Credit Rating Agency Forecast for Senior Living
Fitch Ratings recently released the report “2014 Median Ratios for Nonprofit Continuing Care Retirement Communities (CCRCs)” that cited continued improved performance for the senior living sector, especially for those projects already rated within Fitch’s higher-rated categories.
The strengthening of the sector was sparked by increased liquidity due to the growth of entrance fees, as the improving U.S. housing market has allowed providers to increase entrance fees for the first time since the recession. Similar to the hospital sector, CCRCs also benefited from strong investment returns, further strengthening the balance sheet metrics. For example, the days cash on hand median for investment grade CCRCs increased from 442 days last year to 476 days this year. Similarly, cash to debt increased from 65.6% to 75.1% the past year.
Income statement metrics were largely stable. For investment grade credits, the median operating ratio deteriorated slightly from 96.9% to 97.3% year-over-year, while the net operating margin improved from 21.4% to 21.7%.
Through the first eight months of the year, Fitch has not downgraded any CCRC credits and has upgraded five. Fitch expects this stability to remain as facility occupancies and the U.S. housing market continue to improve, offsetting a lagging overall economy and projected increased capital borrowing within the sector. This is the second consecutive year Fitch has placed a stable outlook on the sector. Longer term, the sector will benefit from the rapidly growing population of the senior market.