Diversified Healthcare Trust

Good morning and welcome to the Diversified Healthcare Trust second quarter 2023 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Melissa McCarthy, Manager of Investor Relations. Please go ahead.

Good morning, and welcome to Diversified Healthcare Trust's call covering second quarter 2023 results. Joining me on today's call are Jennifer Francis, President and Chief Executive Officer, and Rick Seidel, Chief Financial Officer and Treasurer. Today's call includes a presentation by management, followed by a question and answer session with sell-side analysts. I would like to note that the recording and retransmission of today's conference call are strictly prohibited without the prior written consent of the company. 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 beliefs and expectations as of today, Wednesday, August 2nd, 2023. 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, Net Operating Income, or NOI, and Cash Basis Net Operating Income, or Cash Basis NOI. Reconciliations of net income or loss to these non-GAAP figures are available in our financial results package, which can be found on our website at www.dhcreit.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 findings 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, Melissa, and good morning. Thank you for joining us on DHC's second quarter 2023 conference call. On today's call, we'll provide an update on DHC's merger with Office Properties Income Trust, or OPI, and on our operational and financial results. Two weeks ago, we filed a registration statement with the SEC and then scheduled a special meeting of shareholders on August 30th, 2023, where our shareholders will be asked to vote on proposals to approve the merger. With shareholder approval, we expect to close the transaction shortly thereafter. We continue to believe this merger represents the best opportunity available to create long-term value for DHC shareholders through a larger, more diversified REIT. With more than $700 million of debt coming due in 2024 and being out of compliance with our debt and current covenants, DHC continues to face steep challenges in the coming year. As discussed in our monthly business updates, the turnaround of our senior housing operating portfolio is inconsistent unpredictable, and has not occurred fast enough and will not occur in time to address these challenges. Further, as things stand, DHC has insufficient liquidity to fund the capital investments needed to continue the turnaround underway in our shop segment. As a result of these operating challenges, we do not believe we will be able to increase DHC's current annual dividend of $0.04 per share until 2025 at the earliest. Following the completion of the merger, the combined company will immediately be in compliance with its debt covenants, allowing access to multiple capital sources to continue to fund the shop turnaround and address upcoming debt maturities. The merger will be immediately accretive to our leverage, as well as normalized FFO and CAD. In addition, the pro rata annual dividend of the combined company represents a 267% immediate increase for DHC shareholders. BHC will also gain access to OPI's diverse portfolio of high-quality assets and strong tenant base. During the second quarter, OPI began implementing its financing strategy for the merger and has closed on more than $108 million in mortgage financing, with an aggregate implied cap rate of 7.5% on the appraised value of the properties. Considering today's tight credit market, OPI's ability to finance these properties underscores the quality of the OPI portfolio. We believe the merger is the best available alternative for DHC shareholders to preserve and create long-term value. Now, turning to our second quarter results. After market closed yesterday, DHC reported normalized SFO of $0.05 per share for the second quarter, improving $22.5 million from last year. the improvement was largely attributable to improvements in our shop segment. Total shop occupancy increased 420 basis points year-over-year to 77.8 percent, and average monthly rates increased by 7.3 percent, resulting in an increase in shop NOI of $16.4 million over the same period. New supply and construction starts are at record low levels as construction costs remain high and financing availability is limited. which should aid in our shop recovery. A driving factor of that recovery is our capital investment plan, aimed at increasing occupancy and rate through completing high-return yielding projects to reposition our communities in their markets. We're beginning to see the initial benefits of our investments through increased occupancy and rate and a 5.7% reduction in repair and maintenance expenses year over year, a direct result of these completed projects. Margins in our shop segment increased by 540 basis points over the prior year and 180 basis points sequentially. Although shop operating performance reflects progress over prior year results, the performance improvement has flattened during the quarter as our operators confront materially higher costs and insurance that we expect will weigh on future financial results. As a result, we expect results for the second half of 2023 SHOP NOI will be approximately equal to the first half of 2023, with no real growth during the second half of the year, and we do not believe we will be able to regain debt covenant compliance before mid-2024 at the earliest. Turning to our office portfolio segment, in our same property office portfolio, Rental income increased 3.3% and cash basis NOI increased 5.3% compared to the second quarter of last year. We ended the quarter at 93% occupancy in this portfolio. Leasing activity in our total office portfolio segment increased since the first quarter. 324,000 square feet of new and renewal leases were signed in the quarter with average roll-up in rent of 1.3% and a weighted average lease term of 6.9 years. We ended the quarter with a leasing pipeline of more than 700,000 square feet. Subsequent quarter end, 58% of this pipeline or 406,000 square feet of leases were either signed or are in LOI stage with leases being negotiated. Our office portfolio segment, comprised of approximately 8.8 million square feet of high-quality medical office and life science properties, remains stabilized and well-occupied with a strong tenant base. OPI's portfolio is comprised of well-occupied properties with a high proportion of investment-grade tenants. Its buildings are well-located office buildings that are more likely than those in the average office building portfolio to prosper in a generally weaker office market environment. The merger results in a combined portfolio with greater scale and diversity with approximately $2.1 billion of total gross assets, 533 properties in 40 states and Washington, D.C. I'll now turn the call over to Rick, who will provide more detail on our financial results.