Fitch assigns ‘deteriorating’ outlook to CCRC sector for second consecutive year

Fitch Ratings has assigned the continuing care retirement / life plan community sector a rating of “deteriorating” for the second year in a row.

Only not-for-profit hospitals and higher education joined life plan communities with “deteriorating” sector outlooks in Fitch Ratings’ 2024 Public Finance Compendium, published Monday. Such a rating indicates that Fitch anticipates that credit pressures will worsen this year amid persistent labor and cost pressures.

“While Fitch expects demographic trends to continue to support healthy demand, decelerating real estate price growth and cost inflation are significant headwinds that will continue to stall the sector’s recovery,” Fitch Senior Director Margaret Johnson stated.

Although healthy demand exists for CCRCs, other key drivers of credit quality, such as decelerating real estate price growth and inflationary operating expense pressures have not improved year over year, according to the credit ratings and analysis company. 

Last month, the McKnight’s Business Daily reported that, according to Fitch, the sector would have to demonstrate improvement in staffing numbers as well as the efficacy of measures leading to “stable” or “improving” ratings if it is to revise the outlook to “neutral.” Fitch repeated the sentiment in Monday’s report.

The sector would need to overcome labor challenges, show that higher-than-average rate increases are effectively counteracting inflationary cost pressures, and improve expectations for stable or improving real estate market performance, Fitch maintains.

The Centers for Medicare & Medicaid Services’ proposed minimum staffing ratios for nursing homes are expected to exacerbate staffing pressure, which would affect already increased operating costs as well as exacerbate the headwinds in the CCRC sector, the report noted.

Additionally, according to Fitch, keep an eye on mergers and acquisitions activity in the life plan community sector heading into 2024.

“Provider affiliations and industry consolidation are going to remain key themes as providers seek the benefits of economies of scale,” the report noted.