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2019 STATE OF SENIOR LIVINGPRESENTED BYTommy BrewerManaging DirectorZiegler Investment Bankingtbrewer@Ziegler.comB.C. Ziegler and Company Member SIPC & FINRA1ABOUT ZIEGLERZIEGLER is a privately held, national boutique investment bank, capital markets and proprietaryinvestments firm. Specializing in the healthcare, senior living and education sectors, as well as generalmunicipal and structured finance, enables us to generate a positive impact on the communities we ETARYINVESTMENTS& FUND MNGT Strategic advisory, financing andcapital planning solutions inhealthcare, senior living andeducational sectors as well asgeneral municipal and GADVISORYCAPITALMARKETSActive participant in municipalsales and trading including public,tax-exempt, taxable, privateplacement and preferred tradingmarketsPROPRIETARYINVESTMENTS& FUND MNGTProviding opportunities for investorsin senior living, healthcare services& technology solutions22ZIEGLER - THE UNDISPUTED LEADER INSENIOR LIVING FINANCINGS 2,037.1ZieglerPiper Jaffray & Co.Ziegler1,021.2757.1Citi677.0666.0Northland Securities515.7Bank of America Merrill 454.0Top Lead Managing Underwriters2010 - 2017 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500 6,000 6,500 7,000 7,500 8,000 8,500 9,000 9,500 10,000 10,500 11,000 11,500 12,000 12,500 2,000 2,100 1,800 1,900 1,600 1,700 1,300 1,400 1,500MillionsMillions1,129.2Top Lead Managing Underwriters1990-1999577.9 2,000 0521.7 500A.G. Edwards & SonsBased on full credit given to senior manager of lead-managed underwriting principal volume for senior living transactionscompleted nationally. Rankings and amounts through Refinitiv data as of 12/31/18 5,500Dougherty & Company 13,500 12,000 9,000 10,500 7,500 6,000 4,500Millions1,124.7966.2 4,500Legg MasonCain BrothersTop Lead Managing Underwriters2000-2009 3,000631.2 0638.7Capmark 1,500Dougherty & Company1,233.0U.S. Bancorp Piper Jaffray1,436.4781.01,263.0Salomon Smith Barney1,728.4Wachovia2,007.4UBS PaineWebber1,874.9UBS Securities3,035.1First Union National Bank 1,000Piper Jaffray & Co.Lancaster Pollard & Co. 5,408.7Herbert J. Sims & Co.3,067.72,092.9 4,0004,452.5Cain BrothersBB&T Capital Markets 1,500Herbert J. Sims & Co.ZIEGLER 5,000 13,029.2 3,500ZIEGLER 3,000 400 500 200 300 0 100RBC Capital MarketsTop Lead Managing Underwriters201856.535.2 1,100 1,200Cross Point Capital1,863.1Dougherty & Company 600 700 800Raymond James Morgan 2,106.2Piper Jaffray & Co.117.2116.163.7 900 1,000Northland Securities2,251.2BB&T Capital Markets187.2RBC Capital MarketsDougherty & Company3,065.0Cain Brothers359.1Bank of America Merrill Lynch 12,366.9Herbert J. Sims & Co.411.4Herbert J. Sims & Co. 2,500BB&T Capital MarketsMillions331
ZIEGLER’S SENIOR LIVING RESEARCH,EDUCATION & THOUGHT LEADERSHIP Education 2019 will host a total of 13 Conferences/Symposiums Annual Ziegler Senior Living Finance Strategy Conference LeadingAge Ziegler National CFO Workshop Ziegler National Senior Living InvestorWorkshop SeriesSM External research LeadingAge Ziegler 200 CARF Financial Ratios and TrendsPublication (Baker Tilly, CARF) Statewide CCRC Reports (MD, VA, TX) (MyLifeSite) Industry communication Z-News White papers Ziegler CFO HotlineSMInternal information and research– Ziegler CCRC National Listing & Profile– Client-requested research– Client education sessionsSecondary Market Investor Research– Surveillance updates on current credits– Supports active secondary trading Investor Market Research– ZieglerResearch.com Databases– Industry Trends (e.g. CCaH, RentalCCRCs)– All Senior Living Financings– All New Communities (CCRCs) since1990– Senior Living Rated Organizations4455AGENDA1: Understanding the Growth of the Sector2: Disruptors & Catalysts in Senior Living3: The Changing Role of the NFP Senior Living BoardQUESTIONS & ANSWERS662
