The Covid-19 pandemic put serious pressure on senior living providers’ bottom lines, but for continuing care retirement communities (CCRCs), those headwinds didn’t gust quite as hard.
In fact, CCRCs’ resilience will be talked about for years to come, Eric Mendelsohn, CEO of National Health Investors, said in a recent SHN+ TALKS.
As that conversation gets underway in the industry, there are some striking numbers that demonstrate CCRCs’ strength and suggest why these full-continuum communities fared so well. These include sector-wide occupancy figures but also some surprising occupancy trends among particular CCRC providers, as well as credit rating data and numbers related to the resident demographics, length of stay and costs of living in a CCRC.
The immediate effect of this resilience is that life plan communities and CCRCs are starting to rebound from the pandemic across the board. Ziegler, a Chicago-based specialty investment bank, has noted an uptick in large senior living CCRCs seeking to grow through affiliations and mergers or by adding new units or home- and community-based services.
While credit agency Fitch Ratings issued no positive ratings actions for CCRCs last year due to the pandemic, the company is “already ahead of the game in terms of positive rating actions” in 2021, according to Margaret Johnson, director and sector lead of senior living.
Some providers of life plan communities and CCRCs have been able to leverage their relative financial strength. For example, the first phase of Mather’s forthcoming community in Tysons, Virginia, is now 85% pre-sold. And that has made it easier for the organization to deal with lenders for the project’s $475 million construction budget, according to Mather CEO Mary Leary.
“If sales hadn’t been strong, we wouldn’t be talking to anybody,” Leary told Senior Housing News.
Other providers rebounding in the post-pandemic landscape include Senior Living Communities (SLC), which is among the primary operators of NHI; and Erickson Senior Living, which recently committed about $3 billion in self-funding toward the construction of 5,000 new apartment homes across its portfolio by 2026.
By the numbers
Roughly 1,140 organizations own or sponsor the estimated 1,940 life plan communities in the U.S., with roughly 67% sponsored by muti-site organizations, according to Ziegler.
Although both not-for-profit and for-profit life plan communities suffered occupancy losses during the pandemic, nonprofits started at a higher average and thus didn’t fall as far as for-profit communities, according to first-quarter 2021 NIC MAP Vision data.
In the first quarter of 2021, non- and for-profit CCRCs and life plan communities registered an average occupancy rate of 84.4% compared to an average of 78.9% for the wider senior housing industry.
Occupancy also differed by product type, with independent living CCRC units faring the best at 88.6% occupancy in 1Q21. CCRC assisted living and memory care units were a little farther behind at 82.5%, while nursing care units sat at the bottom of the pile with an average occupancy of 76.5%.
And that momentum continues into the late spring of 2021. According to a May 26 CFO Hotline survey of more than 220 organizations from Ziegler, 22% of respondents are seeing “significant positive momentum” in with move-ins and/or sales inquiries. Another 45% said they were seeing “moderate positive momentum,” 22% said “only slightly improved momentum,” and just 11% reported “not observing increased momentum.”
Some of that resilience to the pandemic’s pressures has to do with the CCRC model itself. The CCRCs and life plan communities that Ziegler tracks have an average resident age of about 80, with a range that typically hovers between 78 and 82, according to President and CEO Dan Hermann.
By comparison, many rental senior living communities have an average move-in age between 83 and 85, a number that gets higher the older the building is, he added.
“That leads to much higher turnover in rental when you’re in a pandemic,” Hermann told SHN. “In particular, you’re going to have an average [length of stay] of 4 to 6 years in a rental, and 8 to 10 in an entry fee before turnover, broadly speaking.”
Another factor helping CCRCs during the pandemic are home prices, which are surging. CCRC residents typically sell their homes to fund a move into senior housing, so a steep increase in home value would boost their buying power. In March of this year, home prices were 13.2% higher than they were in the same month in 2020, according to the latest S&P CoreLogic Case-Shiller National Home Price Index.
And then there is the entry fee itself, which for modern or repositioned CCRC and life plan communities typically lies around $70,000 or $80,000, according to Ziegler.
“When you’ve paid an entry fee, you’ve committed to this nice campus, and … often there’s no intention to move out and monkey around trying to get a refund,” Hermann said. “Where, in rental [communities], you have more liberty to move out.”
Many life plan communities were also able to access public funding through programs such as the CARES Act Provider Relief Fund and the paycheck protection program (PPP), which aided with rising expenses throughout the pandemic.
Fitch Ratings issued no rating upgrades for life plan communities or CCRCs and 20 downgrades during the pandemic. The lion’s share of the company’s ratings last year — 85 — were affirmations, meaning no change to the community’s ratings.
The outlook is already better in 2021, as Fitch has issued one positive credit rating action amid the industry’s ongoing recovery.
