Diversified Healthcare Trust

Good morning and welcome to the Diversified Healthcare Trust fourth quarter 2024 earnings 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 telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Matt Murphy, Manager of Investor Relations. Please go ahead.

Good morning. Joining me on today's call are Chris Bellotto, President and Chief Executive Officer, Matt Brown, Chief Financial Officer and Treasurer, and Anthony Paula, Vice President. Today's call includes a presentation by management, followed by a question and answer session with sell-side analysts. Please note that the recording and retransmission of today's conference call is 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, February 26, 2025. 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, net operating income, or NOI, and cash basis net operating income, or cash basis NOI. A reconciliation of these non-GAAP measures to net income is available in our financial results package, which can be found on our website at www.dhcre.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. And finally, we will be providing guidance on this call, including NOI. We are not providing a reconciliation of these non-GAAP measures as part of our guidance because certain information required for such reconciliation is not available without unreasonable efforts or at all, such as gains and losses or impairment charges related to the disposition of real estate. With that, I would now like to turn the call over to Chris.

Thank you, Matt, and good morning, everyone. Thank you for joining our call. Before I begin, I would like to welcome Anthony Paula as DHC's Vice President. Anthony is also a Vice President of the RMR Group, where he is responsible for the accounting, SEC reporting, and corporate financial functions for DHC. Welcome, Anthony. I will begin by providing a high-level review of DHC's strong fourth quarter and year-end financial and operating results, as well as an update to the progress and timing of our key strategic initiatives. Then, Anthony will provide more detail to our fourth quarter financials. And finally, Matt will review our liquidity, financing activities, CapEx, and our 2025 guidance outlook. After the market closed yesterday, DAC reported total revenues of $379.6 million for the fourth quarter, which was a 5% year-over-year increase, and normalized FFO of $5.3 million, or two cents per share, which exceeded consensus estimates. Turning to our shop sector performance, DHC ended the fourth quarter on a high note by reaching 80% shop occupancy for the first time since the first quarter of 2020. On a year-over-year basis, DHC achieved a 56% improvement in shop NOI, a 7.3% increase in shop revenues, and a 6.7% improvement in average monthly rate, resulting in margin expansion of 250 basis points. These positive trends show a growing momentum and are the result of a dedicated asset management team throughout 2024. REV4 increased year-over-year by 6.7%, primarily driven by increases in levels of care services and a reduction in discounts and concessions. Expense4 increased by 3.9%, primarily driven by salary and wages, general maintenance, and certain one-time impacts due to weather events and community closure. Overall, we are pleased with the progress and remain bullish on the outlook within the segment going into 2025. Turning to our medical office and life science portfolio performance. During the quarter, we completed approximately 112,000 square feet of new and renewal leasing activity with weighted average rents that were 6.9% higher than prior rents for the same space and a weighted average lease term of 6.5 years. Same-store occupancy was flat at 90.2%. As we look ahead, roughly 7.9% of our annualized revenue in this portfolio is scheduled to expire through year-end 2025. As mentioned last quarter, our largest known vacate during this period is with a tenant whose expiration is in the first quarter of 2025 and located in St. Louis, Missouri, occupying close to 233,000 square feet, or 2.3% of annualized revenue. This property is currently being marketed for sale. Further known vacates in 2025 are expected to be tempered for the MOB and life science portfolio, and we have an active lease pipeline of over 400,000 square feet, of which over 117,000 square feet is new absorption. Our pipeline includes an average lease term of 7 to 10 years and a trending rent roll-up in the double digits. Our leasing activity and the strategic disposition of certain assets will help further drive performance of this portfolio. Turning to our key strategic initiatives. We completed the fourth quarter with proceeds of $6.6 million from the sale of a mostly vacant office building. In the first quarter of 2025, we completed property sales close to $179 million, which included the sale of our Muse Life Science Campus in San Diego for $159 million, or $855 per square foot. Also in the first quarter of 2025, we received a cash dividend of $17 million derived from our pro rata 34% ownership stake in Alaris Life. The dividend resulted from strong overall performance improvement at Alaris, including the sale of the Agility business in 2024. This reflects a favorable return from our investment of $15.5 million made in 2024. Looking forward with marketing efforts of certain properties. Within our shop segment, we have 34 communities that are in various stages of the disposition process. Currently, we have signed turn sheets with five of these communities for proceeds of $68 million, which we are targeting to close by the end of the second quarter. The balance of marketed communities are in various stages of the sale process, and we expect these will close over the next few quarters. Collectively, we still expect that the disposition communities will transact in the range of $55,000 to $65,000 per unit. As a reminder, removing these properties that are for sale from our shop portfolio will also enable us to focus our capex into our highest ROI communities, creating positive earnings momentum for our remaining portfolio. In fact, removing the shopped assets that we're in the process of selling would have improved our fourth quarter NOI by $2.3 million, margin by 180 basis points, and occupancy by 60 basis points. With respect to our triple net lease senior living communities, we expect to close on the previously announced sale of 18 communities within the next week for $135 million or $154,000 per unit. Outside of our shop and triple net activity, we are actively marketing six MOB life science properties for estimated proceeds of $35.2 million. We also wanted to provide an update on our refinancing strategy. Currently, we have signed three term sheets and one term sheet in final stages of negotiation for $340 million in anticipated loan proceeds. Along with our cash position of $145 million, proceeds from dispositions to date, and $77 million of unencumbered assets under agreement for sale, we are well positioned to address the 25 debt majorities. Regarding our zero coupon bonds maturing in 2026, We have begun the pay down process with proceeds of $301 million from asset sales, including MUSE, which closed in January, and the Brookdale portfolio, which we expect to close within the next week. As stated in last quarter's call, we are continuing with the top to bottom analysis of our portfolio to ensure we have the right mix of assets and operators. An outcome we expect will position DHC to benefit from stronger liquidity and position the company for further NOI growth. Now I would like to turn the call over to Anthony.