FY 2023 Senior Living Sector Report Summary
At the Board of Directors Meeting held on May 15th, Compliance Specialist Krista Johnson presented a review of CHEFA’s Senior Living Sector (aka Life Plan Communities) portfolio, which consists of 13 bond series totaling approximately $428.4 million.
The portfolio review centered on FY 2023 financial operating performance, key liquidity metrics and utilization data for ten senior living facilities of which half of the portfolio operates with an entrance fee component model.
Credit Outlook: Seven of the ten 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 4, 2023) remains negative for 2024. While demographic trends are expected to support healthy demand, many key drivers of Fitch’s fundamental credit quality have not improved with decelerating real estate price growth, inflationary pressure and other expense pressures, particularly with staffing, leading to slower recovery.
Affiliations: In May 2024, Masonicare and United Methodist Homes, Inc. announced their intent to affiliate, with UMH intending to become part of the Masonicare Family (a current CHEFA client, the State’s largest non-profit senior living organization), though is still subject to regulatory approvals and approvals from both the organization’s boards.
Occupancy: FY 2023 occupancy trends yielded mostly favorable results among skilled nursing, assisted living and independent living units for the majority of the portfolio from FY 2022, but continue to lag pre-pandemic levels within some areas.
Operating Performance: FY 2023 operating results compared favorably to the prior year but for some institutions, significantly lag pre-pandemic performance. The three key metrics used in measuring operating performance for the portfolio consists of 1) Operating Ratio – The median improved slightly from the prior year, following three consecutive years of weakening performance; 2) Net Operating Margin Ratio – The FY 2023 median of 4.6% also improved from the prior year, but significantly lags its high of 10.1% from FY 2019; and 3) The Net Operating Margin – Adjusted – The median declined from 20.1% in FY 2022 to 15.4% in FY 2023 and is at its second lowest level over the past five years.
Liquidity: The Days Cash on Hand median of 270.5 days in FY 2023 decreased 13.4% from the prior year and by 30.8% from five years ago. Liquidity was much more favorable amongst the facilities with entrance fee agreements at 417.7 days compared to those with rental fee agreements at 202.3 days. The cash-to-debt median improved from 65.5% in FY 2022 to 72.8% in FY 2023 and is at its second highest level over the past five years. The FY 2023 cushion ratio median of 12.9 times also improved from the prior year (from 11.8 times) providing more funds available for debt service.
Capital Structure/Cash Flow: Over the past five years, the median debt service coverage ratio improved from 1.9 times to 2.4 times The debt to capitalization median improved from the prior year for the majority of the portfolio, but the majority of the portfolio is more leveraged than five years ago. The median capital spending ratio for FY 2023 of 0.7 times is at its second lowest level over the past five years, which indicates that institutions are investing less in their PP&E than their annual depreciation expense.
To learn more about CHEFA’s Senior Living Sector report for FY 2023 and the performance of the ten facilities that make up our senior living portfolio, please contact Michael Morris, Managing Director at mmorris@chefa.com.
