HRPT Properties Trust On RatingAlert Negative By Fitch IBCA.
NEW YORK--(BUSINESS WIRE)--April 17, 2000
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HRPT Highway Regulating Point Team Properties Trust's (HRP) `BBB BBB
A medium grade assigned to a debt obligation by a rating agency to indicate an adequate ability to pay interest and repay principal. However, adverse developments are more likely to impair this ability than would be the case for bonds rated A and above. +' rating on outstanding senior unsecured debt Unsecured debt
Debt that does not identify specific assets that the debtholder is entitled to in case of default. and shelf registration is placed on RatingAlert Negative. In total, approximately $1.3 billion of debt is affected. RatingAlert Negative indicates that the rating may be affirmed or lowered.
Senior Housing Properties Trust (of which HRP owns a 49% interest), has announced a 50% reduction of its common dividend which will result in an approximate $15 million reduction in dividend income to HRP. This event, coupled with increasing leverage at HRP in the later part of 1999, warrant the RatingAlert status at this time. Resolution of the RatingAlert will largely depend on HRP's ability to execute its stated operating plan and increase financial flexibility through the reduction of leverage which increased in 1999 deviating from its historically conservative capital structure. HRP has communicated plans to improve debt service coverage and reduce leverage largely through assets sales in 2000. Should execution of identified initiatives not be successful, based on the company's current profile the rating on the notes is not expected to be lowered beyond `BBB'.
Although Fitch IBCA IBCA International Braille Chess Association
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IBCA Department of Interior Board of Contract Appeals believes the size, quality and geographic diversity of HRP's real estate portfolio, combined with its historical conservative financing initiatives are positive rating factors, the difficult common and preferred equity capital markets in 1999 forced HRP to uncharacteristically finance its acquisition related growth during the year through 100% debt financing Debt Financing
When a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise to repay , stressing debt service coverage ratios The debt service coverage ratio (DSCR), or debt service ratio, is the ratio of net operating income to debt payments on a piece of investment real estate. It is a popular benchmark used in the measurement of an income-producing property’s ability to produce . Management has provided some insight into its plans to deliver the balance sheet mainly through asset sales, and execution of these plans will be an essential consideration in any future rating actions.
Fitch IBCA recognizes that there may be periods over a financing cycle were significant rating factors (e.g. unencumbered debt service, total debt service and leverage) may be strained. However, the magnitude and financing of property purchases have pushed HRP's current levels beyond what Fitch IBCA believes is consistent with the company's past financial and operating profile.
For the three months ended 12/31/99, HRP generated approximately $70 million of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become plus dividend income providing coverage of interest expense of nearly 2.8 times (x) down significantly from approximately 4.0 through 3/31/99. Leverage has increased from 38% to 47% for the same period.
HRPT is an externally- advised and managed REIT REIT
See: Real Estate Investment Trust
See real estate investment trust (REIT). that is primarily involved with the acquisition of commercial and medical office buildings. As of 12/31/99 it owned 195 properties encompassing 19.6 million square feet.