Senior Housing 2018 Market Insight Q2 Review · Institutional Properties National Senior Housing Debt & Structured Finance KENNETH QUACH Financial Analyst Institutional Properties

Senior Housing Market Insight

2018Q2

Review

CBRE | Please visit our website at cbre.com/nationalseniorhousing 3

IN THIS REPORT

Structured Debt Options

25CBRE Research — Special Report on CCRC’s

27About CBRE National Senior Housing

30

Senior Housing Market Fundamentals

6Capitalization Rates, Transaction Activity & Underwriting

17


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Please visit our website atcbre.com/nationalseniorhousing

CBRE National Senior Housing

MITCHELL KIFFESenior Managing DirectorNational Senior HousingDebt & Structured Finance

VERTICAL CORPORATE SUPPORT SOURCE

NATIONAL SENIOR HOUSING PRIMARY CONTACTS

LISA WIDMIERExecutive Vice PresidentInstitutional PropertiesNational Senior HousingCapital Advisors, Inc.Investment BankingMember FINRA/SIPCCBRE | Capital MarketsT +1 858 729 9890M +1 858 952 4743

ARON WILL Vice ChairmanInstitutional PropertiesNational Senior HousingDebt & Structured FinanceCBRE | Capital MarketsT +1 713 787 1965

MATTHEW WHITLOCK Vice ChairmanInstitutional PropertiesNational Senior HousingDebt & Structured FinanceCBRE | Capital MarketsT +1 978 282 0024

MATT KURONENVice President Institutional PropertiesNational Senior HousingDebt & Structured Finance

AUSTIN SACCOVice President Institutional PropertiesNational Senior HousingDebt & Structured Finance

ADAM MINCBERGVice PresidentInstitutional PropertiesNational Senior HousingDebt & Structured Finance

ASHAY SHAHTransaction ManagerInstitutional PropertiesNational Senior HousingCBRE | Capital Markets

HENRY MCARDLESenior Financial AnalystInstitutional PropertiesNational Senior HousingCBRE | Capital Markets

BRANDON WILLIAMSProduction AnalystInstitutional PropertiesNational Senior HousingDebt & Structured Finance

KENNETH QUACHFinancial AnalystInstitutional PropertiesNational Senior HousingCBRE | Capital Markets

JUDITH BRIGGSClient Services CoordinatorInstitutional PropertiesNational Senior HousingCBRE | Capital Markets

NATALIA MANNINGClient Services CoordinatorInstitutional PropertiesNational Senior HousingDebt & Structured Finance

SANDY AGUILAClient Services CoordinatorGraphic DesignerInstitutional PropertiesNational Senior HousingCBRE | Capital Markets

DEBORAH STREET Vice PresidentInstitutional PropertiesNational Senior HousingCBRE | Capital MarketsT +1 760 438 8559M +1 760 715 2076

TIM ROOTSenior Production AnalystInstitutional PropertiesNational Senior HousingDebt & Structured Finance

NATIONAL SENIOR HOUSING TEAM

CBRE | Please visit our website at cbre.com/nationalseniorhousing 5 4 CBRE | Please visit our website at cbre.com/nationalseniorhousing

Today’s complex and constant changing market environments require special solutions. CBRE SH Team Members consistently achieve the highest sale price/best debt terms in the industry for their Clients.

CBRE NATIONAL SENIOR HOUSING REPRESENTATIVE INVESTMENT PROPERTY TRANSACTIONS - 2015 FORWARD

RECENT PORTFOLIO SALES TRANSACTIONS

RECENT SINGLE ASSET SALES TRANSACTIONS

The Fountains Portfolio $640.0 millionNational Portfolio(11 states)3,637 IL/AL/MC and Entry Fee CCRC units/bedsClient was Fountains Senior Living Holdings, LLC

Brightview II $363,500,000 National Portfolio (3 States)1,117 IL/AL/MC units/bedsClient was an Affiliate of The Shelter Group

The Garden Empire Portfolio $307,500,000 NJ and NY933 IL/AL/MC units/bedsClient was an Affiliate of The Carlyle Group

Brightview I $498,500,000 National Portfolio(5 States)1,584 IL/AL/MC units/bedsClient was Affiliate of Prudential Real Estate Investors

Programmatic Equity Raise $300,000,000 National PortfolioClient was LCS

Sunwest Managed Portfolio $364,250,000 National Portfolio(11 states) 3,054 IL/AL/MC and CottagesClient was Sunwest

Mid-Atlantic Portfolio$186.2 millionGreater Baltimore, Maryland (5) and Greater Washington, D.C. (2)526 AL/MC unitsClient was an affiliate of Harrison Street

CCRC Portfolio$186,500,000Dallas, TX1,104 unitsClient was Life Care Services

Five Allegro Communities$172,500,000FL and KY 705 IL/AL/MC/NC units/bedsClient was Almanac Realty

Vintage Portfolio $1.29 billionNorthern and Southern CA (21) and Western WA (1)3,054 IL/AL/MC unitsClient was Vintage Senior Living and their private investors

The Maestro Portfolio $921,000,000Alberta and Quebec, Canada8,206 IL/AL/MC units/bedsClient was Maestro Funds

Sunwest Portfolio $1.29 billionNational Portfolio11,096 IL/AL/MC units/bedsClient was The Blackstone Group

Renaissance on Peachtree $78,600,000Atlanta, GA229 IL/AL units/bedsClient was The Carlyle Group and Formation Development

Sunrise of Severna$72,000,000Severna Park, MD156 IL/AL/MC unitsClient was Sunrise Senior Living

Meadowbrook$60,000,000Agoura Hills, CA156 IL/AL/MC unitsClient is Confidential

MorningStar of Littleton$45,500,000Littleton, CO85 AL/MC unitsClient was PREI/MSL JV

The MorningStar Portfolio$45,000,000Colorado Springs, CO112 AL/MC unitsClient was Confluent Development/MorningStar Senior Living

The Village at Arboretum$72,000,000Austin, TX172 IL unitsClient was BayNorth/Bridgewood JV

The Village of Tanglewood$66,850,000Houston, TX188 IL unitsClient was BayNorth/Bridgewood JV

Class A IL/AL Community $77,000,000Scottsdale, AZ216 IL/AL units/bedsClient was Affiliate of Prudential Real Estate

Watermanrk at Logan Square$72,500,000Philadelphia, PA463 IL/AL/MC/SNF unitsClient was Watermark Retirement


Today’s complex and constant changing market environments require special solutions. CBRE SH Team Members consistently achieve the highest sale price/best debt terms in the industry for their Clients.

RECENT DEBT TRANSACTIONS

The Fountains Portfolio $410,000,000National Portfolio(11 states)3,637 IL/AL/MC and Entry Fee CCRC units/bedsClient was Watermark Retirement and NorthStar Realty Finance

CA Senior Living Portfolio $104,000,000Various Locations85 AL & 155 MC unitsClient was Venture and a Global Investment Manager

The Bonaventure Portfolio $72,466,000Washington and Oregon453 IL/AL unitsClient was NorthStar Realty Finance

The Bristal Portfolio $62,832,000Huntington, NY118 AL unitsClient was The Engel Burman Group and Harrison Street Real Estate Capital

Arbor Terrace Portfolio $50,525,000Atlanta MSA236 IL/AL/MC unitsClient was Arcapita

The Ranger Portfolio $348,592,000National Portfolio2,528 IL/AL/MC unitsClient was Formation Capital and NorthStar Realty Finance

The Belmont Village Portfolio ConfidentialThousand Oaks, CA and Scottsdale, AZ275 AL/MC unitsClient was Belmont Village and Blue Moon Capital Partners

The Belmont Village Portfolio ConfidentialThousand Oaks, CA and Scottsdale, AZ275 AL/MC unitsClient was Belmont Village and Blue Moon Capital Partners

The Seattle Portfolio $60,020,000Seattle MSA (4 properties)368 IL/AL unitsClient was The Carlyle Group and Capitol Seniors Housing

LCS Portfolio $120,000,000Various Locations1,104 IL/AL/MC/SNF unitsClient was Life Care Services/Aspect

The Fountains Portfolio Supplemental $75,401,000; $485MM+ CombinedVarious Locations3,484 IL/AL/MC/SNF unitsClient was NorthStar REalty Finance/The Freshwater Group

The Springs at Lake Oswego $66,400,000Lake Oswego, OC(Portland MSA)216 IL/AL/MC unitsClient was Harrison Street/The SPrings Living

