#NICForum18

Current Market Conditions Impacting Senior Care

Friday, March 9, 201810:30 AM – 11:45 AM

Dallas Ballroom G

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Today’s Presentation

• The ULI/PwC Survey Results: Seniors Housing Is Attractive

• Demographic Trends: Yet, Another Slice

• The Economy: Rising Wage Rates, Rising Interest Rates

• Seniors Housing and Care Transactions: Relatively Robust

• Seniors Housing Market Fundamentals: Occupancy Flat

• Skilled Nursing Market Fundamentals: Falling Occupancy Rates

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Audience Polling Question #1Please Identify Your Professional Category:

1. SH Operator/Provider2. SNF Operator/Provider3. Both SH and SNF Operator/Provider4. Non-Real Estate-Based Care or Service Provider 5. Health System or Insurer6. Public or Private Equity Investor7. Debt Lender

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The ULI/PwC Survey Results:Seniors Housing is Attractive

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Seniors Housing As An Investment Opportunity

“Since this (seniors housing) has been considered a

specialized investment segment, many are not aware

of the rising liquidity (more than $14 billion in

transactions in the year ending second-quarter 2017)

and returns outpacing the NCREIF NPI benchmark by

400 basis points. Housing for seniors topped the list

of all residential segments in this year’s survey in

terms of its development and investment prospects

for 2018.”Source: Emerging Trends in Real Estate 2018, A Publication from Urban Land Institute and

PwC, published October 2017

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ULI Emerging Trends 2018

Key Takeaways Regarding Seniors Housing:• Seniors housing ranks third among 24 commercial/multifamily subsectors in 2018 for

best investment prospects and development prospects, behind fulfillment and warehouse

• Seniors housing ranks first among seven residential property types in 2018 for best investment prospects and development prospects.

Source: Emerging Trends in Real Estate 2018, A Publication from Urban Land Institute and PwC, published October 2017

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Investor Preference for Buying and Holding Seniors Housing

0

10

20

30

40

50

60

Buy Hold SellSeniors housing Moderate-income apartments Affordable apartments

Student housing Single-family rental High-income apartments

Buy/Hold/Sell Recommendations

Source: Emerging Trends in Real Estate 2018, A Publication from Urban Land Institute and PwC, published October 2017

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Seniors Housing Investment Returns Are Relatively StrongNCREIF Annualized Total Returns by Property TypePeriod Ending 12/31/17

Source: NCREIF

0

2

4

6

8

10

12

14

16

18

One Year Three Years Five Years Ten YearsNPI Apartment Hotel Industrial Office Retail Seniors Housing

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Demographic Trends:Yet, Another Slice

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Demographics Are Destiny

Source: Cartoon Bank

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Near and Long-term Demographics Are Getting Better

0

500

1,000

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5,00019

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1120

13

Today’s 82-Year Old Resident Was Born in 1936

Greatest Generation55 Million

Silent Generation47 Million Generation X

55 MillionMillennials66 Million

Post Millennials65 Million

And Is Of The Silent Generation

Baby Boomers76 Million

Source: U.S. Census

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Population Pyramid for the U.S

Age and Sex Structure of the U.S.2012, 2030, 2060

Source: CDC—National Center for Health Statistics

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Significantly More 80-Plus Women than Men

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

-

5

10

15

20

2520

1420

1520

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1820

1920

2020

2120

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Shar

e of

Tot

al P

opul

atio

n

Num

ber o

f 80-

Plus

Indi

vidu

als,

Milli

ons

Men Women Women Men

Number of 80-Plus Persons and Share of Total Population

Source: U.S. Census Bureau

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Growth in Older Men Exceeds Women in the Near Term

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Men Women men Women

Growth between 2018 and 2021:410,000 more 80-Plus Men375,000 More 80-Plus Women

Growth in 80-Plus Population2015 - 2030

Source: U.S. Census

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Life Expectancy Has Been Increasing

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1900 1940 1950 1960 1970 1975 1980 1985 1990 1995 2000 2005 2015

U.S. Life Expectancy At Birth (Years)

Source: CDC—National Center for Health Statistics

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Growing Burden on Working Age Population

0

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2014

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Under 18 Over 65 Total Dependents

Dependency Ratio—Share of Over 65 and Under 18 to Working Population2014 - 2060

Source: U.S. Census

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The Economy: Rising Wage Rates, Rising

Interest Rates

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Strong Labor Demand

Source: Bureau of Labor Statistics

0

1,000

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Jan-13 Apr-13

Jul-13 Oct-13

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Job Openings Quits Hires

JOLTS Data: U.S. Job Openings, Quits and Hires (000s)January 2013 – December 2017

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Getting Closer to Record Low Jobless Rates…U.S. Unemployment Rate (%)Q1 1948 – Q4 2017

0.0

2.0

4.0

6.0

8.0

10.0

12.019

48Q

119

49Q

419

51Q

319

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119

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420

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320

02Q

220

04Q

120

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420

07Q

320

09Q

220

11Q

120

12Q

420

14Q

320

16Q

2

Q2 1953: 2.6%Q4 2017: 4.1%Q1 1969: 3.4%

Q4 2000: 3.9%

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…And Some Labor Markets Are Even Tighter

1.8 2.4 2.7 2.7 2.7 2.8 2.94.1 4.1

11.8

0

2

4

6

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12

14

Portland, ME Nashville Milwaukee Austin San Francisco Boston Denver Atlanta Seattle Ocean City,NJ

Metropolitan Area Unemployment Rates (%), Low to HighDecember 2017

Source: U.S. Department of Labor

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Audience Polling Question #2

Will the National Unemployment Rate:

