fitch expects BRX's leverage to decrease to approximately 6.0x by 2023, compared with mid-6x in the prior ratings case. Fitch believes this is appropriate for the 'BBB' rating level, and that the company remains committed to its long-term leverage target of 6x.
Performing on Strategy: Over the past several years,
Strong leasing activity driven by redevelopment spend will continue to drive above average rent growth for BRX. The company signed 3.1 million sf of new leases for the TTM
Shopping Centers a Relative Winner: Shopping center assets have performed relatively well during the pandemic, with easy outdoor customer access and grocer anchors driving traffic to the asset type. Collections have largely normalized, and actual rent performance was better than prior ratings cases across the sector. Tenant demand has also returned, with many of the larger national brands in better financial position than 2019, and new tenants adapting to consumer preferences by relocating from malls to open air centers.
Fitch believes retailer brick-and-mortar strategies will be acutely focused on occupancy costs and the ability for real estate to supplement their e-commerce initiatives. Shopping center assets provide more direct customer access and better accessibility for evolutions such as curbside pickup. Customer accessibility has been a critical component of retailer success during the pandemic and is expected to remain so even as the pandemic subsides.
Strong Capital Access: BRX's larger size and scale relative to some peers in the space allow it to tap diverse capital sources. The company has historically demonstrated solid capital access, including to common equity, public unsecured debt markets, secured mortgage debt, unsecured bank debt, and joint ventures. Fitch views this positively, as it can allow the company to efficiently monetize asset value to provide contingent liquidity.
High Portfolio Granularity, Diversified Tenant Base: Broad geographic and tenant diversity should reduce earnings volatility during periods of macroeconomic weakness.
Approximately 70% of the company's assets are grocery anchored, which have performed well through the pandemic, and which Fitch expects to continue drawing foot traffic to support the businesses of in-line tenants. In this category, BRX's top tenants by ABR include
Other top tenants consist of leading discount retailers, such as
Derivation Summary
Fitch expects BRX's credit metrics to remain appropriate for the 'BBB' rating, including leverage of approximately 6x and unencumbered assets/unsecured debt at or above 2.0x, generally in line with other similarly rated peers. BRX's strong capital access is a key credit strength supporting the rating.
BRX has a large, diverse portfolio of shopping centers, but with weaker portfolio metrics relative to the peer group, as measured by portfolio demographics, in-place rents and occupancy, which may impact institutional demand for the assets; however wider geographic diversity can lead to lower earnings volatility in a downturn.
Fitch rates the IDRs of the parent REIT and subsidiary operating partnership on a consolidated basis, using the weak parent/strong subsidiary approach and open access and control factors, based on the entities operating as a single enterprise with strong legal and operational ties. No Country Ceiling or operating environment aspects have an impact on the rating.
Key Assumptions
Same store NOI in the low-to-mid single digits excluding redevelopment deliveries;
Dispositions of
Redevelopment spend of
Equity issuance consistent with maintaining 6x leverage.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Fitch's expectation of REIT leverage (net debt excluding preferred to recurring operating EBITDA) sustaining below 5.5x;
Fitch's expectation of fixed charge coverage sustaining above 3.5x.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Fitch's expectation of REIT leverage (net debt excl preferred to recurring operating EBITDA) sustaining above 6.5x;
Fitch's expectation of fixed-charge coverage sustaining below 2.5x;
Fitch's expectation of unencumbered assets to unsecured debt (UA/UD) based on a stressed 8.5% cap rate sustaining below 2x.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Strong Liquidity: Fitch expects
BRX's primary sources of liquidity are its
Issuer Profile
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
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