The Village at The Woodlands Waterway $55,200,000Woodlands, TX (Houston MSA)207 IL/AL/ALZ unitsClient was Kensington Realty Advisors and SEDCO Capital Management

St. Andrew’s Village$42,500,000Aurora, CO(Greater Denver)246 CCRC units/bedsClient was RSF

Kennewick Campus$40,500,000Kennewick, WA138 IL/AL/MC unitsClient was Bourne Financial

The Solana Horsham$31,500,000Greater Philadelphia, PA76 AL/MC unitsClient was CSH/Formation-Shelbourne Partners JV


The senior housing market continues to perform well and to attract substantial global investor interest. Senior housing demand will continue to be driven by several factors including the aging of baby boomers, a stable housing market and an attractive spread between lending rates and capitalization rates. Demand growth is also fueled by seniors with financial capacity who are becoming increasingly educated about the benefits of living in senior housing. Average stabilized occupancy is steady and strong (approximately 90% during the past four quarters across primary and secondary markets) and absorption of new senior housing supply remains healthy. The senior housing industry has proven itself as not only a defensive investment during an economic downturn, but also an income and capital return leader across the commercial real estate investment spectrum. As of Q2 2018, the Property Index Performance Data provided by the National Council of Real Estate Investment Fiduciaries (NCREIF) reports a total return on investment (ROI) for senior housing of 14.98% and 11.63% for the prior five and one-year periods, respectively. These returns are considerably higher than those of other major real estate property types. The total return reported for multi-family for the prior five years is 8.79%, considerably lower than the return reported by senior housing for this same period. According to information compiled by Real Capital Analytics, the composition of senior housing buyers continued to show a dynamic shift during the first half of 2018. Historically, publicly-traded buyers (mainly REITs) have represented a majority of the transaction volume, although between 2016 and 2017 the public buyers were less active, many devoting significant resources to portfolio repositioning efforts through coordinated dispositions. However, during the first half of 2018, publicly-traded buyers represented 28% of transaction volume, an uptick from 2017’s transaction share of 12%. Additionally, senior housing is continuing to attract substantial interest from institutional investors, which have accounted

for approximately 29% of year to date transaction volume. By comparison, institutional investment accounted for only 11% of total senior housing transaction volume in 2015. Despite the recent uptick in activity by public buyers, private equity remains extremely active in the senior housing investment community, accounting for 27% of year to date transaction volume, in-line with historical private equity investment share. Combined senior housing transaction volume through year-end 2017 is reported as $16.7 billion in publicly announced transactions, an increase over 2016 ($12.9 billion). Combined senior housing transaction volume through August 2, 2018 totals $6.6 billion with transaction volume totaling $14.2 billion for the prior four quarters (Q3 2017 - Q2 2018), on par with prior years.(2)

Matilda Looney Celebrating 100th Birthday

Virginia Widmier and Matilda Looney

6 Senior Housing MarketFundamentals


Trends

The baby boomers (post-World War II babies) began turning 65 in 2011 and by 2029, the remainder will also reach age 65 and account for more than 20 percent of the total United States population. By 2050, the 65-plus age group is estimated to equal 88.0 million, nearly double its current population (49.2 million). Additionally, by 2056, the 65-plus age group is estimated to be larger than the population under age 18. The projected growth in this age group will present many challenges to policy makers and programs by having a significant impact on families, businesses, healthcare providers and, most notably, the demand for senior housing.(3)

One of the primary drivers in trends for the aging population is mortality rates. Survivorship rates have shown consistent improvement for many decades. In the United States in 1972, the average life expectancy of a 65-year-old was 15.2 years. By 2018, this metric increased by 5.3 years to approximately 20.5 years. Additionally, it is estimated that about one out of every four 65-year-olds will live to be 90 years old, with one of every 10 expected to live past 95 years of age.(4) According to NCHS Data Brief No. 229, life expectancy at birth for the United States population reached a record high of 78.8 years in 2012, with the age-adjusted death rate for the United States having decreased 1.0% between 2013 and 2014 to a

record low of 725 per 100,000 standard population. Additionally, age-adjusted death rates decreased significantly between 2013 and 2014 for five of the 10 leading causes.(5) The current age-adjusted death rate remains low at 728.8 per 100,000 as of 2016.(3)

Driving this increased life expectancy, and consequentially average population age, is the advancement in public health strategy and medical treatment. Life expectancy in the United States has increased by approximately 30 years over the past century, primarily due to the reduction of acute illness threats. However, an unforeseen consequence of longer life expectancy has been the increased prevalence of heart disease, cancer and other chronic diseases as the leading causes of death. As Americans age during the next several decades, the elderly population will require a larger number of formally trained, professional caregivers as a direct effect of these chronic diseases, which often affect independence and mobility.(3)

Moreover, the problems facing the United States aging population can be witnessed as a global phenomenon. Fifty countries had a higher proportion of people aged 65-plus than the United States in 2010. This number is expected to increase to approximately 98 countries by 2050.(6)

SENIOR HOUSING DEMAND IS DRIVEN BY DEMOGRAPHIC DEMAND

Chart Source: U.S. Census Bureau; 2017 National Population Projects: Summary Table 3: Projections of the Population by Sex and Age for the United States: 2017 to 2060. Released March 2018 historical data per census data.Note: “A” indicates actuals based on 2010 Census and “F” indicates forecasted population estimates released March 2018.

40.356.4

74.182.3 88.0

98.2

5.5 6.7 9.1 14.6 19.0 19.7

0

20

40

60

80

100

2010A 2020F 2030F 2040F 2050F 2060F

Popu

latio

n (m

illio

ns)

Number of People Age 65 and Over and 85 and Over (millions)

Population 65 + Population 85 +


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

0

10

20

30

40

50

60

% of Total Population

75-P

lus

Popu

latio

n (m

illio

ns)

Population 75+ % of Total Population

A Multi-Trillion Dollar IndustryIn the United States, annual expenditures on healthcare services were estimated to total nearly $3.7 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 2025 (4.6% on a per capita basis). Further, during this same period, healthcare spending is estimated to grow 1.0% faster than GDP per year. As a result, the healthcare portion of GDP is expected to rise from 18.0% in 2017 to 19.4% by 2025.(7)

U.S. Population Estimates Age 75-Plus

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.

Source: Centers for Medicare & Medicaid Services, actuals published as of 2/2018. The projections incorporate estimates of GDP and spending as of May 2017.

National Health Expenditures (Billions)

National Health Expenditures Per Capita

Source: Centers for Medicare & Medicaid Services, actuals published as of 2/2018. The projections incorporate estimates of GDP and spending as of May 2017.


$2,6

89

$2,7

97

$2,8

79

$3,0

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$3,2

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$3,3

37

$3,4

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$3,6

75

$3,8

68

$4,0

91

$4,3

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$4,5

62

$4,8

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$5,0

91

$5,3

70

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$8,6

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$8,9

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$9,5

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003

$10,

364

$10,

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$11,

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$11,

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$12,

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787

$13,

378

$14,

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$14,

671

$15,

386

$0

$5,000

$10,000

$15,000

$20,000



Senior housing can be classified according to the level of healthcare services provided.

Multi-Family Congregate Care Healthcare

Senior Apartments

Independent Living

Assisted Living Memory Care Nursing Care

Building Facility Similar to apartments but may have special access and common area designs.

Similar to apartments but has commercial kitchen, dining room and additional common area amenities.

Most units do not have a full kitchen, only dorm room size refrigerator and microwave. Many units are studios.

Units do not have a full kitchen, only dorm room size refrigerator and microwave. Many units are studios.

Units resemble hotel rooms and many rooms have shared occupancy.

Ideal Building Size 60 to 200 Units 100 to 150 Units 80+ Units 24 to 36 Units 120 Beds (70 Units)

Resident Entry Age (1) 55 to 75 75 to 84 (avg. 80.6) 75 to 85 (avg. 87) Included with assisted living

80 to 90

Percent Revenue from Services (2)

0% 45% 65% Included with assisted living

75%

Typical Services Provided

Organized social activities.

Restaurant-style dining, social activities, weekly housekeeping, laundry and transportation.

Independent living services plus assistance with bathing, eating and dressing; medication reminders (no administration of medicine).

Assisted living services plus special behavior/memory care, secured access only.

Assisted living services plus administration of medications. 24 hour care by RA, RN licensed personnel.

