SENIOR HOUSING 2019 YEAR-END MARKET INSIGHT NATIONAL SENIOR HOUSING IN THIS REPORT PRIMARY CONTACTS 03 04 06 LISA WIDMIER ARON WILL AUSTIN SACCO Introduction Demographic Senior Executive Vice President Vice Chairman First Vice President Institutional Properties Institutional Properties Institutional Properties Demand Housing National Senior Housing National Senior Housing National Senior Housing Capital Advisors, Inc. Debt & Structured Finance Debt & Structured Finance Supply Investment Banking CBRE | Capital Markets T +1 713 787 1952 Member FINRA/SIPC T +1 713 787 1965 CBRE | Capital Markets T +1 858 729 9890 M +1 858 952 4743 07 08 10 NATIONAL SENIOR HOUSING General Investment Transaction TEAM Industry Returns Activity Parameters ASHAY SHAH ADAM MINCBERG MATT KURONEN TIM ROOT Transaction/ Vice President Vice President Vice President 12 14 15 Underwriting Manager Institutional Properties Institutional Properties Institutional Properties Institutional Properties National Senior Housing National Senior Housing National Senior Housing National Senior Housing Debt & Structured Finance Debt & Structured Finance Debt & Structured Senior Occupancy Occupancy CBRE | Capital Markets Finance Housing Rates & Rent Stack Up Construction Growth Activity CYRUS PAYDAR ALLISON FORD BRANDON WILLIAMS MICHAEL CREGAN Financial Analyst Financial Analyst Production Analyst Production Analyst Institutional Properties Institutional Properties Institutional Properties Institutional Properties 16 17 18 National Senior Housing National Senior Housing National Senior Housing National Senior Housing CBRE | Capital Markets CBRE | Capital Markets Debt & Structured Debt & Structured Finance Lease-Up Comparison Senior Finance Trends of Primary & Housing Secondary Capitalization Markets Rates ALLIE SURGES NATALIA MANNING SANDY AGUILA Client Services Client Services Graphic Design Coordinator Coordinator Institutional Properties Institutional Properties Institutional Properties National Senior 21 22 23 National Senior Housing National Senior Housing Housing CBRE | Capital Markets Debt & Structured CBRE | Capital Markets Finance Senior Underwriting Top Senior Housing Guidelines Housing Property Types Owners CORPORATE LEADERSHIP SUPPORT RESOURCE 24 25 28 Publicly CBRE About CBRE Traded SH Research: National MITCHELL KIFFE Senior Managing Director Dominated Active Adult Senior National Senior Housing Debt & Structured Finance REITs Research Brief Housing IN THIS REPORT 3 Introduction CBRE National Senior Housing is an industry leader in investment sales, debt originations, and investment banking. Our team has transacted more than $14.7 billion (including deals currently under contract) across the nation since 2014 through Q4 2019. We offer a depth of expertise rarely found in the senior housing sector. Our principals, Lisa Widmier, Aron Will, and Austin Sacco have 54 years of combined experience in the senior housing industry. CBRE National Senior Housing has generated over $24 billion in transaction volume since 2006. The breadth of our experience as developers, institutional investors, appraisers, and owner/ operators has given us the ability to understand a transaction from all sides. CBRE National Senior Housing focuses exclusively on senior housing. We provide a wide variety of services, including: • Investment property sales • Structured debt • Investment banking/Capital raise • Valuation • General consulting We provide investment opportunities to the marketplace across a broad spectrum of senior housing property types including: • Age-restricted multifamily • Active Adult • Independent living • Assisted living • Alzheimer’s/memory care • Skilled nursing and continuum of care • Continuing care retirement communities (rental and entry fee) • Post acute/Sub acute care For more information about CBRE National Senior Housing, please visit our website at www.cbre.com/ nationalseniorhousing. 3 | CBRE SHMI YEAR-END 2019 Senior Housing Demand is Driven by 4 Demographic Demand The baby boomers (post-World War II babies) began years to approximately 20.4 years. Additionally, it is turning 65 in 2011 and by 2030, the remainder will estimated that about one out of every four 65-year- also reach age 65 and account for approximately olds will live to be 90 years old, with one of every 10 21% of the total United States population. By 2050, expected to live past 95 years of age.2 the 65-plus age group is estimated to exceed 85.6 million, a more than 50% increase over its estimated Driving this increased life expectancy, and 2020 population (56.1 million). The same figure for consequentially average population age, is the 85-plus group is even higher. By 2050, the 85-plus advancement in public health strategy and medical age group is estimated to exceed 18.5 million, a treatment. Life expectancy in the United States has 177% increase over its estimated 2020 population (6.7 increased by approximately 30 years over the past million). Additionally, by 2035 the 65-plus age group is century, primarily due to the