Fitch Ratings’ outlook for continuing care retirement / life plan communities is “deteriorating,” according to the company’s senior director and sector lead for life plan communities, Margaret Johnson. “But I would definitely encourage everyone to think of it as more of a ‘negative’ or ‘cautious’ view of the sector, because while things aren’t getting worse — the technical definition of ‘deteriorating’ — they aren’t getting much better either,” she added.
Johnson was addressing investors at a Thursday webinar moderated by Kevin Holloran, senior director and sector leader of the not-for-profit healthcare group in Fitch’s public finance department.
Earlier this month, Fitch Ratings assigned the CCRC sector a rate of “deteriorating” for the second year in a row, indicating that the company anticipates that credit pressures will worsen this year amid persistent labor and cost pressures.
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,” according to Fitch, the McKnight’s Business Daily previously reported.
CCRCs “still face a number of considerable headwinds heading into 2024,” Johnson said. “Cost inflation in terms of supplies and labor, higher interest rates and volatility in the housing sector all contributed to the ‘deteriorating’ or ‘negative’ outlook. But by far, the biggest driver of the ‘deteriorating’ outlook is continued wage pressure.”
CCRC payrolls are below pre-pandemic levels, whereas wages are at a historic high, Johnsonn said, “meaning it’s taking more and more money to hire workers and even then, [CCRCs] overall remain understaffed.”
This situation is especially true in communities that offer skilled nursing services, she said.
The good news, Johnson said, is that most of the CCRCs that are a factor in the Fitch outlook have more independent living units than skilled nursing units and are able to take nursing beds offline and adjust staffing levels.
Doing so “allows them to limit the use of more expensive agency nurses and also positions them well to withstand the effects of possible new regulation around minimum staffing ratios that’s been getting some air time at the federal level,” she said, adding, “They also have the ability to pass through rate increases to their independent living residents to offset these high labor and supply costs.”
Demographics also favor the sector, Johnson said.
“I’d say the [CCRC] model of communal living has a distinct competitive advantage over aging at home and other models of senior living. And this is especially in light of a recent Surgeon General advisory about the negative health impacts of loneliness and isolation, especially among seniors,” Johnson said.
She added that the communal living model appeals to baby boomers — those born between 1946 and 1964 — which is on the brink of forming the largest cohort of demand for senior living and care over the next decade.
Against the backdrop of the strong demographics, Johnson said, it is possible for the sector to change its outlook to “improving” or “stable” over time.
“But until we get to a situation where we have a significant stabilization of labor availability, wages and housing prices, so that [CCRCs] can move away from double-digit rate increases and back to their historical norms of 2% to 5% rate increases per year, I think the best we can probably hope for for the sector is ‘stable,’” Johnson said.