Average Length ofStay(3)

5 to 12 Years 2.0 to 4.4 Years 1.2 to 2.9 Years 1.2 to 1.8 Years 30 Days to 2 Years

Average Monthly Rent (4) $3,164 $4,804 $6,452 $9,645

Trailing 42 Quarter Avg. Stabilized Occupancy / Current Avg. Stabilized Occupancy (4)

90.1% / 91.6% 90.2% / 88.4% 89.9% / 86.5% 88.3% / 86.1%

Total Units/Beds in Inventory (4)

409,408 388,648 126,663 896,838

Number of Units/Beds Under Construction (4)

20,873 23,704 10,690 7,044

Construction vs. Inventory (4) 5.1% 6.1% 8.4% 0.8%

Penetration Rate of 75+ Households (5) (6)

5.9% IL/4.1% CCRC 4.9% Included with

assisted living

10.3%

Notes:

(1) IL Data-”Retirement Living Communities: How They Are Changing the Way People Retire,” Senior Homes, accessed October 15, 2015 http://www.seniorhomes.

com/p/retirement-living-communities/. AL Data- Centers for Disease Control and Prevention, Residents Living in Residential Care Facilities: United States, 2010

Christine Caffrey, Manisha Sengupta, Eunice Park-Lee, Abigail Moss, and Lauren Harris-Kojetin, NCHS data brief, no 91. Hyattsville, MD: National Center for

Health Statistics. 2012., http://www.cdc.gov/nchs/data/databriefs/db91.pdf (accessed October 15, 2015).

(2) “A Case for Investment: Seniors Housing” NIC MAP® Data Service (September 2009).

(3) “The State of Seniors Housing 2017.” (Table 8.2) ASHA American Seniors Housing Association (2017).

(4) NIC MAP® Data Service, Primary & Secondary Markets

(5) NIC MAP® Data Service.

(6) Ibid. Note: Penetration rate equals inventory divided by the number of households headed by an individual at least 75 years old

SENIOR HOUSING PROPERTY TYPES


Continuing Care Retirement

Communities7.7%

Majority Independent Living 11.0%

Majority Assisted Living38.4%

Majority Nursing Care

42.9%Continuing Care

Retirement Communities

19.9%

Majority Independent

Living12.7%

Majority Assisted Living23.2%

Majority Nursing Care

44.1%

Existing Senior Housing SupplyThere are approximately 23,350 professionally managed senior housing and nursing care communities (with 25 or more units/beds) in the United States, representing 3.01 million professionally managed units/beds nationally. The combined projected total value is $469.2 billion based on values reported in The Senior Care Acquisition Report for 2017 transactions and NIC MAP’s industry size projections. The current estimated value is more than twice the value reported as of 2009 ($222.8).(2)(8)

Source: NIC MAP® Data Service.

Some Compelling Math• A 5.7% increase in the number of seniors

is more than the total number of the entire existing supply of professionally managed senior housing beds/units!(8)(9)

• A 1% increase in the penetration rate would necessitate a 17.5% increase in the professionally managed senior housing supply to meet this incremental demand.(8)(9)

Community Location in the NIC MAP Metro Markets

Note:Northeast – CT, DE, ME, MA, NH, NJ, NY, PA, RI, VTSoutheast – AL, DC, FL, GA, KY, MD, NC, SC, TN, VA, WVNorth Central – IA, IL, IN, MI, MN, NE, ND, OH, SD, WISouth Central – AR, KS, LA, OK, TX, MO, MSWest – AK, AZ, CA, CO, HI, ID, MT, NM, NV, OR, UT, WA, WY

RegionTotal No. of

CommunitiesTotal No. of Units/Beds

Northeast 3,266 472,652

Southeast 3,483 431,494

North Central 3,113 382,817

South Central 2,163 252,143

West 3,278 365,078

Top 100 Metro Market Totals 15,303 1,904,184

Northeast,24.8%

Southeast,22.7%

West, 19.2%

South Central, 13.2%

North Central, 20.1%

Location Mix (Units/Beds)


SENIOR HOUSING SUPPLY

Number Communities Total Units/Beds


0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Uni

ts

Majority Independent Living Majority Assited Living Majority Nursing Care


SENIOR HOUSING SUPPLY

0

1,000

2,000

3,000

4,000

5,000

6,000

Uni

ts

Majority Independent Living Majority Assited Living Majority Nursing Care

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

Gro

wth

in

Inve

ntor

y (%

)

Average = 4.0%

Inventory Growth %at 30 year lows

SENIOR HOUSING CONSTRUCTION ACTIVITY

Source: NIC MAP® Data Service, Primary and Secondary Markets.

Source: NIC MAP® Data Service, All Markets.

New Senior Housing Construction — Started by Quarter

With a Q2 2018 year-over-year growth rate of 2.7%, inventory growth is below the 30-year average annual growth rate of 4.0%.(8)

The senior housing pipeline (construction versus inventory) is 5.9% as of Q2 2018. New senior housing construction activity peaked at 11,230 (Majority IL: 3,723; Majority AL: 7,507) units/beds during the second quarter of 2015. There were reportedly 5,344 units/beds of new construction starts in the second quarter of 2018, which is less than one-half of what was reported during this peak.(8)

Senior Housing Inventory Growth (All Markets)


0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

80%

82%

84%

86%

88%

90%

92%

94%

Y-t-Y Grow

th (%)O

ccup

ancy

(%

)

Stabilized Avg Occupancy Avg AMR Y-t-Y Growth

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

80%

82%

84%

86%

88%

90%

92%

94%

Y-t-Y Grow

th (%)O

ccup

ancy

(%

)


0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

80%

82%

84%

86%

88%

90%

92%

94%

Y-t-Y Grow

th (%)O

ccup

ancy

(%

)

Stabilized Avg Occupancy Avg ADR Y-t-Y Growth

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

80%

82%

84%

86%

88%

90%

92%

94%

Y-t-Y Grow

th (%)O

ccup

ancy

(%

)


85.0%

86.0%

87.0%

88.0%

89.0%

90.0%

91.0%

92.0%

93.0%

Sta

bili

zed

Occ

upan

cy (%

)Independent Living Assisted LivingMemory Care Nursing Care

85.0%

86.0%

87.0%

88.0%

89.0%

90.0%

91.0%

92.0%

93.0%

Sta

bili

zed

Occ

upan

cy (%

)

Independent Living Assisted LivingMemory Care Nursing Care

SENIOR HOUSING OCCUPANCY RATES

Historical occupancy for stabilized communities (those open 24 months or longer) is detailed in the graph to the right. Independent living occupancy (91.6%) led the pack followed by the assisted living (88.7%) and memory care segments (86.4%). Nursing care occupancy averaged 86.3% in Q2 2018, which is consistent with the prior four-quarter average.

Source: NIC MAP® Data Service, Primary Markets

Occupancy versus Average Monthly Rent “AMR” Growth

Source: NIC MAP® Data Service, Primary Markets

Average stabilized occupancy and rent growth for the primary market benchmarks are detailed by care segment in the graphs below. Aggregated senior housing annual rent growth was 2.7% in Q2 2018. Nursing care reported average annual rent growth of 2.5% in Q2 2018.

Assisted LivingIndependent Living

Memory Care Nursing Care


Senior housing occupancy has been relatively consistent and never significantly below 90% – even during the economic downturn in 2008.

Median senior housing lease-up trends for newly-constructed communities are illustrated in the chart that follows. According to research prepared by NIC MAP, the median newly-constructed senior housing community achieves 90% occupancy between 27 months (AL and MC segments) to 30 months (IL segments) after opening. Of this census growth, between 22.9% and 24.6% occurred during the first three months of opening, indicating a strong occupancy contribution from pre-leasing activity. Six years after opening date, the median occupancy for IL, AL, and MC segments is equal to or greater than 95.0%.

HOW DOES OCCUPANCY STACK UP WITH OTHER PROPERTY TYPES?

Comparison of Occupancy Senior Housing vs. Other Commercial Property Types

Sources: Seniors Housing source is NIC MAP® Data Service; Retail, Office and Multi-family source is Mortgage Bankers Association Q1 2018 Quarterly Data Book; HotelNewsNow Newswire Q3/July Releases 2011-2018.

