Fiscal Year 2024 Senior Living Sector Report Summary
At the Board of Directors Meeting held on June 18th, Krista Johnson, Senior Credit and Compliance Specialist, presented a review of CHEFA’s Senior Living Sector portfolio, which consists of 17 bond series totaling approximately $452.6 million. The portfolio review focused on FY 2024 key profitability and liquidity metrics as well as utilization data for eleven senior living facilities, of which six facilities in the portfolio operate with an entrance fee component model.
Credit Outlook: Seven of the eleven Institutions in the portfolio have an underlying credit rating with Fitch’s Rating Agency and were evaluated collectively in comparison to Fitch’s Investment Grade (“IG”) medians. Fitch’s overall outlook of the not-for-profit life plan community sector (issued on Dec 2, 2024) projects a stable environment with the outlook revision from ‘deteriorating’ to ‘neutral’. Over the past few years, many Life Plan Communities (“LPCs”) made adjustments to operating capacity of their skilled nursing facilities to remain profitable during a high interest rate and inflationary environment. As rates continue to decline, Fitch expects the acceleration of capital financing to occur as the Baby Boomer generation quickly approaches age and income eligibility.
Occupancy: FY 2024 occupancy was at its highest level over the past five years across each type of service – skilled nursing, assisted living and independent living units. FY 2024 occupancy levels across each type of service (skilled nursing 89.2%, assisted living 88.9% and skilled nursing 92.6%) were at their highest levels over the past five years.
Operating Performance: FY 2024 operating results improved from the prior year but overall continue to lag pre-pandemic performance. The operating ratio median improved from FY 2023 to FY 2024 following three consecutive years of weakening performance but only three of the Institutions improved from five years ago. The net operating margin ratio median of 5.7% (which solely evaluates resident-based operations) also improved from the prior year, but significantly lags its high of 9.4% in FY 2021.
Liquidity: The days cash on hand median of 230.6 days in FY 2024 decreased 45.2% from five years ago and significantly lags Fitch’s IG median of 489.7 days. Liquidity was much more favorable amongst the facilities with entrance fee agreements at 385.8 days compared to those with rental fee agreements at 221.4 days. The cash-to-debt median improved from 72.6% in FY 2023 to 79.0% in FY 2024 and is at its second highest level over the past five years. The FY 2024 cushion ratio median of 12.0 times also improved from the prior year (from 11.5 times), providing more funds available for debt service but lags its high of 16.2 times in FY 2021.
Capital Structure/Cash Flow: The FY 2024 debt service coverage ratio median of 2.4 times remains relatively flat but is at its second highest level in the past five years. The debt to capitalization median at 56.5% in FY 2024 improved from its five-year high five years ago of 66.5%, is at its lowest level over the past five years and now compares more favorably to Fitch’s IG median of 53.7%. Total aggregate capital spending for FY 2024 of $150.9 million increased 41% from FY 2020 and is at its second highest level in the past five years. The median capital spending ratio of 0.8 times however significantly lags its high of 1.8 times in FY 2022.
To learn more about CHEFA’s Senior Living Sector report for FY 2024 and the performance of the eleven facilities that make up our senior living portfolio, please contact Krista Johnson, Senior Credit and Compliance Specialist at kjohnson@chefa.com.
