The Investment Case for Senior Housing: It’s Much More Than Just Demographics - ULI fall meeting - 102711

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  • Chuck
  • JT
  • JT
  • JT
  • Transaction activity is picking up but it remains at very low levels relative to the past decade. So far this year, transactions have been highly concentrated in just a few markets and largely in high quality core properties. Distressed assets are really just beginning to come to market and many have been trading in ways that are difficult to track (e.g. note sales with friendly foreclosure).

Transcript

  • 1. The Investment Case for Seniors Housing: It is much more than demographics ULI 2011 Fall Meeting Los Angeles, California
  • 2. Panel and Key Learning Objectives
    • Panelists
    • Mercedes Kerr, Senior Vice President, Health Care REIT (HCN)
    • Bill Pettit , President, Merrill Gardens
    • Chris Kazantis, Director, AEW Capital Management, L.P.
    • Key Learning Objectives
    • Industry definition and comparison to other RE sectors
    • Challenges facing the sector and our responses
    • Characteristics of innovative projects and investment models
    • Capital availability and underwriting standards
    • Commonly held fallacies about senior housing
  • 3. Today’s seniors housing is not your grandparents’ nursing homes. Today’s seniors housing is a mix of real estate, hospitality and care. 1
  • 4. Seniors Housing Continuum 8
  • 5. Rents Vary by Care Segment Source: NIC MAP Data & Analysis Service Average Monthly Rent by Care Segment as of 2Q2011 10 Housing, Laundry, Meals, Socialization
  • 6. Key Industry Attributes
    • Seniors housing and care’s market value is $260 billion and growing.  
    • Seniors housing private and public investment returns outperformed other commercial real estate property investments during the past five years.
    • Three of the 10 largest REITs are now health care REITs.
    • Seniors housing was a resilient real estate sector during the economic recession.
    • Strong outlook for seniors housing market fundamentals.
    2
  • 7. Market Values by Property Type Source: National Multifamily Housing Council, Mortgage Bankers Association, REIS, Smith Travel Research, American Hotel and Lodging Association, NIC Research Estimated Market Values ($B) as of 2010Q4 3
  • 8. Size of the Senior Housing Market Source: NIC Research Estimated National Counts as of 2010Q4 9
  • 9.
    • Strengthening demographics
    • Rising penetration rates and product acceptance
    • Improving health care and longer life expectancy
    • Higher education levels
    • Fewer informal family care givers available
    Demand Drivers for Seniors Housing 6
  • 10. Strong Demographic Growth Source: U.S. Census Bureau Population Growth (%), 2011-2020 4 2011-2020 CAGR (%): 75+ Cohort: 1.8 25-34 Cohort: 0.9 U.S. Population 0.8
  • 11. Pace of New Supply is Now Tempered Source: NIC MAP Data & Analysis Service 7
  • 12. Seniors Housing Rents Less Volatile Source: NIC MAP Data & Analysis Service; MBAA; REIS; STR Year-over-Year Asking Rent Growth Trends (%) 11
  • 13. Seniors Housing Occupancy Held Up Well Source: NIC MAP Data & Analysis Service; MBAA; REIS; STR Year-over-Year Occupancy Trends (Basis Points) 12
  • 14. Seniors Housing Total Returns Outpaced NPI* Source: NCREIF; AEW Research Annualized Total Returns (%) 1-, 3-, 5- and 7-year Periods June 30, 2011 *NCREIF Property Index (NPI) 13
  • 15. Health Care REITs Outperform Source: NCREIF; AEW Research Annualized Total Returns (%) 1-, 3-, 5- and 7-year Periods June 30, 2011 *NCREIF Property Index (NPI) 13
  • 16. Conclusions
    • Near term headwinds from housing market downturn and economic uncertainty
    • Strong long term outlook for market fundamentals
    • Solid and relatively stable investment returns
    • Increasing presence of institutional investors
    • Variety of avenues for investment available
    • Experienced, quality operator is key to mitigating risks and achieving success through various cycles
    20
  • 17. Urban Land Institute Conference Mercedes Kerr, Senior Vice President - Marketing October 27, 2011
  • 18.
    • 878 properties
    • $13.7 billion* investment balance
    • $7.4 billion in investments 2010-to-date
    • Focus on key relationship partners
    • Diversity across the acuity spectrum
    Health Care REIT’s Portfolio * Based on HCN 2011 investment guidance
  • 19. Health Care REIT’s Portfolio Diversification
  • 20.
    • Collaboration across the health care continuum
    • Treatment of acuity in lowest cost setting
    • Increased focus on socialization and wellness
    • Focus on energy management and sustainability
    Evolving Seniors Housing Industry
  • 21.
    • Physical Asset
      • Buildings that serve changing care models
    • Operation & Clinical Quality
      • Operator-centric success
    • Market & Location