reduction of acute illness estimated to be larger than the population under age threats. However, an unforeseen consequence of longer 18. By 2035, there will be 78.0 million people 65 years life expectancy has been the increased prevalence of and older compared to 76.7 million under the age heart disease, cancer and other chronic diseases as the of 18. The projected growth in the senior population leading causes of death. As Americans age during the will present many challenges to policy makers and next several decades, the elderly population will require programs by having a significant impact on families, a larger number of formally trained, professional businesses, healthcare providers and, most notably, on caregivers as a direct effect of these chronic diseases, the demand for senior housing.1 which often affect independence and mobility.3 One of the primary drivers in trends for the aging Moreover, the problems facing the United States aging population is mortality rates. Survivorship rates have population can be witnessed as a global phenomenon. shown consistent improvement for many decades. In Fifty countries had a higher proportion of people aged the United States in 1972, the average life expectancy 65-plus than the United States in 2010. This number of a 65-year-old was 15.2 years. By 2017, the most is expected to increase to approximately 98 countries recent available data, this metric increased by 5.2 by 2050.1 NUMBER OF PEOPLE AGE 65 & OVER AND 85 & OVER 100 90 80 70 60 50 40 Population (millions) Population 30 20 10 0 2020 F 2025 F 2030 F 2035 F 2040 F 2045 F 2050 F 2055 F 2060 F Population 65+ Population 85+ Source: 1) U.S. Census Bureau. (2) Social Security Administration, Retirement & Survivors Benefits: Life Expectancy Calculator, 2019. (3) Center for Disease Control and Prevention. The State of Aging and Health in America Report. 4 | CBRE SHMI YEAR-END 2019 U.S. POPULATION ESTIMATES AGE 75-PLUS 60 14.0% 50 12.0% Population % of Total 10.0% 40 8.0% 30 6.0% 20 4.0% 10 2.0% 75-Plus Population (millions) 75-Plus Population 0 0.0% Population 75+ % of Total Population Chart Source: U.S. Census Bureau; release date: March, 2018 and U.S. Census Bureau, Statistical Abstract of the United States: 2012. Note: “A” indicates actuals based on Census data and “F” indicates forecasted population estimates released March 2018. A Multi-Trillion Dollar Industry Annual United States healthcare services expenditures totaled almost $3.5 trillion in 2017. Healthcare is one of the largest line items in Federal and State Government spending. Healthcare spending is estimated to grow at an average of 5.5% per year from 2018 through 2027. Furthermore, over the same period, healthcare spending is estimated to grow 0.8% faster than GDP per year. As a result, the healthcare portion of GDP is expected to rise from 17.9% in 2017 to 19.4% by 2027.4 NATIONAL HEALTH EXPENDITURES (BILLIONS) $7,000 $6,000 $5,651 $5,345 $5,963 $5,049 $4,767 $4,502 $5,000 $4,255 $4,031 $3,823 $3,649 $3,487 $3,347 $4,000 $3,200 $3,025 $2,875 $3,000 $2,791 $2,000 $1,000 $0 Chart Source: Centers for Medicare & Medicaid Services, actuals published as of 2/2019. The projections incorporate estimates of GDP and spending as of May 2017. NATIONAL HEALTH EXPENDITURES PER CAPITA $20,000 $16,309 $17,102 $15,527 $14,764 $14,035 $13,344 $15,000 $12,702 $12,119 $11,576 $11,174 $10,743 $10,380 $9,996 $9,517 $9,113 $10,000 $8,909 $5,000 $0 Chart Source: Centers for Medicare & Medicaid Services, actuals published as of 2/2019. The projections incorporate estimates of GDP and spending as of May 2017. Source: (4) Centers for Medicare & Medicaid Services, National Health Expenditure Projections 2018 – 2027 https://www.cms.gov/research-statistics-data-and-systems/ statistics-trends-and-reports/nationalhealthexpenddata/downloads/forecastsummary.pdf (accessed March 20, 2019). 5 | CBRE SHMI YEAR-END 2019 6 Senior Housing Supply NUMBER OF COMMUNITIES TOTAL UNITS/BEDS Continuing Care Majority Continuing Care Retirement Retirement Majority Nursing Communities, Communities, Nursing Care, Care, 42.9% 7.7% 19.9% 44.1% Majority Independent Majority Living, Independent 11.0% Living, 12.7% Majority Assisted Living, Majority 38.4% Assisted Living, 23.2% Chart Source: NIC MAP Data & Analysis Service; Q4 2019 Supply Report, All Markets. Community Location in the NIC MAP Metro Markets Total No. of Total No. of Region Communities Units/Beds LOCATION MIX (UNITS/BEDS) Northeast 3,315 478,872 Southeast 3,643 455,055 West, 19.2% Northeast, North Central 3,256 399,601 24.6% South Central 2,232 258,275 South Central, West 3,390 380,461 13.2% Total 15,836 1,972,264 North Southeast, Note: Central, 22.8% Northeast – CT, DE, ME, MA, NH, NJ, NY, PA, RI, VT 20.2% Southeast – AL, DC, FL, GA, KY, MD, NC, SC, TN, VA, WV North Central – IA, IL, IN, MI, MN, NE, ND, OH, SD, WI South Central – AR, KS, LA, OK, TX, MO, MS West – AK, AZ, CA, CO, HI, ID, MT, NM, NV, OR, UT, WA, WY Chart Source: NIC MAP Data & Analysis Service; Q4 2019 Supply Report, All Markets.