Item 1UNDERSTANDING THE GROWTH OF THE SECTOR7U.S. OLDER ADULT POPULATION- DRIVING CHANGEAvg. Age of Entry intoIndependent Living*: 80(range 78-82)50,00045,0002019Population (In 005,000020102015202065 Years & Over2025203075 Years & Over20352040204585 Years & Over205020552060100 Years & OverSource: U.S. Census Bureau National Population Projections based on 2010 Data. 2016 Base Population; Projections updated in 2017(released March 13, 2018)*AV Powell & Associates, 201788A CHANGING CONSUMER Delivering both quality of life and care (longevity vs quality of life) Opportunity for niche communities– College/University affiliations Increased focus on urban influx– 4% of Boomers moving into “urban core”; translates into 400 a day among 65 Branding and image are incredibly important– Name changes Future generations have more information at their fingertips– Transparency; Pricing Choice Control Growing need for housing options among seniors with limited incomeSource: Ziegler Investment Banking993
DEMOGRAPHICS ARE DRIVING GROWTH Significant new development among for-profit owners andoperators– Significant Shift to Independent Living development Not-for-profits largely growing through expansions andaffiliation activity Continued growth in HCBS and home-based models A number of joint ventures and partnerships are developing1010WHY GROW? WHY CHANGE? Allows for greater promotion of mission Diversification in services insures long-term financial stability Additional programs and services enhance current customerexperience Greater ability to generate economies of scale Attract better talent & leadership Defensive move against competition Increased ability to borrow capital Greater ability to expand into underserved markets1111Market PositionREPOSITIONING & GROWTHBUSINESS MODEL INNOVATION OPPORTUNITYInnovation1234Stages of Product Life Cycle512124
THE POTENTIAL FUTURE NOT-FOR-PROFITCOMPREHENSIVE SENIOR LIVING & SERVICES MODELCONCENTRATION IN PRIMARY & ADJACENT MARKETSMarket Rate IL – hospitality focus(Primarily Entry EF; Rental)Moderate Independent Living(Moderate EF & Rental)Continuing Care at HomeResidentialHome HealthAgeHome CareAssisted LivingHospiceMemory CareOFFERINGSSkilled Nursing-private pay-post-acute-MedicaidConciergeCONSUMERAdult DayPACEGovernment Subsidized-HUD 202-tax creditServicesIncomeHome ServicesMaximization of partnerships in the region13Source: Ziegler Investment Banking13TODAY’S RETIREMENT OPTIONSA LOOK AT SENIORS HOUSING & SERVICES SUPPLY % NFPLife Plan CommunitiesAdult DayAffordable Housing 1,950 communities 4,800 centers600,000 units 12,000 communitiesHospice 4,000 agenciesNursing Homes 15,600 homesFreestanding MemoryCare 1,400 communitiesAssisted Living 7,200 communitiesHome Health 12,600 agenciesPrimarily IL Housing 2,800 properties77%avg. 39 participants/day51%1 million residents33%1.34 mill discharged/yr.26%1,400,000 units24%73,000 units22%595,000 units17%4 million served/yr.427,000 units15%3%Sources: Ziegler National CCRC Listing & Profile (Jan. ‘19), LeadingAge, NIC MAP Data and Analysis Service (Q4 2017),The National Center for Health Statistics, Centers for Medicare and Medicaid Services (2015), Ziegler population estimates1414LZ 200 PUBLICATION: BACKGROUND AND METHODOLOGY Size not quality Not-for-profit multi-site seniorliving organizations primary focus Descriptive information on eachsystem– state, size (by type of unit),classification of system, rating,accreditation, addition of 2ndcommunity. Statistics related to affiliation, employees, residents and more Excludes affordable units when computing size; excludes primarily acute/postacute/health care systems Comparable to other listings of largest organizations (i.e. Fortune 500)15Source: 2018 LeadingAge Ziegler 200 Publication (data as of 12/31/17)155
2018 LeadingAge Ziegler 200Growth: Growth of Largest 10 Systems, Combined Unit MixFROM 1980(Excludes Evangelical Lutheran Good Samaritan Society, Trinity Health Senior Communities, Ascension Senior Living, Benedictine Health System)50,000ILUALUNCBAll 9831982198119800Year16Source: 2018 LeadingAge Ziegler 200 Publication (data as of 12/31/17)16PRIMARY NOT-FOR-PROFIT SENIOR LIVING GROWTH INRECENT YEARSCommunity ExpansionsAffiliations & MergersAcquisitionsNew Campus Development17Source: Ziegler Investment Banking17GROWTH PLANS OVER THE NEXT TWO YEARSPlantationEstates18Source: 2015–2018 LeadingAge Ziegler 200 Publications186
