Capital expenditures will start to tick up in fiscal 2024 among the country’s continuing care retirement / life plan communities, according to Fitch Ratings’ medians report for the sector, published Monday.
Fiscal year 2023 had been particularly challenging for CCRCs.
“Continued improvement in occupancy and abating expense pressure allowed for operational stabilization and recovery in fiscal 2023,” said Margaret Johnson, Fitch senior director and US life plan community group head.
“Most projects financed over the last several years have successfully filled, given the strong demographic trend of an aging population and contributing to growth in resident revenues,” Johnson said in a press release issued in conjunction with the report. “Also brightening the picture for [CCRCs] is an improving national real estate market, as most prospective residents need to sell a home to cover the initial entrance fee.”
CCRCs with a significant skilled nursing component, which tend to have lower ratings, are “disproportionately exposed” to wage and staffing pressures compared with those that are predominantly independent living units, according to Fitch.
The ratings agency noted that communities with a significant skilled nursing component “have experienced the most severe downward rating pressure since the pandemic,” which has led to default in some cases, since their exposure to government payers limits their ability to increase rates compared with CCRCs predominantly consisting of private-pay independent living units.
As of Aug. 29, Fitch maintained public ratings on approximately 159 CCRCs. The median rating is BBB, according to the company. Seventy-seven of the rated CCRCs (approximately 50%) are rated in the BBB rating category compared with 31 (20%) in the A rating category.
In August, Fitch made changes to its rating criteria for not-for-profit CCRCs in an effort to better reflect the risk profile for rated communities. In January, Fitch assigned the CCRC sector a rating of “deteriorating” for the second year in a row.
