Fitch Places Health Care Property Investors on Watch Negative.

NEW YORK -- Fitch places the ratings of Health Care Property Investors (HCP) on Rating Watch Negative. Fitch currently rates HCP as follows:

-- Issuer Default Rating 'BBB+';

-- $1.5 billion of senior unsecured notes 'BBB+';

-- $295 million preferred stock 'BBB'.

HCP's planned acquisition of CNL Retirement Properties, Inc. (CRP) and its external manager for $5.3 billion will significantly erode the company's credit profile, decreasing debt service coverage and increasing leverage to levels more consistent with the low end of the investment-grade ratings category. Further, the acquisition financing will increase variable-rate financing as well as secured debt levels.

The company has articulated a plan to substantially restore its credit profile over the next four quarters. The delevering plan is multifaceted and contains meaningful execution risk. Fitch believes that several factors increase the likelihood of HCP achieving its balance sheet restoration initiatives, including the current robust nature of investor appetite for exposure to the healthcare sector, the company's strong operating history and management's capital markets expertise. However, the plan is dependent on assets sales and joint venture activities, which have yet to materialize.

The acquisition will further the company's progress on several strategic objectives. The CRP acquisition will increase HCP's exposure to the senior housing sector, which is currently experiencing favorable operating fundamentals. As a percentage of total investment, senior housing will represent 56% of the portfolio up from 30%, reducing the portion of HCP's revenue stream subject to changes in government reimbursement programs. Additionally, the CRP assets are significantly younger than the HCP portfolio at an average of seven years, enhancing portfolio quality and mitigating obsolescence risk. The additions to HCP's portfolio will also broaden HCP's tenant roster and dilute its exposure to Tenet Healthcare. Some of these benefits will, however, be offset by the significant exposure the combined company will have to Sunrise Senior Living, which will represent 19% of annualized revenues, pro forma.

The existing 'BBB+' rating reflects 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. Beyond business segment diversification, HCP's portfolio is well diversified geographically with 527 assets located in 42 states which will broaden further to 787 assets upon the closing of the transaction.

Fitch views positively the high cash flow visibility provided by the triple-net lease nature of a significant portion of HCP's portfolio. The company'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 2.9 times (x) for the four quarters ending March 31, 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 healthcare industry in the United States.

More information about Health Care Property Investors, Inc. can be found on the Fitch Ratings web site at 'www.fitchratings.com'.

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.