(The following statement was released by the rating agency)
NEW YORK, March 05 (Fitch) Fitch Ratings has assigned a credit
rating of 'BBB+'
to the $225 million aggregate principal amount of 5.45% senior
due 2043 issued by the operating partnership of Ventas, Inc.
(NYSE: VTR), Ventas
Realty, Limited Partnership (Ventas Realty), and a wholly owned
Ventas Capital Corporation (collectively, Ventas). The notes are
Ventas, Inc. on a senior unsecured basis and are redeemable at
par in whole at
any time, or from time to time in part, on or after March 7,
The company expects to use the net proceeds from the offering of
$217.9 million (or $250.5 million if the overallotment option is
full) to repay indebtedness outstanding under its unsecured
facility and for working capital and other general corporate
the funding of future acquisitions or investments, if any.
Fitch currently rates Ventas, Inc. and its subsidiaries
Ventas Realty, Limited Partnership
Ventas Capital Corporation
--Issuer Default Rating (IDR) 'BBB+';
--$2 billion unsecured revolving credit facility 'BBB+';
--$685.3 million senior unsecured term loans 'BBB+';
--$3.7 billion senior unsecured notes 'BBB+'.
Nationwide Health Properties, LLC (NHP)
--$579.6 million senior unsecured notes 'BBB+'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
The ratings reflect the company's broad healthcare property
generates cash flow predominantly from private pay sources. The
company also has
strong access to capital and liquidity, appropriate leverage for
rating, and a solid management team. The rating is balanced by
the incurrence of
increased capital expenditures related to the company's
including assets managed by Atria Senior Living, Inc. (Atria),
which is 34%
owned by Ventas effective Dec. 21, 2012. However, fixed charge
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 Dec. 31, 2012,
housing represented 26% of NOI, followed by triple-net seniors
skilled nursing (22%), medical office (17%) and hospitals (7%).
including NOI related to the company's REIT Investment
Empowerment Act of 2007 (RIDEA) investments represent 26% of
which is higher than other healthcare REITs. Ventas has limited
specific geographical regions. The company's largest states by
within the owned portfolio in the fourth quarter of 2012 (4Q'12)
at 13%, Texas at 8%, New York at 7%, with no other state
Ventas's tenant/operator concentration is limited and includes
Kindred at 16% of
fourth quarter 2012 (4Q'12) NOI, Atria Senior Living, Inc. at
Senior Living, LLC (Formerly NYSE: SRZ) at 12%, and Brookdale
Senior Living Inc.
(NYSE: BKD) at 10%, with no other tenant/operator exceeding 5%
Mostly Private Pay Portfolio
The company's payor sources are 71% private pay by NOI, limiting
reimbursement risk. Same-store cash flow coverage ratios of all
of the company's
triple-net tenants declined to 1.6x on average for 3Q'12 (latest
from 1.7x in 2Q'12, reflective of the loss of RUG-IV revenues by
operators during the prior calendar year. Uncertainties
regarding the resolution
of the sequestration spending reductions that became effective
on March 1, 2013
further underscore the benefits of a private pay portfolio.
Strong Access to Capital and Liquidity
The company's strong access to multiple sources of capital
supports the 'BBB+'
rating. Over the past 12 months, Ventas has been active in the
market (with both retail and institutional investors) and also
via the unsecured term loan and common equity markets.
Liquidity coverage, defined as liquidity sources divided by
uses, is strong at
2.2x for the period Jan. 1, 2013 through Dec. 31, 2014 pro
sources include unrestricted cash, availability under revolving
facilities pro forma for the 2043 notes offering, and projected
flows from operating activities after dividends. Liquidity uses
include pro rata
debt maturities and projected recurring capital expenditures.
Assuming an 80%
refinance rate on 2013-2014 secured debt maturities, liquidity
coverage is 4.1x.
Fitch calculates that the company's dividends and distributions
74.9% of normalized FFO adjusted for capital expenditures and
in 2012, indicating some liquidity generated from operating cash
Ventas has good contingent liquidity with unencumbered assets
unencumbered NOI divided by an 8% capitalization rate) to
unsecured debt of 3.1x
as of Dec. 31, 2012. In addition, the covenants in the company's
do not restrict financial flexibility.
As of Dec. 31, 2012, net debt to 4Q'12 recurring operating
EBITDA was 5.5x
compared with 5.0x in 3Q'12 and 4.9x in 2Q'12. Fitch anticipates
will remain in the mid-4x to mid 5x range over the next 12 to 24
months, due to
expectations of ongoing balanced access to unsecured debt and
with low-single digit same-store NOI growth. In a stress case
not anticipated by
Fitch in which operational volatility results in same-store NOI
leverage would sustain in the high-5x range, which would be weak
for a 'BBB+'
Strong Management Team
Management has remained attuned to managing credit metrics
acquisitions. 2011 transactions included NHP and the portfolio
of senior living
communities managed by Atria. 2012 investments totaled $2.7
billion and included
Cogdell Spencer, Inc. and 16 private pay seniors housing
communities managed by
Sunrise. Multiple senior managers have been with the company
providing stability through real estate and capital market
Increased Capital Expenditures
Despite increased capital expenditures, fixed-charge coverage is
strong for the
rating. 4Q'12 annualized fixed-charge coverage pro forma for the
was 4.1x compared with 4.2x in 4Q'12, 4.4x in 3Q'12 and 4.4x in
defines fixed-charge coverage as recurring operating EBITDA less
capital expenditures and straight-line rent adjustments divided
Fitch anticipates that low single-digit same store NOI growth
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 operational
in same-store NOI declines, coverage remain around 4.0x, which
commensurate with a 'BBB+' rating.
Based on Fitch's criteria report, 'Parent and Subsidiary Rating
Aug. 8, 2012, the Ventas merger with NHP in July 2011 spawned a
parent-subsidiary relationship whereby NHP is now a wholly owned
Ventas, Inc. Prior to the merger, NHP previously had stronger
metrics including lower leverage and higher fixed-charge
coverage. Given the
stronger subsidiary credit profile, combined with strong legal
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
The following factors may have a positive impact on the ratings
--A continued reduction in tenant/operator concentration;
--Fitch's expectation of the company's fixed-charge coverage
above 4.0x (4Q'12 pro forma coverage is 4.1x);
--Fitch's expectation of leverage sustaining below 4.0x (Dec.
31, 3012 leverage
--Fitch's expectation of unencumbered asset coverage of
unsecured debt (UA/UD)
sustaining above 4.0x (Dec. 31, 3012 UA/UD is 3.1x).
The following factors may have a negative impact on the ratings
--Fitch's expectation of fixed-charge coverage sustaining below
--Fitch's expectation of leverage sustaining above 5.5x;
--Fitch's expectation of UA/UD sustaining below 3.0x;
--The company sustaining a liquidity coverage ratio below 1.0x.
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278,
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:
--'Criteria for Rating U.S. Equity REITs and REOCs' (Feb. 26,
--'Recovery Ratings and Notching Criteria for Equity REITs'
(Nov. 12, 2012);
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Parent and Subsidiary Linkage' (Aug. 8, 2012).
Applicable Criteria and Related Research
Criteria for Rating U.S. Equity REITs and REOCs
Recovery Ratings and Notching Criteria for Equity REITs
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage
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