NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BBB+' rating to the $600 million aggregate principal amount 4.25% 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 99.214% of par to yield 4.347% to maturity, or 250 basis points over the benchmark treasury rate. Net proceeds from the offering are expected to be used to repay indebtedness outstanding under Ventas's unsecured revolving credit facility and for working capital and other general corporate purposes, including funding future acquisitions or 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+';
--$2.2 billion senior unsecured notes 'BBB+';
--$950 million senior unsecured term loans 'BBB+'.
Nationwide Health Properties, LLC
--IDR 'BBB+';
--$652.6 million senior unsecured notes 'BBB+'.
The Rating Outlook is Stable.
As of Sept. 30, 2011 pro forma for the unsecured bond offering and the acquisition by Ventas of Cogdell Spencer Inc. (NYSE: CSA) and its 72 medical office buildings (MOBs) in an all-cash transaction ranging from $760 million to $770 million, Ventas's fixed charge coverage will decline and leverage will increase but will remain consistent with a 'BBB+' IDR for a healthcare REIT. In addition, the bond offering and Cogdell Spencer acquisition will modestly weaken the company's unencumbered coverage of unsecured debt, but near-term liquidity will improve via the 10-year unsecured bond offering.
Coverage remains appropriate for the 'BBB+' rating. Fitch projects that the company's fixed charge coverage ratio (defined as recurring operating EBITDA less recurring capital expenditures and straight-line rent adjustment divided by total interest incurred) for third quarter 2011 (3Q'11) pro forma for the Cogdell Spencer acquisition and senior unsecured notes offering is 3.9 times (x), compared with 4.2x in 3Q'11. A 7.3% yield on the Cogdell Spencer portfolio positively impacts coverage, offset by higher interest rates on assumed mortgage debt to fund a portion of the acquisition as well as the 10-year bond offering compared with interest rates on the revolving credit facility.
Leverage is increasing but remains commensurate with a 'BBB+' rating. Net debt to recurring operating EBITDA as of Sept. 30, 2011, pro forma for the Cogdell Spencer acquisition and senior unsecured notes offering, is 5.1x, unchanged from 4.7x as of Sept. 30, 2011. The assumption of Cogdell Spencer mortgage debt, Ventas 10-year unsecured bond offering and additional Ventas borrowings used to fund the $4.25 per share valuation of Cogdell Spencer equity, will result in modestly increased leverage.
The offering of $600 million 4.25% senior unsecured notes due 2022 will improve Ventas's near-term liquidity profile. Sources of liquidity (unrestricted cash, availability under the company's $2 billion revolving credit facility and projected retained cash flows from operating activities) divided by uses of liquidity (debt maturities and projected recurring capital expenditures) is 1.3x for Oct. 1, 2011 to Dec. 31, 2013. For this period and pro forma for the Cogdell Spencer acquisition and 10-year senior unsecured notes offering, liquidity coverage improves to 1.5x. Liquidity coverage would be 2.2x assuming an 80% refinance rate on secured debt maturities.
Unencumbered assets continue to provide robust contingent liquidity to Ventas. Unencumbered assets (defined as 3Q'11 annualized unencumbered net operating income [NOI] divided by a stressed 8% capitalization rate) to unsecured debt was 3.6x as of Sept. 30, 2011. Fitch calculates that unencumbered asset coverage will decline to 3.2x as the incurrence of additional unsecured debt outweighs the additional unencumbered property NOI generated via the Cogdell Spencer acquisition.
Fitch noted on Jan. 4, 2012, that Ventas' announcement regarding the Cogdell Spencer acquisition will not affect Ventas' 'BBB+' IDR or Stable Outlook. However, the Cogdell Spencer acquisition will enhance Ventas' MOB platform, a business segment that has been cultivated through the company's Lillibridge Healthcare Services, Inc. subsidiary and ownership interest in PMB Real Estate Services LLC. Fitch views this MOB expansion as a credit positive in that the 68-property stabilized portfolio is 92% occupied. In addition, 88% of owned square footage is on hospital campuses or hospital-anchored, which should provide cash flow stability. The transaction further lessens Ventas' exposure and credit risk related to its top tenants and operators.
The percentage of Ventas's net operating income derived from MOBs is expected to be 15% pro forma for the Cogdell Spencer acquisition compared with 11% in 3Q'11. The transaction will reduce exposure to top tenants Kindred to approximately 17% from 18%, Atria to approximately 13% from 14%, and Brookdale to approximately 12% from 13%. An occupancy rate of 92% on the Cogdell Spencer stabilized portfolio indicates robust demand for hospital campus-centric MOBs.
Seniors housing triple-net assets will contribute 27% of total NOI pro forma for the Cogdell Spencer acquisition compared with 29% in 3Q'11, seniors housing operating assets will contribute 24% of total NOI compared with 25% in 3Q'11, and skilled nursing facility assets will contribute 24% of total NOI compared with 25% in 3Q'11. Ventas continues to develop its track record of diversification across healthcare properties.
Fitch does not anticipate positive rating momentum over the near- to medium-term. However, the following factors may have a positive impact on Ventas' ratings and/or Outlook:
--A continued reduction in manager/operator concentration;
--If the company's fixed-charge coverage ratio were to sustain above 4.0x (3Q'11 fixed charge coverage ratio pro forma for the Cogdell Spencer acquisition and senior unsecured notes due 2022 is estimated at 3.9x);
--If the company's net debt-to-recurring operating EBITDA ratio were to sustain below 4.0x (leverage as of Sept. 30, 2011 pro forma for the Cogdell Spencer acquisition and senior unsecured notes due 2022 is estimated at 5.1x);
--If unencumbered asset coverage of unsecured debt sustains above 4.0x (unencumbered asset coverage of unsecured debt as of Sept. 30, 2011 pro forma for the Cogdell Spencer acquisition and senior unsecured notes due 2022 is estimated at 3.2x).
The following factors may have a negative impact on Ventas' ratings and/or Outlook:
--If the company's leverage ratio were to remain above 5.5x;
--If the company's fixed-charge coverage ratio were to remain below 3.0x;
--Unencumbered asset coverage sustains below 3.0x;
--A sustained liquidity coverage ratio below 1.0x (liquidity coverage for Oct. 1, 2011 to Dec. 31, 2013 pro forma for the Cogdell Spencer acquisition and senior unsecured notes due 2022 is estimated at 1.5x).
Ventas, Inc. is a healthcare real estate investment trust (REIT) with more than 1,300 assets in 47 states (including the District of Columbia) and two Canadian provinces which consists of seniors housing communities, skilled nursing facilities, hospitals, medical office buildings and other properties. Through its Lillibridge subsidiary, Ventas provides management, leasing, marketing, facility development and advisory services to hospitals and health systems throughout the United States. Cogdell Spencer Inc. is a REIT focused on planning, owning, developing, constructing, and managing medical facilities.
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:
--'Corporate Rating Methodology', Aug. 12, 2011;
--'Parent and Subsidiary Rating Linkage', Aug. 12, 2011;
--'Parent and Subsidiary Rating Criteria for Equity REITs', May 12, 2011;
--'Criteria for Rating U.S. Equity REITs and REOCs', March 15, 2011.
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
Parent and Subsidiary Rating Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647210
Criteria for Rating U.S. Equity REITs and REOCs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=610687
Recovery Rating and Notching Criteria for Equity REITs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=628490
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