“I don’t think you’re going to see a wholesale upgrade of the sector, but I do think, over time, you’ll see improvement in credit profile,” Johnson told SHN. “I can’t predict how many [ratings upgrades we will see] but … my guess is it’s going to be more than in 2020.”
Zooming in from the 30,000 foot view, many providers of CCRCs and life plan communities also reported relative strength when dealing with the pandemic in their communities.
One such example is Senior Living Communities (SLC) and its parent company Maxwell Group. SLC’s entire 15-community portfolio, which includes 10 “Type C” CCRCs, shed about 2% in occupancy over the past year, much of it coming from skilled nursing units. In its assisted living units, the provider actually added about 1% of occupancy — and 6% for its memory care units.
“What drove our occupancy down was skilled nursing specifically,” Maxwell Group President Ben Thompson told SHN. “We weathered the storm in the other care settings, I would say.”
In fact, SLC saw roughly 2% more sales and roughly 2% more leads in 2020 than it did in 2019. What hurt the provider’s occupancy in the end were move-outs, which grew about 5% in 2020, Thompson noted.
As of early May, SLC’s new leads were up 52% over 2020’s totals, and sales are up 38% in the same period. The community also has not had total new positive cases above the “single digits” since January, Thompson said.
“The fact that we’re that much ahead is a very positive trend,” he added.
Looking ahead, Maxwell and SLC believe they won’t truly return to normal operations until some time in 2022. But in the meantime, things are moving in the right direction.
“I think the recovery has already begun, it’s going to be slow, given the market dynamics,” Thompson said.
Newly rebranded Erickson Senior Living also saw occupancy above industry averages. The Catonsville, Maryland-based owner and operator of CCRCs currently has a companywide average occupancy rate of just under 92%, according to Tom Neubauer, the company’s executive vice president of sales, marketing and communications.
“While life was impacted by Covid, it was impacted in far fewer ways as a result of the services that we offer here,” Neubauer told SHN. “And I think that’s one of the reasons CCRCs showed such resiliency.”
Another company that saw robust occupancy during the pandemic was Evanston, Illinois-based Mather, which two life plan communities and a rental community in operation; and one more on the way in Tysons, Virginia. At its Evanston community, for example, Mather’s occupancy rate was almost full throughout the entire year last year, according to President and CEO Mary Leary.
“The Mather in Evanston began 2020 at 99% occupancy and ended 2020 at 99% occupancy,” Leary told SHN.
Leary points to multiple factors as to why life plan communities saw such relative strength during the pandemic, including the robust housing market and stock market, and the fact that life plan community prospects tend to be “planners” and slightly younger than other kinds of residents.
As for how providers are leveraging their strengths during the pandemic, Leary uses Mather’s forthcoming community in Tysons as a case study.
“We were at 85% pre-sold as of March 31, 2021, and I note … with no financing commitment in place due to banks being on the sidelines,” Leary said.
With capital streams still unthawing after a pandemic-related deep freeze, the community still hadn’t secured construction financing as of mid-May. But Leary believes the community is close to receiving that financing, given the fact that demand has held up so well during a tough period.
“We began our 10% deposit process for phase two, and we have 150 depositors on hand to fill 114 homes,” Leary added.
Zooming back out, many life plan communities and CCRCs are exploring ways to leverage their relative resilience during the ongoing pandemic recovery. One immediate way they are doing that is through growth by acquisition or affiliation.
For instance, among the organizations Ziegler tracks, about 50 now have positions devoted to growth or new business development. In 2010, only about one-fifth of those organizations had such a position. As of early May, Ziegler was working on 25 different merger and acquisition assignments, about half of them coming from not-for-profits.
Recent examples of that trend include the affiliation between Front Porch and Covia and the affiliation of Transforming Age and Sustainable Housing for Ageless Generations (SHAG).
“The larger ones are out scouting, are out looking to grow, are being proactive. Not everyone, but I’d say the top 25%,” Hermann said. “You’re also going to see some of the larger players buying communities that are going to come over from the for-profit side.”
Life plan communities and CCRCs are also taking advantage of their relative strength by adding new services or expanding their campuses, he added.
While the CCRC sector as a whole has been a bright spot for senior living during Covid-19, there have been struggles, particularly among organizations that already were on shaky ground before the pandemic. Some of these CCRCs filed for Chapter 11 protection in the last year, including Henry Ford Village in Dearborn, Michigan, which was just acquired out of bankruptcy.
However, these troubled situations may be a footnote in the industry conversation about CCRCs’ pandemic performance. That discussion is in its early stages, but as it develops, further lessons will surely be gleaned from what NHI’s Mendelsohn described as “rock solid” performance during Covid-19.