Non-profit CCRC Sector Still Stable, Not Without Challenges

After several rocky years post-recession, non-profit continuing care retirement communities have maintained a “stable” rating from Fitch Ratings since being improved from negative to stable in September, according to a 2014 Outlook on nonprofit CCRCs released by the agency. 

“Consistent financial performance over past two years has been helped by an operating environment that has significantly improved since 2008, with residential real estate price gains driving much of the change” write Gary Sokolow and Jim LeBuhn of director and senior director, respectively, of Fitch’s Non-Profit Health Care Group. 

The agency foresees the stable rating continuing into the coming year on housing market improvement and sustained occupancy gains following 2013. 

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With the stabilized operating environment, Fitch sees the property type working on repositioning and expansion in the coming year. 

“As the sector moves further away from the stresses of 2008, and the operating environment for CCRCs further improves, management teams are increasingly reviewing and addressing the need to make capital investments in order to keep their communities attractive and competitive,” the report says. 

Healthcare reform implementation should impact the sector in a neutral or slightly positive way, with most negative ratings expected to be driven by borrowings related to capital projects. 

But despite the market stability, the sector is not without its operating challenges. One of which that has emerged recently is an increasing rate of unit turnover, Fitch writes, attributable in part by older residents moving into CCRCs post-recession due to delayed move-ins. 

This can be problematic from an operating standpoint as costs resulting from additional turnovers rise, Fitch notes. 

“Thus, some CCRCs that started the year at lower occupancy levels may not have improved their occupancy rates despite a strong number of sales,” the report indicates. “As a result, in 2013, some CCRCs had solid net entrance fee receipts that contributed to a strong financial year, even while occupancy levels remained relatively flat. Fitch sees this trend continuing over the near term for some of the CCRCs it rates.”

Overall, economic improvements should bode favorably for nonprofit CCRCs, Fitch’s analysts say, with access to capital leading to a competitive environment for the sector in the coming year. However economic shocks are likely to impact senior living more heavily than other sectors. 

“Fitch believes the senior living sector has a heightened vulnerability to negative financial and political shocks that cause the sector’s risk-averse consumer base to postpone the decision to move into a community,” the report notes. “While the steady but slow recovery in the U.S. economy has helped stabilize the sector, a weakening of the current economic recovery would be a credit concern.” 

View the report.  

Written by Elizabeth Ecker

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