Not-for-profit life plan communities saw the strongest year-over-year gains in profitability in a decade by the end of 2025, according to a new Fitch analysis.
Improving occupancy, moderating expense growth and stabilizing staff retention through reductions in agency usage have boosted the prospect for life plan communities in the U.S., according to Fitch Ratings, which hosted a webinar discussing the sector on Friday. Fitch tracks 169 not-for-profit life plan communities across the country.
“[This] really drove home what we’ve been saying about these demographic trends and how y these expansions are really maturing and accreting to organizations and being managed in a really economically sound way,” Margaret Johnson, senior director and head of U.S. life plan communities at Fitch Ratings, said during the webinar. “Demand is out there. It’s just a question of executing on strategies in a way that supports the financial health of the organization.”
Life plan communities are in the process of developing master-plans to create amenities that will appeal to the new generation of seniors. All the while they are capitalizing on strong demographics by expanding units to monetize growing wait lists, Johnson added.
While Fitch’s overall outlook for nonprofit life plan communities remains neutral and stable, Johnson added it has shifted in a more positive direction over the past three years, with more overall positive outlooks outweighing the negatives by the end of 2025. She expects leverage will act as a headwind for the sector as life plan communities “look to capitalize on burgeoning demand for debt-funded expansion and repositioning projects,” according to Johnson. While the Federal Reserve recently hiked interest rates, they still remain historically low.
“While a low cost of capital is beneficial for the sector in terms of allowing providers to invest in their plant in a more economically sound fashion, it could also have the collateral impact of accelerating large scale CapEx, especially against the backdrop of favorable demographics, which could lead to higher leverage and pockets of short-term rating pressure until these projects get up and running,” Johnson said.
Life plan communities are facing a fair share of challenges as well, with affordability being a key factor as developers are making products to appeal to high-net-worth prospects, but the middle market and affordable housing still remain to struggle. And while development continues to struggle for senior living, Johnson doesn’t foresee a risk of overdevelopment within the next 30 years based on the number of units needed to be built to keep up with demand and overall generational trends.
The median rating from Fitch Ratings is a “BBB” score, while the number of communities with an “A” rating remained flat at 19% of the portfolio. Johnson noted Fitch will be keeping an eye on merger and acquisition data, as it will likely remain a key theme for the sector moving forward.
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