COMMUNITY EXPANSION & REPOSITIONINGS:TRENDS 2014-2017 Repositioning dated units Conversion to private units*does not include those whodownsized SN Adding IL units Expanding amenities;investing in common areas Repositioning dated ILUs Carving out specializedmemory care units Largely in Assisted Living19Source: Ziegler Investment Banking (deals as of 7/31/17)19POST-RECESSION NEW ENTRANCE FEE LPCS An average of 4 new LPC locations financed annually since2009, versus 10 new campuses per year from 1610201591020Source: Ziegler Investment Banking (as of 12/31/18)20DRIVERS FOR NFP SENIOR LIVING CONSOLIDATIONComplexitiesof exitiesof ng ncialPressureReinvestmentRequirementsAccess toCapitalCompetitionAccess toCapitalFinancialPressureCompetitionAccess entsAbility toAttract TalentDiversifyService LinesAccess toCapitalComplexitiesof HealthcareAbility toAttract TalentGrowthCapitalDiversifyService Lines1990Source: Ziegler Investment Banking20002010Complexities ofHealthcareOccupancypressures Competition Higher pt. acuity Negative revenueimpact TODAY LeadershipTurnoverAs Boomer CEOsretire, can serveas catalyst toexplore affiliationCEO recruitmentchallenge forsmallerorganizations21217
NOT-FOR-PROFIT SPONSORSHIP TRANSITIONSCUMULATIVE DATACumulative Totals (2010-YE 2018) by # of Transactions & # of ns14920142015201620172018Market-Rate Communities22Note: Includes market-rate communities; excludes government subsidizedSource: Ziegler Investment Banking 12/31/201822SPONSORSHIP TRANSITION TRENDS Of the nearly 600 not-for-profit communities that havechanged owner/sponsor since 2010, roughly 54% havebeen dispositions to the for-profit sector–––Waiting too longLack of board strengthHeavy skilled nursing exposure We are seeing an increase in system affiliations/mergers “Merger of equals” trend is on the rise23Source: Ziegler Investment Banking; public sources23HOME & COMMUNITY-BASED SERVICES DEFINEDHome CareHomeHealthHospiceAdult DaySource: Ziegler Investment BankingPACEContinuingCare at HomeConciergeServicesAlternativeModels24248
HOME & COMMUNITY-BASED SERVICES REVENUELARGEST PROVIDERS OF HCBSTHOSE WITH REVENUE 5571543120414619838System NameTrinity Health Senior CommunitiesArchCareThe Evangelical Lutheran Good Samaritan SocietyConcordia Lutheran MinistriesMasonicareHolland HomeAscension Senior LivingPresence Life ConnectionsPresbyterian Villages of MichiganOhio LivingThe New Jewish HomeSpiriTrust LutheranNational Church ResidencesCovenant Retirement CommunitiesPresbyterian Homes and ServicesUnited Church Homes and ServicesLutheran SeniorLifeEcumenLutheran homes of South Carolina, Inc.WesleyLifeChelsea Jewish Lifecare, Inc.Acts Retirement-Services, Inc.Lutheran Social Ministries of New Jersey, Inc.Providence Life ServicesHebrew SeniorLife, Inc.Knute NelsonTransforming PANJILMAMNWAHCBS AnnualRevenue 50 million 50 million 50 million 50 million 50 million 50 million 50 million 50 million 25- 50 million 25- 50 million 25- 50 million 25- 50 million 25- 50 million 10- 24 million 10- 24 million 10- 24 million 10- 24 million 10- 24 million 10- 24 million 10- 24 million 10- 24 million 10- 24 million 10- 24 million 10- 24 million 10- 24 million 10- 24 million 10- 24 million Can be verymarket-specific Competition andstatereimbursementframework playsrole in growth 70% of providershave HCBSrevenue lessthan 10million25Source: 2018 LeadingAge Ziegler 200 Publication25ADVANCING THE COMMITMENT TO GROWTH NFP senior living organizations are increasingly creating strategy andbusiness development positions to drive growth and innovation initiativesCorporate Positions Added in Past YearNumber of LZ 200adding the positionChief Clinical/Health Officer18Business Development/Strategy Officer12Chief Information/Technology Officer9Marketing & Sales Officer8Regional Leadership Positions6Chief Financial Officer4Chief Operating Officer4Chief Talent/Human Resources Officer4Chief Compliance Officer3Philanthropy/Foundation Director3Estimatedthat roughly20% of LZ 200organizationshave allocateda full or halfFTE to thisroleSource: Ziegler Investment Banking; 2018 LeadingAge Ziegler 200 Publication2626PROVIDER EXAMPLES – COMPREHENSIVE SENIOR LIVING &SERVICES MODEL (HOUSING, SERVICES, AGE, INCOME)27279
