Market Fundamentals and Trends in Seniors Housing Argentum 2016 Conference and Exposition
Chuck Harry Chief of Research & Analytics, NIC
Beth Mace Chief Economist, NIC
Tuesday, May 10, 2016 | Denver, CO
Copyright Š2016 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 Market Trends Q1 2016 4. Seniors Housing Market Outlook
2
The Economic Backdrop: Uncertainty Revisited
Source: Cartoon Bank
3
Top Themes for Macroeconomic Trends 1Q15 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
4
The Economic Balance Sheet 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 5
Ten Year Treasury Has Recently Been Below 1.8%... U.S. 10-Year Treasury Rate 3.2
3.0
2.8
2.6
2.4
2.2
2.0
1.8
1.6
24Sep13 17Dec13 11Mar14 2Jun14 1Aug14 10Oct14 2Jan15 27Mar15 5Jun15 4Aug15 3Oct15 2Dec15 31Jan16 6Apr16
Source: Federal Reserve
6
Are We Due For A Recession? 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
7
Relatively Strong Employment Gains Monthly Employment Gains (000s) U.S. | 2004 – March 2016 300
251 169
200
208
173 95
0 -100
188
2011
2012
2013
229
209
88
Volume ($)
100
174
193
-200 -300
-298
-400 -423
-500 2004
2005
2006
2007
2008
2009
2010
Quarter
Source: BLS
8
2014
2015
YTD 2016
And Labor Markets Are Tightening Number of Unemployed Per Job Opening 2000 – 2015 (000s, left hand scale; ratio, right hand scale) Lowest ratio since 2007
18,000
8.0
16,000
7.0
14,000
6.0
12,000
5.0
10,000 4.0 8,000 3.0
6,000
2.0
4,000
Unemployed Per Job Opening Source: BLS
Job Openings (left) 9
Unemployed Persons (left)
2015
2015
2014
2014
2013
2013
2012
2012
2011
2011
2010
2010
2009
2009
2008
2008
2007
2007
2006
2006
2005
2005
2004
2004
2003
2003
2002
2002
0.0
2001
0
2001
1.0
2000
2,000
More People Are Quitting Their Jobs, A Sign of Confidence Quits Ratio By Industry Group 2005– 2015 3.5 3.0
2.5 2.0 1.5 1.0 0.5 0.0 2005
2006
2007
2008
Health Care and Social Assistance
Source: BLS
2009
2010
2011
Total Nonfarm Employment
10
2012
2013
Professional/Bus. Svcs.
2014 Mfg.
2015
Industry Employee Wages Outpacing Rent Growth Assisted Living Asking Rent Independent Living Asking Rent Private Sector Workers Assisted Living Employees
Annual Asking Rent Growth / Employee Wages All Markets | 4Q06 – 1Q16 6% 5% 4% 3%
2% 1% 0% -1% -2% 2007
2008
2009
2010
2011
2012
Source: NIC MAP® Data Service; U.S. Bureau of Labor Statistics 11
2013
2014
2015
2016
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: $3.5Bn for 1Q16 Seniors Housing & Care Transactions Volume1 U.S. | 1Q08 – 1Q16
Rolling 4-Qtr
Rolling 4-Qtr
1. Preliminary Data
Source: NIC MAP® Data Service
13
Number of Seniors Housing & Care Transactions: 114 in 1Q16 Single-Property vs. Portfolio1 U.S. | 1Q08 – 1Q16
1. Preliminary Data
Source: NIC MAP® Data Service
14
Public Buyers Share Falls First Quarter of 2016
Volume ($)
Closed Transactions Seniors Housing & Care Volume by Buyer Type1 U.S. | 1Q08 – 1Q16
Quarter
1. Preliminary Data
Source: NIC MAP® Data Service
15
Seniors Housing Property Pricing Remains Near Peak Seniors Housing & Care Transactions Rolling 4-Quarter Price Per Unit1 U.S. | 1Q08 – 1Q16
Seniors Housing
Nursing Care
1. Preliminary Data
Source: NIC MAP® Data Service
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? Seniors Housing Occupancy Primary Markets | 4Q05 – 1Q16 96% 95% 94%
Median*
93% 92% 91%
Stabilized**
90%
“All” Occupancy
89% 88% 87% 86% 2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
* 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
2016
Primary And Secondary Markets’ Occupancies Converge Seniors Housing Occupancy All Markets | 4Q05 – 1Q16 93% 92% Secondary Markets All Markets Primary Markets
91% 90% 89% 88% 87% 86% 85% 84%
83% 2006
2007
2008
Source: NIC MAP® Data Service
2009
2010
2011
2012 19
2013
2014
2015
2016
