Fitch Affirms Health Care REIT Inc. at 'BBB'; Outlook Stable

--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.

The affirmation of HCN's ratings is based on HCN's large and growing portfolio of 620 properties and investments throughout 39 states, strong coverage and leverage ratios, portfolio diversity by investment type and geography, and its financial flexibility generated by a strong liquidity position and a sizable pool of unencumbered assets.

HCN's portfolio of investments across five major health service property types, consists of long-term triple-net-leases to experienced operators of seniors housing and health care facilities. The majority of HCN's assets are master leased or cross-collateralized, thereby minimizing the ability of operators to selectively renew high performing assets. Additionally, fewer than 6% of HCN's leases expire annually, and the company has a sizable platform of medical office assets that were 90.6% leased at June 30, 2009.

HCN continues to exhibit leverage and coverage metrics that are commensurate with a 'BBB' rating. HCN's net debt to recurring operating EBITDA ratio pro forma for the company's September 2009 equity offering was 4.7 times (x). The rating affirmations also reflect HCN's 2.7x fixed-charge coverage ratio (defined as recurring EBITDA less Fitch's estimate of capital expenditures and straight-line rents, divided by interest expense, capitalized interest and preferred stock dividends) for the 12 months ended June 30, 2009. Both of these metrics are adequate for the rating category.

Further supporting the ratings is HCN's solid liquidity position driven by $356 million in net proceeds from its September 2009 equity offering, the proceeds of which will be used to invest in additional health care and senior housing properties, to repay borrowings under the company's unsecured revolving credit facility and other outstanding indebtedness. Fitch notes that HCN's estimated liquidity surplus (cash, availability under its revolving credit facility, expected retained cash flows from operating activities less debt maturities and expected capital expenditures through Dec. 31, 2011) of over $800 million is supported by the sizeable availability under its credit facility, proceeds from its most recent equity offering, and a manageable debt maturity schedule.

The company has $362.4 million of debt maturities through 2011, including $340 million of convertible senior unsecured notes that are putable to HCN, and $459 million of unfunded development commitments, which could be fully funded with cash on hand and committed capacity under the existing credit facility. HCN's Fitch-estimated unencumbered asset to unsecured debt ratio was 2.15x on a gross book value basis, pro forma for the equity offering.

A key concern for Fitch is the company's sizeable development pipeline, which has a total budget of $1.2 billion. Fitch notes that development activities contain risks not present in ownership of stabilized product. These risks are somewhat offset by the fact that HCN has an established development track record. Another mitigant to development risk is that while construction-related assets on HCN's balance sheet represented $730 million of $6.2 billion (12%) of total book assets as of June 30, 2009, Fitch expects this exposure will decrease as assets are completed and placed into the stabilized portfolio.

Additional concerns include HCN's moderate exposure to government reimbursement risk and operator exposure. Fitch also notes that the increased utilization of secured debt will decrease the size of the unencumbered asset pool and modestly reduce financial flexibility.

Fitch acknowledges 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. In addition, HCN's exposure to skilled nursing facilities and specialty hospitals, which generate the majority of their revenues from government sources, has declined. Skilled nursing facilities and specialty hospitals represented 36.4% of HCN's total portfolio investment balance in the second quarter of 2009 (2Q'09), down from 38.5% during the 2Q'08 and from 39% during the 2Q'07.

HCN's top five operators account for 28% of total revenues. However, as HCN's portfolio has grown, the contribution from its top five facility operators has decreased from 31% during 2Q'08.

Fitch notes that although HCN has recently accessed secured debt, secured debt to undepreciated capital is estimated to remain below 15% throughout the remainder of the year. In addition, HCN's unencumbered asset to unsecured debt ratio is estimated to remain above 2.0x absent additional secured debt transactions.

The Stable Outlook centers on Fitch's expectations that HCN's credit metrics will remain relatively unchanged, its manageable debt maturity schedule and a strong liquidity position. The Outlook also takes into account Fitch's view that fundamentals within the senior health care sector will continue to be upheld by strong demographics and limited new supply, particularly within the medical office building and outpatient space.

The following factors may have a positive impact on HCN's ratings:

--Fitch-defined fixed charge coverage were to sustain above 2.7x (fixed charge coverage was 2.7x for the 12 months ended June 30, 2009);

--Total debt to annualized recurring EBITDA were to sustain below 5.5x (leverage was 5.5x as of June 30, 2009);

--Fitch's estimation of HCN's unencumbered asset to unsecured debt coverage ratio were to sustain above 2.25x (coverage was 2.15x as of June 30, 2009 pro forma for HCN's September 2009 equity offering).

The following factors may have a negative impact on HCN's ratings:

--Fitch-defined fixed charge coverage were to fall below 2.2x or lower for several consecutive quarters;

--Total debt to annualized recurring EBITDA were to sustain above 6.5x;

--HCN's Fitch-estimated unencumbered asset to unsecured debt coverage ratio were to sustain below 1.8x.

HCN is based in Toledo, Ohio, and is an approximately $6.8 billion (total undepreciated book capitalization) equity REIT with a focus in health care real estate, including independent living, assisted living and skilled nursing facilities, continuing care retirement communities, hospitals and medical office buildings. The company also offers property management and development services to its customers. As of June 30, 2009, the company had investments in 620 health care facilities located in 39 states with 64 operators and over 800 medical office building tenants.

Additional information is available at www.fitchratings.com.

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SOURCE: Fitch Ratings

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