Market Fundamentals & Trends in Senior Housing Chuck Harry Chief of Research & Analytics, NIC
Beth Mace Chief Economist, NIC
2017 Argentum Senior Living Executive Conference & Expo Tuesday, May 2, 2017 | Nashville, TN Copyright Š2017 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 MAPŽ 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 Supply-Demand Trends 4. Seniors Housing Supply-Demand Outlook
2
The Economic Backdrop: Boom or Collapse?
Source: Cartoon Bank
3
Relatively Strong Employment Gains… Monthly Employment Gains (000s) U.S. | 2004 – March 2017 300 200
169
208
174
173
95
100
179
199
241
226
187
178 98
88
0 -100 -200
-300
-298
-400 -422
-500 2004
Source: BLS 4
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
YTD Mar-17 2017
…But Weak Labor Force Participation… U.S. Labor Force Participation Rate and Unemployment Rate for Discouraged Workers (U-6) 1970 – 2017 68
20 18 16 14 12 10 8 6 4 2 0
66 64 62 60 58 56 Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan70 72 75 77 80 82 85 87 90 92 95 97 00 02 05 07 10 12 15 Participation Rate (Left) Long-term Average LFPR (64.6%, Left) Unemployment Rate Discouraged & Part-time Workers (Right) Long-Term Average U6 (10.9%, Right) Source: BLS 5
…And Weak GDP Growth During This Expansion Expansion Comparison—GDP, Jobs, Length of Time (months) 1975 - 2016 5.0% 4.5%
4.30%
4.40%
300
4.30% 240
3.60%
4.0% 3.5%
2.80%
3.0%
2.10% 180
2.5%
120
2.0% 1.5%
60
1.0% 0.5%
0
0.0% 1975-1980 (36 months)
1980-1981 (12 months)
1982-1990 (92 months)
1991-2001 (120 months)
2001-2007 (73 months)
Average Annual Job Gains (000s, right) Average Annual Real GDP Growth (left) Source: BLS, BEA, Commerce Department 6
2009-2016 (87 months)
Very Weak Productivity Growth Labor Productivity (Output Per Hour, Percentage Change from Previous Quarter at Annual Rate, 5-Year Moving Average) 1975 - 2016 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50
1970Q1 1971Q2 1972Q3 1973Q4 1975Q1 1976Q2 1977Q3 1978Q4 1980Q1 1981Q2 1982Q3 1983Q4 1985Q1 1986Q2 1987Q3 1988Q4 1990Q1 1991Q2 1992Q3 1993Q4 1995Q1 1996Q2 1997Q3 1998Q4 2000Q1 2001Q2 2002Q3 2003Q4 2005Q1 2006Q2 2007Q3 2008Q4 2010Q1 2011Q2 2012Q3 2013Q4 2015Q1 2016Q2
0.00
Source: BEA, Moody’s Analytics, U.S. Department of Labor 7
Looking Ahead, CBO Projects Slower Long-term GDP Growth Percent Contribution to Potential GDP Growth 1950 – 2026 4.5
4.0%
4.0 3.5 3.0
2.4
2.5
1.7%
1.9%
2.0 1.5 1.0
1.2
1.4
0.5
0.5
2017-2020
2021-2027
1.6
0.5 0.0 1950-1973
Labor Force Growth Source: CBO, U.S. Department of Labor 8
Productivity Growth
Since the Election, Soft Versus Hard Data Are At Odds
Soft Data (Sentiment)
9
Hard Data (Realized, Actual Data)
• Consumer confidence Indices (Conference Board, Bloomberg, U of Mich.) • Young versus old • Republican versus Democrat
• Stock market up 10% postelection through early March
• Inflation expectations waning
• Treasury yields rise and then fall
• Business confidence: NFIB Survey of Small Business
• First quarter GDP slows to 1% • Sluggish retail sales, flat vehicle sales
Consumer Confidence Has Increased Since Election The Conference Board Consumer Confidence Index (1985 = 100, SA) U.S. | January 2011 – April 2017 160
Post Election
140 120 100 80 60 40 20
Consumer Confidence Index, (Index 1985=100, SA) Consumer Confidence Index: Expectations Source: Conference Board, Moody’s Analytics 10
Jan-17
Sep-16
May-16
Jan-16
Sep-15
May-15
Jan-15
Sep-14
May-14
Jan-14
Sep-13
May-13
Jan-13
Sep-12
May-12
Jan-12
Sep-11
May-11
Jan-11
0
Consumer Confidence Index: Present Situation
Fed’s Mandate: Full Employment, Moderate Inflation Unemployment Rate, Inflation Deflator and Fed Funds Rate 2007 – Q1 2017 12