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

2011 2012 2013 2014 2015 2016 2017

Office Occupancy

Retail Occupancy

Multi-family Occupancy

Hotel Occupancy

Seniors Housing Occupancy

60.0%

65.0%

70.0%

75.0%

80.0%

85.0%

90.0%

95.0%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Lease-Up Data

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

3 6 9 12 15 18 21 24 27 30 33 36

Occ

up

ancy

Months Open

IL Occupancy AL Occupancy MC Occupancy

AL and MC median occupancy crosses 90% approximately 27 months

IL median occupancy crosses 90% approximately 30 months after opening

Source: NIC MAP® Data Service, Primary & Secondary Markets.


(Independent Living “IL”/Assisted Living “AL”)

• This is a highly fragmented (“cottage industry”) market.

• The top 50 senior housing providers control 35.2% of the IL/AL/MC total supply. (10)

• The average size of the top 50 providers is only 10,900 units per provider compared to an average of 31,258 units for the top 10.

• Only three providers in the Top 50 are publicly traded companies.

Source: “ASHA 50 Report” ASHA: American Seniors Housing Association, (as of September 10, 2018).

RANK COMPANY OWNERSHIP UNITS/BEDSMANAGED PROPERTIES

1 Brookdale Senior Living Public → BKD 96,026 994

2 LCS Private 33,883 130

3 Holiday Retirement Private 31,862 263

4 Five Star Senior living Inc. Public → FVE 29,185 252

5 Sunrise Senior living Inc. Private 26,982 260

6 Erickson Living Private 22,726 19

7 Atria Senior Living Inc. Private 21,512 179

8 Senior Lifestyle Private 19,949 195

9 Capital Senior Living Corporation Public → CSU 16,523 129

10 The Evangelical Lutheran Good Samaritan Society Non-Profit 13,927 81

SENIOR HOUSING MANAGEMENT COMPANIES


Public Pricing

The senior housing/healthcare publicly traded providers’ total market capitalization is approximately $5.38 billion as of September 10, 2018. This is in line with $5.20 billion on September 19, 2017.

PUBLICLY TRADED SENIOR HOUSING COMPANIES

Notes: (1) Data pulled by Yahoo! Finance who pulls from multiple sources or calculates internally. Data is for 52-weeks ending 9/10/2018. (2) Trailing twelve months intraday P/E Ratio. (3) Market Cap is an intraday value derived by taking outstanding shares multiplied by the current share price. Shares outstanding is taken from the most recently filed quarterly or annual report and Market Cap is calculated using shares outstanding. (4) Enterprise Value is a market-based measure of a company’s value and is generally equal to Market Cap plus debt minus total cash and cash equivalents.

Chart Source: Yahoo! Finance

Company TickerStock Price 9/10/18

Trailing P/ERatio (1) (2)

200-DayMoving

Average (1)

52-WeekChange (1)

52-Week RangeMarket Cap

9/10/18

EnterpriseValue

9/10/18High (1) Low (1)

Independent/Assisted Living:

Brookdale Senior Living BKD 9.375 N/A 8.089 -16.17% 11.85 6.28 1.76B 6.51B

Capital Senior Living CSU 8.3 N/A 10.48 -28.10% 16.72 7.18 258.78M 1.25B

Five Star Quality Care FVE 0.964 N/A 1.29 -37.50% 1.8 0.9 48.76M 28.65M

Total IL/AL $ 2.07B $ 7.79B

Nursing Care:

Diversicare Healthcare DVCR 5.95 N/A 7.12 -36.83% 12.25 5.77 38.89M 125.21M

Ensign Group ENSG 36.69 27.75 33.44 77.30% 40.09 19.94 1.91B 2.19B

Genesis Healthcare GEN 1.3868 N/A 1.7407 42.86% 2.86 0.6 224.02M 4.37B

National Healthcare Corp. NHC 75 1.14 67.25 19.56% 78.88 57 1.14B 1.09B

Regional Health Properties (Previously Adcare)

RHE 0.1294 N/A 0.2492 N/A 1 0.1 2.54M 139.78M

Total NC $ 3.32B $ 7.91B

Total Providers $ 5.38B $ 15.7B


The senior housing/healthcare REIT total market capitalization is $81.9 billion as of September 10, 2018. This is down slightly as compared to $88.76 billion reported as of September 19, 2017.

PUBLICLY TRADED SENIOR HOUSING DOMINATED REITs

Notes: (1) Data pulled by Yahoo! Finance who pulls from multiple sources or calculates internally. Data is for 52-weeks ending 9/10/2018.(2) Market Cap is an intraday value derived by taking outstanding shares multiplied by the current share price. Shares outstanding is taken from the most recently filed

quarterly or annual report and Market Cap is calculated using shares outstanding.(3) Enterprise Value is a market-based measure of a company’s value and is generally equal to Market Cap plus debt minus total cash and cash equivalents.(4) Care Capital Properties was merged into Sabra Health Care REIT effective August 16, 2017.

Chart Source: Yahoo! Finance

Company TickerClose

Stock Price 9/10/2018

Trailing Annual

Dividend Yield (1)

DividendDate (1)

52-WeekChange (1)

52-Week RangeMarket Cap9/10/2018

(2)

EnterpriseValue

9/10/18 (1) (3)

High (1) Low (1)

REITs

CareTrust REIT CTRE 18.04 4.35% 12-Jul-18 -8.94% 19.82 12.73 1.46B 1.98B

HCP, Inc. HCP 26.75 5.60% 20-Aug-18 -12.79% 30.55 21.48 12.75B 20.01B

LTC Properties LTC 45.38 5.03% 27-Sep-18 -8.10% 49.59 34.46 1.80B 2.45B

MedEquities Realty Trust MRT 10.26 8.22% 28-Aug-18 -11.21% 12.05 9.67 326.91M 585.41M

National Health Investors NHI 77.72 5.04% 8-Nov-18 -4.01% 81.6 62.71 3.28B 4.49B

New Senior Investment Group SNR 5.94 15.37% 20-Sep-18 -35.30% 9.35 5.9 487.96M 2.27B

Omega Healthcare Investors OHI 33.06 8.05% 14-Aug-18 0.43% 33.3 24.9 6.91B 11.31B

Sabra Health Care REIT (4) SBRA 23.385 7.70% 30-Aug-18 -0.39% 23.83 15.78 4.17B 7.48B

Senior Housing Properties Trust SNH 18.85 8.34% 15-Aug-18 -6.97% 20.27 14.86 4.48B 8.25B

Ventas VTR 59.38 5.34% 11-Jul-18 -15.18% 69.55 46.55 21.31B 31.50B

Welltower WELL 67.01 5.24% 20-Aug-18 -11.90% 75.58 0.14 24.93B 37.49B

Total REITs $ 81.9B $ 127.815B

Providers & REITs Estimated Market Capitalization Total: $ 87.29B $ 143.52B

REIT Pricing


0

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Num

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e (B

illio

ns)

Transaction Volume (Billions) Number of Transactions

PUBLICLY TRADED SENIOR HOUSING DOMINATED REITs 17 Capitalization Rates, Transaction Activity & Underwriting

Chart Source: The Senior Care Acquisition Report, 23rd Edition 2018.

Chart Source: Real Capital Analytics

Dollar Value of Publicly Announced Senior Housing & Care Transactions (2008-2017)

Senior Housing Transaction Volume by Quarter

Decade in Review - Senior Housing Transaction Volume

Q3 '15, $2.03

Q4 '15, $4.00

Q1 '16, $1.50 Q2 '16, $0.94

Q3 '16, $3.50

Q4 '16, $1.95

Q1 '17, $4.76

Q2 '17, $0.87

Q3 '17, $3.51

Q4 '17, $2.54

Q1 '18, $1.68

Q2 '18, $1.69

0.0

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Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18

Tra

nsa

ctio

n V

olu

me

(Bill

ions

)


Chart Source: Real Capital Analytics, July 31, 2018.

Cross-Border (Internationally Based) A buyer is defined as “cross-border” if the buyer or major capital partner is not headquartered in the same country where the property is located. An increasing number of firms have subsidiaries accessing capital in multiple countries so a firm may have two headquarters locations for the purposes of the chart analysis. For example, Deutsch Bank (DB Real Estate) is assumed to be based in Germany for deals outside of the United States while their acquisitions within the United States are assumed to be made via its domestic headquartered subsidiary, RREEF.

InstitutionalInstitutional refers to an investor, such as a bank, insurance company, retirement fund, hedge fund or mutual fund that is financially sophisticated and makes large investments, often held in very large portfolios of investments.

