New York, March 30, 2020 -- Moody's Investors Service, ("Moody's") has
affirmed the ratings of Welltower Inc., including its Baa1
senior unsecured rating. The ratings outlook has been revised to
negative from stable.
The ratings affirmation reflects the REIT's high-quality,
diversified portfolio of healthcare real estate, as well as its
strong liquidity and sound capital structure. The outlook has been
revised to negative to reflect the risks it faces in its senior housing
business, as the coronavirus outbreak is likely to cause acute occupancy
decline and cash flow pressure across the industry. We expect Welltower's
credit metrics, particularly Net Debt/EBTIDA, will deteriorate
as a result of these operating challenges. We regard the coronavirus
outbreak as a social risk under our ESG framework, given the substantial
implications for public health and safety.
The following ratings were affirmed:
Welltower Inc. -- senior unsecured debt at Baa1; senior
unsecured debt shelf at (P)Baa1; preferred stock at Baa2; senior
unsecured commercial paper program at P-2
HCN Canadian Holdings-1 LP -- senior unsecured debt at Baa1
Outlook Actions:
Issuers: Welltower Inc.; HCN Canadian Holdings-1
LP
Outlook, Change to Negative from Stable
RATINGS RATIONALE
Welltower's Baa1 senior unsecured debt rating reflects its large,
high-quality portfolio of healthcare investments diversified across
multiple property sub-segments, including seniors housing,
outpatient medical buildings, and long-term/post-acute
care facilities. The REIT maintains strong fixed charge coverage
and a largely unsecured capital structure. Welltower's strong
liquidity is a key credit strength as it faces risks to operating cash
flows, particularly within its senior housing operating business
(43% of NOI) due to the coronavirus outbreak. The rating
is also supported by governance considerations, specifically a conservative
leverage policy that targets Net Debt to EBITDA between the mid-to-high
5x range and Moody's expectation for continued debt repayment over
the next two years.
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, falling oil prices, and asset price
declines are creating a severe and extensive credit shock across many
sectors, regions and markets. The combined credit effects
of these developments are unprecedented. The senior housing sector
is expected to be significantly affected due to this population's vulnerability
to serious medical complications arising from the virus and their communal
settings. More specifically, the weaknesses in Welltower's
credit profile, including its direct exposure to senior housing
operations, have left it vulnerable to shifts in market sentiment
in these unprecedented operating conditions and it remains vulnerable
to the outbreak continuing to spread. We regard the coronavirus
outbreak as a social risk under our ESG framework, given the substantial
implications for public health and safety. Today's action
reflects the impact on Welltower of the breadth and severity of the shock,
and the broad deterioration in credit quality it has triggered.
Prior to the coronavirus outbreak, Welltower's senior housing
business had been performing relatively well, generating low single-digit
NOI growth despite industry-wide supply and labor pressures.
We expect the coronavirus to have potentially substantial negative implications
for the senior housing industry. Move-ins are expected to
sharply decline, inhibiting the REIT's ability to replace
natural resident turnover. At the same time, the potential
for move-outs to accelerate due to coronavirus-related deaths
among this high-risk population is an additional risk. Rising
expenses from staffing and supply shortages, as well as increased
disease containment protocols, are likely to further impact profitability
near-term. Welltower's senior housing operations (43%
of NOI) are directly exposed to potentially large NOI declines.
The REIT's triple-net leased assets (which includes senior
living, long-term/post-acute hospitals) also face
risks but the NOI declines are expected to be more modest.
Welltower's property type diversification, particularly its
high-quality outpatient medical portfolio (22% of NOI) will
help buffer the negative pressures from its senior housing business.
While outpatient medical buildings are not immune to macro concerns,
they have historically demonstrated less sensitivity to economic cycles.
Welltower's liquidity position and sound capital structure are key
credit strengths given the cash flow risks from its senior housing business.
As of 4Q19, the REIT had $1.5 billion of capacity
available on its credit revolver that matures in 2022 plus two six-month
extension options and about $300 million of cash. In March,
the REIT received a commitment for a $1 billion 2-year term
loan in order to boost its liquidity amidst the uncertainty. Combined
with $585 million of forward equity, Welltower has about
$3.5 billion of liquidity with only $250 million
and $350 million of debt maturing in 2020 and 2021, respectively.
Leverage was high at 6.4x as of 4Q19, but is estimated to
be less than 6x pro forma for recent sales and the impact of the forward
equity.
The negative outlook reflects risks Welltower faces in its senior housing
business, as the coronavirus outbreak is likely to cause acute occupancy
and cash flow pressure across the industry. We expect Welltower's
credit metrics, particularly Net Debt/EBITDA, will deteriorate
as a result of these operating challenges.
Factors that would lead to an upgrade or downgrade of the ratings:
Welltower's ratings would likely be downgraded if Net Debt/EBITDA were
expected to remain above 6.5x (including treating 75% of
preferred stock as debt) on a sustained basis, secured debt as a
% of gross assets reach the mid-teens, or if the REIT
were to experience material operating weakness causing fixed charge coverage
to fall below 3.0x. A ratings upgrade is unlikely but would
reflect Net Debt/EBITDA below 5.0x (including treating 75%
of preferred stock as debt) and fixed charge coverage above 4.5x
on a sustained basis. Reduced operator/manager concentration with
no operator comprising more than 10% of NOI would also support
an upgrade.
The principal methodology used in these ratings was REITs and Other Commercial
Real Estate Firms published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1095505.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Welltower Inc. (NYSE: WELL) is a real estate investment trust,
headquartered in Toledo, Ohio, that invests across the spectrum
of seniors housing and healthcare real estate. The REIT's portfolio
consists of seniors housing and post-acute facilities and outpatient
medical properties across the United States, Canada and the United
Kingdom.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
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Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating outcome
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Lori Marks
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Philip Kibel
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
