Market Fundamentals & Trends in Senior Housing

Chuck Harry Managing Director and Director of Research & Analytics NIC

Beth Burnham Mace Chief Economist and Director of Capital Markets Outreach NIC

Market Fundamentals & Trends in Seniors Housing

ALFA 2015 Conference and Exposition

Wednesday, May 6, 2015 Tampa, Florida

1

1. Macroeconomic Trends and Patterns

2. Capital Markets and Recent Transactions Trends

3. Seniors Housing Market Trends 1Q’15

4. Seniors Housing Market Outlook

Today’s Presentation

© 2015 National Investment Center for Seniors Housing & Care (NIC). All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision. This report is a part of the NIC MAP® Data Service. Distribution of this report or any part of this report without prior written consent or license by NIC is prohibited. For license information please contact NIC at 410-267-0504.

2

1. Economy Slowed in 1Q 2015, But Recovery Continues

2. Jobless Rate Lowest Since 2007

3. Strong Dollar Hurts Manufacturing

4. Low Oil Prices Help Consumer

5. Consumer Confidence Strong

6. Housing Slow to Recovery, but Improvement Expected

7. Interest Rates Poised to Rise

Top Themes for Macroeconomic Trends 1Q’15


3

Job Gains Slowed in 1Q’15

Source: US BLS

4 © 2015 National Investment Center for Seniors Housing & Care (NIC). All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision. This report is a part of the NIC MAP® Data Service. Distribution of this report or any part of this report without prior written consent or license by NIC is prohibited. For license information please contact NIC at 410-267-0504.

169 208

173

95

-298

-423

88

173 188 199

259

197

-500

-400

-300

-200

-100

0

100

200

300

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q1'15

Monthly Employment Gains (Thousands)

The Jobless Rate Fell to 5.5% in February 2015

Source: US BLS


Monthly Unemployment Rate (%)

The Dollar Has Quickly Appreciated

Source: Federal Reserve


Trade-Weighted Exchange Rate (1997 = 100)

90

95

100

105

110

115

120

Jan

-07

May

-07

Sep

-07

Jan

-08

May

-08

Sep

-08

Jan

-09

May

-09

Sep

-09

Jan

-10

May

-10

Sep

-10

Jan

-11

May

-11

Sep

-11

Jan

-12

May

-12

Sep

-12

Jan

-13

May

-13

Sep

-13

Jan

-14

May

-14

Sep

-14

Jan

-15

Trade Weighted Exchange Rate, Index 1997 = 100 Average Since 2007 = 102

Dollar Has Appreciated By 14% Since June 2014

Oil Prices Have Fallen Sharply

Source: U.S. Energy Information Administration


Oil Prices (WTI, Dollars Per Barrel)

0

20

40

60

80

100

120

140

Jan-04 Oct-04 Jul-05 Apr-06 Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Oct-10 Jul-11 Apr-12 Jan-13 Oct-13 Jul-14

West Texas Intermediate Prices ($/barrel) 10-Year Average = $81

Consumer Confidence Is Best In Seven Years

Source: Conference Board


Consumer Confidence (Index, 1985 = 100)

0

20

40

60

80

100

120

140

160

180

200

Mar

-90

Jul-

91

No

v-9

2

Mar

-94

Jul-

95

No

v-9

6

Mar

-98

Jul-

99

No

v-0

0

Mar

-02

Jul-

03

No

v-0

4

Mar

-06

Jul-

07

No

v-0

8

Mar

-10

Jul-

11

No

v-1

2

Mar

-14

Consumer Confidence Index: Present Situation, (Index 1985=100, SA)

Consumer Confidence Index: Expectations, (Index 1985=100, SA)

Home Prices Have Not Recovered Fully

Source: S&P Dow Jones Indices; CoreLogic, Inc.


