Fitch Announces Changes for Life Plan Communities Ratings to ‘Better Reflect the Risks’

Fitch Ratings has announced potential revisions to its rating criteria for life plan communities and is accepting public feedback before changes are finalized. 

The changes proposed by Fitch in a recent draft would “better reflect the risks” life plan communities face, according to Fitch Senior Director Margaret Johnson. That’s due to LPCs having a smaller market draw contrasted by higher risk, Johnson added.

“The proposed revisions also acknowledge LPCs’ propensity for large-scale capital plans relative to their revenue size and provide better transparency on when and how these plans will be factored into ratings,” Johnson said in the news release.

The updated changes to ratings would impact approximately 10% of all LPC ratings with ratings not to exceed “one-notch downgrades.”

This comes as Fitch in January had issued a “deteriorating” rating for the LPC sector for the second consecutive year as many have large skilled nursing exposures. That’s forced some communities to relocate and renovate units to meet new demand, and caused a wave of distress forcing property sales.

“While expansion projects can be of strategic benefit to LPCs, they very often lead to increased leverage and represent a relatively high degree of risk associated with the fill-up of expansion units,” Johnson said in the release.

Some of the proposed changes include an expanded “B” ratings category with enhanced guidance for ratings below a “B” rating and additional guidance on potential rating action “based on probability and rating impact of” a capital project, the release said. An additional proposed change would include sub-assessments to delineate risks of multi-site LPCs and single-site locations.

Last November, life plan community average occupancy broke 90%, data from investment bank Ziegler reported at the time, higher than the wider senior living industry’s census average in the upper 80th percentile. That followed a summer period in which the demand outlook improved for CCRCs as fears around home pricing and sales eased for the sector.