NEW YORK, May 8 /PRNewswire/ -- Duff & Phelps Credit Rating Co. (DCR) has
revised its Rating Outlook for Nationwide Health Properties, Inc. (NYSE: NHP)
from Stable to Negative based on declining interest coverage levels and
financial stress affecting certain of the company's long-term care operators.
NHP's outstanding $648 million medium-term notes are reaffirmed at 'BBB'
(Triple-B), and its $100 million cumulative preferred stock is reaffirmed at
'BBB-' (Triple-B-Minus).
Headquartered in Newport Beach, Calif., Nationwide Health Properties is a
$1.5 billion (total investments) equity REIT with investments in 333 health
care properties located in 37 states. NHP's portfolio is divided among
assisted living (43 percent) and skilled nursing facilities (42 percent) with
remaining investments in continuing care retirement centers (13 percent). The
DCR ratings continue to recognize NHP's good asset diversity, adequate
property-level coverage of NHP rental payments, a manageable lease rollover
schedule aggregating just 12 properties through 2003, and NHP's modest
remaining development commitments. Tenant concentration is considered average
with Alterra Healthcare (13 percent of investments) and Beverly Enterprises (9
percent) representing NHP's largest operator relationships. DCR's rating
concerns center on several nursing home tenants operating under bankruptcy
protection, slower fill-up rates for newly developed assisted living
properties and NHP's trend toward lower interest coverage.
NHP's seasoned skilled nursing properties continue to show acceptable
coverage of 1.5 times after management fees. However, the financial stress
induced via the introduction of Medicare PPS and exacerbated by corporate
leverage has caused three of NHP's nursing home operators to file for
bankruptcy protection including Mariner Post-Acute Network (5 percent of NHP
investments), Sun Healthcare (4 percent), and Integrated Health Services (3
percent). Nonetheless, payments to NHP continue to be made in a timely manner
with the exception of a $7 million mortgage investment with Mariner, which has
been stayed. While the continued payment of rent obligations to NHP has
positive connotations regarding the viability of these facilities (average
facility-level coverage for each of these portfolios is 1.5 times or higher
after management fees), the Mariner, Sun and IHS leases have yet to be
reaffirmed.
NHP's assisted living portfolio continues to perform well, although slower
fill-up rates for newly developed properties remain a concern. Approximately
25 percent of NHP's assisted living properties (about 10 percent of the total
investment portfolio) have not yet reached stabilization. DCR believes this
exposure is likely to be reduced over the next 12-18 months, as NHP has
discontinued making new development commitments and has only a $10 million
remaining commitment to complete existing projects. DCR also notes that NHP's
two largest AL operators -- Alterra Healthcare and ARV Assisted Living -- have
curtailed their development activities to focus on stabilizing their existing
operations. NHP's exposure to properties in fill-up is also mitigated by
aggregate operator coverage above 1.4 times for both Alterra and ARV, which
includes these operators' pre-stabilized facilities.
DCR's Negative Rating Outlook also reflects a trend toward lower interest
and fixed-charge coverage, offset by continued satisfactory financial
flexibility measures. During the first quarter of 2000, interest and
fixed-charge coverage from EBITDA were 2.8 times and 2.5 times, respectively,
as compared to 3.1 times and 2.7 times for 1999.
However, assuming that NHP is able to apply proceeds from ongoing mortgage
payoffs against outstanding debt (approximately 13 percent of NHP's investment
portfolio consists of first mortgages), coverage could potentially improve.
Despite the negative trend in coverage, NHP's flexibility continues to benefit
from a well-structured debt maturity schedule with only $20 million in
remaining 2000 maturities and $78 million due in 2001. NHP also has
relatively moderate exposure to renewal of its unsecured bank revolver, as the
$100 million commitment extends through March 31, 2002. These factors
combined with a predominantly unencumbered asset base and high proportion of
fixed-rate debt (92 percent), should reasonably allow NHP to weather the
challenging capital market conditions currently facing health care REITs.
SOURCE Duff & Phelps Credit Rating Co.
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Related links:
http://www.dcrco.com
CONTACT:
Ethan J. Parks, 212-908-0329,
parks@dcrco.com, or Scott J. O'Shea, 212-908-0213,
oshea@dcrco.com, both of Duff & Phelps Credit Rating Co.
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