S&P/Case-Shiller National Home Price Index

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

0

20

40

60

80

100

120

140

160

180

200

Jan

-87

No

v-8

7

Sep

-88

Jul-

89

May

-90

Mar

-91

Jan

-92

No

v-9

2

Sep

-93

Jul-

94

May

-95

Mar

-96

Jan

-97

No

v-9

7

Sep

-98

Jul-

99

May

-00

Mar

-01

Jan

-02

No

v-0

2

Sep

-03

Jul-

04

May

-05

Mar

-06

Jan

-07

No

v-0

7

Sep

-08

Jul-

09

May

-10

Mar

-11

Jan

-12

No

v-1

2

Sep

-13

Case Shiller Home Price (left, Index, Jan 2000= 100) Year/Year Growth (right)

Sales of Single-Family Residences Have Room To Go

Source: National Association of Realtors, U.S. Census Bureau


Single-Family Home Sales—New and Existing (Thousands, SAAR)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

0

200

400

600

800

1,000

1,200

1,400

1,600

Jan-90

Feb-91

Mar-92

Apr-93

May-94

Jun-95

Jul-96

Aug-97

Sep-98

Oct-99

Nov-00

Dec-01

Jan-03

Feb-04

Mar-05

Apr-06

May-07

Jun-08

Jul-09

Aug-10

Sep-11

Oct-12

Nov-13

Dec-14

New Home Sales Existing Home Sales (Right)

Forecast Summary

Source: Federal Reserve, HFE, Capital Economics


Summary of Projections for Key Statistics (Q4/Q4)

2014 2015 2016

GDP HFE 2.4 2.8 2.8

Capital Economics 2.4 3.3 2.8

Federal Reserve (3/15) 2.4 2.3-2.7 2.3-2.7

Inflation HFE 1.6 1.6 2.5


Federal Reserve (3/15) 1.6 0.6-0.8 1.7-1.9

Unemployment Rate HFE 6.2 4.9 4.3


Federal Reserve (3/15) 6.2 5.0-5.2 4.9-5.1

10-Year Treasury (%) HFE 2.2 2.7 3.8


Federal Reserve 2.2 na na

Recent Interest Rate Movements

Source: National Association of Realtors, U.S. Census Bureau


1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

3.2

20Sep13 13Dec13 7Mar14 30May14 30Jul14 8Oct14 31Dec14 25Mar15

U.S. 10-Year Treasury Rate

Consensus Among WSJ Economists: Rising Rates

Source: Wall Street Journal


1.00

1.50

2.00

2.50

3.00

3.50

4.00

2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015q1 2016Q1

U.S. 10-Year Treasury Note (%)

Forecast

1. Transactions Volume Were Strong in 1Q 2015

2. Seniors Housing Sales Pricing at Record Highs

3. Small Size Deals Dominated the Market

Top Themes for Capital Markets and Transactions 1Q'15


14

More Than $3 Billion in Closed Volume During 1Q

$0b

$3b

$6b

$9b

$12b

$15b

2008 2009 2010 2011 2012 2013 2014 2015

$0b

$3b

$6b

$9b

$12b

$15b

Closed Transactions Volume United States | 1Q’08 – 1Q’15

Nursing Care

4-qtr rolling total Seniors Housing

4-qtr rolling total

Transactions data for 1Q15 is preliminary.


Small Deals Dominated the Quarter

Transactions data for 1Q15 is preliminary.


Seniors Housing Pricing at Cyclical Highs?

$0k

$50k

$100k

$150k

$200k

$250k

2008 2009 2010 2011 2012 2013 2014 2015

Seniors Housing Rolling 4-Qtr Price/Unit United States | 1Q’08 – 1Q’15

All Properties

Qualified

Properties*

Transactions data for 1Q15 is preliminary. * Only includes properties with either a confirmed, approximate, street talk, or appraised pricing qualifier


1. Unexpectedly Weak 1Q’15 absorption

2. Occupancy Declined in Most Property Types

3. Winter Weather Didn’t Adversely Affect Aggregate Starts

Top Themes for Seniors Housing Market Trends 1Q’15


18

Occupancy Declined Across All Aggregates

86%

87%

88%

89%

90%

91%

92%

93%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Seniors Housing Occupancy 4Q’05 – 1Q’15

