TEXT-Fitch rates Ventas Inc snr unsecured note

Fri Aug 3, 2012 11:36am EDT

Aug 3 - Fitch Ratings has assigned a 'BBB+' rating to the $275 million
aggregate principal amount 3.25% coupon senior unsecured notes due 2022 issued
by the operating partnership of Ventas, Inc. (NYSE: VTR), Ventas Realty,
Limited Partnership (Ventas Realty), and a wholly owned subsidiary of 
Ventas Realty, Ventas Capital Corporation (collectively, Ventas).

The notes are guaranteed by Ventas, Inc. on a senior unsecured basis and were 
priced at 99.027% of par to yield 3.365% to maturity, or 188 basis points over 
the benchmark treasury rate. The company expects to use the net proceeds from 
the offering to prepay in full its $200 million unsecured term loan due 2013, 
which bears interest at an all-in fixed rate of 4% per annum, to repay 
indebtedness outstanding under its unsecured revolving credit facility and for 
working capital and other general corporate purposes, including to fund future 
acquisitions and investments, if any. 

Fitch currently rates Ventas, Inc. and its subsidiaries (collectively, Ventas) 
as follows:

Ventas, Inc.

Ventas Realty, Limited Partnership

Ventas Capital Corporation
--Issuer Default Rating (IDR) 'BBB+';
--$2 billion unsecured revolving credit facility 'BBB+';
--$502.4 million senior unsecured term loans 'BBB+';
--$2.7 billion senior unsecured notes 'BBB+'.

Nationwide Health Properties, LLC (NHP)
--IDR 'BBB+';
--$579.6 million senior unsecured notes 'BBB+'.
The Rating Outlook is Stable.

The ratings reflect:

--The company's diversified healthcare property portfolio that is benefiting 
from favorable demographics;

--Strong access to capital and liquidity;

--Appropriate leverage for the rating; and

--A solid management team.

The rating is balanced by:

--Uncertainties regarding leasing of certain of Ventas's skilled nursing 
facilities to be vacated by Kindred;

--The incurrence of increased capital expenditures related to Ventas's May 2011 
acquisition of substantially all of the real estate assets and working capital 
of Atria Senior Living Group, Inc. (ASLG); however, this is mitigated by the 
fact that since the ASLG acquisition as well as the purchases of NHP in July 
2011 and Cogdell Spencer in April 2012, fixed charge coverage has remained and 
is expected to remain solid for the 'BBB+' rating. 

The portfolio benefits from demand by a growing elderly population for various 
segments of healthcare real estate. As of June 30, 2012, operating seniors 
housing represented 26% of NOI, followed by triple-net seniors housing (26%), 
skilled nursing (23%), medical office (15%) and hospitals (7%). Ventas has 
limited exposure to specific geographical regions. The company's largest states 
by annualized NOI in the second quarter of 2012 (2Q'12) were California at 12%, 
Texas at 8%, New York at 7%, Massachusetts at 6% and Illinois at 6%, reducing 
risks related to single-state healthcare regulatory changes.

The company's pro forma payor sources are 70% private pay by NOI, limiting 
government reimbursement risk. As a result, Fitch does not expect that the June 
28, 2012 U.S. Supreme Court decision on the Patient Protection and Affordable 
Care Act of 2010 will materially impact Ventas's business in the near term. 
Same-store cash flow coverage ratios of all of the company's triple-net tenants 
are solid at 1.7 times (x) on average for 1Q'12, which insulates the company 
against potential tenant cash flow deterioration despite the potential 
ramifications of the Supreme Court decision for certain of Ventas's tenants that
rely on government reimbursements.

Ventas's tenant/operator concentration is limited and includes Kindred 
Healthcare, Inc. (NYSE: KND) at 17% of 2Q'12 NOI, Atria Senior Living, Inc. 
owned by private equity funds managed by Lazard Real Estate Partners LLC at 14%,
Sunrise Senior Living, Inc. (NYSE: SRZ) at 12%, and Brookdale Senior Living Inc.
(NYSE: BKD) at 11%, with no other tenant/operator exceeding 6% of NOI.

Access to multiple sources of capital provides further support for the 'BBB+' 
rating. In addition to the 3.25% senior unsecured notes due 2022 and other 
recent unsecured bond offerings, the company also has proven access to the 
unsecured term loan market, raising $500 million at LIBOR plus 125 basis points 
in December 2011, and has proactively raised follow-on common equity, most 
recently selling $344 million of common equity (including the overallotment 
option) in June 2012.

