The “deteriorating” outlook for the not-for-profit continuing care retirement / life plan communities sector will continue for the rest of the year, “indicating our expectation that credit pressures will worsen this year amid persistent labor and cost pressures,” according to the new Fitch Ratings 2024 outlook report, released Tuesday.
All of Fitch’s US public finance sector outlooks remain unchanged at mid-year. CCRCs and higher education have the highest percentage of negative rating outlooks among eight sectors followed by the ratings agency, at 10% and 8%, respectively.
“Credit trends are holding steady in US public finance, with no changes to our sector outlooks at mid-year. Headline inflation is easing and a gradual deceleration in consumption underscores our expectation of slower growth for the balance of 2024,” Managing Director and Head of US Public Finance Arlene Bohner wrote in the report.
In January, Fitch Ratings assigned the life plan community sector a rating of “deteriorating” for the second year in a row.
“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 said at the time.
The most recent analysis offers a glimmer of hope due to “continued dampening of inflation, paired with a more favorable labor market environment.”
“An increase in labor productivity and operating income along with positive equity and housing market performance could cause improvement in the outlook for the ‘deteriorating’ sectors,” Fitch said Tuesday.
Demographic headwinds could improve the general operating environment for CCRCs, Fitch Ratings noted. Analysts, however, expect the sector to remain under pressure for the remainder of the year. Other key drivers of fundamental credit quality — decelerating real estate price growth and inflationary operating expense pressure — have not improved year over year.
“Fitch expects that these headwinds may continue to stall the sector’s recovery in 2024,” according to the analysts.