NFP PROVIDER CASE STUDIES: GROWTHProviderType ofGrowthGrowth ExamplesActs RetirementCommunities (PA)HorizontalType-A, CCRC Organization; growththrough affiliations, expansions, newcampus development; eastern U.S.Holland Home (MI)Vertical &HorizontalSignificant expansion into HCBS (PACE,home care, hospice, Tandem 365, jointventures); campus expansionsBHI Senior Living (IN)HorizontalPrimarily a CCRC organization; growththrough affiliations and acquisitions; newdevelopment (satellite campuses)Concordia LutheranMinistries (PA)Vertical &HorizontalSignificant growth through acquisitions(both communities & home health, hospiceagencies)The RiverWoods Group(NH)HorizontalGrowth through development of satellitecampuses and new CCRCs; affiliationactivity as wellOhio Living (OH)Vertical &HorizontalAffiliation activity, expansions; significantHCBS platform; developing I-SNP planSource: Ziegler Investment Banking2828Section 2DISRUPTORS & CATALYSTS IN SENIOR LIVING29CATALYSTS & DISRUPTORS Older adults have more choices than ever– Multiple residential housing options– Ability to “age in place” in own home Workforce recruitment and retention pressures continue Healthcare payment reform is moving fast– Pressures on post-acute providers– Skilled nursing occupancies are at record lows– Vertical integration of healthcare providers may be a game changer Technology as a solution and stimulator of changeSource: Ziegler Investment Banking303010
VIEWING YOUR STAFF AS YOUR CUSTOMERTop 5 Areas of Concern for 2018Staff Recruitment & Retention Sheer numbers Boomersexiting the workforce; agingpopulation Minimum wage pressures Image problems with the sector Immigration policy Growth among for-profitproviders and agencies Workforce shortages impactingconstruction market79%Labor Costs (wages, benefits)75%Skilled Nursing/Post-AcutePressures47%Financial Performance46%Declining Reimbursement36%Capital Needs31%Affordability ofproduct/services29%Regulatory Changes28%Technology Costs & Adoption27%Competition26%Changing Consumer26%IL Occupancy23%Succession Planning8%Emergency Preparedness4%0%50%100%Source: Ziegler CFO HotlineSM, January 20183131OVERALL SENIORS HOUSING INVENTORYTotal Inventory of Market-Rate CommunitiesExcludes Freestanding Nursing Homes16,000Total number of 980198519901995For-Profit/Private Sector20002005201020152020Not-for-Profit SectorSource: Ziegler Investment Banking Estimates & Projections (August, 2018); based on sources from Ziegler as well asASHA, CMS, LeadingAge NIC, ASHANote: As of 2017, there were approximately 15,600 nursing homes in the U.S.3232FOR-PROFIT DEVELOPMENT SLOWING, BUT LEVELSREMAIN SIGNIFICANTConstruction vs. Inventory; MAP31Seniors Housing 4Q05 – 1Q1912%For-ProfitIndependent Living*10%For-Profit AssistedLiving*8%6%4%2%Not-for-Profits0%2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* Excludes CCRCsSource: NIC MAP Data Service www.nic.org/nic-map333311
SKILLED NURSING & POST-ACUTE DISRUPTION Occupancies at all-time lows nationally– Dramatically varies by state and market Shortages of caregivers impacting operations– Ability to staff to census– Some providers shutting down units– Rural areas significantly impacted (telehealth solution) Payment reform squeezing providers– Discharges to the home– Growing Managed Medicare Consumer preference to ‘age in place’34Source: Ziegler Investment Banking34UNRAVELING THE SKILLED NURSING MARKETPLACE Changing preferencesamong consumers to stayin AL or IL with services Future of private pay? “Skip the SNF” trend Decreasing LOS Referral networksnarrowing FP up-scale lPostacute/ShortStay35Source: Ziegler Investment Banking35SKILLED NURSING Some NFP communities exiting skilled nursing entirely, largelywestern U.S.– Replace with high acuity assisted living– Replace with home care and home health– Refer off-siteCCRC Providers Who Have Eliminated SNFSource: Ziegler Investment Banking363612
SENIOR LIVING & POST-ACUTE’S EMERGINGMANAGED CARE ROLESenior living operators increasingly empowered to take a lead role in US healthcare industryPressure onBroader SeniorLiving IndustryAging PopulationManaged Medicare& MedicaidExpansionSenior LivingOperators & RiskRelationshipsMomentum re:Senior Living andManaged CareShare of MedicareBeneficiaries InMedicare ManagedCare Plans37Source: Kaiser Family Foundation37PARTNERSHIPPERENNIAL CONSORTIUM3838TECHNOLOGY – CATALYST & DISRUPTORBrain FitnessConsumerEngagementChronic DiseaseManagementEMR PlatformsRemote MonitoringSmart HomeTechnologiesTelehealth SolutionsVoice Activation/AIWorkforce SolutionsInfrastructureSource: Ziegler Investment BankingWellness/Prevention393913
