S&P Revises HRPT Properties Trust's Outlook to Stable.NEW YORK--(BUSINESS WIRE)--Sept. 22, 1999-- Standard & Poor's CreditWire--Standard & Poor's today revised its outlook on HRPT HRPT High-Resolution Picture Transmission HRPT High Rate Picture Transmission HRPT Hyperparathyroidism HRPT Highway Regulating Point Team Properties Trust to stable from positive. In addition, Standard & Poor's affirmed its triple-'B' corporate credit and senior unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. ratings as well as its triple-'B'-minus subordinated debt Subordinated Debt A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known as "junior security" or "subordinated loan". rating on HRPT Properties Trust. The ratings, which are supported by a very conservative financial position, acknowledge the planned spin-off The situation that arises when a parent corporation organizes a subsidiary corporation, to which it transfers a portion of its assets in exchange for all of the subsidiary's capital stock, which is subsequently transferred to the parent corporation's shareholders. of HRPT's $770 million health care property subsidiary into a publicly traded REIT REIT See: Real Estate Investment Trust REIT See real estate investment trust (REIT). , Senior Housing Properties Trust (SNH SNH Scottish Natural Heritage SNH Sunday Night Heat (wrestling) SNH Society for Netherlandic History SNH Supervision Network Hub ). The outlook reflects Standard & Poor's view that the potential for ratings improvement will depend on further seasoning of the directly owned office portfolio as well as HRPT's continued success in the commercial office sector, a business which the trust entered only recently. Under this planned transaction, HRPT will issue one share of Senior Housing Properties Trust to shareholders for every 10 shares of HRPT already owned. After the spin-off, HRPT will own a 49% interest (12.8 million shares) in Senior Housing, while maintaining its direct ownership in 175 office buildings comprising 18.2 million square feet and its 7.1% interest (4 million shares) in Hospitality Properties, a REIT that owns and leases hotels. The surviving HRPT will focus on expanding its nationwide portfolio of office properties. Standard & Poor's acknowledges that there are several benefits to the REIT's more focused property strategy, including the potential for HRPT stock to trade more closely with its office REIT peer group. Further, the trust's remaining directly owned office portfolio appears to be of good asset quality and is well occupied by a strong tenancy A situation that arises when one individual conveys real property to another individual by way of a lease. The relation of an individual to the land he or she holds that designates the extent of that person's estate in real property. (52% of tenants are investment grade) under relatively long leases (seven-year average remaining term). However, the seasoning of this $2.3 billion portfolio under HRPT ownership is still relatively light since the majority of these properties have been acquired over the past two years. This compares to the SNH health care facility portfolio, which had an average term of ownership of over six years by HRPT. The trust's conservative financial risk profile remains strong for the rating and will not be negatively impacted by this transaction. Debt-to-book capitalization remains solid at around 40% and cash flow coverage is excellent at 3.7 times debt service and is supported by a largely fixed rate debt structure. While HRPT intends to reduce its ownership in Senior Housing over time, Standard & Poor's will partially consolidate this new entity, for credit rating analysis, until HRPT's ownership position in SNH is reduced. However, given that SNH is expected to maintain a financial profile similar to that of HRPT (40% book leverage and strong cash flow coverage), this consolidation should not negatively impact the financial position of HRPT. HRPT maintains good financial flexibility, with a highly unencumbered Unencumbered Property that is not subject to any creditor claims or liens. Notes: For example, if a house is owned free and clear (meaning the owner owes no mortgage to anyone), it is unencumbered. asset base, access to a largely unused $500 million unsecured bank revolver (zero outstanding post divestiture The breakup of AT&T. By federal court order, AT&T divested itself on January 1, 1984 of its 23 operating companies, which became known as the Regional Bell Operating Companies (RBOCs). ) and an improving dividend payout ratio Dividend Payout Ratio The percentage of earnings paid to shareholders in dividends. Calculated as: (currently 87% of funds from operations Funds From Operations (FFO) Used by real estate and other investment trusts to define the cash flow from trust operations; earnings with depreciation and amortization added back. ). Further, the trust's owned equities (Hospitality Properties Trust and Senior Housing Properties Trust stock) can provide the trust with an additional source of capital since it is no longer restricted from monetizing its $108 million investment (current market value) in Hospitality Properties Trust and the trust is permitted to sell its shares in SNH ($282 million estimated market value) after a one-year period. OUTLOOK: STABLE The current ratings continue to be supported by HRPT's good portfolio characteristics and a very conservative financial risk profile. The outlook revision reflects Standard & Poor's opinion that the potential for an upgrade is a bit longer term. An upgrade will require additional seasoning of the directly owned office portfolio as well as the trust's demonstrated discipline as it continues to expand its office portfolio and considers embarking upon selected build-to-suit development opportunities.---CreditWire |
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