PrivatePrivate, as an investor type, refers to companies whose control is in private hands and whose business is primarily geared toward operating, developing, or investing in commercial real estate. This includes private equity joint ventures, commingled funds and high net worth family offices.

Public Listed/REITsCompanies and/or funds traded on open public markets whose business is primarily geared toward investing in and/or operating or developing commercial real estate. These include REITs, REOCs and publicly-listed funds.

User/OtherUsers of commercial property for specific purposes; business users, government, educational or religious institutions who own real estate for their own use.

Senior Housing and Care Transaction Activity ($B) By Buyer Type

SENIOR HOUSING AND CARE ACTIVITY BY BUYER TYPE

25.0% 27% 24% 22% 27.0%

51.0% 46%

26%12%

28.0%

10.0% 14%

25%

25%

15.0%

14.0% 11%24%

36% 29.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014 2015 2016 2017 2018 YTD

Buye

r %

User/Other Private Public Listed/REITs Cross-Border Institutional


CROSS-BORDER TRANSACTION ACTIVITY ANALYSIS

Cross-Border Senior Housing Investment by Region

During the past three years, the senior housing investment market has witnessed a continual dynamic shift in the investor profile mix. Historically, publicly-traded buyers (mainly REITs) have represented a majority of the transaction volume, although between 2016 and 2017 the public buyers were less active, many devoting resources to portfolio repositioning efforts through coordinated dispositions. However, during the first half of 2018, publicly-traded buyers represented 28% of transaction volume, the largest share of the total year to date transaction volume. Additionally, senior housing is continuing to attract substantial interest from institutional investors, which have accounted for approximately 29% of year to date transaction volume. Institutional buyers include banks, insurance companies, retirement (pension) funds, hedge funds and mutual funds. By comparison, institutional investment accounted for only 11% of total senior housing transaction volume in 2015. Despite the recent uptick in activity by public buyers, private equity remains extremely active in the senior housing investment community, accounting for 27% of year to date transaction volume, in-line with historical private equity investment share. Private equity buyers include dedicated senior housing funds, opportunity funds and commingled funds with core plus and value-add investment objectives. Cross-Border Buyers captured a 15% share of the 2018 YTD transaction volume. Multinational investment platforms from Europe, Asia and the Middle East are actively seeking investments in U.S. based senior housing.

$1,711

$2,572

$3,360

$4,059

$1,008

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2014 2015 2016 2017 2018 (YTD)

Mill

ions

East Asia Western Europe United States Australia - NZ MidEast United Kingdom Canada Southeast Asia Total

Chart Source: Real Capital Analytics, Q2 2018.


$75

$125

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$275

2009 2010 2011 2012 2013 2014 2015 2016 2017

(thou

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s)

Median IL price per unit Average IL price per unit

$75

$125

$175

$225

$275

2009 2010 2011 2012 2013 2014 2015 2016 2017

(thou

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Median IL/AL price per unit Average IL/AL price per unit

$75

$125

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$225

$275

2009 2010 2011 2012 2013 2014 2015 2016 2017

(thou

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Median AL price per unit Average AL price per unit

$35

$45

$55

$65

$75

$85

$95

$105

2009 2010 2011 2012 2013 2014 2015 2016 2017

(thou

sand

s)

Median NC price per bed Average NC price per bed

Historical Value Per Unit Pricing

Senior Housing/Nursing Care Value Estimated at $469.2 Billion

Chart Source: The Senior Care Acquisition Report; 23rd Edition 2018 and NIC MAP® Data Service, Primary and Secondary Markets.

Chart Source: The Senior Care Acquisition Report; 14th Edition 2009, 23rd Edition 2018.

Senior Housing (IL/AL) Price Per Unit

Assisted Living (AL) Price Per Unit Nursing Care (NC) Price Per Bed

Independent Living (IL) Price Per Unit

GENERAL INDUSTRY PARAMETERS - PRICING

Majority Independent Living 43.0%

Majority Assisted Living 31.7%

Majority Nursing Care 25.3%


6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

Ca

pita

liza

toin

Ra

tes

Average Cap Rate Median Cap Rate Average Unit Weighted Cap Rate

SENIOR HOUSING CAPITALIZATION RATES

Senior housing aggregate capitalization rates resumed their downward trend during 2017, a rebound from their brief uptick due in part to the REIT pullback and a high concentration of value-add deals during 2016. An abundance of affordable equity capital, in tandem with interest rates that can still be considered historically low has driven this continued compression. An additional contributing factor was the quality of the properties that traded during 2017, which included a higher proportion of newer and/or stabilized product. Generally speaking, the capitalization rates reflected in the chart below are after a management fee and before a capital replacement reserve and NOI is based on the trailing 12-month period before the sale or year-to-date actuals annualized. The average and median capitalization rates below are unweighted and the average unit weighted capitalization rate weights each transaction’s capitalization rate based on its number of units. Consistent with prior years, the average unit weighted capitalization rate in 2017 (6.6%) was lower than the unweighted average capitalization rate (7.5%).

Source: Senior Care Acquisition Report, 23nd Edition 2018



Summary by Product TypeThe following survey reflects the knowledge and collaboration of CBRE Research, Capital Markets and Valuation & Advisory professionals who provided their estimation of capitalization rate ranges based on recent interactions with active investors in their market. Core and non-core classifications are based upon the perception of each respondent and represent their assessment of multiple factors including physical plant and market area characteristics.

Source: CBRE Research: CBRE North America Cap Rate Survey First Half 2018

*Note: Senior Housing figures come from CBRE Research’s U.S. Seniors Housing & Care Investor Survey and Trends Report; September 2018.

Stabilized Property Acquisitions Stabilized Property Acquisitions

PROPERTY TYPE

SECTORCLASS/

SEGMENTH1 2018 (%)

Office

CBD

AA 5.21

A 6.01

B 6.88

C 8.60

Suburban

AA 6.37

A 7.11

B 8.30

C 9.76

Industrial All

A 5.14

B 6.11

C 8.06

Retail

Neighbor-hood /

Community Center

A 5.86

B 7.34

C 9.09

Power

A 6.97

B 8.18

C 9.54

High Street A 4.77

PROPERTY TYPE

SECTORCLASS/

SEGMENTH1 2018 (%)

Multi-family

Infill

A 4.65

B 5.14

C 5.87

Suburban

A 4.94

B 5.41

C 6.24

Hotel

CBD

Luxury 7.02

Full-Service 7.67

Select-Service 7.98

Economy 9.07

Suburban

Luxury 7.02

Full-Service 8.17

Select-Service 8.50

Economy 9.63

SeniorHousing*

Core (Class A

Avg.)

IL 5.40

AL 6.20

MC 6.90

NC 11.40

CCRC 7.20

Non-Core(Class A

Avg.)

IL 6.50

AL 6.80

MC 7.40

NC 12.10

CCRC 7.80



Summary by Product Type

9001,0001,1001,2001,3001,4001,5001,6001,7001,8001,9002,0002,1002,2002,3002,4002,5002,6002,7002,800

Q2 2011 Q2 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 2018

Ind

ex

Total NPI Multi-Family Senior Living Stabilized

900

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Q2 2011 Q2 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 2018

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Q2 2011 Q2 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 2018

Ind

ex


Total NPI

Stabilized Senior Housing

Apartments

The Property Index Performance Data provided by the National Council of Real Estate Investment Fiduciaries (NCREIF) demonstrates that reporting senior housing properties have generally outperformed the broader National Property Index (NPI) since at least 2003.

The senior housing total return for Q2 2018 was 2.18%, which is comprised of a 1.37% income return and a 0.81% capital appreciation return. Over the past four quarters, senior housing returned 11.63% (5.54% income and 5.88% appreciation). This is 4.48% greater than the NPI return of 7.15% and 5.20% greater than the multi-family total return of 6.43%. Over a seven-year period, senior housing returns have outperformed the NPI and multi-family in total returns and income returns.

The stronger performance seen in the senior housing sector may reflect the fact that senior housing has seen continuous rent growth, despite significant fluctuations in the general economy. The following charts illustrate the returns achieved by the senior housing component as compared to the multi-family component and the overall index. Items shown for each quarter represent that quarter’s return, while periods showing a single year or multiple years represent the compounded annual index returns achieved for that period. All returns are before fees.

Senior Housing Returns

SENIOR HOUSING INVESTMENT RETURNS

Chart Source: NCREIF Query Tool. 3Q04 = 1,000.


