WALA Presentation 2009

Investment in the Senior Living and

Long Term Care Property Sector

Exploration of Risk and Return

The World Turned Upside Down

Funded by the

Real Estate Research Institute 2007 - 2008

o• Elaine Worzala, Professor and Director, Center for

Real Estate Development, Clemson University

o

• Judy Karofsky, President, Real Estate Insites, LLC, Madison, WI

o• Jeffrey A. Davis, Chairman, Cambridge Realty

Capital Companies, Chicago, IL


Demographics

We are all getting older

We are living longer

Increasing demand for

assisted living


U.S. Population Over 65 U.S. Census Bureau


0

20,000

40,000

60,000

80,000

100,000

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

U.S

. P

op

ula

tio

n (

in t

ho

us

an

ds)

65-74 75-84 85+

Growth of Population Over 65

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

2010

2020

2030

2040

2050

% o

f T

ota

l U

.S. P

op

ula

tio

n

65+ 85+


Basic Human Needs


Housing

Personalized supportive services

Health Care

Increasing demand

for assisted living

Legal/Societal Changes


Medicare

Women in the

workforce

Divorce rates

Smaller family size

Job mobility

Increased demand for

assisted living

Economic DevelopmentThe World Turned Upside Down

Recruitment

Retention

Increased demand for

assisted living

Almost 4,000,000 Seniors In professionally managed properties NIC


19%

18%

17%

46%

Independent Living Units CCRC's Assisted Living Units Nursing Home Beds

Hybrid Real Estate Type

Multifamily

Hospitality

Medical Office


Fragmented Industry

Region

FacilityType

Age


Variance in Cash Flow = Risk

Location Physical Attributes

Legal/

Political

Issues

DynamicsBusiness

Model

Variance in Cash

Flow


Variance in Cash Flow = Risk

Proactive management

Housing alternatives

Variance in cash flow

Services and health care


Real Estate Considerations


Location

Linkages

Area

market

Competitive

supply


Physical Attributes

Need based amenities

Lifestyle attractions


Legal/Political


Dynamics

Decision

Medical

professionals

CaregiversAdult

children

Residents


Business Model

Labor cost

containment

and mitigation of

occupancy risk

High-quality,

professional

staff and management


Performance Benchmarks


Data Sources


mailto:[email protected]

