Following a “comeback year” in 2021, continuing care retirement / life plan communities are bracing for economic challenges ahead, according to a new report from Fitch Ratings.
CCRCs experienced recovery across all levels of care in 2021, which Fitch attributed to government assistance, an increase in the sales pipeline and favorable demographic trends.
“Pandemic-related pressures have evolved from healthcare and demand risk to risks involving expense inflation and staffing shortages,” Margaret Johnson, senior director and US life plan community group head, said Tuesday in a press release issued in conjunction with the report. CCRCs “with a significant skilled nursing component, which tend to have lower ratings, are disproportionately exposed to wage and staffing pressures versus those that are predominantly independent living units,” she added.
Those with a skilled nursing component may face greater operating stressors because government subsidies limit their ability to raise rates compared to the independent living component where residents are predominantly private-pay. Therefore, some CCRCs have eliminated some of their skilled nursing beds, at least temporarily, to offset costs, according to Fitch.
For now, Fitch Ratings maintains a neutral outlook on the sector, but that could change. So far, CCRCs have been able to withstand the pressures of the coronavirus pandemic, which included higher expenses, lower revenues and pressured cash flows by raising rates. That could change moving forward if communities “encounter resistance to the substantial rate increases that may be required to offset the added cost pressure, which could pressure operating performance and future demand.”
In addition, financial market slowdowns could affect the sector’s forward movement. In particular, analysts are keeping an eye on slowing real estate price growth.
Fitch maintained public ratings on 158 LPC Providers as of Aug. 5, 2022. The median rating is ‘BBB’ and the number of ratings in the ‘BBB’ rating category remains the most numerous at 81 (or about 51%) versus 31 (20%) in the ‘A’ rating category. Within Fitch’s median portfolio, Type A contract providers remain the plurality with 57 (about 36% of the portfolio), followed by Type C contract providers and Type B contract providers.
