Chuck Harry

Chief of Research & Analytics, NIC

Beth Mace

Chief Economist, NIC

Market Fundamentals and Trends in

Seniors Housing

Argentum 2016 Conference and Exposition

Tuesday, May 10, 2016 | Denver, CO

Copyright ©2016 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 (NIC MAP). Distribution of this report or any part of this report without prior written consent or license by NIC is prohibited. Subject to the NIC Terms of Use. For license information please contact NIC at 410-267-0504.

Today’s Presentation

1. Macroeconomic Trends and Patterns

2. Capital Markets and Recent Transactions Trends

3. Seniors Housing Market Trends Q1 2016

4. Seniors Housing Market Outlook

2

The Economic Backdrop: Uncertainty Revisited

3

Source: Cartoon Bank

Top Themes for Macroeconomic Trends 1Q15

4

1. Since the Fed Rate Hike in mid-December:

– Stock markets have been volatile and skittish

– Oil prices have plunged, with a recent uptick

– Emerging markets slowing economies

– Interest rates have fallen

2. Near-term Actions by the Fed Will Provide Clues About

Economy’s Strength

The Economic Balance Sheet

5

Strengths Weaknesses

Unemployment Rate Half of Its Recession

Peak Level

Instability in Global and Domestic Financial

Markets

Employment Gains Averaging 200,000 per

Month

Weakness in Emerging Market Economies

Rising Consumer and Business Confidence

(for now)

Weakness in U.S. Mfg and Oil-based Industries

Shrinking Federal Deficit (for now) Disinflation Risks

Gradual Recovery in Housing Market Negative Operating Earnings Among S&P 500

Companies

Outside Forces and Contributing Factors

Strong Dollar

Falling Commodity Prices

Plunge in Oil Prices

Dysfunctional Fiscal Policy Apparatus, i.e., Congress

Ten Year Treasury Has Recently Been Below 1.8%...

Source: Federal Reserve 6

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

3.2

24Sep13 17Dec13 11Mar14 2Jun14 1Aug14 10Oct14 2Jan15 27Mar15 5Jun15 4Aug15 3Oct15 2Dec15 31Jan16 6Apr16

U.S. 10-Year Treasury Rate

Are We Due For A Recession?

7

Business Cycle Duration

Peak Trough Trough to Peak Duration (Months)

November 1973 (IV) March 1975 (I) 36

January 1980 (I) July 1980 (III) 58

July 1981 (III) November 1982 (IV) 12

July 1990 (III) March 1991 (I) 92

March 2001 (I) November 2001 (IV) 120

December 2007 (IV) June 2009 (II) 73

To Date (as of April 2016) 82

Average of 1945-2009 (11 cycles) 58

Note: Quarterly Dates in Parenthesis

169208

173

95

-298

-423

88

174 188 193

251229 209

-500

-400

-300

-200

-100

0

100

200

300

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD 2016

Relatively Strong Employment Gains

Monthly Employment Gains (000s)

U.S. | 2004 – March 2016

Source: BLS

Volu

me (

$)

Quarter

8

And Labor Markets Are Tightening

Number of Unemployed Per Job Opening

2000 – 2015 (000s, left hand scale; ratio, right hand scale)

Source: BLS 9

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20

00

20

01

20

01

20

02

20

02

20

03

20

03

20

04

20

04

20

05

20

05

20

06

20

06

20

07

20

07

20

08

20

08

20

09

20

09

20

10

20

10

20

11

20

11

20

12

20

12

20

13

20

13

20

14

20

14

20

15

20

15

Unemployed Per Job Opening Job Openings (left) Unemployed Persons (left)

Lowest ratio since 2007

More People Are Quitting Their Jobs, A Sign of ConfidenceQuits Ratio By Industry Group

2005– 2015

Source: BLS 10

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Health Care and Social Assistance Total Nonfarm Employment Professional/Bus. Svcs. Mfg.

Industry Employee Wages Outpacing Rent Growth

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Annual Asking Rent Growth / Employee WagesAll Markets | 4Q06 – 1Q16

Assisted Living Asking Rent

Independent Living Asking Rent

Private Sector Workers

Assisted Living Employees

Source: NIC MAP® Data Service; U.S. Bureau of Labor Statistics

11

Top Themes for Capital Markets and Transactions 1Q16

1. Transaction volumes fell in 1Q16

2. Smaller deals dominated the landscape

3. Public markets were less active

4. Price per unit down but remains near recent peak

12

Closed Seniors Housing & Care Dollar Volume: $3.5Bn for 1Q16

Source: NIC MAP® Data Service

Seniors Housing & Care Transactions Volume1

U.S. | 1Q08 – 1Q16

Rolling 4-Qtr

Rolling 4-Qtr

1. Preliminary Data

13

Number of Seniors Housing & Care Transactions: 114 in 1Q16

Source: NIC MAP® Data Service

Single-Property vs. Portfolio1

U.S. | 1Q08 – 1Q16

1. Preliminary Data

14

Public Buyers Share Falls First Quarter of 2016

Closed Transactions Seniors Housing & Care Volume by Buyer Type1

U.S. | 1Q08 – 1Q16

Source: NIC MAP® Data Service

1. Preliminary Data

Volu

me (

$)

Quarter

15

Seniors Housing Property Pricing Remains Near Peak

Seniors Housing & Care Transactions Rolling 4-Quarter Price Per Unit1

U.S. | 1Q08 – 1Q16

Source: NIC MAP® Data Service

1. Preliminary Data

Seniors Housing

Nursing Care

16

Top Themes for Seniors Housing Trends 1Q16

1. Occupancy flattens for both independent living and assisted living

2. Absorption and inventory growth on par during past four quarters

3. Construction starts slowed, though total construction still high

4. Construction activity concentrated in a few active markets

5. Annual rent growth highest since 2008

17

Primary Markets’ Occupancy Plateauing?