2006

Median Occupancy Rates State of Seniors Housing


All Communities

CCRC

Assisted Living

Independent Living

92.9%

94.0%

90.7%

93.8%

2007



All Communities

CCRC

Assisted with Alzheimer's

Assisted without Alzheimer's

Independent and Assisted

Independent Living Only

94.4%

90.7%

94.4%

93.3%

95.7%

95.0%

2008



All Communities

CCRC

Assisted with Alzheimer's



Independent Living Only

92.6%

93.6%

92.0%

90.6%

93.8%

93.1%

2007 - 2008



Assisted with

Alzheimer's

Assisted

without

Alzheimer's

Independent

and Assisted

Independent

Living Only

CCRC All

Communities

94.4%

93.3%

95.7%

95.0%

90.7%

94.4%

92.0%

90.6%

93.8%

93.1%

93.6%

92.6%

2007 2008

Minneapolis-St. Paul Bloomington, MN-WI MSA

Occupancy Rates NIC MAP


88.0%

90.0%

92.0%

94.0%

96.0%

98.0%

100.0%

102.0%

4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08

All Stabilized Assisted Living Properties

Median

Average

Kansas City, Minneapolis, St. Louis MSAs

Occupancy Rates NIC MAP


86.0%

88.0%

90.0%

92.0%

94.0%

96.0%

98.0%

100.0%

4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08

All Stabilized Assisted Living Properties

Median

Average

Assisted Living

National Occupancy Rates NIC MAP


78.0%

80.0%

82.0%

84.0%

86.0%

88.0%

90.0%

92.0%

94.0%

96.0%

Boston Minneapolis Houston Seattle Detroit

94.0% 93.7%93.1%

86.2%

83.7%

4th Quarter 2008

Turnover Rates State of Seniors Housing


33.9%31.1% 31.8%

55.9%54.2% 55.1%

2006 2007 2008

Independent Living Assisted Living

Typical Length of Stay State of Seniors Housing


CCRC

Independent Living

All Assisted Living

Assisted Living with Alzheimer's

77

38

21

17

Months



84.0%

85.0%

86.0%

87.0%

88.0%

89.0%

90.0%

91.0%

92.0%

93.0%

2 to 10 Years Old 10 to 25 Years More than 25 Years

Occupancy vs. AgeAssisted Living

2007 2008

Overall Occupancy Decline NIC MAP


75.0%

80.0%

85.0%

90.0%

95.0%

100.0%

Upper Quartile Lower Quartile

100.0%

88.2%

98.0%

85.3%

Assisted Living Year End

4Q2007 4Q2008

Median Total Revenue State of Seniors Housing


$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

2006 2007 2008

$5

7,6

14

$3

8,4

02

$3

8,6

11

Assisted with Alzheimers



Median Total Revenue State of Seniors Housing


$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

Assisted with Alzheimers



$49,576

$34,911$32,212

$55,545

$37,206$34,022

$57,614

$38,402 $38,611

2006 2007 2008

Average Monthly Revenue per Occupied Unit NIC MAP


$2,700

$2,800

$2,900

$3,000

$3,100

$3,200

$3,300

4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08

$2,890

$3,038 $3,038

$3,091

$3,024

$3,061

$3,109

$3,183

$3,232

MinneapolisAll Assisted Living Properties

Average Unit Occupancy by Revenue per Occupied Unit NIC Map


0.88

0.89

0.9

0.91

0.92

0.93

0.94

0.95

Up to $2,470 $2,470 to $2,741

$2,741 to $3,141

$3,141 to $3,900

$3,900 plus

90.7%

93.0%

94.5% 94.7%

92.1%

Minneapolis Metro Assisted Living4th Quarter 2008

Median Net Operating Income Per Occupied Unit State of Seniors Housing


$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

2006 2007 2008

$13,423

$19,777

$15,956

$9,058

$11,795

$13,143

$11,187$10,609

$12,491 Assisted Living with Alzheimer's

Assisted Living without Alzheimer's


Median Net Operating Income Per Occupied Unit State of Seniors Housing


$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

Assisted Living with Alzheimer's

Assisted Living without Alzheimer's


$13,423

$9,058

$11,187

$19,777

$11,795

$10,609

$15,956

$13,143

$12,491

2006 2007 2008

Net Operating Income Per Resident per Day State of Seniors Housing


0

5

10

15

20

25

30

35

40

45

50

2 to 10 Years Old 10 to 25 Years More than 25 Years

$42.15

$34.01

$28.84

$45.29

$30.79

$28.32

NOI vs. AgeAssisted Living

2207 2008

Observations


Risky Business


Alternative Risk Ratings

Real Estate Investment Mean “Risk”

Net lease properties 2.04

Warehouse market

Regional mall

Apartment market

Power retail center

Diversified public real estate investment trusts

Diversified private real estate investment trusts

Age restricted apartments (over 55)

Central business district offices

Strip mall

Flexible R&D

Private commingled real estate funds

Suburban offices

Senior housing specialized REIT’s

Real estate mortgage investment conduits

Senior housing independent living

Full service lodging

Licensed assisted living facility (stand alone)

Health care operating companies

Continuing care retirement communities

Extended stay lodging

Hybrid independent living and assisted living facilities

Skilled nursing facilities (primarily long-term care_

Skilled nursing facilities (subacute/short-term rehab)

Licensed Alzheimer’s/dementia facility 4.25


What now?


How can we get our balance back?


Back to Basics


ReviewThe World Turned Upside Down

0

20,000

40,000

60,000

80,000

100,000

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050U.S

. P

op

ula

tio

n (

in t

ho

us

an

ds)

65-74 75-84 85+

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

2010

2020

2030

2040

2050

% o

f T

ota

l U

.S. P

op

ula

tio

n

65+ 85+

Labor cost

containment

and mitigation of

occupancy risk

High-quality,

professional

staff and management

Housing

It’s about the Housing

Dems power stimulus bill through Congress

Passage of $787 billion legislation hands Obama a critical political victory


Housing

A Gloomy Outlook for

Home Sales’ Big Season

Dane County home

sales continue to slip

Sales of existing single-family homes, condos, and co-ops NAR


-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

45.9%

31.1%

1990-2008 Growth Rates



-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

-7.6% -7.8%




-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

-14.9%

-19.2%

2007-2008 “Growth” Rates



-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

45.9%

31.1%


Risk Mitigation



Unit Mix

Madison MSA NIC MAP


64%

25%

11%

1,380 Assisted Living Units

Efficiencies

One bedroom

Two bedroom

Unit Mix

Milwaukee MSA NIC MAP


54%

32%

7%


Efficiencies

One bedroom

Two bedroom

Unit Mix NIC MAP


64%

25%

11%

Madison

Efficiencies One bedroom Two bedroom

54%

32%

7%

Efficiencies One bedroom Two bedroom

Milwaukee

Segment Opening Year

Madison MSA NIC MAP


4%17%

46%

33%


1970's

1980's

1990's

Since 2000

Segment Opening Year

Milwaukee MSA NIC MAP


8%3%

20%

39%

29%


1960's

1970's

1980's

1990's

Since 2000

Segment Opening Year NIC MAP


8%3%

20%

39%

29%

1960's

1970's

1980's

1990's

Since 2000

Milwaukee

4%

17%

46%

33%1970's

1980's

1990's

Since 2000

Madison


First ImpressionsThe World Turned Upside Down

Fully Integrated Marketing


The nicest people are

here

Lasting ImpressionsThe World Turned Upside Down

Alternative Risk Ratings



Warehouse market

Regional mall

Apartment market

Power retail center





Strip mall

Flexible R&D


Suburban offices


Real estate mortgage investment conduits








Skilled nursing facilities (primarily long-term care_




New View?




Skilled nursing facilities (primarily long-term care)








Real estate investment mortgage conduits


Suburban offices


Flexible R&D

Strip mall





Power retail center

Apartment market

Regional mall

Warehouse market



Judy KarofskyReal Estate Insites, LLC [email protected]


WALA Presentation 2009

Documents

riskthe world

managed propertiesnicthe

data sourcesthe world

independent living only93

independent living units

real estate development

real estate insites

real estate considerations