OREANDA-NEWS. Fitch Ratings has assigned first-time ratings to Care Capital Properties, Inc. (NYSE: CCP) and its operating partnership, Care Capital Properties, L.P., including Issuer Default Ratings (IDRs) of 'BBB-'. The Rating Outlook is Stable. A complete list of ratings follows the end of this release.

KEY RATING DRIVERS

The ratings reflect the strength of Care Capital's headline metrics and industry-tenured management team offset by the focus on skilled nursing and post-acute facilities and as of yet, immature capitalization and unproven access to non-bank debt and equity capital markets.

STRONG HEADLINE METRICS
Fitch expects CCP will operate within its targeted capitalization through 2017 with leverage of approximately 4.5x. Fitch's forecasts assume leverage will sustain in the 4.5x-5x range before adjusting for the timing effects of acquisitions. Fixed-charge coverage (FCC) will be uniquely high though this is driven by CCP's debt being 100% floating rate bank financing initially and thus Fitch places limited emphasis on it. Fitch expects FCC will moderate towards 5x over the rating horizon and closer to the industry average thereafter. Fitch defines leverage as debt less readily available cash to recurring operating EBITDA. Fitch defines FCC as recurring operating EBITDA less straight-line rent and recurring maintenance capital expenditures to total interest incurred.

FOCUSED INVESTMENT STRATEGY WITH EXPERIENCED MANAGEMENT TEAM
CCP was created through a spin-off of the majority of Ventas, Inc.'s ('BBB+'/Outlook Stable) skilled-nursing properties leased to private operators in August 2015. Ventas retained properties leased to larger public tenants, namely Kindred Healthcare and Genesis Healthcare. At the time of the spin-off, CCP's portfolio was comprised of 355 properties leased to 41 operators across 37 states, making it the second skilled nursing-focused healthcare REIT. CCP has a strong management team with extensive health care real estate and capital markets experience. Many of the company's key executives held high level positions at Ventas prior to the spin-off.

COMMONALITY OF TENANT REVENUE SOURCES MITIGATES OPERATOR DIVERSIFICATION BENEFITS
Fitch views skilled nursing real estate (and by extension pure-play REITs) as having more risk than other real estate subsectors due to the potential for legislative or regulatory changes (including the annual changes to reimbursement amounts by the Center for Medicare and Medicaid Services). These unilateral actions can impact the profitability of most tenants thus partially mitigating the benefits of tenant and geographic diversification.

Another limiting factor on the rating (but inherent in the strategy) is CCP's exposure to private, unrated operators which limits the extent to which Fitch can assess their creditworthiness. Rent coverage, as measured by earnings before interest, tax, depreciation and amortization, rent and management fees of 1.7x at March 31, 2015 is comparable to peers and implies some cushion to sustain annual rental increases and/or unforeseen changes to reimbursement rates.

IMMATURE CAPITALIZATION & UNPROVEN ISSUER; IMPROVEMENT REQUISITE TO MAINTAIN RATING
Fitch expects CCP will look to complete its inaugural public unsecured bond issuance over the next six months and make material progress in refinancing the capital stack to reduce interest rate and bullet maturity risk which will be critical to maintaining an investment grade rating. Fitch views CCP's 100% floating rate, short tenor, bank financed debt as an immature capitalization but recognizes that this is not the company's planned long-term capitalization but instead that which initially facilitated the spin-off and distribution to Ventas. Fitch's ratings assume CCP will be a regular issuer of public debt and equity securities to stagger its debt maturities, fund net investment activity and maintain its targeted capitalization.

Moreover, a key assumption as to why CCP is rated investment grade prior to demonstrating access to the non-bank debt and equity markets is that CCP should be able to complete transactions so long as it is amenable to market pricing and terms (e.g. a potential new issuer premium, potential change-of-control provisions). Should CCP be unable or unwilling to issue debt and equity to achieve its target capitalization there would likely be negative momentum on the ratings and/or Outlook, all else being equal.

STRONG LIQUIDITY; CONCENTRATED DEBT MATURITIES
Prior to completing an inaugural unsecured issuance and subsequent issuances, CCP's balance sheet has significant bullet maturity risk with all debt coming due in 2017 and 2020 (42% and 58%, respectively). Perversely, this results in strong liquidity through the rating horizon as the company will have its \\$600 million unsecured revolving credit facility due 2019 (and extendable to 2020 at CCP's option) and retained cash flow from operations after dividends to fund investments without any offsetting debt maturities. Fitch estimates CCP will be able to retain \\$50 million-\\$75 million of cash flow per year given its targeted dividend payout ratio of 75% of funds from operations and limited maintenance capital expenditures.

As CCP's portfolio is entirely unencumbered, it will benefit from significant financial flexibility. Fitch estimates unencumbered assets covered unsecured debt by 1.9x-2.3x assuming a stressed 10%-12% cap rate. However, this flexibility is tempered in part over the next two years by the Tax Matters Agreement. The agreement restricts certain transactions that could result in CCP's spin-off no longer being considered tax-free. As part of this agreement, CCP cannot sell more than 30% of its assets (based on market value). CCP could seek to sell more assets by obtaining a waiver from the IRS or if the IRS would consider sales as part of the ordinary course of business.

STABLE OUTLOOK
The Stable Outlook reflects Fitch's expectation that CCP will operate within its targeted metrics through the rating horizon and the issuer will have sufficient capacity to address any potential tenant credit issues.

KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
--General stability in the regulatory and legislative markets resulting in general stability in tenant operator reimbursement levels;
--CCP will complete a(n) unsecured debt issuance(s) thus demonstrating access to capital and beginning to stagger debt maturities;
--CCP will operate consistent with its operating and financial strategies.

RATING SENSITIVITIES
Although Fitch does not expect positive ratings momentum in the near-to-medium term, the following factors could result in positive momentum in the ratings and/or Outlook:

--Increased scale;
--Fitch's expectation of net debt-to-recurring operating EBITDA sustaining below 4x;
--Fitch's expectation of fixed-charge coverage sustaining above 3.5x.

Should CCP be unable or unwilling to refinance and rebalance its capitalization via public or private placement debt issuances, Fitch could downgrade the IDR to 'BB+' as CCP would have relatively weaker access to capital and a higher-risk capitalization (i.e. bullet maturity and interest rate risk).

In addition, the following factors may also have a negative impact on CCP's ratings and/or Outlook:

--Further pressure on operators through reimbursement cuts;
--Fitch's expectation of leverage sustaining above 5.5x;
--Fitch's expectation of fixed-charge coverage sustaining below 2.5x.

LIQUIDITY

FULL LIST OF RATING ACTIONS

Fitch has assigned the following ratings:

Care Capital Properties, Inc.
--Issuer Default Rating (IDR) 'BBB-'

Care Capital Properties, L.P.
--IDR 'BBB-';
--Senior unsecured revolving credit facility 'BBB-';
--Senior unsecured term loans 'BBB-';
--Expects to rate senior unsecured notes 'BBB-'.

The Rating Outlook is Stable.