Capital Sources and Alternative Financial Structures in Seniors Housing Moderator: Mercedes Kerr – Senior Vice President - Marketing, Health Care REIT Speakers: Margaret Scott – Chief Investment Officer, Belmont Village Senior Living Kathryn Burton Gray – Senior Managing Director, RED CAPITAL GROUP Beth Mace – Director, AEW Capital Management

•  Fully integrated developer, owner and operator of 21 !rst-rate seniors housing communities in seven states.

•  Founded in 1997. Privately held with long history of partnering with institutional equity providers.

•  Currently operate over 2,800 units with 2,000 employees. Monthly rentals only, no large entrance fees. Portfolio occupancy: +92%

•  Serves top tier of private pay segment exclusively; sites are chosen in mature submarkets with high income and home values, and with substantial barriers to entry.

•  Focus on municipalities with strict zoning and approval processes. Purpose-built, institutional grade, non-combustible construction. Three new projects currently in development.

Belmont Village Senior Living

Belmont Operating Program

Assisted Living Healthy, but frail Selected activities Daily living support Need-driven Private pay

Independent Living Active, mobile Lifestyle activities No support Private pay

Continuing Care Retirement Communities (for sale)

Memory Care Cognitive impairment Specialized care required Mild to medium acuity Private pay

Belmont Village Communities (for rent)

•  Focus on independence through support services

•  On-site wellness, supervised !tness and rehabilitation services

•  Engaging social/intellectual activities

•  Concierge and transportation services

•  Medication management

•  24/7 nurses, all Belmont Village employees (no contract nurses)

•  Innovative Memory Programs: Circle of Friends®

•  Large buildings: 150 units on average. Fully licensed even with IL

•  Institutional grade construction: I-2, steel and concrete

•  NFL-designated provider

•  Ongoing company-sponsored university research for key programs

- Hospitality (Hilton College of Hotel and Restaurant Management, U of H) - Memory care (UCLA, Vanderbilt)

Belmont Village Westwood (Los Angeles), 176 units

What Makes Belmont Different?

Company Overview •  RED CAPITAL GROUP, LLC has provided over $52 billion of integrated debt and equity capital since 1990 to the

multifamily, affordable and student housing industries, and seniors housing and health care communities through three operating companies.

•  Headquartered in Columbus, Ohio, RED is a subsidiary of ORIX USA Corporation and employs approximately 180 people across ten offices nationwide.

Office  Loca)ons  

Columbus,  OH  Annapolis,  MD  Charlo:e,  NC  Chicago,  IL  Dallas,  TX  Dana  Point,  CA  Fairfield,  CT  Reston,  VA  Salem,  OR  San  Diego,  CA  

Operating Companies Red Mortgage Capital, LLC

•  A leading Fannie Mae DUS® and MAP- and LEAN-approved FHA lender with a mortgage servicing portfolio of more than $16 billion. Recognized by the Mortgage Bankers Association as the #1 Originator for FHA/Ginnie Mae loans in 2012 providing 231 FHA loans totaling $2.176 billion and as a Top 5 Health Care Lender with $826 million funded into the sector.

Red Capital Markets, LLC (MEMBER FINRA/SIPC)

•  A leader in the distribution of Fannie Mae and Ginnie Mae Project MBS providing structuring, underwriting, placement and advisory services for tax-exempt and taxable housing and health care bonds.

Red Capital Partners, LLC

•  Provides proprietary debt and equity solutions and asset management in a range of forms including subordinated gap and bridge loans.

Structure and Services

RED CAPITAL GROUP, LLC

Mortgage Banking Red Mortgage Capital, LLC

Investment Banking Red Capital Markets, LLC

Member FINRA/SIPC

Proprietary Banking Red Capital Partners, LLC

•  Fannie  Mae  DUS®  Loans  

•  FHA  Insured  Mortgage  Loans  

•  GNMA  Seller/Servicer  

•  Loan  Servicing  &    Asset  Management  

•  GNMA  and  Fannie  Mae  MBS  Distribu)on  

•  Tax-­‐Exempt  Bond  Underwri)ng  and  Distribu)on  

•  Remarke)ng  of  VRDNs  

• Mortgage  Banking  Services  

•  Bridge  Loans  

•  Gap  Financing  

• Mezzanine  Capital  

•  Second  Mortgages  

•  High  LTV  First  Mortgages  

•  Non-­‐mortgage  Secured  Subordinated  Project  Capital  

AEW Seniors Housing Experience

•  Since 1997, AEW has acquired, repositioned and/or developed approximately 12,277 seniors housing units with a gross property value of approximately $1.9 billion1

•  Firm-wide, AEW seniors housing investments have generated an inception-to-date gross IRR of 23%, a net IRR of 22%, and a 2.4x equity multiple2

•  Broad platform with experienced seniors housing team

•  Proprietary research data

•  Strong relationships with seniors housing operators and lenders

•  Currently, AEW manages approximately 5,029 seniors housing units

 1As  of    December  31,  2012  2Realized  gross  IRRs  are  leveraged,  investment-­‐level  returns  calculated  using  actual  cash  flows  over  the  en)re  holding  period  and  are  gross  of  management  fees  and  partnership  expenses,  and  do  not  reflect  fund  level  promote.    Realized  net  IRRs  are  leveraged,  investment-­‐level  returns  calculated  using  actual  cash  flows  over  the  en)re  holding  period  and  are  net  of  an  implied  175bps  total  fee  load.    The  total  fee  load  is  based  on  a  125  bps  management  fee  on  invested  capital  over  a  seven-­‐year  hold  and  an  acquisi)on  fee  of  75  bps  on  gross  purchase  price.  The  realized  equity  mul)ple  is  calculated  by  dividing  the  investment’s  total,  since  incep)on  distribu)ons  and  the  residual  sales  proceeds  to  the  fund  by  the  investment’s  total,  since  incep)on  contribu)ons  by  the  fund.      Past  performance  is  not  indica)ve  of  future  results  

Health Care REIT, Inc. (HCN)

•  Portfolio spans the full spectrum of health care real estate, including seniors housing, medical office buildings, inpatient and outpatient medical centers, and life science facilities.

