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Investment Case For Seniors Housing and Assisted Living Properties
Anthony J. Mullen, CPA, M.S.Director of Executive Development, Johns
Hopkins/NIC Seniors Housing & Care Program
Independent Living
91 90 91 88 88 88.5 90 88 89 89
0
20
40
60
80
100
Quarter Ending
Med
ian
Occ
upan
cy R
ate
(%)
Occupancy Rates: For Stabilized Properties (Those Open 24 Months or Longer)
© National Investment Center for the Seniors Housing & Care Industries
CCRCs92.5 92 91.5 91.5 91.5 90 90 89.5 90 89
0
1020
3040
50
6070
8090
100
Quarter Ending
Mea
n O
ccup
ancy
Rat
e (%
)Occupancy Rates: For Stabilized Properties
(Those Open 24 Months or Longer)
© National Investment Center for the Seniors Housing & Care Industries
Assisted Living Properties
86 84 85 83.5 83 84 86 86 83 84
0102030405060708090
100
Quarter Ending
Med
ian
Occ
upan
cy R
ate
(%)
Occupancy Rates: For Stabilized Properties (Those Open 24 Months or Longer)
© National Investment Center for the Seniors Housing & Care Industries
Independent Living
5
2.93.8
4.5
6.3
4
2.3
4.9
0
1
2
3
4
5
6
7
Quarter Ending
Net
# o
f U
nit
s/M
onth
Move-in Rates: For Properties Not Yet Stabilized (Those Open Less Than 24 Months)
© National Investment Center for the Seniors Housing & Care Industries
Assisted Living Properties
3.1
1.61.9 1.9
3.3
2.2 2.4
3.8
0
1
2
3
4
5
6
7
09/30/2001 12/31/2001 03/31/2002 06/30/2002 09/30/2002 12/31/2002 03/31/2003 06/30/2003
Quarter Ending
Net
# o
f U
nits
/Mon
thMove-in Rates: For Properties Not Yet Stabilized
(Those Open Less Than 24 Months)
© National Investment Center for the Seniors Housing & Care Industries
Independent Living
10.2 9.95 10.1 10.2 10.5 10.1 10.5 10.4 10 9.9
0
2
4
6
8
10
12
14
Quarter Ending
Mea
n C
ap R
ate
(%)
Capitalization Rates
© National Investment Center for the Seniors Housing & Care Industries
Assisted Living Properties
11.2 10.75 10.9 11 11.2 11.1 11 11 10.9 11.4
0
2
4
6
8
10
12
14
Quarter Ending
Mea
n C
ap R
ate
(%)
Capitalization Rates
© National Investment Center for the Seniors Housing & Care Industries
97.1 97.4 97.8 98 98 98.2 97.4
2.7 2.5 2 1.9 1.9 1.7 2.40.2 0.1 0.2 0.1 0.1 0.1 0.20
10
20
30
40
50
60
70
80
90
100
12/31/2001 03/31/2002 06/30/2002 09/30/2002 12/31/2002 03/31/2003 06/30/2003
Quarter Ending
Pro
port
ion
of O
utst
andi
ng I
nves
tmen
ts
Performing*
Non-Performing**
In Foreclosure
*Performing may include some loans not in compliance with non-payment financial covenants or on watch list.
**Non-performing includes loans 2 or more payments delinquent
© National Investment Center for the Seniors Housing & Care Industries
Loan Performance for Permanent Debt
6028 6147
77328789
0
2000
4000
6000
8000
10000
SeniorsApartments
IndependentLiving
Assisted Living CCRCs
Total Units Under Construction by Property Type: 2003
Source: ASHA Seniors Housing Construction Report 2003
13042
31273
8789
3815
17749
61476028 7732
0
10000
20000
30000
40000
SeniorsApartments
IndependentLiving
AssistedLiving
CCRCs
1999
2003
Seniors Housing Construction: Total Units by Property Type 1999 & 2003
Source: ASHA Seniors Housing Construction Report 2003
2000-2005 2000-2015
Seniors Apartments 1.2% 1.8%
Independent 1.25% 1.6%
Assisted Living 1.9% 2.0%
Compare to:
Overall Population 0.9% 0.9%
Properly Weighted Seniors Population Growth Rates per Year
Note: Based upon actual 5-year cohort growth rates and age of residents at entrance.
Source: KMF Senior Housing Investors
The Powerful InvestmentBenefits of Operating Leverage
Due to the high expense to revenue ratio of IL, AL, and CCRC, there is a significant increase in NOI when expense increases can be held 1% to 2% (absolute) below revenue increases.