      • Geographic clusters in strategic markets
      • Barriers to entry
    The Asset Quality Equation
  • 22.
    • Why RIDEA?
      • Management team
      • Financial performance
      • Portfolio quality
      • Infrastructure
      • Alignment of interests
    RIDEA Transaction Structure
  • 23.
    • Focused geographic presence in east and west coast markets
    • Potential referral relationships between Health Care REIT’s portfolio partners
    • Exploration of synergies between partners
    • Best practice sharing
    Health Care REIT’s Outlook
  • 24. Merrill Gardens 2011 William D. Pettit, Jr. President
  • 25. Multi State Regional Operator West Coast focus
    • Private, family company
    • 53 communities in 9 states
    • 7,300 resident capacity
    • Mid market private pay rental model
    • Independent and assisted living apartments
  • 26. Senior Housing Model Acuity Mix Level Residents Using I 60% II 24% III 16% Frequently Used Services Medication Reminders Bathing Dressing
  • 27. Acquisitions and Sales
  • 28. The University – an Intergenerational Campus
  • 29. Merrill Gardens at Campbell
  • 30. Foster City Community Partners
  • 31. International Strategy
    • Office in Shanghai offering:
    • Pre-Development Planning and Feasibility
    • Market Analysis
    • Design
    • Sales and Marketing
    • Staff Training
    • Operations
  • 32. Health Care REIT Partnership
    • $817 million partnership - 38 communities
    • Health Care REIT owns 80% interest and Merrill Gardens owns 20% interest
    • Merrill Gardens retains exclusive rights to manage assets
    • Partnership’s focus on long term expansion through both acquisition and development
    • Strong alignment of economic interests
  • 33. AEW Capital Management, L.P.
    • Manages $48.8 billion of real estate assets and securities on behalf of institutional and private investors
    • A pioneer investing institutional capital in the senior housing sector, AEW made its first investment in 1997 and has acquired, repositioned and/or developed over 11,600 senior housing units with a gross property value in excess of $1.7 billion
    • Investments have primarily been joint ventures with experienced national, regional and local senior housing operators, both public and private
    • Investments have focused on age – restricted multifamily, independent, assisted living, memory care and CCRC communities across the U.S. and Canada
    AEW Overview 1
  • 34. Rent Growth in Seniors Housing Vs. Apartments Rent growth remained positive for seniors housing throughout the most recent business cycle Rent growth has been less volatile for seniors housing than for apartments
    • Source: NICMAP, CBRE-EA
    RENT GROWTH (%) AEW Real Estate Market Outlook 3
  • 35. Property Type Comparisons
    • AEW Real Estate Market Outlook
    Rent levels for independent living remain at all time highs, while assisted living rents are only down 0.3% from peak levels; rents for all other property types remain below peak Over the past year, rents have seen positive growth for independent living, assisted living and multifamily properties 2 RENT GROWTH COMPARISONS AS OF Q2 2011
  • 36. Property Type Comparisons
    • AEW Real Estate Market Outlook
    Assisted living and apartment vacancy rates have seen the most improvement since their cyclical high points, but remain above their cyclical low points 2 VACANCY RATE COMPARISONS DURING THIS BUSINESS CYCLE
  • 37. Seniors Housing Returns Vs. Other Property Types
    • AEW Real Estate Market Outlook
    On a three, five and eight year basis, seniors housing outperforms the overall NCREIF NPI index and the apartment index. The one-year and 2 nd quarter underperformance reflects the “catch up” the other sectors are undergoing after their oversized write-downs. 4
  • 38. Seniors Housing Income Returns Vs. Other Property Types
    • AEW Real Estate Market Outlook
    Income returns for seniors housing outperforms the overall NCRIEF NPI as well as the apartment index for all periods. 5
  • 39. Seniors Housing Occupancy Rates
    • Source: CBRE-EA
    Q2’11/Q2’10 New York (tightest) 92.1%/91.7% Las Vegas (loosest) 85.1%/81.3% U.S. 88.0%/87.5% Above the line implies improvement; below the line implies deterioration SENIORS HOUSING OCCUPANCY RATES: CURRENT QUARTER VERSUS YEAR AGO AEW Real Estate Market Outlook 6
  • 40. Property Type Comparisons
    • AEW Real Estate Market Outlook
    Rent levels for independent living remain at all time highs, while assisted living rents are only down 0.3% from peak levels; rents for all other property types remain below peak Assisted living and apartment vacancy rates have seen the most improvement since their cyclical high points 2
  • 41. Inn at Robbins Brook Acton, Massachusetts
  • 42. Morningstar at Littleton Littleton, Colorado
  • 43. Carlisle at Palm Beach Lantana, Florida