ZIEGLER LINK AGE FUNDSGENERATING RETURNS, both financial and strategic, for organizations across thehealthcare and aging services landscape that have a significant interest in finding innovativesolutions to improve the independence, quality and cost of care, and overall lives of the agingpopulation.SENIOR LIVING PROVIDERSHEALTH SYSTEMSHEALTHCARESERVICESHEALTHCAREIT Population AnalyticsClinical Decision SupportCare Management SoftwareRegulatory ReportingMedication Management andAdherence Remote Monitoring Telehealth Platforms Homecare 2.0Palliative and Hospice CareCapitated Physician ModelsConcierge MedicineBehavioral ChangeManagement Emerging Managed CareModelsINDUSTRY PROFESSIONALSOTHER POST-ACUTEOR AGING RELATED Post-Acute Care Diagnosticsand Therapeutics Medicare Advantage / DualEligible Plans Chronic DiseaseManagement Institutional Pharmacy40Source: Ziegler Investment Banking; Ziegler Link Age Funds40SCANNING THE TECH-ENABLED & SENIORSERVICES ECOSYSTEM1,200companiesSourcing of CompaniesInitial EngagementAssessment & VettingCurating theRelationshipInvestment23companiesSource: Ziegler Investment Banking4141ZIEGLER LINK AGE FUNDSDEMO THURSDAY PROGRAMS ZLF INVESTMENTSA key goal of our Funds is to foster collaboration between our limited partners and ourportfolio companies, and introduce limited partners to new technologies and services.Since launching our first fund, Ziegler Link Age Longevity Fund, the InvestmentManagers have Sponsored 80 demonstrations of new technologies and services for senior care providers Helped arrange 30 pilot programs/customer relationships between our limited partnersand portfolio companies or companies conducting demonstrationsSource: Ziegler Investment Banking; Ziegler Link Age Funds424214
Item 3THE CHANGING ROLE OF THE NFP SENIOR LIVING BOARD43EXAMPLES OF NFP SENIOR LIVING ORGANIZATIONSWHO HAVE EVOLVED GOVERNING BOARDS4444SENIOR LIVING GOVERNANCE TRENDSSmaller boardsFewer standing committeesMore adaptable structures/proceduresFewer meetingsGreater delegation to managementVigilant monitoring of key performanceindicatorsSource: Rick Stiffney, Mennonite Health Alliance, 2017454515
SENIOR LIVING GOVERNANCE TRENDS (CONTINUED)Greater engagement in strategic/generative workGreater diversification on boardsMonitoring of progress on strategicpriorities/More rigorous board-driven evaluationand growthSource: Rick Stiffney, Mennonite Health Alliance, 20174646ADDITIONAL DISCUSSION / Q&A47ABOUT ZIEGLER Ziegler is a privately-held investment bank, capital markets and proprietaryinvestments firm A registered broker dealer with SIPC & FINRA Ziegler provides its clients with capital raising, strategic advisory services, equity &fixed-income trading and research Founded in 1902, Ziegler specializes in the healthcare, senior living and educationalsectors as well as general municipal finance484816
DISCLAIMERSInvestment banking, capital markets and proprietary investment services offered through B.C. Ziegler and Company. FHAmortgage banking services are provided through Ziegler Financing Corporation which is not a registered broker/dealer.Ziegler Financing Corporation and B.C. Ziegler and Company are affiliated and referral fees may be paid by either entity forservices provided.This presentation was prepared based upon information provided by Management and contains certain financialinformation, including audited and unaudited information, certain statistical information and explanations of such informationin narrative form (the “Information”). Management believes this information to be correct as of the date or dates containedherein. However, the financial affairs change constantly, and such changes may be material. Today’s discussion maycontain forward-looking statements, which may or may not come to fruition depending on certain circumstances, includingthose outside the control of management. Please be advised that management has not undertaken, assumed no duty andare not obligated to update the Information. In addition, please be advised that past financial results do not predict futurefinancial performance.494917
Sources: Ziegler National CCRC Listing & Profile (Jan. ‘19), LeadingAge, NIC MAP Data and Analysis Service (Q4 2017), 14 The National Center for Health Statistics, Centers for Medicare and Medicaid Services (2015), Ziegler population estimates TODAY’S RETIREMEN