6
10
5
8
4
6
3
4
2
2
1
0
0
Unemployment Rate (Left, %) Source: BLS, Commerce Department, Moody’s Analytics 11
Fed Funds Rate (Right, %)
Price Deflator (Left, %)
A Rising Interest Rate Environment? Yield Curve for U.S. Treasuries 2016 Q1– 2018 Q1 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
2016Q1 Source: Moody’s Analytics
12
3-Year
5-Year
2017Q1
7-Year
2018Q1
10-Year
20-Year
30-Year
While Sluggish, This Expansion Has Been Long HISTORY OF U.S. RECESSIONS AND EXPANSIONS Recessions
Duration (Months)
Expansions
Duration (Months)
1945
8
1945-48
37
1948-1949
11
1949-53
45
1953-54
10
1954-57
39
1957-58
8
1958-60
24
1960-61
10
1961-69
106
1970
11
1970-73
36
1973-75
16
1975-80
58
1980
6
1980-81
12
1981-82
16
1982-90
92
1990-91
8
1991-2001
120
2001
8
2001-07
73
2008-09
18
2009-
93
Average 1945-2009 Source: NBER
13
11
58
Recent Recessions Have Been Preceded by Fed Tightening Fed Funds Rate and Recessions U.S. | 1962– 2016 20 18 16 14 12 10 8
6 4 2
Recession Source: NBER, Federal Reserve, HFE
14
Fed Funds Rate
2016Q1
2014Q1
2012Q1
2010Q1
2008Q1
2006Q1
2004Q1
2002Q1
2000Q1
1998Q1
1996Q1
1994Q1
1992Q1
1990Q1
1988Q1
1986Q1
1984Q1
1982Q1
1980Q1
1978Q1
1976Q1
1974Q1
1972Q1
1970Q1
1968Q1
1966Q1
1964Q1
1962Q1
0
Yield Curve Inversions Lead Recessions Yield Curve Differential Between 10-Year Treasury Yield and 3-month Treasury 1962Q1– 2016Q4 4 3 2 1 0 -1 -2
Recession Source: NBER, Federal Reserve, Moody’s Analytics
15
Yield Curve Differential
Top Themes for Capital Markets and Transactions 1Q 2017
1. Quarterly transaction volume increased significantly in 1Q 2017 2. Publicly-traded buyers were less active 3. Seniors housing price per unit remains near recent peak
16
Closed Seniors Housing & Care Dollar Volume: $4.4Bn for 1Q17 Seniors Housing & Care Transactions Volume1 U.S. | 1Q08 – 1Q17
1. Preliminary Data Source: NIC MAP® Data Service, RCA
17
Buyer Type Shifting as Public Buyers’ Share Continues to Fall Closed Transactions Seniors Housing & Care Volume by Buyer Type1 U.S. | 1Q2008 – 1Q2017
1. Preliminary Data Source: NIC MAP® Data Service, RCA
18
Seniors Housing Pricing Rises Toward Recent Peak Seniors Housing & Care Transactions Rolling 4-Quarter Price Per Unit1 U.S. | 1Q08 – 1Q17
1. Preliminary Data Source: NIC MAP® Data Service, RCA
19
Top Themes for Seniors Housing Supply-Demand Trends 1Q 2017 1. Seniors housing occupancy fell 30 basis points to 89.3% 2. Annual inventory growth reached fastest pace since at least 2006 3. Construction as a share of inventory remains high 4. Relatively severe flu season may have affected demand 5. Annual same-store rent growth decelerated, but remained strong 6. Assisted living occupancy fell to its lowest level since early 2010
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Seniors Housing Occupancy Declines Seniors Housing Fundamentals Primary Markets | 1Q06-1Q17
Absorption Stabilized Occupancy
6000
94%
5000
92%
4000
90%
3000
88%
2000
86%
1000
84%
0
82%
-1000
80%
-2000
78% 2006
2007
2008
Source: NIC MAP® Data Service
21
Inventory Growth All Occupancy
2009
2010
2011
2012
2013
2014
2015
2016
2017
Relatively Severe Flu Season May Have Affected Demand
Source: Center for Disease Control (CDC)
22
Half of Assisted Living’s Occupancy Decline Likely Seasonal Assisted Living Stabilized Occupancy Seasonally Adjusted Primary Markets | 1Q06 – 1Q17 92%
91% 91% 90%
Seasonally Adjusted
90% Stabilized Occupancy
89% 89% 88% 2006
2007
2008
Source: NIC MAP® Data Service
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2009
2010
2011
2012
2013
2014
2015
2016
2017
