Last week, Fitch released its 2009 report on median profitability ratios in the continuing care retirement communities (CCRCs) sector. The report showed that the ratios declined considerably in 2008 due to the difficult housing market and the economy. The continuing downturn in the medians supports its decision to place the senior living industry on negative outlook in January 2009. The report cites declines in cash to debt and a broad decline in profitability ratios and decreases in entrance fee receipts caused by slower unit turnover as reasons behind its downgrade and the statistics in the report. With reduced liquidity and profitability, Fitch’s outlook on the CCRC sector remains negative, as access to capital has become harder and more expensive. Fitch expects that the availability of LOCs will continue to be restricted, which may result in increased bank bond term outs and increased capital costs for some borrowers. While Fitch believes that demographic trends should fuel strong demand for CCRCs over the long term, the current weakness in the real estate market and decrease in financial asset valuations could slacken demand for CCRC services over the near term.
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