Fitch Ratings “mostly envisions continued operating stability” for life plan communities as a sector through the rest of the year, according to a newly released report.
It’s the seventh consecutive year that the credit rating agency has predicted a stable ratings outlook for the sector.
Additional debt assumed to fund campus renovation or expansion projects will continue to be the largest driver of negative rating actions, Fitch said. “Furthermore, pressure on the post-acute care census in skilled nursing facilities could hamper operating performance,” according to report authors. “Heightened governmental reimbursement stress and staffing challenges could also result in midterm and longer term rating pressure.”
During the first half of the year, Fitch upgraded its ratings on four life plan communities, downgraded five and affirmed the remaining credits.
“Typically, the key rating driver of positive rating action was strengthened liquidity generated by healthy operating performance and strong occupancy,” Fitch said. “For negative rating actions, increases in debt and the related construction and projects risks drove the movement.”
Fitch expects life plan communities to continue to undertake renovation and expansion projects for the rest of the year. “In general, capital plans are being undertaken to address growth opportunities, unit mix or service offerings in an increasingly competitive marketplace,” the service said. “Fitch believes that most negative rating actions will continue to be driven by increased leverage and project risk as communities use debt to finance their renovation or expansion plans.”
As of Aug. 31, Fitch rated 151 life plan community operators, and 145 of them are included in the median ratio calculations discussed in the report. Thirty-six percent of Fitch’s median portfolio consists of Type A (life care) contract providers, 28% are Type C (fee-for-service) contract providers and 21% are Type B (modified fee-for-service) contract providers.
