Life Plan Communities Face Risks After Withstanding Early Covid-19 Pressures

Nonprofit life plan communities — particularly those with stronger credit ratings — have done an effective job of keeping Covid-19 at bay and are withstanding immediate financial pressures. However, the sector as a whole still faces numerous challenges and uncertainties as the pandemic drags on.

This was the message delivered Tuesday by Fitch Ratings, in a note and webinar.

“The experience of our rated LPCs during the pandemic has been very different than what some of the more sensationalized news headlines on the impact of Covid-19 on nursing homes would suggest,” Margaret Johnson, director of U.S. public finance at Fitch, said on the webinar. “For the most part, while we are aware of some positive cases of Covid-19 within our rated communities, these outbreaks have been isolated and are contained for now, and so occupancy and in turn top-line revenues have been minimally pressured.”


From an operating perspective, early action to limit visitors, suspend communal dining and other activities, and pursue aggressive disinfection and sanitization appear to have been effective, she noted. In addition, anecdotal evidence suggests that at least some life plan communities have been able to fill vacancies with “higher quality labor” due to massive layoffs in other industries — although this may not be a long-term trend, depending on how quickly these other sectors bounce back.

On the expense side, costs have risen due to Covid-19, but these pressures have been offset to some degree by financial support through government stimulus programs. “A number” of Fitch’s rated life plan communities have received funding through the Payroll Protection Program (PPP), Johnson said.

Fitch has not yet quantified financial impacts across the sector, but days cash on hand appears to have remained “largely stable,” she said. Going into Covid-19, investment-grade life plan communities averaged about 500 days cash on hand, while lower-rated communities averaged 312 days.


Another bright spot: Communities that opened in March and April have been filling up largely on schedule, and independent living move-ins have been postponed in most cases rather than canceled.

While life plan communities have performed well in the early days of the pandemic, Fitch has a negative outlook on the sector as a whole, with these among the considerations:

— Life plan communities could face tighter regulations and infection control requirements that increase long-term operating expenses. New York state has floated requirements for hospitals to have a 90-day supply of personal protective equipment on hand, and similar measures will likely impact life plan communities, Johnson said.

— Deterioration of the stock market and the potential for real estate market disruption could limit older adults’ ability to pay entrance fees and move to life plan communities. A prolonged economic downturn is a particular risk.

— The senior living and care industry as a whole could sustain reputational damage during Covid-19, dampening consumer demand. (On the other hand, it’s possible that consumers will ultimately view life plan communities as a safe haven, resulting in higher demand.)

— Sales and marketing efforts have had to go almost entirely virtual, and it remains to be seen how effective these approaches are in driving move-ins.

“Many of the risks of Covid lie ahead for the industry,” Johnson said.

As a base case, Fitch is modeling an economic recovery starting in the third quarter of 2020, with U.S. gross domestic product back to pre-pandemic levels by mid-2022. Life plan communities should have the financial flexibility to weather a downturn on this timeframe, but situations will vary from location to location.

Lower-rated LPCs that are in the midst of expansions and are located in areas with large Covid-19 outbreaks will be particularly vulnerable, and Fitch does expect to be making some changes in their ratings outlooks and possible ratings changes for certain life plan communities in its portfolio.

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