The outlook for continuing care retirement / life plan communities is “deteriorating” due to continued labor challenges and a “softening broader economy.” That’s according to a new Fitch Ratings 2023 outlook report.
The good news is that life plan communities’ occupancy is expected to stabilize and perhaps even improve next year, according to the firm.
“Demographic trends will continue to support healthy demand,” Margaret Johnson, Fitch senior director and US life plan community group head, said in a press release issued Monday in conjunction with the report.
She added that slowing real estate price growth and cost inflation, however, are significant headwinds “that may stall the sector’s continued recovery following the coronavirus pandemic.”
In September, as McKnight’s Business Daily reported, Fitch Ratings had expected to maintain a neutral outlook on the CCRCs. At that time, according to Fitch, the communities had been able to withstand the challenges of the coronavirus pandemic, which included higher expenses, lower revenues and cash flows pressured by raising rates.
Now, cost inflation continues, meaning higher wages, food prices and construction costs, which likely will put pressure operating margins, Fitch said.
“A lack of adequate staffing is a particularly troublesome area for the sector as well. Additionally, a softer US housing market could slow the current strong pace of independent living unit sales,” according to the analysts at Fitch. To revise the outlook for the sector back to neutral, they said, “would require sustainable improvement in labor and supply availability.”
Life plan communities have fared better than hospitals in the wake of the pandemic, according to the report, because the communities have greater flexibility in offsetting cost concerns by raising rates or eliminating some of their skilled nursing beds, at least temporarily.
“Residents seem to have accepted higher fees for now, but [independent living unit] occupancy and demand could soften if rate increases continue above historical norms, or if cost-cutting erodes service quality,” Johnson said.
