Labor challenges a continued sore spot for CCRCs, Fitch Ratings says

Labor challenges are a continued pain point for continuing care retirement / life plan communities, according to a recent report from Fitch Ratings.

Of the 49 CCRC rating actions in the second quarter, the credit rating agency upgraded one rating and downgraded two ratings.

As of the end of the second quarter, 81.6% of the CCRCs had stable rating outlooks, 4.9% had positive rating outlooks and 12.9% had negative rating outlooks/watches. Fitch revised its sector outlook for CCRCs to “deteriorating” in 2023 from “neutral/stable” the previous year due to continued labor challenges and a “softening broader economy.”

According to the agency’s public finance rating actions report and sector updates for the second quarter, released Thursday, the CCRC sector’s revenue has been bolstered by stable to improving occupancy. CCRCs, however, are faced with ongoing operating cost escalation, “especially given industry wide shortages of nursing and hospitality staff and supply chain pressures,” according to the experts.

So far, Fitch said, CCRCs have been able to offset higher expenses with fee increases. It’s unclear how long budgets can withstand persistent wage inflation and increased expenses for supplies, however.

“Nursing markets are particularly tight given the demand for qualified staff, vaccine mandates and the willingness of hospitals and healthcare systems to offer higher compensation than [life plan communities],” according to Fitch.

CCRCs might see some new development to meet demand once construction costs level off, the experts said.

Merger and acquisition activity is expected to continue, “as the underlying forces driving consolidations, including competitive and cost pressures, are expected to remain present in the sector over the next few years,” Fitch said.

“After the most operationally challenging year on record for many in 2022, we still expect operations to improve slowly, although margins will likely remain below pre-pandemic levels for 2023,” Arlene Bohner, Fitch’s head of US public finance, said in a press release.