Fitch Revises Nationwide Health Properties Outlook to Positive

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the existing ratings for Nationwide Health Properties (Ticker: NHP) as follows:

-- Issuer Default Rating (IDR) at 'BBB-';

-- Unsecured bank credit facility at 'BBB-';

-- Senior unsecured notes at 'BBB-';

-- Preferred stock at 'BB+'.

The Rating Outlook has been revised to Positive from Stable.

The rating action affects approximately $1.3 billion of outstanding securities.

The Positive Outlook follows NHP's announcement that it has signed definitive agreements with Pacific Medical Buildings (PMB) to acquire $915 million of medical office buildings, a 50% interest in a full service property management service provider, and an exclusive right to acquire up to $1 billion of additional medical office assets to be developed by PMB in the future.

Fitch notes that the acquisition is expected to grow NHP's existing asset base by approximately 25% over the next three years, increase its exposure to medical office buildings, and decrease its reliance on revenue from its top senior housing and long term care operators. The medical office buildings to be purchased through 2010 are high quality and well-leased at 95.2% as of Dec. 31, 2007.

One of Fitch's key credit concerns relating to NHP has been the operator concentration inherent within the portfolio. NHP's top five operators represented 46% of its total cash rents in the fourth quarter of 2007. By the end of 2008, these operators are projected to represent approximately 33% of total cash rents.

As of Dec. 31, 2007, 84% of the company's investments were subject to master leases. Additionally, the majority of NHP's leases contain cross-collateralization and cross-default provisions. This minimizes adverse selection risk on weaker facilities in the portfolio.

Fitch notes that NHP intends to maintain debt service coverage ratios and leverage within existing ranges after the acquisitions are closed. Interest coverage, as defined by recurring EBITDA to total interest expense was 2.9 times (x) in 2007, compared to 2.7x in 2006, and 3.0x in 2005. Fixed charge coverage, as defined by recurring EBITDA less capitalized expenditures to total interest plus preferred dividends, was 2.6x in 2007, 2.3x in 2006, and 2.5x in 2005. NHP's total debt to undepreciated book capital was 44.9% and total debt plus preferred securities to total undepreciated book capital was 48% at December 31, 2007.

In addition to the company's solid credit metrics, an important contributor to NHP's existing ratings is the company's financial flexibility, which is particularly critical given the current volatility in the capital markets. NHP has maintained a sizable unencumbered asset pool, which included 392 assets with a gross book value of approximately $2.9 billion at Dec. 31, 2007. Fitch calculates NHP's unencumbered asset coverage of unsecured debt to be 1.8x, which is appropriate for the rating category. Additionally, NHP has limited debt maturities over the next several years, limiting refinancing risk.

Fitch notes that the successful integration of the PMB platform into NHP is critical to the success of the announced transaction, due to NHP's limited expertise with respect to managing medical office buildings. PMB Real Estate Services, the property management firm in which NHP is acquiring a 50% interest, has been managing medical office facilities for 35 years. Fitch would expect to see evidence of a smooth integration between PMB and NHP over the next 12 to 24 months in conjunction with the resolution of the Positive Outlook.

Based in Newport Beach, California, Nationwide Health Properties is a self-managed and self-administered real estate investment trust (REIT) that invests in senior housing facilities, long-term care facilities, and medical office buildings. As of Dec. 31, 2007, the company had investments in 560 health care facilities in 43 states.

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