60% Expense / 40% NOI Margin 70% Expense / 30% NOI Margin
Revenue % 5% 4% 5% 4%
Expense% 4% 3% 4% 3%
NOI% 6.5% 5.5% 7.3% 6.3%
Assisted Living
Independent Living
CCRC
Lower Quartile
18.8% 24% 6.9%
Median 28.3% 33% 29.7%
Upper Quartile
34.3% 41.6% 34.1%
Margins Vary Significantly(after management fee and cap x)
•82% difference between lower and upper quartile in AL•73% difference between lower and upper quartile in IL•394% difference between lower and upper quartile in CCRCs
Source: ASHA The State of Seniors Housing 2003
Upper Quartile Current Returns on Investment(Unlevered)
•Independent Living 14.5%
•Assisted Living 16.0%
•CCRCs 24.0%
Source: ASHA The State of Seniors Housing 2003
Assisted Living Independent Living
Lower Quartile $5,383 $6,019
Median $9,113 $8,684
Upper Quartile $11,695 $11,485
Margins Can Be Misleading
Net Operating Income, Per Unit After Management Fee and Cap X, is the Key Number
to Focus On
Source: ASHA The State of Seniors Housing 2003
The Powerful InvestmentBenefits of Financial Leverage
Especially With a Large DifferenceBetween Cap Rate and Interest Rate
75% Debt / 25% Equity 70% Debt / 30% Equity
Cap Rate 10% 11% 10% 11%
Interest Rate 6.5% 6.5% 6.5% 6.5%
ROE 20.5% 24.5% 18% 21.5%
ROE w/25 year amortization*
16% 20% 14.5% 18%
* True ROE is about 1% (absolute) higher due to principal amortization, which is not accounted for in the return calculation.
CCRC** Independent** AL*
Extremely 5% 7% 32%
Very 6% 11% 30%
Somewhat 30% 31% 20%
Not 25% 26% 14%
Not at All 34% 25% 4%
Needs-Influenced vs. Needs-Driven Element of IL vs. ALProportion of Residents by Urgency of Move
** CCRC and Independent Data: ASHA Independent Living Report* AL Data: NIC National Survey of Adult Children
IN HOUSE STREET
2002 4% 5%
2001 4.5% 5%
2000 4% 5%
1999 4% 4%
1998 4% 4%
1997 3.5% 4%
1996 3.5% 4%
1995 4% 4%
1994 4% 4.5%
Yearly Median Increases in Resident Revenue
Independent Living
Source: ASHA The State of Seniors Housing 2003
IN HOUSE STREET
2002 5% 5%
2001 5% 5.5%
2000 4% 4.5%
1999 3.5% 5%
1998 4% 5%
1997 3.5% 5%
1996 4% 5%
1995 4% 5%
1994 4% 4%
Yearly Median Increases in Resident Revenue
Assisted Living
Source: ASHA The State of Seniors Housing 2003
9.7%
16.4%
23.7%
0%
5%
10%
15%
20%
25%
1997 1998 2000
Have You Ever Visited a Retirement Community to Consider It As a Place For You to Live?
Source: NIC National Housing Survey
23.4
30.8
10.612
18.2
8.2
17.918.2
0
10
20
30
40
No Move Thinking Plans Decided
Pe
rce
nt
by
Ca
teg
ory
Prefer Age-Qualified No Preference
Proportion of Prospects by Attitude TowardAge-Qualified Community
Source: NIC National Housing Survey
83.5 81.769.7
8.2 8.119.9
8.3 10.2 10.4
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1997 Wave 1998 Wave 2000 Wave
Pe
rce
nt
in C
ate
go
ryPrefer All-Ages No Preference Prefer Age-Qualified
Proportion Age 60+ Households by Preference for Age-Qualified Community by Wave of Survey
Source: NIC National Housing Survey
Source: NIC National Housing Survey
4.4
2.9
0.9
1.9
0.8
8.9
3.3
1.2
5.2
0
2
4
6
8
10
Thinking of Moving Move in Future Move Within 6Months
Pe
rce
nt
by
Ca
teg
ory
1997 Wave 1998 Wave 2000 Wave
Proportion of Age 60+ Households by Plans to Moveto a Retirement Community by Wave of Survey
14
15
22
37
35
37
61
45
0 10 20 30 40 50 60 70
Religious
Shopping
Day Trips
Recreation
Exercise
New Activities
New Friends
With Friends
Today – Here vs. Previous
More Frequently
Source: American Seniors Housing Association
13
29.1
45.7
11.1
1.30
5
10
15
20
25
30
35
40
45
50
StonglyAgree
Agree Neutral Disagree StonglyDisagree
I Am Healthier Today
Source: American Seniors Housing Association
Very Satisfied
50%Satisfied
44%
Neutral5%
Dissatisfied1%
Very Dissatisfied
0%
Satisfaction With Quality of Life in This Community?
Source: American Seniors Housing Association
Source: American Seniors Housing Association
45.4
0.6 0.3
6.7
46.9
0
10
20
30
40
50
StronglyAgree
Agree Neutral Disagree StonglyDisagree
Willing to Recommend to my Friends
Homeownership Rates
Source: U.S. Census Bureau
Distribution by Disability 1982 1984 1989 1994 1999
Nondisabled 73.8% 73.8% 75.6% 77.5% 80.3%
IADL only 5.7 6.2 4.8 4.4 3.2
1 or 2 ADLs 6.9 7.0 6.7 6.1 6.0
3 or 4 ADLs 3.0 3.1 3.7 3.4 3.5
5 or 6 ADLs 3.7 3.4 3.0 3.0 2.9
Institutional Residents 6.8 6.6 6.1 5.7 4.2
Population Distribution of Disabilities 1982 to 1999 Over-65 Year Old Population
Source: Manton and Gu. Proceeding of the National Academy of Sciences, 98(11), pp.6354-6359.