Health Care REIT Inc. (HCN), which operates senior housing and health care real estate, received a rating upgrade from Standard & Poor’s Ratings Services. The company now enjoys a corporate credit rating to BBB from BBB- with a stable outlook.
The uptick in rating came on the back of Health Care REIT’s diversified and quality portfolio. Moreover, the rating agency acknowledged the company’s capacity to produce a stable cash flow as well as improve its credit metrics.
The rating upgrade of Health Care REIT is encouraging. In fact, this plays a major role in preserving investor confidence in the stock and helps boost its creditworthiness in the market.
In February, Health Care REIT reported fourth-quarter 2012 normalized FFO (funds from operations) of 85 cents per share, in line with the Zacks Consensus Estimate. Being one of the largest and oldest healthcare REITs in the U.S, the company boasts a strong portfolio of senior housing, long-term care and medical office facilities.
Moreover, the completion of the acquisition of Sunrise Senior Living facility further boosted the company’s high-quality senior housing portfolio and extended its reach in the high-barriers-to-entry affluent markets.
Also, the healthcare sector is relatively immune to the downturn in the economy and provides a steady source of income that insulates the company from short-term market volatility. Thus, we expect Health Care REIT to maintain its growth curves through strategic investments and simultaneously benefit the shareholders by raising dividends.
Yet, with a large portion of revenues being determined by government payout rates, forces beyond the company’s control could negatively affect revenue and operator coverage ratios.
However, Health Care REIT currently holds a Zacks Rank #4 (Sell). Nevertheless, a number of other REITs that are performing better and are worth a look include Federal Realty Investment Trust (FRT), Simon Property Group Inc. (SPG) and Cousins Properties Incorporated (CUZ), all carrying a Zacks Rank #2 (Buy).
Note: FFO, a widely accepted and reported measure of the performance of REITs, is derived by adding depreciation, amortization and other non-cash expenses to net income.
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