Life Plan Communities Buoyed by Independent Living Resilience, Strong Home Sales

The resilience of independent living during Covid-19, coupled with a stronger-than-expected market for residential home sales, will contribute to a stable outlook for life plan communities in 2021.

That’s according to a report released Wednesday from Fitch Ratings. The credit rating agency also cited favorable demographic trends and good access to capital markets as contributing factors to the sector outlook. Fitch maintained a stable rating outlook for its portfolio in the coming year, as well.

Fitch rates approximately 160 life plan communities annually. Through December 1, 74% of the communities the firm rates maintained a “BBB” (50%) or “BB” rating (24%). The number of communities with the latter rating totaled 38, up from 15 in 2015. This reflects newer borrowers added to Fitch’s ratings portfolio, which picked up pace in the latter half of 2020, Director — Sector Lead, Senior Housing Margaret Johnson told Senior Housing News.

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“We released a few ratings on new entrants into the capital markets — places that were funding expansions or refinancings. That’s an indication that investors were interested in the sector and that the capital markets have recovered,” she said.

Independent living resiliency

The performance of independent living cohorts within life plan communities have helped to mitigate strains on operations stemming from cratering skilled nursing and assisted living occupancy.

Median occupancy among the independent living segments in the communities Fitch rates remain above 90%. Combined with steady increases in monthly service fees, this is expected to support solid operating performance and bolster financial positions moving forward.

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Independent living performance steadily rebounded after the pandemic’s initial disruption in spring, and the segment did see declines in occupancy more from natural attrition and community lockdowns.

“[Providers] weren’t able to backfill units because they weren’t able to physically move people. It started to recover really in the third quarter,” Johnson said.

Housing market surprises

Strong residential real estate markets emerged as a surprise during the pandemic. Home sales volume and prices have eclipsed 2019 trends across the country, which is proving to be a boon for senior housing because many seniors use home sale proceeds to finance moves to senior housing. This came as a surprise to analysts, who were expecting the opposite.

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The upward trend in home values continued in the third quarter of 2020. Fitch estimates that home prices in 25% of the country’s major metropolitan areas are currently overvalued. Las Vegas and Austin, Texas are the most overvalued areas of the country, at 24%. Suburban markets, in particular, are expected to become more popular with home buyers and sellers.

“There’s been this flight from urban centers into the suburbs, which then portends favorably for residents’ ability to move into a life plan community, pay the entrance fee and occupy an independent living unit,” Johnson said.

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