Diversified Healthcare Trust

Good day and welcome to the Diversified Healthcare Trust Third Quarter 2020 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I'd now like to turn the conference over to Michael Kodesh, Director of Investor Relations. Please go ahead.

Thank you. Welcome to Diversified Healthcare Trust Call covering the third quarter 2020 results. Joining me on today's call are Jennifer Francis, President and Chief Operating Officer, and Rick Seidel, Chief Financial Officer and Treasurer. Today's call includes a presentation by management, Chief Operating Officer, and Rick Seidel, Chief Financial Officer, and Treasurer. Today's call includes a presentation by management followed by a question and answer session, Diversified Healthcare Trust, or DHC. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based upon DHC's present beliefs and expectations as of today, Thursday, November 5th, 2020. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call, other than through filings with the Securities and Exchange Commission, or SEC. In addition, this call may contain non-GAAP numbers, including normalized funds from operations, or normalized FFO, EBITDA, EBITARM, and cash basis net operating income, or cash basis NOI. Reconciliations of net income or loss attributable to common shareholders to these non-GAAP figures and the components to calculate AFFO, CAD, or FAD are available in our Supplemental Operating and Financial Data Package found on our website at www.dhcrete.com. Actual results may differ materially from those projected in any forward-looking statements. Additional information concerning factors that could cause those differences is contained in our filings with the SEC. Investors are cautioned not to place undue reliance upon any forward-looking statements. Now, I'd like to turn the call over to Jennifer.

