Fitch Downgrades Health Care Property Investors' IDR To 'BBB'.

NEW YORK -- Fitch Ratings has downgraded Health Care Property Investors (HCP) as follows:

--Issuer Default Rating (IDR) to 'BBB' from 'BBB+';

--Bank credit facility to 'BBB' from 'BBB+';

--Senior unsecured notes to 'BBB' from 'BBB+';

--Preferred stock to 'BBB-' from 'BBB'.

The Rating Outlook is Stable.

The downgrade follows the closing of HCP's acquisition of CNL Retirement Properties, Inc. (CRP) and its external manager for $5.3 billion. While the CRP acquisition adds a large pool of high quality senior housing and medical office assets to HCP's existing, diversified portfolio and increases the company's exposure to private pay sources of revenue, Fitch is very concerned by the significant increase in leverage and related erosion in debt service coverage ratios resulting from the acquisition. Fitch notes that HCP has articulated a detailed plan to substantially restore leverage to pre-acquisition levels over the next four quarters. However, debt service coverage ratios are expected to remain significantly weaker for some time at levels more consistent with low to mid-'BBB' ratings.

Fitch also notes that there is significant execution risk associated with HCP's de-levering plan. As indicated previously, Fitch believes that several factors increase the likelihood of a successful execution, including the robust investor appetite for health care assets at the present time, HCP's strong operating history, and management's capital markets expertise. However, while management is continuing to negotiate asset dispositions and sales to joint ventures, HCP has yet to announce any completed agreements. Moreover, HCP is expected to issue equity over the next quarters to reduce leverage. Fitch will continue to closely monitor HCP's efforts to restore its credit profile and any missteps that occur could cause further downward pressure on the existing ratings.

The acquisition financing will increase variable-rate debt to approximately 43% pro-forma. This is expected to decline to more appropriate levels for the current ratings as the bridge facility is repaid during the next year. Additionally, the overwhelming majority of assets in the CNL portfolio are currently encumbered by mortgage debt with an average loan to value of approximately 36%.

Pro forma for the acquisition, senior housing represents 56% of HCP's portfolio, up from 30% at the end of the second quarter. The sector has been experiencing strong operating fundamentals in recent years after suffering from significant overbuilding in the late 1990's.

The acquisition will also dilute HCP's exposure to hospital operator Tenet Healthcare and increase its exposure to several large senior housing operators, including Sunrise Senior Living, Horizon Bay Senior Communities, and Brookdale Senior Living.

The ratings reflect favorably on HCP's long operating history and balanced investment strategy with investments in four distinct business segments: senior housing, long term care facilities, acute care hospitals and medical office buildings. Fitch also has a positive view on the high cash flow visibility provided by the triple-net lease nature of a significant portion of HCP's portfolio.

HCP's fixed charge coverage ratio (earnings before interest, taxes depreciation and amortization less capital expenditures to interest expense plus capitalized interest expense plus preferred dividends) measured 2.7 times (x) for the four quarters ending June 30, 2006. Over the last four years, a period of considerable dislocation in the healthcare services arena, HCP's fixed charge coverage did not fall below 2.4x.

Health Care Property Investors, Inc., publicly traded since 1985, invests in real estate serving the health care industry in the United States. As of June 30, 2006, HCP's portfolio of properties, excluding assets held for sale but including investments through joint ventures and mortgage loans, included 534 properties in 42 states and consisted of 143 senior housing facilities, 182 medical office buildings, 155 skilled nursing facilities, 29 hospitals, and 25 other health care facilities. Giving effect to the CRP merger, HCP's portfolio of properties, excluding assets held for sale but including investments through joint ventures and mortgage loans, included 807 properties in 44 states and consisted of 327 senior housing facilities, 271 medical office buildings, 155 skilled nursing facilities, 29 hospitals, and 25 other health care facilities.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.