NIC Seniors Housing Boot Camp: an Interactive Workshop on the Art Of
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NIC Seniors Housing Boot Camp: An Interactive Workshop on the Art of Assessing a Deal Workshop Agenda: Presentations • Industry Overview • Introduction of Case Study • Market Assessment • Sales & Marketing • Care & Staffing • Investment Assessment & Operations Strategy • Financing Terms & Debt Placement • Review of Considerations & Valuation Table Discussions Value Review & Full Group Discussion Bre Grubbs SVP, New Business Development What is the Primary Reason for Your Attendance Today? a.Learn more about a particular portion of the acquisition process b.Learn more about how to value an opportunity c. Network and meet other new entrants to the industry d.I heard the snacks are pretty awesome Lana Peck Senior Principal • Real Estate Cycles • General Market Fundamentals Seniors Housing • Occupancy Today: • Inventory growth • Development • Asking Rent Growth • Transactions • Valuations Real Estate Cycles and Where Are We Today? Boom Hyper Supply Market Phase Declining Expansion Phase Occupancy Rising Occupancy Falling Values Rising Rents RAPID Rising Values Construction NEW Construction OVERBUILDING BUILD AND SELL Saturated Market Recovery Phase Recession Phase Rising Occupancy Falling Occupancy Rising Rents Falling Values Rising Values NO new construction NO new construction BUY Trough 7 Assisted Living Occupancy Far Lower Than Independent Living Occupancy Primary Markets | 1Q06-2Q17 IL AL Srs Hsg 93% 92% 91% 90% 89% 88% 87% 86% 85% 84% 83% 2Q2006 2Q2007 2Q2008 2Q2009 2Q2010 2Q2011 2Q2012 2Q2013 2Q2014 2Q2015 2Q2016 2Q2017 Source: NIC MAP® Data Service Annual Inventory Growth Outpacing Annual Absorption Annual Inventory Growth Rate and Annual Absorption Primary Markets | 1Q06 - 2Q17 6% Independent Living Annual Inventory Growth 5% Annual Absorption 4% 3% 2% 1% 0% -1% 6% Assisted Living 5% 4% 3% 2% 1% 0% -1% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: NIC MAP® Data Service Where Did Inventory Growth Occur During the Last 4 Qtrs? Seniors Housing Annual Inventory Growth Primary & Secondary Markets | As of 2Q17 Source: NIC MAP® Data Service Construction as a Share of Inventory Remains High Spaces Under Construction and Construction as Percent of Inventory Primary Markets | 1Q06 - 2Q17 Independent Living 23,000 12% Spaces Under Construction (L) 10% 18,400 Construction as % of Inventory (R) 8% 13,800 6% 9,200 4% 4,600 2% 0 0% Assisted Living 23,000 12% 18,400 10% 8% 13,800 6% 9,200 4% 4,600 2% 0 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: NIC MAP® Data Service Twelve Markets Have More Than 10% of Their Inventory U/C Seniors Housing Construction Primary & Secondary Markets | As of 2Q17 Source: NIC MAP® Data Service Annual Same-Store Rent Growth Generally Strong Annual Asking Rent Growth / Avg. Hourly Earnings* Assisted Living Employees Primary Markets | 4Q06 – 2Q17 Asking Rent - Assisted Living Asking Rent - Independent Living 6% 5% 4% 3% 2% 1% 0% -1% -2% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 *Wage data as of 1Q17 Source: NIC MAP® Data Service, U.S. Bureau of Labor Statistics Closed Seniors Housing & Care Dollar Volume: $1.4Bn for 2Q17 Seniors Housing & Care Transactions Volume1 U.S. | 1Q08 – 2Q17 Rolling 4-Qtr Rolling 4-Qtr 1. Preliminary Data Source: NIC MAP® Data Service, Real Capital Analytics Pricing Remains Relatively Stable Seniors Housing & Care Transactions Rolling 4-Quarter Price Per Unit1 U.S. | 1Q08 – 2Q17 Seniors Housing Nursing Care 1. Preliminary Data Source: NIC MAP® Data Service, Real Capital Analytics Assisted Living Occupancy Far Lower Than Independent Living Occupancy Primary Markets | 1Q06-2Q17 IL AL Srs Hsg 93% 92% 91% 90% 89% 88% 87% 86% 85% 84% 83% 2Q2006 2Q2007 2Q2008 2Q2009 2Q2010 2Q2011 2Q2012 2Q2013 2Q2014 2Q2015 2Q2016 2Q2017 Source: NIC MAP® Data Service 16 Has the Macro Overview Changed Your Opinion about Your Development or Acquisition Plans at All? 1. Nope, seniors housing is where it’s at! 2. Yes, it has made me more cautious about development in the short-term 3. Yes, it has made me less bullish on seniors housing in the short-term Ben Firestone Senior Managing Director Susannah Myerson VP of Senior Housing Finance Wells Fargo Bank Price S D Quantity Demand Supply Overall Demographics of the PMA Inventory in PMA • Qualified seniors • Existing seniors housing facilities • Qualified adult children • Other age-restricted projects or “NORCs” • Median home value & income • New planned competitors • Economic drivers of the PMA • Occupancy rates • Growth forecasts The Demand Side of the Equation: Demographics * NICMAP * Nielsen *Environics * ESRI Sample below from NIC MAP “Site Information Report” Demographics is Destiny….and It’s all Relative 5-mile Demographics SITE 2nd Site Portfolio Average Median Household Income (All Ages) $70,965 $62,514 $59,684 Median Home Value $281,326 $214,623 $203,587 2017 Households Age 75 - 84 12,459 17,778 10,564 2017 Households Age 85+ 6,542 9,300 5,847 2017 Total