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NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings has affirmed the credit ratings of Health Care REIT, Inc. (NYSE: HCN) as follows:

--Issuer Default Rating (IDR) at 'BBB';
--$2 billion senior unsecured credit facility at 'BBB';
--$3.6 billion senior unsecured notes at 'BBB';
--$864.9 million senior unsecured convertible notes at 'BBB';
--$1 billion preferred stock at 'BB+'.

The Rating Outlook is Stable.

The affirmations reflect HCN's broad healthcare real estate platform that contributes towards a fixed-charge coverage ratio that is consistent with the rating, as well as leverage that is appropriate for a 'BBB' rated healthcare real estate investment trust (REIT) when normalizing earnings from recent acquisitions. HCN also has good access to capital and a solid liquidity position, including contingent liquidity from unencumbered assets. Credit concerns include operational volatility associated with the company's RIDEA-related investments, regulatory risks affecting the healthcare REIT sector, and modest operator concentration related to Genesis HealthCare.

HCN's portfolio has limited lease rollover risk and structural protections in terms of management agreements, both of which Fitch views favorably. HCN primarily enters into long-term triple net leases with experienced operators of seniors housing and healthcare facilities via master leases or cross-collateralization arrangements, which minimizes the ability of operators to selectively renew management agreements for higher performance assets. In addition, HCN's well-laddered lease expiration schedule limits lease rollover risk, as fewer than 7% of HCN's leases expire annually.

Fixed-charge coverage is appropriate for the 'BBB' rating. For the trailing 12 months (TTM) ended Sept. 30, 2011, fixed charge coverage (recurring operating EBITDA including Fitch's estimate of recurring cash distributions from unconsolidated entities less recurring capital expenditures and straight line rent adjustments divided by total interest incurred and preferred dividends) was 2.2 times (x), down from 2.6x in 2010 and 3.1x in 2009. Significant debt issuances prior to acquisitions during 2011 had a negative impact on coverage. Fitch anticipates that coverage will increase to the mid-to-high 2.0x range through 2013, driven principally by solid projected operating fundamentals. In a more adverse case than anticipated by Fitch, coverage could decline to 2.1x in 2013, which is more commensurate with a 'BBB-' rating for a healthcare REIT.

Leverage is appropriate for the 'BBB' rating. Net debt as of Sept. 30, 2011 to third quarter 2011 (3Q'11) annualized recurring operating EBITDA was 6.5x. However, pro forma for earnings from $570 million of 3Q'11 acquisitions and the issuance of $632.5 million of equity subsequent to Sept. 30, 2011, leverage is expected to stabilize in the mid 5.0x range. In a more adverse case than currently anticipated by Fitch, leverage could rise above 8.0x over the next 12-to-24 months, which would be consistent with a rating lower than 'BBB'.

HCN exhibits strong access to capital, having raised $4.3 billion of total debt and equity in 2011 to fund acquisition and development. The company's liquidity is strong with total sources of liquidity (unrestricted cash, unsecured revolving credit facility availability and projected retained cash flows from operating activities after dividends) divided by uses of liquidity (debt maturities, projected recurring capital expenditures and projected development expenditures) of 1.5x for Oct. 1, 2011 to Dec. 31, 2013. Liquidity coverage would improve to 2.0x if 80% of secured debt is refinanced.

The company also benefits from a well-laddered maturity schedule. Through 2013 the company has only 12.1% of total debt maturing, and no more than 14% of total debt maturing in any given year through 2017.

HCN also has good contingent liquidity due to the presence of a large unencumbered property pool. Unencumbered assets (unencumbered annualized 3Q'11 net operating income [NOI] divided by a stressed 9% cap rate) to unsecured debt centered on 2.0x, which is appropriate for the 'BBB' rating.

The portfolio exhibits the potential for increased cash flow volatility from recent acquisitions in RIDEA operating partnerships, which represent 13.4% of total annualized 3Q'11 NOI. Separately, the Centers for Medicare and Medicaid Services (CMS) announced in July 2011 that it is reducing Medicare skilled-nursing facility (SNF) Prospective Payment System (PPS) payments in fiscal 2012 by $3.87 billion or 11.1% relative to fiscal 2011. While HCN's tenants exhibit adequate rent coverage of 1.96x for the overall triple-net portfolio and 2.28x for the SNF portfolio, reductions in SNF PPS will likely result in moderate declines in cash flow coverage. This change in reimbursement is indicative of the overall regulatory risk that the healthcare REIT sector will continue to endure, especially given government budget issues.

HCN's portfolio exhibits moderate tenant concentration resulting from the 2011 acquisition of certain assets of Genesis HealthCare. As of Sept. 30, 2011, Genesis was the largest tenant, representing 18.5% of invested capital. The next largest tenant is Benchmark Senior Living at 6.7% of invested capital. The large concentration exposes HCN to increased individual tenant credit risk. However, this is mitigated by the high occupancy of the Genesis portfolio, the concentration in the well-performing Northeast and mid-Atlantic markets, and the attractive master-lease structure.

The Stable Rating Outlook centers on HCN's solid normalized credit metrics, laddered debt maturity schedule and strong liquidity position. The Outlook also takes into account Fitch's view that assets within the senior healthcare sector will continue to benefit from solid fundamentals, positive demographic trends, and limited new supply.

The two-notch differential between HCN's IDR and preferred stock rating is consistent with Fitch's criteria for corporate entities with an IDR of 'BBB'. Based on Fitch research titled 'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis', available on Fitch's Web site at [ www.fitchratings.com ], these preferred securities are deeply subordinated and have loss absorption elements that would likely result in poor recoveries in the event of a corporate default.

The following factors may result in positive momentum in the ratings and/or Rating Outlook:

--Fixed-charge coverage sustaining above 3.0x (for the TTM ended Sept. 30, 2011, fixed charge coverage was 2.2x but is expected to improve pro forma for recent acquisitions and the 4Q'11 equity offering);
--Leverage sustaining below 5.0x (as of Sept. 30, 2011, leverage was 6.5x but is expected to improve pro forma for recent acquisitions and the 4Q'11 equity offering);
--Unencumbered assets-to-unsecured debt sustaining above 3.0x (unencumbered annualized 3Q'11 NOI divided by a stressed 9% cap rate to unsecured debt was 2.0x as of Sept. 30, 2011).

The following factors may result in negative momentum on the ratings and/or Rating Outlook:

--Fixed-charge coverage sustaining below 2.5x;
--Leverage sustaining above 6.0x;
--Deteriorating tenant/operator cash flow coverage of rent;
--Unencumbered assets-to-unsecured debt sustaining below 2.0x;
--A base case liquidity coverage ratio sustaining below 1.0x.

Additional information is available at [ www.fitchratings.com ]. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis' (Dec. 15, 2011);
--'Corporate Rating Methodology' (Aug. 12, 2011);
--'Rating hybrid Securities' (July 28, 2011);
--'Recovery Rating and Notching Criteria for REITs' (May 12, 2011);
--'Criteria for Rating U.S. Equity REITs and REOCs' (March 15, 2011).

Applicable Criteria and Related Research:
Corporate Rating Methodology
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229 ]
Recovery Rating and Notching Criteria for Equity REITs
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=628490 ]
Criteria for Rating U.S. Equity REITs and REOCs
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=610687 ]

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