Skilled Nursing Continues to Drag on CCRCs’ Future

A major financial ratings service released an overall stable outlook for the continuing care retirement community (CCRC) market over the coming year, but expressed nagging doubts about the effects of skilled nursing on the industry’s overall health.

For the sixth consecutive year, Fitch Ratings issued a “stable” credit rating projection for the CCRC sector, which consists of retirement communities that feature a variety of care settings — typically the full continuum from independent and assisted living to skilled nursing services.

But the agency warned that the latter category will prove to be a challenge for operators in the space.

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“Pressured post-acute care census in skilled nursing facilities negatively affects operating performance,” Fitch wrote in the report, released last week. “Heightened governmental reimbursement stress and staffing challenges could result in mid-term and longer term rating pressure.”

That warning comes amid a generally sunny outlook for the CCRC space, with Fitch citing a solid U.S. real estate market, stable entrance-fee collections, and robust marketing efforts on behalf of operators. In the first six months of 2018, the company upgraded a pair of CCRC ratings, compared to five downgrades and 43 holds; through the first half of 2017, Fitch had issued seven upgrades and the same number of downgrades.

Skilled nursing assets played a central role in those negative assessments.

“Expense pressures for labor, reduced skilled nursing census, and governmental reimbursement modifications are having a negative effect on operations despite solid demand for other services and consistent monthly service fee increases,” Fitch observed. 

The agency also singled out growing debt loads — as developers and operators look to expand — as another area of danger for the space.

“Fitch believes that most negative rating actions will continue to be driven by increased leverage and project risk as communities use debt to finance their renovation or expansion plans,” the company noted.

This isn’t the first warning bell for skilled assets within CCRCs, also marketed by some operators as “life plan communities.” Commercial real estate firm CBRE earlier this summer released a report on the growing trend of developers building CCRCs without skilled nursing assets, while Chicago-based specialty investment bank Ziegler this spring predicted a coming drop in the median number of skilled nursing units at the properties — a figure that has held steady since 2013.

“The more evident pattern is the number of providers building independent living and assisted living, but not skilled care,” Lisa McCracken, director of senior living research at Ziegler, told Skilled Nursing News at the time. “We have also seen some providers who are historically life plan communities, but they have elected to drop the skilled nursing. That is a very clear trend in the western part of the U.S.”

Written by Alex Spanko

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