Cumulative NCREIF Appreciation Returns NPI vs. Multi-Family vs. Senior Housing


Cumulative NCREIF Income Returns NPI vs. Multi-Family vs. Senior Housing

Cumulative NCREIF Total Returns NPI vs. Multi-Family vs. Senior Housing

Over the last ten years, Seniors Housing returns have consistentlyoutperformed other types of real estate.

Total Returns

Total NPITotal

Multi-FamilyTotal StabilizedSenior Housing

Q2 2018 1.81 1.54 2.18Q1 2018 1.69 1.46 2.14Q4 2017 1.77 1.62 4.12Q3 2017 1.70 1.66 2.73Q2 2017 1.75 1.45 3.24One Year Index 7.15 6.43 11.63Three Year Index 8.27 7.47 13.05Five Year Index 9.85 8.79 14.98Seven Year Index 10.30 9.69 13.67

Capital (Appreciation) Returns

Total NPITotal



Income Returns

Total NPITotal



Source: NCREIF


Because senior housing is a hybrid between multi-family and hotel property types, there is an added complexity to the underwriting process. Unlike office, multi-family, industrial and retail, simple ARGUS or other canned models are not conventionally used. Rather, customized Excel models are developed — adding time and complication to the process. Below are standard assumptions that are often incorporated into underwriting models as well as questions that underwriters should consider. These assumptions reflect the current environment.

UNDERWRITING GUIDELINES

Assumptions based on Community / Market ConditionsCurrent Occupancy Condition Strong Good Fair / Poor

Occupancy

> 95% Lease-down to 96% Lease-down to 95% Lease-down to 93%

<> 90-95% Lease-up to 95% Lease-up/down to 94% Lease-up/down to 91%

< 90% (Initial Community Lease-up) Lease-up to 95% Lease-up/down to 93% Lease-up/down to 91%

<> 80% - 90% (Not initial lease-up) Lease-up to 93% Lease-up to 90% Lease-up/down to 85%

<> 70% - 80% (Not initial lease-up) Lease-up to 85% Lease-up to 80% Lease-up/down to 75%

<> 60% - 70% (Not initial lease-up) Lease-up to 75% Lease-up to 70% Stabilize at current

< 60% (Not initial lease-up) Stabilize at current Stabilize at current Stabilize at current

Lease-Up/Down Net Units/Beds Per Month

> 95% 4 4 2

<> 90-95% 4 4 2

< 90% (Initial Community Lease-up) 4 4 2

<> 80% - 90% (Not initial lease-up) 3 2 1



< 60% (Not initial lease-up) 3 2 1

Rate Assumptions

Yr. 1 Yr. 2 Yr. 3 Yr. 4> Yr. 1 Yr. 2 Yr. 3 Yr. 4> Yr. 1 Yr. 2 Yr. 3 Yr. 4>

Current Rates 4.5% 4.5% 4.5% 4.5% 4.0% 4.0% 4.0% 4.0% 3.0% 3.0% 3.0% 3.0%

Street Rates 5.0% 5.0% 5.0% 5.0% 4.5% 4.5% 4.5% 4.5% 3.5% 3.5% 3.5% 3.5%

< 60% (Initial lease-up) 0.0% 2.5% 5.0% 5.0% 0.0% 2.0% 3.5% 4.0% 0.0% 2.0% 3.0% 3.5%

Occupancy Assumptions

P&L or Rent Roll Always use current rent roll if the data is trusted.Lease-Up Lag Should be zero months unless community specific information dictates otherwise.

RolloverIndependent Living - 36 months; Assisted Living - 24 months; Memory Care - 20 months and Nursing Care -12 months.

Other Revenue Assumptions

Care Revenue Either Based on trended actuals, Operator Budget, Or Built up through Care Utilization Matrix.New Resident Fee Based upon actual fee received and trended forward.Second Resident Fee Based upon actual fee received and trended forward. Increased with in-house rents annually.Other Revenue Either Based on trended actuals, Operator Budget, Or Built up Lease-Up Utilization Analysis.Expense Assumptions

Normal Operating Ex-penses

Either Based on trended actuals, Operator Budget, Or Built up Lease-Up Utilization Analysis.

Utilities Either Based on trended actuals, Operator Budget, Or Built up Lease-Up Utilization Analysis.

Insurance (GL & Property) Obtain current quote or base on in-place policy coverage and then grow 3.5% per year thereafter.

Property taxesBased on current tax bill; increase 3.5% per year thereafter or as state/county dictates based on fixed annual increases or reassessment triggered by sale.

Management Fees 5.0% of Revenue.

Capital Expenditures $300 to $500 / unit per year.


UNDERWRITING GUIDELINES 25 Structured Debt Options

U.S. Treasury Yield Curve Rates

Source: U.S. Treasury (January 2, 2004 - September 10, 2018)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

10 Year Treasury 5 Year Treasury Linear (5 Year Treasury)

• The 10-year Treasury note rate is considered one of the major pricing benchmarks in the debt market. As illustrated in the chart above, the average 10-year U.S. Treasury Yield Curve Rate ended calendar years 2015 and 2016 at 2.27% and 2.45%, respectively, with a 2017 average rate of 2.33%.

• There was a concern when interest rates spiked after the conclusion of the 2016 U.S. presidential election. The benchmark 10-year Treasury stood at 2.45% at closing on December 30th, 2016, up 62 basis points (“bps”) from Election Day on November 8, 2016. In 2017, Treasuries remained flat or slightly down YOY. Today, the 10-year Treasury sits at 2.90% (as of September 17th, 2018) and the 2018 YTD average is 2.86%.

• Although credit spreads remain competitive, the rise in the 10-year Treasury rate by roughly 50 bps in 2018 has undoubtedly increased debt capital costs for borrowers. Given most acquirers in the sector are now users of secured debt, the cost of debt capital in a continued rising interest rate environment has begun to impact valuations; more significantly in the value-add space where a heavier reliance exists upon higher leverage debt.

• Over the past several years and continuing in 2018, there has been a heightened awareness

and interest in senior housing from life insurance companies, other traditional balance sheet lenders, and several new debt providers. These lenders find the sector compelling for the same reasons as equity investors (demographics, performance versus other commercial real estate classes, etc.). Senior housing has one of the lowest default rates, yet it has higher interest rate spreads. As such, lenders have become more comfortable with the nuances of the operating component of AL and MC. Note, however, that these lenders generally have a preference toward 100% private pay IL, AL, and MC (as opposed to nursing care facilities with government reimbursement dependencies). Nursing care has become generally accepted in the lending community if it is part of a campus (i.e. a rental CCRC with a skilled component), which includes the full continuum of care.

• A handful of life insurance companies are still quoting comparable spreads to the Agencies for 5, 7 and 10-year fixed rate mortgages (with a preference towards 7 and 10-year fixed rate). Eligible product types are IL, AL, and MC (assuming it’s a small percentage of the campus). In addition, three to four additional insurers are comfortable lending on 100% IL product. Most insurers require a lower LTV and larger loans ($25M+). There are one to two life insurance companies with competitive floating rate programs. However, construction to


permanent programs are not currently available programmatically.

• The multi-family lending caps are intended to further the Federal Housing Finance Agency’s (FHFA) strategic goal of maintaining the Agencies as a backstop for the multi-family finance market without impeding the participation of private capital. For the 2018 calendar year, the Agency volume caps were initially set at $35 billion. Important to note, loans in affordable and underserved market segments will operate in the same capacity as the prior years and are excluded from the cap. If the restricted affordable housing units make up less than 50% of the total units, the FHFA will exclude 50% of the loan amount from the cap. Also, if 50% or more of the units are restricted units, the FHFA will exclude the entire loan amount from the cap. Throughout 2018, the FHFA will again review the Agency’s estimates of the multi-family loan origination market size on a quarterly basis. If the FHFA determines that the actual 2018 market size is greater than was projected, it will apply an appropriate increase to the capped category. If the FHFA determines that the actual 2018 market size is smaller than was projected, it will not reduce the capped category. Overall, the volume caps imposed are not impacting the lending climate today the same way that they did when first implemented in 2015.

• Offering floating rate mortgages with interest rate spreads lower than any balance sheet lenders, the Agencies (Fannie Mae and Freddie Mac) continue to offer the lowest cost floating rate debt in the sector. However, many regional and national banks offer competitive floating rate programs with three to five-year terms and competitive interest-only periods.

