HRPT Properties Trust On RatingAlert Negative By Fitch IBCA.
NEW YORK--(BUSINESS WIRE)--April 17, 2000
HRPT Properties Trust's (HRP) `BBB+' rating on outstanding senior unsecured debt 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 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, stressing debt service coverage ratios. 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 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 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.