Thank you, Michael, and good morning. Welcome to Diversified Healthcare Trust's third quarter 2020 earnings call. In the quarter, we saw the continuation of the COVID-19 pandemic and its significant effect on our senior housing operating portfolio. As we see increased new cases in the United States, We're appreciative of the steps that our operator has taken to ensure the ongoing safety and well-being of the residents and employees in these communities. I'm pleased that our intentional diversification of our holdings to include a large medical office and life sciences portfolio and steps taken earlier in the year to enhance liquidity have helped us to withstand the challenges that the senior living industry is facing during these unprecedented times. In the third quarter of 2020, DHC's normalized FFO attributable to common shareholders was $13.2 million, or six cents per share, representing an 18 cent per share decrease from the second quarter, largely driven by the pronounced effects of COVID-19, and more specifically, its impact to our shop segment results. Before moving to a discussion of our broader portfolio results, I'd like to spend time this morning addressing this sequential quarter-over-quarter decline, as well as what we're doing to manage through this challenging environment and the associated costs. One of our highest priorities remains the health and well-being of the residents and employees at our senior living communities. Our manager has worked tirelessly to control the spread of the virus and is taking all of the necessary steps to safeguard residents. As of October 31st, 1% of our residents had active cases of COVID-19. While over 92% of our resident population has not contracted COVID-19 since the onset of the pandemic. And 67% of those who have tested positive during the pandemic have since recovered as defined by the CDC guidelines. Our operators systemwide COVID related protocols have translated to increases in medical supply expenses of roughly $3 million over the second quarter. In addition to residents, frontline workers have not been immune to the effects of the virus. COVID-related testing and medical care during the third quarter drove community-level employee health care costs up approximately $8.7 million over the second quarter. Also, as a reminder, we recognized a $7.3 million benefit in the second quarter related to the CARES Act and recognized none in the third quarter. In total, these three COVID-related line items account for an approximate $19 million decrease in normalized FFO from our shop segment, or $0.08 per share when compared to the second quarter. We expect the expense pressures to persist in the near term and to dissipate as the pandemic wanes. In the past, we've seen that sacrificing rate for occupancy has led to long-term revenue deterioration. Now with our support, Five Star remains committed to optimizing revenue rather than managing to occupancy. While we acknowledge that a commitment to this strategy may weigh on near-term results, we believe will be better positioned in the future compared to communities that are offering material rent reductions in order to grow occupancy. Five Star is currently working with additional referral sources to attract new residents to grow occupancy without undermining rate. We've seen a resulting 35% increase in leads in the third quarter, with conversion rates consistent with pre-pandemic rates. Third quarter move-ins increased 31% over the second quarter, though move-outs exceeded move-ins. The impact of this COVID-19-related occupancy loss resulted in same-property shop portfolio revenues that were down $13 million from the second quarter, or approximately $0.05 per share in normalized FFO. Same-property revenues were down 11.6% from the prior year, driven by a decline in average occupancy to 76.3%, partially offset by a 20 basis point increase in rate. Sequentially, same property shop average occupancy was down 355 basis points, or approximately 27 basis points per week. Looking ahead, we expect operational headwinds to persist. While 97% of our managed communities are currently open for admissions, the majority of residents moving into our communities today are largely needs-based, although we believe there is pent-up demand from those seniors that are deferring their move-in decisions. Turning to our office portfolio segment, as of the third quarter, DHC's office portfolio segment contained approximately 11.6 million square feet, comprised of just over 7 million square feet of medical office buildings and 4.6 million square feet of life science properties, with a weighted average remaining lease term of six years and same property occupancy for the quarter of 93.3%. As I mentioned last quarter, leasing volume slowed considerably in the second quarter. During the third quarter, we were pleased to see leasing activity increase, and we entered into 202,000 square feet of new and renewal leases with 4.1% roll-up in rents, a weighted average lease term of seven years, and with leasing costs of approximately $3.51 per square foot per year. Of note, we signed our first lease at the Torrey Pines Redevelopment during the third quarter for approximately 23,000 square feet at close to a 20% roll-up from prior rents. We have a strong leasing pipeline of prospects for this asset and we're scheduled for completion of the project in the fourth quarter. Looking at our office portfolio results compared to the second quarter, same property, cash basis NOI decreased $2.1 million or 3.8%. This decrease in NOI was primarily COVID related. $600,000 of the decrease was bad debt, most of which was for six tenants. Three were retail tenants in the Seaport District of Boston, and three were medical office tenants in Washington, D.C. and Los Angeles. These tenants are in three of our strongest buildings in good markets, and we feel confident that we'll be able to backfill these spaces if we need to. Approximately $1.5 million of the NOI decrease was related to utilities, while we also experienced increases in cleaning and other operating expenses as tenants began returning to our buildings. While utilities were seasonally higher relative to the second quarter, there were additional COVID-related utilities expenses in the third quarter driven by greater use of HVAC systems to filter air and provide for safer office environments. These decreases were partially offset by a $700,000 increase in parking over the second quarter, as use of our garages in the Seaport District of Boston and at the Cedars-Sinai Medical Office property increased as utilization of space in those buildings increased. During our second quarter call, we reported that DHC had granted rent deferrals equal to $2.4 million in the office portfolio segment as of August 3rd, representing only 0.6% of the annualized revenue from this segment. As of November 2nd, deferrals have fallen by just under $600,000 to $1.8 million, or 0.5% of annual revenues. as a result of renegotiation of a number of leases that were renewed for additional term in exchange for some form of deferral. As previously mentioned, our Wellness Center portfolio, which represented 3.8% of third quarter NOI, had one tenant default at the start of the second quarter. We continue to work with this tenant on its arrearage and its plan to become current on rent. Our TripleNet Senior Living portfolio, which represented 9% of our third quarter NOI, continues to perform. There have been no new rent deferrals outside of the partial rent deferral granted for one tenant that was announced during our first quarter call. These properties had rent coverage of 1.63 times in aggregate as of the second quarter of 2020, compared to 1.66 times in the first quarter. Since the beginning of the third quarter, we completed at $61.4 million of asset sales, bringing our disposition total to approximately $390 million since the program began. Today, we have properties under agreement to sell with negotiated proceeds totaling approximately $167 million. I'll now turn the call over to Rick to provide details on our financial results.