•  $3.7 billion of $4.9 billion in investments over the last 4 quarters represents business with existing relationships

Founded 1970

Corporate Headquarters Toledo, OH

Enterprise Value(1) $28.4 billion

Number of Employees 366

Credit Rating Baa2/BBB

Dividend Yield(1) 4.2%

YTD Total Return(1) 21.4%

(1)  KeyBanc Leaderboard report 4/26/2012

Recent Highlights

•  Sunrise Senior Living acquisition •  $4.3 billion investment •  125 communities; approximately 10,000 units •  Largest transaction in HCN history

•  Chartwell Seniors Housing REIT partnership •  $503 million investment •  42 communities; approximately 8,200 units •  Expansion into Canada through partnership with largest Canadian seniors housing provider

•  Seniors Housing portfolio: 58,000 units

International Portfolio Highest Quality Real Estate

•  1025 properties in 46 states, Canada, and UK (1)

•  Seniors Housing (NNN) – 321

•  Skilled Nursing Facilities – 252

•  Medical Office Buildings – 222

•  Seniors Housing (Operating) – 193

•  Hospitals – 30

•  Life Science – 7

(1)  HCN 2012 Q4 Supplement

Capital Sources and Alternative Financial Structures in Seniors Housing

Transaction Market For Seniors Housing

After 2011 when $27 billion of trades occurred, transaction volumes slowed in 2012 to $9.6 billion Approximately 3.2% of the investment-grade seniors housing and care market traded in 2012, compared with 10% in 2011

Fewer Large Portfolios Have Been Traded in 2012/2013

Portfolio transactions dominated the market in 2011, less so in 2012  

Occupancies Projected To Improve Further

SENIORS HOUSING ANNUAL SUPPLY/DEMAND (%), MAP31

Favorable market fundamentals will push occupancy rates higher and put upward pressure on rents

 

Source: NICMAP, AEW Research

80%  

82%  

84%  

86%  

88%  

90%  

92%  

94%  

96%  

98%  

100%  

 (2,000)  

 (1,000)  

 -­‐        

 1,000    

 2,000    

 3,000    

 4,000    

 5,000    

 6,000    

2006   2007   2008   2009   2010   2011   2012   2013  

Availability  

Squa

re  Feet  (000s)  

Net  AbsorpCon   CompleCons   Occupancy  

Where Does the Economy Stand?

Positives for the Economy Negatives for the Economy

Housing Recovery – Starts & Prices Tax Increases at Start of Year

Growth in Energy Sector Sequester Spending Cuts

Tech Recovery/Expansion European Debt Crisis (Again)

Deleveraging Households Geo-Political Tensions (e.g. Syria, North Korea, Iran, etc.)

Positives for Property Negatives for Property

Very Little New Construction Slowly Recovering Occupancy

Rising Development Costs Rising Operating Costs (e.g. Insurance)

Strong Capital Flows Strong Capital Flows

Deleveraging Property Sector Lots of Re-Financing Still to Come

How Long Until We Return to Prior Peak?

U.S. TOTAL EMPLOYMENT (THOUSANDS)

Source: BLS, Moody’s Economy.com

U.S. economy has recovered 5.7 million jobs since February 2010 Job growth has averaged 187,000 jobs per month over past six months At this pace, all of the jobs lost in the past recession would not be recovered until second half of 2014

128,000  

130,000  

132,000  

134,000  

136,000  

138,000  

140,000  

Dec-­‐06  

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Dec-­‐15  

200,000  per  month   150,000  per  month  

So When Does the Easy Money Window Close?

What Rising Rates Might Look Like

INTEREST  RATES  (%)  

Source:  Moody’s  economy.com  

0  

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11  

Dec-­‐89  

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Baa  Corporate  Yield   10  Year  Treasury  Yield   Fed  Funds  Rate  

Where Do Operators Find Capital?

Sources of Capital for Seniors Housing include Debt and Equity Capital Debt Capital: • Fannie Mae and Freddie Mac • HUD • Commercial Banks • Commercial Finance Cos. • Tax Exempt Financing Equity Capital: • Private Equity • Public Companies • Public and Private Health Care REITS

Public Equity Investments Public Debt Investments

Private Debt Investments Private Equity Investments

Public

Private

Equity Debt

Capital Sources and Alternative Financial Structures in Seniors Housing Moderator: Mercedes Kerr – Senior Vice President - Marketing, Health Care REIT Speakers: Margaret Scott – Chief Investment Officer, Belmont Village Senior Living Kathryn Burton Gray – Senior Managing Director, RED CAPITAL GROUP Beth Mace – Director, AEW Capital Management