Households Age 75+ 19,001 27,078 16,411 Projected growth rate over next 5 years 6.1% 3.8% 4.2% 2017 HHs 75+ with incomes over $35,000 9,400 10,650 8,169 Projected growth rate over next 5 years 12.1% 8.1% 8.6% Percent of 75+ HHs who are "Qualified" ($35,000+) 49.5% 39.3% 49.8% 2017 Total Households Age 45 - 64 51,241 104,224 50,644 Projected growth rate over next 5 years -3.1% 2.7% -1.2% 2017 HHs Age 45 - 64 with incomes $100,000+ 22,628 34,977 20,478 Projected growth rate over next 5 years 6.4% 10.8% 3.6% Percent of Child HHs who are "Qualified" ($100,000+) 44.2% 33.6% 40.4% How to Estimate Demand Based on Given Demographics No consensus on the right way to estimate demand. Feasibility experts use: • Penetration rates • Occupancy rates • Capture rates • Disability/frailty rates (number of ADLs) • Dementia prevalence rates In order to estimate demand, you have to fully understand the supply! The Supply Side – Metro Area The Supply Side – Comparison to Other Metros Stabilized Construction Construction Metro Properties Units Penetration Occupancy Units vs. Inventory Detroit, MI 70 5,244 89.6% 1,581 30.1% 2.7% St. Louis, MO 72 4,647 89.2% 795 17.1% 3.7% Chicago, IL 151 14,610 87.8% 2,443 16.7% 4.1% Washington, DC 95 7,248 91.8% 963 13.3% 3.9% Kansas City, MO 54 3,392 84.7% 442 13.0% 4.2% Atlanta, GA 151 9,958 87.8% 1,263 12.7% 7.0% Orlando, FL 57 4,367 89.2% 500 11.4% 5.2% Tampa, FL 112 9,525 88.1% 1,017 10.7% 5.6% PRIMARY MARKETS 3,024 248,319 89.4% 21,365 8.6% 4.5% Minneapolis, MN 161 13,201 91.7% 1,130 8.6% 10.4% Miami, FL 81 7,942 86.9% 663 8.3% 2.6% Cincinnati, OH 36 3,636 91.2% 222 6.1% 4.2% Boston, MA 136 10,430 90.8% 607 5.8% 5.1% New York, NY 225 22,227 92.4% 894 4.0% 2.6% Philadelphia, PA 117 9,664 86.9% 391 4.0% 3.6% Cleveland, OH 54 5,121 86.7% 158 3.1% 4.7% Pittsburgh, PA 96 6,666 89.2% 72 1.1% 4.5% Baltimore, MD 56 4,225 90.9% 0 0.0% 3.6% The Supply Side – Within the PMA Property Advisor Report Comp Set Characteristics Properties: 16 Operators: 11 Average Age: 26 Total Units: 2,249 Segment Data Inventory 1Q2017 Ann. Change IL 1,360 81.5% -744 bps AL 671 95.2% +312 bps MC 218 78.4% -385 bps The Supply Side – Market Visit No substitute for an on the ground visit, to assess and rate: • The most likely competitors based on: • Pricing • Programming • Age • Location • The proposed site itself, based on: • Access/visibility • Neighborhood • Surrounding uses • Nearby medical facilities/hospitals Demand & Supply Summary METRIC SITE VALUE RATING # of qualified 75+ HHs and 9,400 Qualifed Senior HHs # of qualified adult child HHs 22,600 Qualifed Child HHs Projected Growth over 5 years Higher than average $70,965 / $281,326 Median Income and Home Values Higher than other sites/average Higher than State and overall US Overall Metro Market Health Occupancy lower than others; Compared to Other Markets new construction significantly higher 95% AL Occupancy and Age of Local Comps 78% MC (86% stabilized) Avg age = 26 years Impressions of most competitive supply Market Visit TBD Site positioning Based on Market Factors, I Would: 1. Proceed with the memory care conversion as specified in the OM 2. Definitely NOT proceed with the memory care conversion as specified in the OM 3. Proceed with the memory care conversion, but alter the lease-up and rate assumptions 4. I’m not quite sure yet, I’d need to see/know more Allison Pendroy SVP & Director The Big Picture The Good… The Bad… • Currently performing community • Aged community • Stabilized occupancy • Limited product offering • Pricing in line with market • Cash flowing • Solid margins • Desirable market Value Add Strategies 1. Modernization of Units 2. Unit Reconfiguration 3. Introduction of additional levels of care • Expanded Assisted Living Services • Memory Care Wing Think About… Modernization of Units Unit Reconfiguration Additional Levels of Care • Aged product • Validation of contractor pricing • Additional AL services • 53% of units still unrenovated • Burn down of AL occupancy in order • Determine what they need to be • Evaluate long-term plan to modernize to free up units for conversion to • Evaluate market demand facility Memory Care • Establish pricing • Units & Common Space • Pricing concessions • Evaluate adequacy of Plant / • Written Marketing Action Plan • Short term effect on occupancy Maintenance and Cap Ex $ • MC is different than AL • Need a long-term plan • Understand MC licensure • Forging new market process • Will require substantial investment relationships • Return on $ invested – pricing lift? • MC staffing and expense implications • Are pricing bands well positioned? • Exercise diligent review of 3rd party property condition reports Business Plan / Investment Thesis • This deal is a revenue play • “Repositioning” Facilitated by Way of: • Modernization • Reconfiguration • Expanded Levels of Care • 32% ($1,462) lift in underwritten REVPOR • However, don’t lose sight of expenses Investment Categorization Core Core Plus Value Add Opportunistic The Biggest Opportunity in Acquiring Older Assets is Usually? 1.