Approximately $2.3 billion of securities affected.
New York, May 07, 2015 -- Moody's Investors Service has upgraded Omega Healthcare Investors,
Inc.'s senior unsecured debt rating to Baa3 from Ba1.
The rating outlook is stable. This rating upgrade reflects the
numerous strategic benefits associated with the REIT's recent merger
with Aviv, including increased size, scale and tenant diversification,
as well as its continued maintenance of a conservative financial profile
even as it has executed substantial growth.
The following rating was upgraded with a stable outlook:
Omega Healthcare Investors, Inc. -- senior unsecured
debt to Baa3 from Ba1
RATINGS RATIONALE
Omega's Baa3 rating reflects the numerous benefits arising from
its April 1, 2015 combination with Aviv, a smaller healthcare
REIT similarly focused on skilled nursing facility (SNF) investments.
Omega has gained increased size and scale, enhanced tenant and geographic
diversification, as well as an expanded pool of tenant operator
relationships that will drive its continued growth. As the leading
SNF-focused REIT, Omega will be even better positioned to
finance sale-leaseback/mortgage transactions with operators looking
to consolidate within the highly fragmented skilled nursing industry.
Importantly, Omega retains sound rent coverage across its portfolio
post merger. Aviv's EBITDAR coverage (EBITDAR/rent),
which measures its operators' ability to meet rent payments,
is consistent with Omega's portfolio at 1.4x (TTM as of YE14).
Moody's notes that Omega has a long-standing, demonstrated
commitment to conservative balance sheet management. Net Debt/EBITDA
is expected to remain below 5x post merger, with secured debt below
5% of gross assets and fixed charge well above 4x following recent
accretive refinancing activities -- all solid investment-grade
credit metrics.
Omega had $265 million drawn on its newly expanded $1.25
billion unsecured revolver as of April 28, 2015, with no debt
maturities until its revolver comes due in 2018, providing it with
substantial liquidity and flexibility.
Omega's key credit challenge remains its property sub-type
concentration in SNFs. The SNF sub-segment is highly regulated
and reliant on government reimbursement through the Medicare and Medicaid
programs, which are subject to potential rate volatility.
The current reimbursement environment is stable, with a 1.4%
rate increase projected for fiscal 2016. However, the potential
for sharp and sudden changes in operator cash flows arising from rate
cuts will continue to be a key factor considered in Omega's rating.
The stable rating outlook reflects Moody's expectation that Omega
will continue to profitably grow its healthcare portfolio (primarily via
acquiring SNFs), while maintaining leverage comfortably between
4x-5x on a Net Debt/EBITDA basis.
Upward ratings movement would require extremely strong credit metrics
for the Baa2 rating category given Omega's investment focus in a
highly regulated industry dependent on government reimbursement.
An upgrade would necessitate gross assets above $13 billion,
with no tenant comprising more than 10% of its revenues.
Fixed charge coverage above 5x, as well as continued maintenance
of Net Debt/EBITDA between 4x-5x, would also be needed for
an upgrade.
A downgrade would be precipitated should fixed charge coverage fall below
3x or if Net Debt/EBITDA were to increase closer to 6x. Sustained
deterioration in property level coverage ratios from major tenants could
also result in a downgrade.
Moody's last rating action for Omega Healthcare Investors,
Inc. was on October 31, 2014 when we affirmed the REIT's
senior unsecured rating at Ba1 and revised the outlook to positive from
stable.
The principal methodology used in these ratings was Global Rating Methodology
for REITs and Other Commercial Property Firms published in July 2010.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
Omega Healthcare Investors, Inc. (NYSE: OHI),
based in Hunt Valley, MD, is a REIT that invests in and provides
financing to the long-term care industry. At March 31,
2015, Omega's portfolio of investments included 560 operating
healthcare facilities, consisting of skilled nursing facilities,
assisted living facilities and other specialty hospitals, located
in 37 states and operated by 50 third-party healthcare operating
companies. On April 1, 2015, Omega completed a merger
with Aviv REIT, increasing the REIT's facility count to more
than 900.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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
Vice President - Senior Analyst
Commercial Real Estate Finance
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Nick Levidy
MD - Structured Finance
Commercial Real Estate Finance
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's upgrades Omega's senior debt rating to Baa3; stable outlook