• New bridge and mezzanine lending sources for non-stabilized communities have favorably emerged in this sector. The majority of these bridge financing sources are priced between 100 to 300 bps points above Agency floating rate spreads. Bridge lenders include select traditional banks (both national and regional) and other specialized higher yield financial investment firms. Non-recourse bridge financing is available for experienced and strong borrowers at

leverage levels up to 80%.

• Construction debt is primarily available through traditional HUD loans, regional banks, local banks (particularly for smaller deals when an established relationship between the borrower and lender exists), and on a minimal basis through life insurance companies via construction to permanent loan programs. Many larger national banks are also providing construction debt. Strong borrowers with a strong track record, evidenced by stabilized portfolios producing solid overall cash flows, might expect partial recourse with 30% to 35% cash equity (resulting in leverage of 65% to 70%) priced at 275 to 350 bps over 30-day LIBOR. Over the past eighteen months, non-recourse new construction financing (limited to completion guaranties) has become very scarce, even for the highest-caliber firms with significant track records in the space. This can be attributed to a number of factors including aggregate supply concerns, where we are in the current real estate cycle, and HVCRE/Basel III regulations. In addition, spreads have widened 50 to 75 bps along with increases in LIBOR rendering construction loans approximately 100 to 150 bps more expensive today.

SENIOR HOUSING STRUCTURED DEBT OPTIONS


In June 2018, CBRE released a Market Insight on Continuing Care Retirement Communities (CCRCs), also known as life plan communities (LPCs). A significant, but often misunderstood segment of the senior housing market, CCRCs have been a mainstay senior housing product for decades. Growing demand, changing inventory and evolution of services and amenities are estimated to create opportunities and drive investment returns for investors and operators alike within the CCRC investment community. The 33-page Market Insight report is a comprehensive primer on the CCRC product, demand environment, market dynamics, and investment environment.

The findings of the report have been summarized below. To download the complete report, please visit:https://www.cbre.us/research-and-reports/US-Seniors-Housing-Care-CCRC-Report-June-2018.

What is a CCRC/LPC?CCRC/LPCs are retirement communities that combine the full range of senior housing options, including independent living, assisted living, memory care, and skilled nursing, on a single campus. These communities enable residents to live in one place for the rest of their lives even as their lifestyle preferences and health care needs change.

Key facts about CCRC/LPCs:

• There are two main financial models: entry fee (paid upon move in) and rental. Most of the properties—63.7%—use the entry fee model.

• There are two main ownership models: not-for-profit and for-profit; 73.3% are not-for-profit. Churches and other charitable organizations play a dominant role in the CCRC/LPC segment.

Principal Types of Senior Housing & Care Communities

Source: CBRE Research, NIC MAP® Data Service.

27CBRE Research — Special Report on CCRC’s


• Many CCRC/LPC properties are relatively old; 68.7% are more than 25 years old, and only 5.5% are less than 10 years old.

• Although other segments of the senior housing industry have experienced overbuilding in recent years, development in the CCRC/LPC segment has been moderate, representing only 15.8% of the total senior housing units under construction as of Q1 2018.

Near-term outlook

CBRE’s new report states that limited development activity in the CCRC/LPC segment in recent years, combined with steady demand for the product and longer resident tenure, has produced higher occupancy rates for CCRC/LPCs than for other types of senior housing.

The report also states that rents for CCRC/LPCs have been rising at higher rates than rents for other types of senior housing. For the year ending Q1 2018, CCRC/LPC rent growth averaged 2.8 %, compared to 1.9% for non CCRC/LPCs.

These current strong market conditions, according to the report, position CCRC/LPCs for solid performance in the near term.

Long-term Outlook

The report notes that the senior population will grow rapidly in the coming years as the baby boom generation ages. From 2016 to 2025, the U.S. population aged 75+ will increase by 39%, from 20.6 million to 28.6 million, while the U.S. population will increase by just 6.5%, from 323.1 million to 344.1 million.

CBRE RESEARCH SPECIAL REPORT ON CCRC’S

2.2

2.8

1.9

0

1

2

3

4

5

Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018

% Seniors Housing CCRC/LPC Non-CCRC/LPC Seniors Housing

Historical Rent Change by Type of Senior Housing

Source: CBRE Research, NIC MAP® Data Service, Q1 2018. For primary and secondary markets. Seniors housing does not include nursing care.



The report maintains that these demographic trends will generate significant new demand for CCRC/LPCs. It notes that the age of move-in for CCRC/LPC residents is typically younger—from the late 70s to mid-80s—than for other types of senior housing. As a result, as the first wave of baby boomers reaches 75 in three years, the demand for CCRC/LPCs will begin to increase. The report adds that two unique characteristics make CCRC/LPCs especially appealing to baby boomers:

• CCRC/LPCs attract residents who are active and healthy, and seek a community offering social, recreational, and cultural amenities that will enhance their lifestyle.

• CCRC/LPCs attract residents who are planners—who have a long-term outlook on their housing needs and want to plan for their future.

The report states that many industry leaders believe that the CCRC/LPC product is well suited to baby boomers, who place a high value on lifestyle and who have fewer children and thus need to be good planners.

The Bottom Line

CBRE’s new report notes that the CCRC/LPC segment aces several significant challenges that may limit its growth. These include:

• Increased competition from other types of senior housing, especially independent living and assisted living

• The need to modernize older CCRC/LPC communities to meet the needs and expectations of the baby boom generation

• Substantial entrance fees and service fees that are unaffordable for most middle-class Americans

• The lack of understanding of the CCRC model and the need to provide ongoing education to prospective residents and investors

Despite these challenges, the report maintains that the future of the CCRC/LPC segment remains bright. Its conclusion:

The baby boom demographic wave should have an enormous and very positive impact on the market by creating considerable new demand for CCRC/LPC product. Initially, demand from baby boomers will rise at a slow pace, but by the mid-2020s, the increase will be much more significant. While the CCRC/LPC segment must continue to evolve to meet changing demands of the consumer, the long-term outlook for CCRC/LPCs is quite positive.


2016 2020 2025

Total Total (M) 323.1 332.6 344.1

No. Increase (M) 9.4 11.5

Pct. Increase (%) 0.3 0.3

75+ Years Total (M) 20.6 23.3 28.6

No. Increase (M) 2.6 5.3

Pct. Increase (%) 1.3 2.3

Share of Total 6.4 7.0 8.3

Total (M) 49.2 56.1 65.2

Source:CBRE Research, U.S. Census, Q1 2018.


CBRE National Senior Housing is the industry leader in both investment sales and debt originations. Ranked #1 in 2016, CBRE’s National Senior Housing team has completed $11.4 billion in transactions across the nation since 2014.

The Team offers a depth of expertise rarely found in the senior housing sector. Its partners: Lisa Widmier, Matthew Whitlock and Aron Will possess a combined 61-year senior housing-specific industry experience and $30.3 billion in transaction volume. Our experience personally as developers, institutional investors, appraisers and owner/operators provides us with an intimate familiarity and perspective of a transaction from all sides.

CBRE National Senior Housing focuses exclusively on senior housing, providing a range of services. We provide investment opportunities to the marketplace

across a broad spectrum of senior housing property types including:

• Age-Restricted Multi-family• Independent Living• Assisted Living• Alzheimer’s/Memory Care• Skilled Nursing and Continuum of Care• Entry Fee CCRC Communities

Our services include:• Investment Property Sales• Structured Debt• Investment Banking• Valuation• General Consulting

30 About CBRE NationalSenior Housing


CBRE has assembled a fully integrated Team with the requisite experience, expertise, and successful track record necessary to successfully structure and execute a transaction to meet the Client’s objectives.

OUR NATIONAL PRESENCE

700+ Communities

45 States110,000 Units/Beds

CBRE National Senior Housing has closed, is actively marketing, or is under contract on

$1.8 billion of sales and investment banking

transactions encompassing over 8,300 units across

the U.S. In addition, CBRE National Senior Housing

has closed or has in process approximately

$1.9 billion of debt originations.

$3.7BIN PROCESS

2018

Principals of the CBRE National Senior Housing

team completed more than $10 billion in senior housing investment sales and debt transactions between 2014 and 2017 encompassing more than 46,000 units

nationwide.