1. Remain Near Today’s Rate of 4.1%2. Bottom Out at 3.5%3. Hit A New Low Below 2.6%

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Mounting Wage Pressures?Average Hourly Earnings (Percent Change from Year Ago)January 2015 – December 2017

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

All Sectors SNF Assisted Living

Source: Moody’s Analytics, U.S. Department of Labor

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Wage Growth Is Exceeding Rent Growth

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Annual Asking Rent Growth / Avg. Hourly Earnings*Primary Markets | 4Q06 – 4Q17

Assisted Living EmployeesAsking Rent - Assisted LivingAsking Rent - Independent Living

Source: NIC MAP® Data Service

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The New NIC MAP ® Bureau of Labor Statistics Employment and Wage Date Report

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Comparative Labor Market Conditions

Source: U.S. Bureau of Labor Statistics

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Consumer Confidence Is Strong

Source: The Conference Board

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U.S. Consumer Confidence (Index 1985 = 100, SA)January 1990 – January 2018

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Home Prices Have More Than Fully Recovered

Source: National Association of Realtors

U.S. Median Sales Price Existing Single-Family Homes, (Thousands of Dollars, SA)January 1990 – January 2018

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This Recovery is Getting Long: Is It Time to Worry?

Source: NBER * As of March 2018

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Audience Polling Question #3

The Next Recession Will Begin:

1. By Year-end 20182. By Year-end 20193. By Year-end 20204. 2021 or beyond

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Rising Interest Rate Environment:Yield Curve for U.S. TreasuriesQ4 2015, Q4 2016, Q4 2017 and Feb. 16, 2018

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0.5

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1.5

2.0

2.5

3.0

3.5

4.0

3-Month 6-Month 1-Year 2-Year 3-Year 5-Year 7-Year 10-Year 20-Year 30-Year

2015Q4 2016Q4 2017Q4 16-Feb-18

Maturity Length of U.S. TreasuriesSource: Moody’s Analytics

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How Do Higher Interest Rates Impact Senior Care?

Cost of Borrowing

Consumer Savings Rates

Cap Rates, Valuations,

Risk Premium

Economic Growth Home Prices

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How Do Seniors Housing Cap Rates Stack Up?

Source: NCREIF

Cap RatesSeniors Housing, Apartment, NPI and Ten-Year Treasury Q1 2006 – Q4 2017

0.0

1.0

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3.0

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7.0

8.0

9.0

Ten-Year Treasury Rate Seniors Housing NPI Apartment

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As Interest Rates Have Fallen, Risk Premia Have Fallen

Source: NCREIF

Risk PremiumDifference Between Seniors Housing, Apartment, NPI and Ten-Year TreasuryQ1 2006 – Q4 2017

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

NPI Seniors Housing Apartment

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Audience Polling Question #4

By Year-End 2019, Long-Term Interest Rates Will Be:

1. Below 3%2. 3.0% - 3.5%3. 3.6% - 4%4. 4% - 5%5. More than 5%

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Seniors Housing Capital Market Trends: Relatively Robust

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Buyer Type Shifting as Public Buyers’ Share FallsClosed Transactions for Seniors Housing & Care by Buyer Type2008 – 4Q 2017

Source: NIC MAP® Data Service

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Seniors Housing Pricing Hovering at PeakSeniors Housing & Care Transactions Rolling 4-Quarter Price Per UnitU.S. | 1Q08 – 4Q17

Source: NIC MAP® Data Service

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Seniors Housing Market Conditions: Occupancy Flat

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Seniors Housing Occupancy Slips FurtherSeniors Housing FundamentalsPrimary Markets | 1Q06-4Q17

74%

76%

78%

80%

82%

84%

86%

88%

90%

92%

94%

0

2,000

4,000

6,000

8,000

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12,000

14,000

16,000

18,000

20,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Inventory Growth AbsorptionAll Occupancy (4Q) Stabilized Occupancy (4Q)

Source: NIC MAP® Data Service

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Where Did Inventory Growth Occur in Last Three Years?Seniors Housing Annual Inventory GrowthPrimary & Secondary Markets | 4Q14 – 4Q17

Source: NIC MAP® Data Service

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A Three-Year Look Back at Supply and Demand by MarketSeniors Housing Supply-DemandPrimary Markets 4Q14 – 4Q17

Source: NIC MAP® Data Service

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Seniors Housing Occupancy By Market

75%

80%

85%

90%

95%

100%

SJ

BAL

POR

SAC

SEA

NY

BOS

PIT SF DC LA SD PHI

MIN

STL

OR

L

MAP 31 DET

DEN CIN

TAM

MIA

CLE RIV

CH

I

PHO

ATL

DAL KC LV

HO

U SA

Seniors Housing Occupancy by Metro MarketPrimary Markets | As of 4Q17

Occupancy Range (4Q05 - 4Q17)Current Quarter OccupancyYear Ago Occupancy

Source: NIC MAP® Data Service

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Audience Polling Question #5

By Year-End 2018, Occupancy Rates for Seniors Housing Will:

1. Increase 50 basis points 2. Increase more than 50 basis points3. Decrease 50 basis points4. Decrease more than 50 basis points

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Skilled Nursing Trends

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Skilled Nursing Update

1. Occupancy reached a new low in the third quarter of 2017.

2. Medicaid patient day mix continues to make up a growing share of occupancy, reaching its highest point in the five-year series.

3. Medicare patient day mix still driver of lower occupancy, hitting a new low.

4. Managed Medicare revenue per patient day declined from the prior quarter.

Accessible through the Reports page in the NIC MAP® Client Portal

Source: NIC Skilled Nursing Data Initiative

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Audience Questions

Please Take a Few Minutes to Complete Today’s Session

Evaluation