Secondary Markets Inventory Growth at New Peak Rolling 4-Qtr Construction Starts and Inventory Growth Secondary Markets | 1Q08 – 1Q16 16,000 14,000 Construction Starts
12,000 10,000
Inventory Growth
8,000 6,000
4,000 2,000 0 2009
2010
Source: NIC MAP® Data Service
2011
2012
2013
20
2014
2015
2016
Secondary Markets are 14 of 20 Hottest Construction Markets Seniors Housing Construction All Markets | As of 1Q16
Source: NIC MAP速 Data Service
21
Construction Starts Slowed in First Quarter of 2016 Construction Starts (Units) Primary Markets | 1Q06 - 1Q16 4,000 3,000 Majority Independent Living
4-qtr moving avg
2,000 1,000 0 4,000
Majority Assisted Living
3,000 2,000
4-qtr moving avg
1,000 0
2006
2007
2008
Source: NIC MAP速 Data Service
2009
2010
2011
22
2012
2013
2014
2015
2016
Is Assisted Living Construction Activity Leveling Off? AL Construction, Construction vs. Inventory Primary Markets | 4Q05 – 1Q16
Units Under Construction (L) Construction vs. Inventory (R)
25,000
10.0%
20,000
8.0%
15,000
6.0%
10,000
4.0%
5,000
2.0%
0
0.0% 2006
2007
2008
Source: NIC MAP® Data Service
2009
2010
2011
23
2012
2013
2014
2015
2016
IL Construction Rate is Half the Pace of AL Construction Units Under Construction (L) Construction vs. Inventory (R)
IL Construction, Construction vs. Inventory Primary Markets | 4Q05 – 1Q16 20,000
6.0%
15,000
4.5%
10,000
3.0%
5,000
1.5%
0
0.0% 2006
2007
2008
Source: NIC MAP® Data Service
2009
2010
2011
24
2012
2013
2014
2015
2016
Primary Markets’ Construction is Concentrated Units Under Construction (By Majority Property Type) Primary Markets | As of 1Q16 SA
DEN SAC
MIA
6 Markets = Nearly 50% of All Construction
ATL MIN DAL
SEA DAL HOU
CHI
ATL
IL
% Majority AL Units Under Construction 18.5k units U/C
% Majority IL Units Under Construction 12.0k units U/C 25
All Other Primary Markets
AL
Market Occupancies Vary Widely Across the Nation Seniors Housing Occupancy by Metro Market Primary Markets | As of 1Q16
Occupancy Range (4Q'05 - 1Q'16) Current Quarter Occupancy Year Ago Occupancy
100% 95% 90% 85% 80%
SJ BAL DC POR PIT SAC BOS STL SD SEA MIN LA DEN DET CIN NY SF PHI ORL MAP31 TAM KC ATL CLE CHI RIV PHO MIA DAL LV HOU SA
75%
Source: NIC MAP速 Data Service
26
Supply and Demand Balances and Imbalances by Market Seniors Housing Supply-Demand Primary Markets | As of 1Q16
Annual
Source: NIC MAP速 Data Service
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 Assisted Living Supply-Demand Primary Markets | 4Q06 – 1Q16 4.5% 4.0% Absorption Rate (Rolling 4-Qtr)
3.5% 3.0% 2.5% 2.0% 1.5%
Inventory Growth Rate (Rolling 4-Qtr)
1.0% 0.5% 0.0% -0.5% 2007
2008
2009
Source: NIC MAP® Data Service
2010
2011
29
2012
2013
2014
2015
2016
Flat Assisted Living Occupancy Rate Projected
4k
Inventory Growth (L) Absorption (L) Occupancy (R) 95%
3k
93%
2k
91%
1k
89%
0k
87%
-1k
85%
Assisted Living Supply-Demand Forecast Primary Markets | 1Q06 – 1Q17’F
Forecast
2006
2007
2008
Source: NIC MAP® Data Service
2009
2010
2011
2012 30
2013
2014
2015
2016
2017
Independent Living Supply Pace Picking Up Independent Living Supply-Demand Primary Markets | 4Q06 – 1Q16 4.0% 3.5% 3.0%
Absorption Rate (Rolling 4-Qtr)
2.5% 2.0% 1.5% 1.0% 0.5%
Inventory Growth Rate (Rolling 4-Qtr)
0.0%
2007
2008
Source: NIC MAP® Data Service
2009
2010
2011 31
2012
2013
2014
2015
2016
Independent Living Occupancy Rate Plateauing Inventory Growth (L) Absorption (L) Occupancy (R) 95%
Independent Living Supply-Demand Forecast Primary Markets | 1Q06 – 1Q17’F 4k
Forecast
3k
93%
2k
91%
1k
89%
0k
87%
-1k
85% 2006
2007
2008
Source: NIC MAP® Data Service
2009
2010
2011
2012 32
2013
2014
2015
2016
2017
41 New MAP Markets with July’s 2Q16 Data Release
33
Second Quarter 2016 NIC MAP Release Data Release: Wednesday, July 6 at 4:15 PM ET Webinar: Tuesday, July 12 at 11:00 AM ET