Business & Finance
Business and Finance
Business and Finance
Wed, November 26, 2008
Tue, November 25, 2008 Correction - Fitch Affirms Health Care REIT's IDR at 'BBB'
NEW YORK--([ BUSINESS WIRE ])--(This replaces the previous release which contained the incorrect text.)
Fitch Ratings has affirmed the ratings of Health Care REIT (NYSE: HCN) as follows:
--Issuer Default Rating (IDR) at 'BBB';
--Unsecured bank credit facility at 'BBB';
--Senior unsecured notes at 'BBB';
--Convertible senior unsecured notes at 'BBB';
--Preferred stock at 'BBB-';
The Rating Outlook is Stable.
HCN's ratings are supported by the continued growth and diversity of revenue generated from HCN's portfolio, strong debt service coverage ratios, strong property level coverage, solid liquidity position including a large pool of unencumbered assets, and a light investment expiration schedule. Credit weaknesses include meaningful, though gradually declining, exposure to government reimbursement risk and meaningful exposure to several individual operators.
HCN's portfolio contains investments in multiple property types, and is dominated by investments in long-term, triple-net-leases to operators of seniors housing and health care facilities with solid track records. Additionally, the company has a sizable platform of medical office assets that were 88.5% leased at Sept. 30, 2008.
Fewer than 6% of HCN's investments expire annually. Additionally, the bulk of the company's assets are held within master leases or are cross-collateralized, minimizing the ability of operators to selectively renew high performing assets.
HCN continues to report strong debt service coverage ratios and moderate leverage. HCN's interest coverage, as defined by recurring EBITDA over total interest expense, was 2.8 times (x) for the last 12 months, and fixed charge coverage, as defined by recurring EBITDA after adjusting for capital expenditures and preferred dividends was 2.4x for the same period. HCN's total debt to undepreciated book capital was 41.6% and total debt plus preferred securities to total undepreciated book capital was 46.3% at Sept. 30, 2008.
Fitch notes that the company has grown significantly in recent years and that the bulk of the growth has come from assets that have private pay revenue sources. Skilled nursing facilities and specialty hospitals, which generate the vast majority of revenue from government sources, represented 42% of HCN's total portfolio revenue in Q3 2008, down from 45% during the first quarter of 2007 and from 52% during the first quarter of 2006.
While the economic downturn is squeezing federal and state budgets to such an extent that healthcare funding could be affected in future periods, the assets in HCN's portfolio that are funded by government sources generally have high payment coverage and are well-positioned to withstand cuts in these programs.
Additionally, as HCN's portfolio has grown, the contribution from its top facility operators has continued to decrease. HCN's top five operators represented 26% of total investment balance at Sept. 30, 2008, down from 31% at March 31, 2007, 43% at June 30, 2006 and 48% at Sept. 30, 2004.
Importantly, HCN maintains financial flexibility and a solid liquidity position. The company has $60 million of debt maturities prior to 2011 and $712 million of unfunded development commitments through 2009, which could be fully funded with cash on hand and committed capacity under an existing credit facility. HCN's unencumbered asset pool included 571 assets representing 86.5% of the total portfolio on a gross book value basis at Sept. 30, 2008. This unencumbered pool is up from $3.7 billion at March 31, 2007 and $2.6 billion at Sept. 30, 2005. Fitch calculated HCN's unencumbered asset coverage to be 2.4x at Sept. 30, 2008, which is solid for the rating category.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, [ www.fitchratings.com ]. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
