Fitch Affirms Healthcare Realty Trust's IDR at 'BBB'; Outlook Negative

-- Issuer Default Rating (IDR) at 'BBB';

-- Unsecured bank credit facility at 'BBB';

-- Senior unsecured notes at 'BBB';

-- Preferred stock (indicative) at 'BBB-'.

The Rating Outlook has been revised to Negative from Stable.

The affirmations are based on the geographic diversity of HR's portfolio of 204 properties and investments in 28 states, its sizable pool of unencumbered assets which generated an unencumbered asset to unsecured debt ratio of 2.2 times (x) as of March 31, 2009, and HR's 84.6% concentration of investments in medical office and physicians clinics - defensive, non-cyclical property types with strong demographics and high financeability. Fitch notes that these facilities typically have greater tenant diversity and higher tenant retention than other asset classes. Fitch acknowledges that demand, driven by strong demographics and limited new supply, has upheld fundamentals in the medical office and outpatient space.

The affirmations are further supported by HR's leverage and coverage ratios. HR's debt to undepreciated book capital was 44.5% as of March 31, 2009, relatively unchanged from 44.7% and 44.5% at Dec. 31, 2008 and 2007, respectively. The affirmations also reflect HR's 1.9x fixed-charge coverage ratio (defined as recurring EBITDA less Fitch's estimate of capital expenditures and straight-line rents, divided by interest expense and capitalized interest) for the 12 months ended March 31, 2009. Each of these metrics is appropriate for the rating category.

The ratings also point to the strength of HR's management team. In addition, the company's ratios under its unsecured credit facilities' financial covenants do not hinder the company's financial flexibility.

Key Fitch credit concerns include the possibility of HR increasing its utilization of secured debt, which although it provides additional liquidity, would decrease the size of the unencumbered asset pool and reduce financial flexibility - both of which will negatively impact unsecured creditors. In addition, Fitch notes that there is some uncertainty surrounding the refinancing of HR's unsecured line of credit (which HR is in the process of addressing) and its relatively small size and capitalization relative to other Fitch-rated health care REITs.

Further, HR's debt-to-recurring EBITDA ratio was 7.9x for the twelve months ended March 31, 2009 compared to 8.5x as of Dec. 31, 2008, which is towards the weaker end of the 'BBB' rating category.

The Negative Outlook centers on the HR's potential utilization of secured debt to repay amounts outstanding on the company's unsecured line of credit. The results of this source of financing will decrease the unencumbered asset pool. The source of any type of new financing will likely negatively impact Fitch's fixed-charge coverage ratios. The company is also in the process of addressing the maturity of its unsecured line of credit. Fitch expects the unsecured credit facility to be renewed, albeit at a higher interest rate.

Fitch's existing ratings and Outlook for HR could come under pressure (i) if Fitch-defined fixed charge coverage were to fall below 1.6x or lower for several consecutive quarters, (ii) if HR's ratio of total debt to undepreciated book capital were to increase to above 50% for several consecutive quarters, (iii) if total debt to annualized recurring EBITDA were to increase above 8.5x and (iv) if HR's unencumbered asset to unsecured debt coverage ratio were to sustain below 1.75x.

Conversely, the current ratings or Outlook may improve (i) if Fitch-defined fixed charge coverage were to sustain above 2.5x (ii) if HR's ratio of total debt to undepreciated book capital were to decrease to below 40% for several consecutive quarters, (iii) if total debt to annualized recurring EBITDA were to sustain below 7.0x and (iv) if HR's unencumbered asset to unsecured debt coverage ratio were to sustain above 2.5x.

Healthcare Realty Trust is a $2.1 billion (undepreciated book capital) equity REIT headquartered in Nashville, Tennessee. The company is focused on owning, acquiring, managing and developing income-producing real estate properties associated with the delivery of healthcare services. As of March 31, 2009, the company had investments in 204 health care properties containing 12.1 million square feet located in 28 states.

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.

SOURCE: Fitch Ratings

Fitch Ratings, New York 
Taqim Spradley, +1-212-908-0291 
Jan Svec, +1-212-908-0304 
Sandro Scenga, +1-212-908-0278 (Media Relations) 
sandro.scenga@fitchratings.com