86%

87%

88%

89%

90%

91%

92%

93%

94%

95%

96%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Seniors Housing OccupancyPrimary Markets | 4Q05 – 1Q16

Median*

Stabilized**

“All”

Occupancy

* Median occupancy of all properties.

** Average occupancy of properties older than two years or which have reached 95% occupancy

Source: NIC MAP® Data Service 18

Primary And Secondary Markets’ Occupancies Converge

83%

84%

85%

86%

87%

88%

89%

90%

91%

92%

93%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Seniors Housing OccupancyAll Markets | 4Q05 – 1Q16

Secondary

Markets

All Markets

Primary

Markets

Source: NIC MAP® Data Service 19

Secondary Markets Inventory Growth at New Peak

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2009 2010 2011 2012 2013 2014 2015 2016

Rolling 4-Qtr Construction Starts and Inventory GrowthSecondary Markets | 1Q08 – 1Q16

Source: NIC MAP® Data Service

Inventory

Growth

Construction

Starts

20

Secondary Markets are 14 of 20 Hottest Construction Markets

Seniors Housing Construction

All Markets | As of 1Q16

Source: NIC MAP® Data Service 21

Construction Starts Slowed in First Quarter of 2016

Source: NIC MAP® Data Service

0

1,000

2,000

3,000

4,000

4-qtr moving avg

Construction Starts (Units)

Primary Markets | 1Q06 - 1Q16

Majority Independent Living

0

1,000

2,000

3,000

4,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

4-qtr moving avg

Majority Assisted Living

22

Is Assisted Living Construction Activity Leveling Off?

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

0

5,000

10,000

15,000

20,000

25,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

AL Construction, Construction vs. InventoryPrimary Markets | 4Q05 – 1Q16

Units Under Construction (L)

Construction vs. Inventory (R)

Source: NIC MAP® Data Service 23

IL Construction Rate is Half the Pace of AL Construction

0.0%

1.5%

3.0%

4.5%

6.0%

0

5,000

10,000

15,000

20,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

IL Construction, Construction vs. InventoryPrimary Markets | 4Q05 – 1Q16

Units Under Construction (L)

Construction vs. Inventory (R)

Source: NIC MAP® Data Service 24

Primary Markets’ Construction is Concentrated

% Majority AL Units Under Construction

AL

ATL

MIN

CHI

% Majority IL Units Under Construction

IL

SEA

All O

the

r Prim

ary

Ma

rkets

6 Markets = Nearly 50% of All

Construction

Units Under Construction (By Majority Property Type)

Primary Markets | As of 1Q16

18.5k units U/C 12.0k units U/C

SA

MIA

DAL

HOU

ATL

DEN

SAC

DAL

25

Market Occupancies Vary Widely Across the Nation

75%

80%

85%

90%

95%

100%

SJ

BA

L

DC

PO

R

PIT

SA

C

BO

S

ST

L

SD

SE

A

MIN LA

DE

N

DE

T

CIN NY

SF

PH

I

OR

L

MA

P3

1

TA

M

KC

AT

L

CL

E

CH

I

RIV

PH

O

MIA

DA

L

LV

HO

U

SA

Seniors Housing Occupancy by Metro MarketPrimary Markets | As of 1Q16

Occupancy Range (4Q'05 - 1Q'16)

Current Quarter Occupancy

Year Ago Occupancy

Source: NIC MAP® Data Service 26

Supply and Demand Balances and Imbalances by Market

Seniors Housing Supply-Demand

Primary Markets | As of 1Q16

Source: NIC MAP® Data Service

Annual

27

Top Themes for Seniors Housing Outlook 1Q16

1. Occupancy plateauing for both independent living and assisted living

2. Construction pipelines full for assisted living, but demand is largely

keeping pace

3. Construction pipelines growing in independent living, but still less than in

assisted living

4. Metro area performance will vary considerably due to local market

supply and demand conditions

28

Assisted Living Pace of Demand Accelerated Recently

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Assisted Living Supply-DemandPrimary Markets | 4Q06 – 1Q16

Inventory Growth Rate

(Rolling 4-Qtr)

Absorption Rate

(Rolling 4-Qtr)

Source: NIC MAP® Data Service 29

Flat Assisted Living Occupancy Rate Projected

85%

87%

89%

91%

93%

95%

-1k

0k

1k

2k

3k

4k

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

Assisted Living Supply-Demand ForecastPrimary Markets | 1Q06 – 1Q17’F

Inventory Growth (L)

Absorption (L)

Occupancy (R)

Source: NIC MAP® Data Service

Forecast

30

Independent Living Supply Pace Picking Up

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Independent Living Supply-DemandPrimary Markets | 4Q06 – 1Q16

Inventory Growth Rate

(Rolling 4-Qtr)

Absorption Rate

(Rolling 4-Qtr)

Source: NIC MAP® Data Service 31

Independent Living Occupancy Rate Plateauing

85%

87%

89%

91%

93%

95%

-1k

0k

1k

2k

3k

4k

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

Independent Living Supply-Demand ForecastPrimary Markets | 1Q06 – 1Q17’F

Inventory Growth (L)

Absorption (L)

Occupancy (R)

Source: NIC MAP® Data Service

Forecast

32

41 New MAP Markets with July’s 2Q16 Data Release

33

Second Quarter 2016 NIC MAP ReleaseData Release: Wednesday, July 6 at 4:15 PM ET

Webinar: Tuesday, July 12 at 11:00 AM ET