2017 NIC Fall Conference Investing in Seniors Housing and Care Properties #NICFall17
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Chuck Harry Chief of Research & Analytics Shining a Spotlight on Trends Shaping Seniors Housing and Skilled Nursing Opportunities Bill Kauffman Senior Principal, Research & Analytics Beth Mace Chief Economist and Director of Outreach Lana Peck Senior Principal, Research & Analytics
Economic Outlook Discussion Topics NIC s New Wage & Employment Report Demographic Trends Seniors Housing & Care Capital Market Conditions Skilled Nursing Market Conditions Seniors Housing Market Conditions Seniors Housing Actual Rates
Economic Outlook Labor Market Conditions Mounting Wage Pressures Fed Policy and Interest Rates Demographic Trends
Strong Labor Demand JOLTS Data: U.S. Job Openings, Quits and Hires (000s) January 2013 June 2017 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Job Openings Quits Hires Source: US Bureau of Labor Statistics, Moody s Analytics 6
and a Falling Jobless Rate U.S. Unemployment Rate (%) January 2006 July 2017 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Source: US Bureau of Labor Statistics, Moody s Analytics 7
and Some Labor Markets Are Even Tighter Metropolitan Area Unemployment Rates (%), High to Lowest May 2017 Cleveland Pittsburgh New Orleans Houston New York Chicago Baltimore Dallas Boston San Jose San Fransicso Indianapolis Nashville Denver 0 1 2 3 4 5 6 Source: BEA, Moody s Analytics, U.S. Department of Labor 8
Mounting Wage Pressures? Average Hourly Earnings (Percent Change from Year Ago) January 2015 July 2017 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Source: Moody s Analytics, U.S. Department of Labor All Sectors SNF Assisted Living 9
NIC MAP Employment and Wage Data Report Metropolitan area, state and national level employment and wage data for occupational job categories associated with the seniors housing and care sectors Plan, compare, and benchmark business plan and pro forma models One-stop shopping of data from five separate BLS reports
The New NIC MAP Bureau of Labor Statistics Employment and Wage Data Report Excerpt from Report: Source: NIC MAP Data Service, U.S. Bureau of Labor Statistics Accessible through the Reports page in the NIC MAP Client Portal 11
Fed Policy and Interest Rates Source: Cartoon Bank 12
The Fed s Dual Mandate: Not Quite A Bullseye Yet Source: Federal Reserve Bank of Chicago, August 2017 13
Fed s Dual Mandate: Full Employment, Moderate Inflation Unemployment Rate, Price Deflator and Fed Funds Rate 2007 2017 Q2 12.00 10.00 8.00 6.00 4.00 2.00 Unemployment Rate: 4.4% (Q2 17) Core PCE: 1.7% (Q1 17) Fed Funds Rate: 0.95% (Q2 17) 6.00 5.00 4.00 3.00 2.00 1.00 0.00 0.00 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1 Fed Funds Rate (Right, %) Unemployment Rate (Left, %) Core Price Deflator (Right, %) Source: BLS, Commerce Department, Federal Reserve, Moody s Analytics, St Louis Federal Reserve Bank (FRED) 14
A Rising Interest Rate Environment? Yield Curve for U.S. Treasuries December 2015, December 2016 and July 2017 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 3-Month 6-Month 1-Year 2-Year 3-Year 5-Year 7-Year 10-Year 20-Year 30-Year Dec-15 Dec-16 Jul-17 Source: Moody s Analytics Maturity Length of U.S. Treasuries 15
A Changing of the Guard at the Fed? Will Janet Yellen remain at the helm in February? Who else is in the running? How will this affect Fed policy? Maturity Length of U.S. Treasuries 16
Near and Long-term Demographics Are Getting Better Number of Live Births (1909 to 2013, 000s) 5,000 4,500 Today s 82-Year Old Resident Was Born in 1935 And Is Of The Silent Generation 4,000 3,500 3,000 2,500 2,000 1,500 1,000 Greatest Generation 55 Million Silent Generation 47 Million Baby Boomers 76 Million Generation X 55 Million Millennials 66 Million Post Millennials 500 0 1909 1912 1915 1918 1921 1924 1927 1930 1933 1936 1939 1942 1945 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 Source: U.S. Census, NIC MAP Data Service 17
Capital Market Trends Transaction Volumes Buyer Mix Pricing