For July 1, 2012 through Dec. 31, 2013, base case liquidity coverage pro forma 
for the bond offering is good at 1.8x. Sources of liquidity include unrestricted
cash, availability under the unsecured revolving credit facility pro forma for 
the bond offering, and projected retained cash flows from operating activities. 
Uses of liquidity include debt maturities and projected recurring capital 
expenditures. Contingent liquidity is strong with unencumbered assets to 
unsecured debt at 3.0x as of June 30, 2012 at an 8% capitalization rate. 

As of June 30, 2012, net debt to recurring operating EBITDA was 5.0x compared 
with 4.7x in 1Q'12 and 4.9x in 4Q'11. Fitch anticipates that leverage will 
remain in the high-4x to low 5x range over the next 12 to 24 months (appropriate
for a 'BBB+' rating), due to expectations of ongoing balanced access to 
unsecured debt and equity coupled with low-single digit same-store NOI growth. 
In a stress case not anticipated by Fitch in which leases to be vacated by 
Kindred remain unleased, leverage would sustain around 5.4x, which would be weak
for a 'BBB+' rating.

Ventas has a strong management team, with multiple senior managers together 
since 2002. The company has adroitly managed its various M&A transactions while 
remaining attuned to its credit statistics. In addition, the covenants under the
company's existing notes and credit facility agreement do not restrict financial
flexibility. 

The leasing status on Ventas's skilled nursing facilities not renewed by Kindred
remains uncertain. Of the 89 licensed SNFs and LTACs whose current lease to 
Kindred expires April 30, 2013, Kindred has renewed or entered into a new lease 
for 35 assets at a total annual rent of $75 million, which represents 
approximately 60% of the total current annual rent of $126 million for the 89 
facilities. Ventas is currently marketing for lease to qualified care providers 
the remaining 54 SNFs whose lease to Kindred expires April 30, 2013. 

The company's REIT Investment Diversification and Empowerment Act (RIDEA) 
transactions increased capital expenditures to $58.7 million for the trailing 12
months (TTM) ended June 30, 2012 from $19.9 million in 2010. Fitch views TTM 
capital expenditures as an appropriate run rate going forward but is cognizant 
of the potential for increased property-level capital expenditures due to the 
nature of RIDEA transactions.

Despite increased capital expenditures, fixed-charge coverage is strong for the 
rating. 2Q'12 fixed-charge coverage (recurring operating EBITDA less recurring 
capital expenditures and straight-line rent adjustments divided by total 
interest incurred) pro forma for the bond offering was 4.4x compared with 4.5x 
in 1Q'12 and 4.3x in 4Q'11. Fitch anticipates that low single-digit same store 
NOI growth and lowering costs of debt capital will result in coverage sustaining
in the low-to-mid 4x range over the next 12-to-24 months. In a stress case not 
anticipated by Fitch in which leases to be vacated by Kindred remain unleased, 
coverage would fall below 4.0x, which would remain commensurate with a 'BBB+' 
rating.

Based on Fitch's criteria report, 'Parent and Subsidiary Rating Linkage,' dated 
Aug. 11, 2011, the Ventas merger with NHP in July 2011 spawned a 
parent-subsidiary relationship whereby NHP is now a wholly owned subsidiary of 
Ventas, Inc. Prior to the merger, NHP previously had stronger standalone credit 
metrics including lower leverage and higher fixed-charge coverage. Given the 
stronger subsidiary credit profile, combined with strong legal and operating 
ties (e.g. common management and a centralized treasury), the IDRs of Ventas and
NHP are linked and are expected to remain the same going forward. The IDRs are 
based on the financial metrics and overall credit profile of the consolidated 
entity.

The Stable Outlook reflects Fitch's base case that leverage will remain around 
5x, coverage will sustain between 4.0x and 4.5x, and liquidity will remain 
solid.

The following factors may have a positive impact on the ratings and/or Outlook:

--A continued reduction in tenant/operator concentration;

--If Fitch expects the company's fixed-charge coverage ratio to sustain above 
4.0x (pro forma coverage is 4.4x);

--If Fitch expects the company's leverage to sustain below 4.0x (pro forma 
leverage is 5.0x);

--If Fitch expects unencumbered asset coverage of unsecured debt (UA/UD) to 
sustain above 4.0x (pro forma UA/UD is 3.0x).

The following factors may have a negative impact on the ratings and/or Outlook:

--If Fitch expects the company's leverage ratio to remain above 5.5x;

--If Fitch expects the company's fixed-charge coverage ratio to remain below 
3.0x;

--If Fitch expects unencumbered asset coverage to sustain below 3.0x;

--If the company sustains a liquidity shortfall.
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