$10.1BTOTAL COMPLETED

2014-2017

CBRE National Senior Housing was ranked

Top Two Senior Housing Originator in the nation

from 2010 through 2016, and was the #1 Senior Housing/Age Restricted Originator in the U.S in

both 2013 and 2014 and #2 in 2015. The team

originated $3.7 billion in debt transactions over the

past three years. CBRE is the largest agency originator (Fannie/Freddie)

in the nation with over $18B of loan volume in

2017 and has been Freddie Mac’s #1 Seller Servicer

from 2009 to 2017.

DEBTORIGINATIONS

TOP 2


Sales Assignments Consideration Units Vintage Portfolio (22) $1.3 Billion 3,055 The Sunwest Portfolio $1.25 Billion 11,100Maestro Portfolio $921 Million 8,206The Fountains Portfolio $640 Million 3,637 Brightview I Portfolio $498.5 Million 1,584 Brightview II Portfolio $363.5 Million 1,117 The Bristal Portfolio $290 Million 931 Pramerica-Sunrise UK Portfolio $247 Million 437Pacifica Portfolio $187.7 Million 720LCS CCR Portfolio $186.5 Million 1,1047 Community AL/MC Portfolio $186.3 Million 526 5 Community Allegro Portfolio $172.5 Million 705 Lang Nelson Portfolio $127 Million 1,166Ventas Portfolio $121.2 Million 1,2957 Community AL/MC Portfolio $120.7 Million 500 Baynorth/Watermark Portfolio $114.5 Million 496 MBK California Portfolio $104.5 Million 2933 Community IL/AL/MC Portfolio $101.7 Million 310

Debt Assignments Loan Amount Units Purpose LenderThe Fountains Portfolio $410.0 Million 3,663 Sale & Acquisition AgencyRanger 36 Portfolio $348.6 Million 2,524 Refinance AgencyCredit Facility $271.3 Million 1,258 Acquisition AgencyTwo Community CA and AZ Portfolio $80.0 Million 275 Acquisition Life Co.Regency Oaks of Clearwater $75.0 Million 471 Refinance AgencyBonaventure Portfolio $72.5 Million 453 Acquisition AgencyAmbassador $68.0 Million 117 Refinance AgencyCSH Seattle Portfolio $60.0 Million 368 Acquisition BankVillage of Southampton $58.7 Million 204 Construction BankCascade Portfolio $58.5 Million 469 Refinance AgencyThe Village of Woodlands Waterway $55.2 Million 207 Sale & Acquisition AgencyMorningStar Portfolio $53.0 Million 196 Sale & Acquisition Finance Co.The Arbor Terrace Portfolio- GA 2 $50.5 Million 236 Sale & Acquisition AgencyThe Village at River Oaks $49.7 Million 195 Construction BankThe Cornerstone Portfolio $49.6 Million 172 Acquisition Life Co.The Golden Pond Portfolio $48.5 Million 578 Sale & Acquisition Finance Co.Georgetown Development $41.9 Million 210 Construction Other

A PARTIAL LIST OF SIGNIFICANT ASSIGNMENTS

“ “CBRE SH recently closed a $186.5 million senior housing portfolio transaction with first-time Middle Eastern capital. This transaction is yet another example of how CBRE can deliver superior results for its

clients. Collaboration among four different CBRE practices – Investment Properties, Debt and Structured Finance, Investment Banking, and Valuation and Advisory Services – made this highly complex

transaction possible, allowed for the existing operator to remain, and also expedited the closing process.


“CBRE Cap is the investment banking business of CBRE providing independent M&A advisory, acts as a global placement agent, actively trades real estate LP secondary interests, and advises institutions on real estate investments. Lisa Widmier has been integrated into this practice to provide specialized investment banking services to clients in the senior housing industry.

The CBRE platform uniquely combines the critical components for a successful outcome.

An experienced senior investment banking team with expertise in all forms of capital raising and advisory. Our knowledge base provides the background to structure an opportunity properly and react to change.

CBRE CAPITAL ADVISORS

CBRE ADVANTAGE

Highly Experienced Investment

Banking Team

CBRE is the leader in real estate, Senior Housing and local market knowledge. This allows us to leverage expertise encompassing all aspects of real estate and to evaluate, underwrite, and position assets and industry fundamentals to optimize outcomes.

World Leading Asset Level Expertise

The market presence to access providers of real estate capital with a physical presence in all the major markets globally. This is enhanced by constant investor dialogue as a result of a strong product pipeline which enables us to utilize live market intelligence to match equity with the right investment proposition.

Global Capital Distribution

Public M&A

Portfolio Sales

Valuation/Fairness Opinions

Recapitalizations

Comingled Fund Raising

Joint Ventures

Direct Secondary Trading

Portfolio Sales

Financing

BuysideAdvisory

Restructuring

INVESTMENT BANKING

PRIMARY CONTACTS

5780 Fleet Street, Suite 100, Carlsbad, CA 92008 Please visit our website at cbre.com/nationalseniorhousing

LISA WIDMIERExecutive Vice PresidentInstitutional Properties | National Senior HousingCapital Advisors, Inc. | Investment BankingMember FINRA/SIPC |CBRE | Capital MarketsT +1 858 729 9890 | M +1 858 952 4743

MATTHEW WHITLOCK Vice ChairmanInstitutional Properties | National Senior HousingDebt & Structured FinanceCBRE | Capital MarketsT +1 978 282 0024

DEBORAH STREET Vice PresidentInstitutional Properties | National Senior HousingCBRE | Capital MarketsT +1 760 438 8559 | M +1 760 715 2076

ARON WILL Vice ChairmanInstitutional Properties | National Senior HousingDebt & Structured FinanceCBRE | Capital MarketsT +1 713 787 1965

ASHAY SHAHTransaction ManagerInstitutional Properties | National Senior HousingCBRE | Capital MarketsT +1 760 438 8565

PRIMARY CONTACTS

Disclaimer: Data has been obtained from sources considered to be reliable. However, no representation or warranty, expressed or implied, is made as to the accuracy of any of the information, projections or conclusions contained herein, and the same is submitted subject to errors and omissions, without any obligation to update or correct.

(1) Real Capital Analytics Q3 2018, Trends and Trades Report.

(2) “Senior Care Acquisition Report” Irving Levin Associates 23rd Edition, 2018.

(3) Centers for Disease Control and Prevention. The State of Aging and Health in America 2013. Atlanta, GA: Centers for Disease

Control and Prevention, US Dept of Health and Human Services; 2013.

(4) Social Security Administration, Retirement & Survivors Benefits: Life Expectancy Calculator, 2018. https://www.socialsecurity.gov/

oact/population/longevity.html (accessed September 10, 2018).

(5) Centers for Disease Control and Prevention, Mortality in the United States, 2014 By Xu JQ, Kochanek KD, Murphy SL, Arias E.,

NHCS Data Brief No. 229 Hyattsville, MD: National Center for Health Statistics, (December 2015).

(6) U.S. Census Bureau, P23-212, 65+ in the United States: 2010, U.S. Government Printing Office, Washington, DC, 2014, (June

2014).

(7) Centers for Medicare & Medicaid Services, National Health Expenditure Projections 2017-2026, https://www.cms.gov/Research-

Statistics-Data-and-Systems/Statistics-Trends-and-Reports NationalHealthExpendData/NationalHealthAccountsProjected.html

(accessed May 8, 2018).

(8) NIC MAP® Data Service.

(9) U.S. Census Bureau, 2017 National Population Projects: Summary Table 3: Projected 5-Year Age Groups and Sex Composition of

the Population: 2017 to 2060, U.S. Government Printin Office, Washington, DC, 2017, (March 2018).

(10) “ASHA 50 Report” ASHA: American Seniors Housing Association, (2018).

(11) Amy Mendoza, “2016 Top 50 Largest Nursing Facility Companies” Provider Magazine, June 2016.

http://www.providermagazine.com/reports/Documents/2016/0616_Top50.pdf.

(12) Ibid. Rankings are based on 12/31/2015 bed counts.

SENIOR HOUSING & CARE MARKET INSIGHT SOURCES

4301 La Jolla Village Dr., Suite 3000, La Jolla, CA 92122Please visit our website at cbre.com/nationalseniorhousing

Investment Brokerage | Structured Debt | Investment Banking | Consulting Services | Valuation | Asset Management

Today’s complex and constantly changing market environments require special solutions. The professionals at CBRE have the experience, knowledge, connections and track record to provide you with the best solutions in the marketplace and

the ability and determination to execute those solutions.