Closed Seniors Housing & Care Dollar Volume: $2.0 Billion for 2Q 2017 Seniors Housing & Care Transactions Volume U.S. 1Q08 2Q17 Source: NIC MAP Data Service 19
Public Buyer Activity Weak Through First Half of the Year Closed Transactions Seniors Housing & Care Volume by Buyer Type U.S. 1Q2008 2Q2017 Source: NIC MAP Data Service 20
Pricing Remains Stable Seniors Housing & Care Transactions Rolling 4-Quarter Price Per Unit U.S. 1Q08 2Q17 Seniors Housing Nursing Care Source: NIC MAP Data Service 21
National data Skilled Nursing Data Report Revenue and Occupancy Trends Approximately 1,500 properties Data collected directly from operators Participants get benchmark report every month Reported quarterly to public
Recently Released Reports 2Q17 Skilled Nursing Data Report Contact Bill Kauffman bkauffman@nic.org
Occupancy Hits Lowest Level in Five Years Skilled Nursing Occupancy (%) July 2012 to June 2017
Medicare Patient Day Mix Reaches Low of 12.7%
Medicaid Mix Continues to Climb to Near All-Time High
Trends Indicate Managed Medicare Penetration on the Rise
Medicaid RPPD Climbs Slowly to $201 in 2Q 2017
Growth in Medicaid RPPD Above Inflation, Below Wage Rate Growth
Managed Medicare RPPD Hits Five-Year Low Despite Deceleration in Rate of Decline
Private Pay Leads in Annual RPPD Growth Rate
Despite 2Q 2017 Uptick, Private RPPD Growth Rate less than Wage Rate Growth
Occupancy Seniors Housing Trends Inventory growth & construction Supply & demand Rent growth Actual rates
Seniors Housing Occupancy Declines Seniors Housing Fundamentals Primary Markets 1Q06-2Q17 Inventory Growth All Occupancy Absorption Stabilized Occupancy 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0-1,000 94% 92% 90% 88% 86% 84% 82% 80% 78% 76% -2,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 74% Source: NIC MAP Data Service 34
Assisted Living Occupancy Far Lower Than Independent Living Occupancy Primary Markets 1Q06-2Q17 93% IL AL Srs Hsg 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 35
Annual Inventory Growth Outpacing Annual Absorption Annual Inventory Growth Rate and Annual Absorption Primary Markets 1Q06-2Q17 Independent Living Assisted Living Annual Inventory Growth Annual Absorption 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 6% 5% 4% 3% 2% 1% 0% -1% 6% 5% 4% 3% 2% 1% 0% -1% Source: NIC MAP Data Service 36
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 37
Supply and Demand Balances and Imbalances by Market Seniors Housing Supply-Demand Primary Markets As of 2Q17 Source: NIC MAP Data Service 38
Construction as a Share of Inventory Remains High Spaces Under Construction and Construction as Percent of Inventory Primary Markets 1Q06-2Q17 23,000 18,400 13,800 9,200 4,600 Independent Living Spaces Under Construction (L) Construction as % of Inventory (R) 12% 10% 8% 6% 4% 2% 0 0% 23,000 Assisted Living 18,400 13,800 9,200 4,600 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 12% 10% 8% 6% 4% 2% 0% Source: NIC MAP Data Service 39
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 40
Seniors Housing Actual Rates Report National data Approximately 250,000 units 2,500+ properties across the U.S. Operated by 20-25 seniors housing providers
Average in-place rates exceeded average initial rates for assisted living in every month of the past two years Assisted Living Rate Trends Primary Markets 1Q06-2Q17 Average of Asking Rate ($) Average of Initial Actual Rate ($) Average of In-Place Actual Rate ($) $5,400 $5,200 $5,000 $4,800 $4,600 $4,400 $4,200 Source: NIC MAP Data Service 42
The monthly rate discount for independent living continues to be less than for assisted living Independent Living Rate Trends Primary Markets 1Q06-2Q17 Average of Asking Rate ($) Average of In-Place Actual Rate ($) Average of Initial Actual Rate ($) $3,400 $3,200 $3,000 $2,800 $2,600 $2,400 $2,200 Source: NIC MAP Data Service 43
Chuck Harry Chief of Research & Analytics Audience Bill Kauffman Senior Principal, Research & Analytics Questions Beth Mace Chief Economist and Director of Outreach Lana Peck Senior Principal, Research & Analytics
2017 NIC Fall Conference Investing in Seniors Housing and Care Properties