Annual Inventory Growth Outpacing Annual Absorption Annual Inventory Growth Rate and Annual Absorption Primary Markets | 1Q06 - 1Q17 Independent Living Annual Inventory Growth
5%
Annual Absorption
4% 3% 2% 1% 0% -1%
Assisted Living 5% 4% 3% 2% 1% 0% -1% 2007
2008
2009
Source: NIC MAP® Data Service
24
2010
2011
2012
2013
2014
2015
2016
2017
Where Did Inventory Growth Occur During the Last 4 Qtrs.? Seniors Housing Annual Inventory Growth Primary & Secondary Markets | As of 1Q17
Source: NIC MAP® Data Service
25
Supply and Demand Balances and Imbalances by Market Seniors Housing Supply-Demand Primary Markets | As of 1Q17
Source: NIC MAPÂŽ Data Service
26
Twenty-Two Markets Down, Eight Up, One Flat Year-Over-Year Seniors Housing Occupancy by Metro Market Primary Markets | As of 1Q17
Occupancy Range (4Q05 - 1Q17) Current Quarter Occupancy Year Ago Occupancy
100%
95%
90%
85%
Source: NIC MAP® Data Service
27
SA
HOU
LV
RIV
DAL
ATL
CLE
KC
MIA
DEN
CHI
ORL
PHO
TAM
MAP31
MIN
PHI
CIN
SD
SEA
SF
BOS
PIT
STL
DET
POR
LA
NY
DC
SAC
BAL
75%
SJ
80%
Construction as a Share of Inventory Remains High Spaces Under Construction and Construction as Percent of Inventory Primary Markets | 1Q06 - 1Q17 Independent Living 24,000
12%
Spaces Under Construction (L)
20,000
10%
Construction as % of Inventory (R)
16,000
8%
12,000
6%
8,000
4%
4,000
2%
0
0%
Assisted Living 24,000
12%
20,000
10%
16,000
8%
12,000
6%
8,000
4%
4,000
2% 0%
0 2006
2007
2008
Source: NIC MAP® Data Service
28
2009
2010
2011
2012
2013
2014
2015
2016
2017
29 Markets Have > 10% AL Inventory Under Construction Majority AL Construction Primary & Secondary Markets | As of 1Q17
Source: NIC MAP® Data Service
29
IL Construction Concentrated in Fewer Markets Than AL Majority IL Construction Primary & Secondary Markets | As of 1Q17
Source: NIC MAP® Data Service
30
Annual Same-Store Rent Growth Decelerated But Still Strong Assisted Living Employees
Annual Asking Rent Growth / Avg. Hourly Earnings* All Markets | 4Q06 – 1Q17
Asking Rent - Assisted Living Asking Rent - Independent Living
6% 5% 4% 3% 2% 1% 0% -1% -2% 2007
2008
2009
2010
2011
*Wage data as of 4Q16 Source: NIC MAPÂŽ Data Service, U.S. Bureau of Labor Statistics
31
2012
2013
2014
2015
2016
2017
Top Themes for Seniors Housing Supply-Demand Outlook 1Q 2017 1. Occupancy plateauing for independent living 2. Occupancy being pressured lower in assisted living 3. Robust construction activity for assisted living
4. Construction pipelines less active in independent living, but picking up 5. Metro area performance will vary considerably due to local market supply and demand conditions
32
AL Occupancy Forecasted to Remain Pressured Assisted Living Supply-Demand Forecast Primary Markets | 1Q06 – 1Q18’F 4,500
Inventory Growth (L) Absorption (L) Occupancy (R) 95% Forecast
4,000
94%
3,500
93%
3,000
92%
2,500
91%
2,000
90%
1,500
89%
1,000
88%
500
87%
0
86%
-500
85%
-1,000
84%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: NIC MAP® Data Service
33
IL Occupancy Rate Forecasted to Remain Flat
4,500
Inventory Growth (L) Absorption (L) Occupancy (R) 95%
4,000
94%
3,500
93%
3,000
92%
2,500
91%
2,000
90%
1,500
89%
1,000
88%
500
87%
0
86%
-500
85%
-1,000
84%
Independent Living Supply-Demand Forecast Primary Markets | 1Q06 – 1Q18’F
Forecast
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: NIC MAP® Data Service
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Tuesday, September 26 to Thursday, September 28 Registration Opens: June 6
Early Bird Deadline: August 1
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National Investment Center for Seniors Housing & Care (NIC) www.nic.org | 410-267-0504