DUFF & PHELPS RATES MEDITRUST'S SENIOR UNSECURED DEBT 'BBB'
CHICAGO, May 10 /PRNewswire/ -- Duff & Phelps Credit Rating Co. has assigned an initial public rating of `BBB' to the senior unsecured debt of Meditrust. Meditrust has approximately $450 million of senior unsecured notes and convertible debentures outstanding. This rating recognizes the management experience and portfolio diversity derived from Meditrust's strong market position as the largest health care real estate investment trust. At March 31, 1993, Meditrust had $1.2 billion in real estate assets invested in 173 health care facilities with 25 different operators in 30 states. Since its inception in 1985, Meditrust has continued to diversify its operator base so that Mediplex-operated facilities now represent less than 30 percent of invested assets. Diversification by state, operator and type of facility leaves Meditrust less vulnerable to weakness in a particular segment of its business. In the last four years, Meditrust has doubled its asset base by adding roughly $100-200 million in net new investments per year. Despite this rate of growth, we are satisfied that Meditrust has appropriate investment criteria and has developed adequate procedures and controls to monitor the financial health of the facilities in which it invests. Careful monitoring of investments is critical so that timely corrections can be made to avoid disruptions in rent or mortgage payments from problem facilities. In these problem situations, Meditrust has the capability to self-manage a facility for an interim period of time until new management is found. Additionally, Meditrust requires credit enhancements for most investments in the form of cash reserves or letters of credit. On average, these credit enhancements are equal to five months of Meditrust's rent and mortgage revenues and provide important support for our rating. Furthermore, Meditrust typically requires that each facility's rent payments are guaranteed by the operator of the facility and are cross-collateralized by other operator facilities. Our rating also recognizes several important risks that can impact the financial health of the facilities and operators in which Meditrust invests. State and federal reimbursement policies, particularly in light of their acute budgetary pressures, can negatively impact facilities dependent on Medicare or Medicaid patients. Operator mismanagement, especially when it affects a facility's perceived "quality of care," can at best reduce occupancy levels or at worst result in a revoked operating license. Additionally, expansion by competing facilities may also reduce occupancy at Meditrust facilities, although state regulations often effectively limit the extent of competition. Despite these risks, the demand for long-term care facilities is very favorable due to the demographics of an aging population. The investment grade rating is supported by Meditrust's moderate use of financial leverage. Debt as a percentage of total capitalization was 52 percent at March 31, 1993, within management's target range of 50-55 percent. Cash flow coverage of interest was 2.1 times during the past year. Since 1989, Meditrust has borrowed on an unsecured basis, so that the seniority of senior unsecured debt will improve over time as secured issues mature and are refinanced with unsecured debt. Furthermore, Meditrust has and is likely to continue to issue securities convertible into common equity, which have lower interest expenses and can result in increases in equity capital in the future. -0- 5/10/93 /CONTACT: William T. Hayes of Duff & Phelps Credit Rating Co., 312-368-3142/
CO: Meditrust ST: IN: HEA SU: RTG
CK -- NY035 -- 6410 05/10/93 10:40 EDT
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|Date:||May 10, 1993|
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