S&P Afrm Health Care Property Investors Rtg;Otlk Stbl.

Business Editors

NEW YORK--(BUSINESS WIRE)--Standard & Poor's

April 16, 2002-- Standard & Poor's today affirmed its ratings on Health Care Property Investors Inc. (HCP) and revised the company's rating outlook to stable from negative.

The rating action impacts roughly $1 billion in rated debt and preferred securities. The rating affirmation reflects this health care REIT's established market position, the strong underlying credit quality of its most dominant lessee/operators, and a consistently moderate financial profile. The outlook revision acknowledges the general stabilization of weaker assets within HCP's core portfolio, as well as materially improved debt coverage measures and financial flexibility over the past two years.

Newport Beach, California-based HCP is an established health care REIT, which was spun off from National Medical Enterprises (now Tenet Healthcare, rated triple-'B'/Stable) in 1985. With an asset base of about $2.7 billion, the company presently owns 429 health care-focused lease and mortgage investments, which are located throughout the country and currently leased to over 90 operators. The company is the largest and most diversified of the dozen or so public equity REITs that exist to provide financing to public and private companies operating within a variety of segments of the health care industry.

HCP's outlook was revised to negative in the spring of 1999 due to concerns regarding the weakening condition of the company's nursing home operators, who were struggling to adapt to the new prospective payment system. In addition, HCP's debt coverage measures were also weakening, due to its efforts to grow its way out of exposure to the nursing home sector (which represented 40% of revenues at the time) by using shorter-term bank debt. Following the November 1999 merger with lower rated, but more conservatively capitalized American Health Properties (AHE), the negative outlook was maintained despite the favorable structure of the transaction (largely stock for stock) and the comparatively attractive credit profile of AHE's tenant base, since it appeared that HCP's core portfolio would remain under pressure.

The AHE merger was ultimately a clear credit positive. The assets were acquired at a fair price; the assumed debt carried a very favorable cost; and HCP's mid-level management ranks were meaningfully bolstered by the combination. In addition, the composition of HCP's portfolio and operator base materially shifted away from the troubled nursing home sector to the more stable acute-care sector. Large, single-tenant exposure to Vencor (now unrated Kindred) went from 7% of rents to 5% currently, while exposure to an improving Tenet Healthcare went from 4% of total rents to 18% currently. Despite the bankruptcy filing of four to six sizeable nursing home operators within HCP's portfolio, the company suffered total losses of less than 2% on its related investments (and in fact received materially higher rents for some leases, which were renegotiated in the case of the Vencor bankruptcy filing). There does remain some uncertainty as to whether recent Medicare reimbursement increases will be extended beyond October 2002. Failure to extend would clearly pressure performance of these recently repositioned operators, their materially lower (post-bankruptcy) debt burdens and today's somewhat more stable labor environment should provide at least some cushion to any potential drop in reimbursement revenues.