Continuing care retirement / life plan communities are facing “fierce economic headwinds” heading into next year, according to a report released Monday by Fitch Ratings.
Fitch is unwavering at this time in its “deteriorating” outlook for the sector, citing decelerating real estate price growth and inflationary operating expense pressure among the sector’s biggest impediments. According to the report, to revise the outlook to “neutral,” the sector would have to demonstrate improvement in staffing numbers as well as the efficacy of measures leading to “stable” or “improving” ratings.
“Demographics are still supportive of healthy demand in terms of [life plan community] occupancy, though staffing is still very much a sore spot contributing to much of the expense pressures for [life plan communities],” Fitch Senior Director Margaret Johnson said Monday in a statement.
Johnson noted that although life plan communities have experienced flexibility relative to hospitals in responding to staffing challenges, the Centers for Medicare & Medicaid Services’ proposed minimum staffing ratios for nursing homes are expected to exacerbate staffing pressures, “though not enough to adversely affect ratings.”
CCRCs have so far been able to pass along higher costs to residents. For example, communities with significant skilled nursing components have reduced their number of beds to help keep finances in the black.
“However, occupancy and demand could soften if rate increases continue above historical norms or if cost-cutting erodes service quality. Decelerating growth in real estate pricing may also slow the current strong pace of independent living unit (ILU) sales and limit an LPC’s ability to raise entrance fees to absorb cost inflation and pay refunds,” according to the report.
Keep an eye on mergers and acquisitions activity heading into 2024, according to Johnson.
“Inflationary and economic pressures are driving smaller providers to seek the benefits of partnering with a larger system to shore up the benefits of economies of scale,” she said.
