CCRC Margins, Liquidity Improve Despite Operational Challenges

Liquidity and overall margins have improved for U.S. continuing care retirement communities (CCRCs), driven in large part by strong investment returns.

For the 102 CCRCs that Fitch Ratings has deemed investment grade, the median net operating margin decreased slightly between 2016 and 2017, dropping from 7.9% to 7.2%. However, the excess margin jumped from 1.7% to 3.3% in that time period, thanks to realized gains from investments, according to a newly released report from Fitch.

Investment performance also helped CCRCs improve liquidity metrics such as days cash on hand and cash to debt. In terms of median ratios for the investment-grade CCRC portfolio, days cash on hand improved from 486.3 days in 2016 to 539.8 days in 2017, while cash to debt improved from 69.8% to 83.3%.


These liquidity metrics also improved for the 30 CCRCs rated as below investment grade.

Tight labor markets are a particular operational challenge, as well as declining census and regulatory pressures in skilled nursing, the report notes. However, CCRCs generally are doing well to take advantage of overall strong economic conditions.


“Fitch’s rated borrowers have been able to produce generally stable financial results due to healthy demand and continued focus on marketing and sales strategies, which has resulted in consistent net entrance fee receipts,” the report states. “As the economy and housing markets have continued to improve, many communities have strong occupancy levels.”

In addition to strong occupancy, current low interest rates are compelling some CCRCs to undertake expansion and renovation projects. The debt and risks associated with these projects are the main factors behind the five negative credit outlooks issued to CCRCs by Fitch through June 30 of this year, the report notes.

The remainder of the year should be stable from an operations perspective, Fitch forecasts.

Type A contract providers account for 39% of Fitch’s portfolio, with Type C providers comprising 28% and Type B accounting for 21%.

Written by Tim Mullaney

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