Volatile equity markets and increased capital spending pressured liquidity metrics for U.S. life plan communities in fiscal 2018, but core operations remained solid, according to a new report from Fitch Ratings.
The 2018 median ratios for Fitch’s investment-grade LPCs showed solid core operating performance, though it is trending slightly lower at 5.9%, versus 7.2% in 2017. Lower-rated LPCs also saw net operating margins fall for the second straight year to 3.8% in 2018 from 5.1% in 2017. Days cash on hand also fell for investment-grade LPCs.
Capital spending increased dramatically for the sector as a whole. Fitch credited the still-strong housing market with fueling demand and higher occupancy rates for independent living units.
Fitch upgraded ratings on four LPCs, downgraded five and affirmed all of its other rated entities during the first half of 2019.
“Fitch expects LPCs to continue to plan and pursue renovation and expansion projects in 2019,” said Director Ryan Pami. “Increased leverage and project risk from expansions or campus repositioning projects will continue to drive negative rating actions for LPCs. Furthermore, pressure on the post-acute care census in skilled nursing facilities could hamper operating performance.”
While capital spending is up, the same cannot be said for realized gains. Less-than-expected returns dampened the excess margin to 2.1% from 3.3% year over year.
Still, Fitch envisions continued operating stability through the remainder of 2019.
