TEXT-Fitch rates HCP Inc term loan 'BBB+'

Aug 6 - Fitch Ratings has assigned a 'BBB+' rating to the GBP137 million
term loan due 2016 entered into by HCP, Inc. (NYSE: HCP).

The loan bears interest at LIBOR plus 120 basis points and the company
concurrently entered into a four year interest rate swap agreement that fixes
the interest rate of the loan at 1.81% subject to changes in the company's
credit rating. Loan proceeds will fund the previously announced acquisition and
match-sized investment in the senior unsecured notes of Four Seasons Health Care
which bear interest at 12.25%.

Fitch currently rates HCP as follows:

--Issuer Default Rating (IDR) 'BBB+';
--Unsecured bank credit facility 'BBB+';
--Senior unsecured notes 'BBB+'.

The Rating Outlook is Stable.

The ratings reflect HCP's credit strengths, namely steady cash flows from a
large portfolio of high-quality properties across the health care real estate
spectrum, maintenance of leverage and fixed charge coverage metrics appropriate
for the rating category, manageable lease expiration and debt maturity
schedules, financial flexibility stemming from a large unencumbered pool to
support unsecured borrowings, and a solid liquidity position. Credit concerns
include operator and geographic concentration.

HCP's portfolio includes assets across the health care property spectrum by both
type and structure, including senior housing, post-acute and skilled nursing,
medical office, life science, and hospitals. The diversified portfolio reduces
exposure to individual demand drivers. HCP's cash flows have significant
embedded stability, with long-term leases in place in conjunction with annual
rent escalators.

Same-property net operating income (NOI) increased 3.1% for the second quarter
of 2012 (2Q'12), behind the 4.7% and 4% growth during 1Q'12 and 2011 and as
compared to trough growth of 1.6% in 2008 during the financial crisis. The
strong fundamentals result from the lease structures (generally triple-net with
contractual increases) as well as HCP's active management. Fitch estimates
same-property NOI growth to remain within the historical 2%-4% range through
2014 despite the regulatory-based headwinds some operators are facing.

HCP has a modest lease expiration schedule, with no more than 10% of leases
expiring in any single year through 2021 and an average of 5% over the next 10
years as measured by annual rental revenue. Cash flow coverage for the bulk of
HCP's portfolio has remained solid and each property type is subject to varying
supply and demand drivers.

HCP's fixed charge coverage was 2.8 times (x) for the trailing 12 months (TTM)
ended June 30, 2012. Fixed charge coverage for 2010 and 2009 was 2.5x and 2.4x,
respectively. Fitch projects fixed charge coverage to remain at or above 3.0x
beginning in 2013. Fitch defines fixed charge coverage as recurring operating
EBITDA less recurring capital expenditures less straight-line rent adjustments
and direct financing lease accretion, divided by interest expense, capitalized
interest and preferred dividends.

HCP's leverage was 5.2x as of June 30, 2012 and is within a range that is
appropriate for a 'BBB+' IDR. Leverage was 5.0x for 2010 pro forma, 6.1x for
2009 and 6.5x for 2008. Fitch projects HCP's leverage to remain around 5.0x
through 2014. Fitch defines leverage as net debt divided by recurring operating
EBITDA.

The company's debt maturity schedule is well-laddered, with no more than 12% of
debt maturing on an annual basis through 2015. As such, HCP maintains a solid
liquidity position. Sources of liquidity (unrestricted cash, availability under
the company's unsecured revolving credit facility, expected retained cash flows
from operating activities after dividends and distributions) divided by uses of
liquidity (pro rata debt maturities and estimated recurring capital
expenditures) for the period July 1, 2012 to Dec. 31, 2013 results in a
liquidity coverage ratio of 1.7x pro forma for the term loan which was used to
repay amounts outstanding under the revolving credit facility. HCP has also
demonstrated strong access to a wide variety of capital sources over the past
two years, mitigating refinance risk.

HCP maintains solid financial flexibility stemming mainly from its large
unencumbered property pool, which serves as a source of contingent liquidity.
Using a blended, stressed cap rate of 8.6%, HCP's unencumbered asset coverage of
unsecured debt was approximately 2.3x, which is solid for the 'BBB+' IDR.

Credit concerns include operator and geographic concentration. HCR ManorCare
represents 32% of HCP's revenues and increases HCP's exposure to government
reimbursement risk. Partially offsetting this concentration is the master lease
structure and covenants to provide protection to HCP at the guarantor level.

Further, HCP's portfolio has been and remains geographically concentrated,
despite the company maintaining a diversified investment platform. As of June
30, 2012, approximately 32% of HCP's consolidated net operating income from
wholly owned assets was generated from properties located in California and
Texas (though this is down from 47% as of Dec. 31, 2010).

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

--Reduced tenant concentration;
--Fixed charge coverage sustaining above 3.0x for several consecutive quarters
(coverage was 2.8x for the TTM ended June 30, 2012);
--Net debt to recurring operating EBITDA sustaining below 4.5x (leverage was
5.2x as of June 30, 2012).

The following factors may result in negative momentum in the rating and/or
Outlook:

--Fixed-charge coverage sustaining below 2.5x;
--Leverage sustaining above 6.0x;
--A liquidity shortfall.

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:
--'Recovery Ratings and Notching Criteria for Equity REITs' (May 3, 2012);
--'Criteria for Rating U.S. Equity REITs and REOCs,' Feb. 27, 2012;
--'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit
Analysis,' Dec. 15, 2011;
--'Corporate Rating Methodology,' Aug. 12, 2011.

Applicable Criteria and Related Research:
Recovery Ratings and Notching Criteria for Equity REITs
Criteria for Rating U.S. Equity REITs and REOCs
Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit
Analysis
Corporate Rating Methodology