Investing in Seniors Housing Maravilla, Santa Barbara, CA Investing in Seniors Housing St. Joseph's University Real Estate and Construction Forum Presentation by Anthony J. Mullen, CPA Partner, Royal Star Properties & Senior Fellow, NIC April 9th, 2013

Today’s seniors housing is a mix of real estate, hospitality and care. 2

Seniors Housing Continuum 3

Rents Vary by Care Segment Average Monthly Rent by Care Segment as of 2012Q4 Housing, Laundry, Meals, Socialization Source: NIC MAP® Data & Analysis Service 4

Size of the Property Market Estimated National Counts as of 2012Q4 Number of Properties Number of Units Majority Independent Living 4,048 878,315 Majority Assisted Living 7,118 534,081 Majority Nursing Care 11,206 1,505,944 Total 22,372 2,918,340 Source: NIC Research 5

Market Values by Property Type Implied Market Values ($B) as of 2012Q4 Source: NIC Research 6

Health Care REITs Outperform Other REITs Annualized Total Returns (%) 1-, 3-, 5- and 7-year Periods December 31, 2012 -- Leave Apartment, Hotel, Health Care -- Reverse the order (7, 5, 3, 1) Source: NAREIT 7

Seniors Housing Total Returns Outpaced NPI* Annualized Total Returns (%) 1-, 3-, 5- and 7-year Periods December 31, 2012 -- Leave Apartment, Hotel, Health Care -- Reverse the order (7, 5, 3, 1) *NCREIF Property Index (NPI) Source: NCREIF; AEW Research 8

Seniors Housing Rents Less Volatile Year-over-Year Asking Rent Growth Trends (%) 2007Q1 – 2012Q4 -- Leave Apartment, Hotel, SH Source: NIC MAP® Data & Analysis Service; MBAA; REIS; STR 9

Seniors Housing Occupancy Held Up Well Year-over-Year Occupancy Trends (Basis Points) 2007Q1 – 2012Q4 -- Leave Apartment, Hotel, SH Source: NIC MAP® Data & Analysis Service; MBAA; REIS; STR 10

Demand Drivers for Seniors Housing Strengthening demographics Rising penetration rates and product acceptance Longer life expectancy Fewer informal family care givers available Potentially more ADL needs 11

Strong Demographic Growth Population Growth (%), 2013-2020 2013-2020 CAGR (%): 75+ Cohort: 2.2 25-34 Cohort: 0.6 U.S. Population 0.8 Source: U.S. Census Bureau 12

Demographics Will Remain Strong for Decades Population Growth (%), 2013-2040 Source: U.S. Census Bureau 13

Pace of New Supply is Now Tempered Distribution of Existing Units by Year Property Opened (%), 1985 - 2012 -- Remove Nursing Care Source: NIC MAP® Data & Analysis Service 14

Construction Activity Has Been Tempered Construction vs. Inventory (%); MAP31 2005Q4 – 2012Q4 Source: NIC MAP® Data & Analysis Service 15

Moderating Supply Growth to Aid Recovery Seniors Housing Historical and Forecast Supply-Demand; MAP31 2006Q1 – 2013Q4’F Source: NIC MAP® Data & Analysis Service 16

Seniors Housing Average Cap Rates Higher Rolling Four-Quarter Cap Rate/Yield (%) 2008Q1 – 2012Q4 -- Remove Office Source: NIC MAP® Data & Analysis Service; RCA; FRED 17

Obesity on the Rise Distribution of Healthy, Overweight, and Obese Adults (%), 1962 - 2008 Source: Centers for Disease Control and Prevention 18

Institutional Interest in Seniors Housing High Relative Attractiveness of Property Types for New Investments by Year 2010 – 2013 (Ratings: 1 = least attractive, 5 = most attractive) -- Retail, Office, Infrastructure, MBO  Remove -- Remove 2010 & 2011 Source: 2013 Plan Sponsor Survey; Kingsley Associates; Institutional Real Estate, Inc. 19

Critical Issues to Accept for 1st Time Players Virtually no lender will finance an inexperienced first time buyer of an existing property without an experienced operator. No lender will finance a ground up property without an experienced development partner and an experienced management company. If you intend to be in the business long term, hire talent with 10+ years of experience and form your own management company. 20

Bankruptcy Warning The average net move-in per month is substantially below apartments. Be ultra conservative and use a proven sales consultant with 15+ years experience or you will likely fail. Do not use more than 4 net move-ins per month in IL, 2.5 net per month in AL and 1.5 net per month in ALZ in your pro forma. Unlike apartments, this product must be sold in 95% of the cases…very few seniors want to move to IL and AL! 21

Why Professional Selling Matters Independent Living Occupancy by Quartile; MAP31 2005Q4 – 2012Q4 Source: NIC MAP® Data & Analysis Service 22

Key Takeaways Seniors housing and care’s market value is $300 billion and growing.  Seniors housing private and public investment returns outperformed other commercial real estate property investments during the past seven years. Three of the 10 largest REITs are now health care REITs. Seniors housing was a resilient real estate sector during the economic recession. 23

Key Takeaways Better than average outlook for market fundamentals Solid and relatively stable investment returns Increasing presence of institutional investors A range of investment strategies that potentially also diversify a multi-asset portfolio Variety of avenues for investment available Experienced, quality operator is key to mitigating risks and achieving success through various cycles 24

NIC Overview

About NIC Not-for-profit data and research organization Mission – to facilitate informed investment in the seniors housing and care industry Research, Data & Analytics NIC assesses trends shaping the industry as they relate to investors, lenders, owners and operators NIC's NIC MAP® Data and Analysis Service tracks more than 12,600 properties on a quarterly basis in the 100 largest metropolitan markets. Conferences & Events NIC hosts two signature deal-making conferences annually connecting operators with capital providers Proceeds from events are used to fund data and research efforts 26

NIC MAP® Data and Analysis Service Leading resource for data on independent living, assisted living, memory care, nursing care and CCRC properties. Tracks more than 12,600 properties quarterly in the 100 largest metropolitan markets Actionable market data for operators, developers, analysts, investors to: Identify new market opportunities Measure and benchmark property performance (occupancy and rents) by care and unit type Manage portfolios more efficiently Anticipate emerging market trends by monitoring sales transactions, construction activities Demonstrate performance to key stakeholders Data access via subscription or standardized reports Visit www.nicmap.org or contact John Blumer at 443-837-2406 to learn more 27

Investing in Seniors Housing Sagewood, Phoenix, AZ Investing in Seniors Housing National Investment Center for the Seniors Housing & Care Industry (NIC) www.nic.org | (410) 267-0504