All Markets

Secondary

Markets

Primary Markets


Decline in Occupancy Wasn’t Restricted to One Region

83%

84%

85%

86%

87%

88%

89%

90%

91%

92%

93%

2008 2009 2010 2011 2012 2013 2014 2015

Seniors Housing Occupancy 1Q’08 – 1Q’15

Northeast

Mid-Atlantic

West North Central

Pacific

East North Central Southeast

Mountain

Southwest


Data includes all NIC MAP tracked CBSAs within the region

Pockets of Weak Absorption in Each Region


Seniors Housing Quarterly Absorption

As of 1Q’15

Varying Supply-Demand Conditions Across Markets


Seniors Housing – All Markets

As of 1Q’15

14 Markets 26 Markets

32 Markets 27 Markets

Demand Issues in Some Markets, Supply Issues in Others


Seniors Housing – Primary Markets

As of 1Q’15

7 Markets

6 Markets

12 Markets

6 Markets

Despite Soft Quarter, Most Markets Up YOY


80%

82%

84%

86%

88%

90%

92%

94%

96%

SJ

MIN

PIT

BA

L

PO

R

BO

S

DC

CIN

DE

T

NY

SD

ST

L

SE

A

SA

C

LA

AT

L

SF

MA

P3

1

PH

I

KC

DE

N

CL

E

OR

L

MIA

TA

M

PH

O

SA

CH

I

LV

DA

L

HO

U

RIV

Seniors Occupancy By Metro Market Primary Markets as of 1Q’15

Increased YOY

Decreased YOY

1. Recovery Should Resume in Independent Living

2. Supply and Demand Largely in Balance in Assisted Living

3. Occupancy May Be Plateauing in Assisted Living

Top Themes for Seniors Housing Outlook 1Q’15


25

85%

87%

89%

91%

93%

95%

-1k

0k

1k

2k

3k

4k

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Majority Independent Living Supply-Demand Forecast Primary Markets | 1Q’06 – 1Q’16’F

Inventory Growth (L)

Absorption (L)

Occupancy (R)

Recovery Should Resume in Independent Living

Forecast


85%

87%

89%

91%

93%

95%

-1k

0k

1k

2k

3k

4k

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Majority Assisted Living Supply-Demand Forecast Primary Markets | 1Q'06 – 1Q’16’F

Inventory Growth (L)

Absorption (L)

Occupancy (R)

Has Assisted Living’s Occupancy Peaked?

Forecast


Some of Assisted Living’s Decline was Seasonal

86%

87%

88%

89%

90%

91%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Assisted Living Occupancy Primary Markets | 4Q’05 – 1Q’15

Seasonally Adjusted Official


Starts Were Pocketed Throughout the Country


Seniors Housing Construction Starts

1Q’15

0k

1k

2k

3k

4k

0k

1k

2k

3k

4k

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Construction Starts (Units) Primary Markets | 1Q’06 – 1Q’15

Majority Independent Living

4-qtr moving avg

Majority Assisted Living

4-qtr moving avg

Starts on Par with Recent Quarters


Independent Living Construction Up, But Still Tempered

0%

1%

2%

3%

4%

5%

6%

7%

8%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Independent Living Construction vs. Inventory 4Q’05 – 1Q’15

All Markets Secondary Markets

Primary Markets


Assisted Living Construction Up in Secondary Markets

0%

1%

2%

3%

4%

5%

6%

7%

8%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Assisted Living Construction vs. Inventory 4Q’05 – 1Q’15

All Markets

Secondary Markets

Primary Markets


Development was Spatially Diversified


33

Seniors Housing Construction

As of 1Q’15

Development Comes in Cycles


Seniors Housing Construction

Asking Rents Outpaced Inflation

0%

1%

2%

3%

4%

5%

2007 2008 2009 2010 2011 2012 2013 2014 2015

Annual Asking Rent Growth/Inflation Primary Markets | 1Q’07 – 1Q’15

Majority AL

Majority IL

Core

Inflation

Notes: - Asking rents

include base rent plus avg care fee.

- Annual growth reported on a same-store basis.


Second Quarter 2015 NIC MAP Release Data Release: Wednesday, July 8th

Webinar: Tuesday, July 14th

36

Market Fundamentals & Trends in Senior Housing

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