Printer Friendly

Fitch Affs Health Care Property Investors' Rtgs/Stble Rtg Outlk.

Business Editors

NEW YORK--(BUSINESS WIRE)--July 10, 2001

Fitch has affirmed its `BBB+' senior unsecured debt rating for Health Care Property Investors, Inc. (HCP), affecting approximately $775 million of bonds due 2001 to 2015.

Fitch has also affirmed its `BBB' rating for HCP's outstanding $275 million preferred stock. The Rating Outlook is Stable.

HCP is a $3.1 billion (total market capitalization) equity health care REIT with investments in 412 properties in 42 states. The company's portfolio includes investments in acute care hospitals (28% of revenues), skilled nursing facilities (27%), medical office buildings (20%), assisted living facilities (14%), and outpatient clinics (11%). The Fitch ratings reflect favorably on HCP's good asset and sector diversity, moderate tenant concentration (largest is Tenet Healthcare, rated `BB+/Rating Outlook Positive' by Fitch), limited exposure to mortgage investments (7% of the total portfolio), and stable income under long-term leases with an average remaining lease term of seven years. HCP's modest recurring capital expenditure needs and moderate use of debt leverage (43% on cost, 36% at market as of March 31, 2001) are also positive rating factors. Fitch also notes that HCP's recent $133 million common equity offering points to the company's willingness and ability to support ongoing portfolio growth with permanent capital. Fitch's credit concerns for HCP include a primarily non-investment grade tenant base, overbuilding within the assisted living sector, modest internal growth, and a view that health care properties are less fungible than other commercial property types.

Fitch's near-term rating concern is the weak assisted living sector, where operators are still struggling with the aftermath of a late-1990s building boom. This has resulted in slower lease-up rates for newly developed properties, causing operators to offer rental concessions as an inducement to build occupancy. Although this segment only represents 14% of HCP's total revenues, many of these facilities are in fill-up and not expected to stabilize for another 12-18 months. In the event of an operator default, HCP would potentially be exposed to rent loss, although the company's diversified portfolio and sizable asset base would likely tend to dilute any serious difficulties.

HCP's skilled nursing properties continue to perform adequately, although operators continue to be pressured by occupancy cannibalization from newly-developed assisted living properties, and increasing labor and insurance costs. Fitch expects that revised Medicare reimbursement rates implemented April 1 of this year will offset some of the expense pressure at the property level. Positively, HCP has very little exposure to distressed operators, as Vencor (now Kindred Healthcare) affirmed 22 leases upon its emerging from bankruptcy. Another 11 facilities that Vencor had sub-leased are in the process of being renewed directly with the sub-tenants. HCP's remaining exposure to operators in bankruptcy is less than 3% of total revenues, with all of these properties generally remaining current on their operating leases.

HCP's 1998 merger with American Health Properties has increased the company's presence in the acute care sector, including a high-quality group of eight hospitals leased to Tenet Healthcare Corp. (Tenet represents nearly 20% of HCP's total revenues). While tenant concentration risk is somewhat high, this concern is mitigated by the solid facility-level cash flows of these properties. The strong profitability of this pool also increases the likelihood that Tenet will seek to exercise the second of several five-year renewal options in 2004, as it did in 1999.

HCP's financial profile continues to be satisfactory for the current ratings and Rating Outlook, reflecting moderate use of debt leverage, a largely unencumbered asset base, and manageable debt maturities. Adjusting for $4.1 million of percentage rent that was deferred in the first quarter, interest coverage from EBITDA was 3.4 times (x), which is consistent with Fitch's expectations for coverage in the mid-3x range. Including adjustments for straight-line rents, recurring capital expenditures, and preferred stock dividends, fixed- charge coverage was a healthy 2.6x. HCP's largest upcoming debt maturity is a $99 million senior note due Jan. 15, 2002, which is likely to be refinanced in the public market. Refinancing risk is mitigated by a large pool of unencumbered assets, which covered total unsecured debt by 2.5x as of March 31, 2001.
COPYRIGHT 2001 Business Wire
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2001, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Publication:Business Wire
Date:Jul 10, 2001
Previous Article:HMG Worldwide Corporation Reports Continued Sales Initiatives With Over $6 Million in New Revenue From Major Clients.
Next Article:InKine Pharmaceutical Added to the Russell 2000 and 3000 Indexes.

Related Articles
Fitch Revises Meditrust Outlook to Stable.
Fitch Affs Federated Dept Stores `BBB+' Sr, `F2' CP; Rtg Outlk Stble.
Fitch Rates Health Care REIT's $175MM Note Offering `BBB-'.
Fitch Affs Sprint Corp.'s Debt Rtgs; Rtg Outlk Remains Neg.
Fitch Affs Novant Health, Inc., North Carolina 'AA-' Rtg, Stable Outlk.

Terms of use | Copyright © 2017 Farlex, Inc. | Feedback | For webmasters