Diversified Healthcare Trust

Good morning and welcome to the Diversified Healthcare Trust First Quarter 2025 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 touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the call 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, Tuesday, May 6, 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.dhcreed.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. I will begin by providing a high-level review of DHC's solid first quarter results, as well as an update to the progress and timing of our key strategic initiatives. Then, Anthony will provide more detail regarding our first quarter financials and CapEx. And finally, Matt will review our liquidity and financing activities before providing an update on our 2025 guidance. After the market closed yesterday, DHC reported total revenues of $386.9 million for the first quarter, which was a 4% increase over last year. Adjusted EBITDA RE was $75.1 million, up 17% year-over-year, and normalized FFO was $14.3 million, or 6 cents per share, both of which exceeded the analyst consensus estimate. In addition to these solid year-over-year results, We have made significant progress so far in 2025, addressing our upcoming debt maturities, while also delivering the balance sheet through the completion of $332 million in asset sales. Turning first to our shop sector performance. DHC experienced a meaningful improvement within its shop segment as same-property NOI came in at $38.4 million, a 33.6% increase sequentially, and a 42.1% increase year-over-year. On a consolidated basis, average monthly rate increased 4.8% year-over-year, and occupancy increased 130 basis points to 80.2%, resulting in a 6.5% increase in shop revenue. Importantly, shop NOI margin improved 320 basis points year over year to 11.2% on a consolidated basis and to 12.9% on a same property basis. In addition, our 115 same property five-star managed communities posted an NOI margin of 14.6%. REV4 increased year-over-year by 4.8%, primarily driven by annual rate increases, substantial increases in shop care level pricing, and a reduction in discounts and concessions at fully occupied properties. Expense 4 increased by 2% due to merit increases in filling open positions, offset by a reduction in contract labor usage, and a decrease in our annual insurance premium. Overall, we continue to be pleased with the progress we are making controlling costs, and we remain bullish on the outlook within the shop segment throughout 2025. Turning to our medical office and life science portfolio. During the quarter, we completed approximately 145,000 square feet of new and renewal leasing activity with weighted average rents that were 18.4% higher than prior rents for the same space and a weighted average lease term of 10.2 years. Same property occupancy was 90.1%, down 10 basis points from the fourth quarter. As we look ahead, 4.7% of annualized revenue in our MOB and Lifesign portfolios scheduled to expire through year-end 2025. As previously noted, we had one large known vacate in the first quarter in St. Louis, Missouri, occupying 233,000 square feet. We have marketed this non-core property for sale and entered into an LOI with a buyer. Known vacates for DHC's medical office building and life science portfolio in 2025 are modest at 115,000 square feet, and we have an active leasing pipeline of 603,000 square feet, of which 152,000 square feet is new absorption. Our pipeline includes an average lease term of approximately eight years and a trending rent roll-up in the double digits. Turning to our key strategic initiatives. The $321 million of property sales we completed in the first quarter largely consisted of the MUSE Life Science Campus in San Diego for $159 million, and 18 triple net senior living communities leased to Brookdale for $135 million. Net proceeds from the MUSE and Brookdale, as well as one smaller MOB sale, totaled $299 million, which was used to partially pay down DHC's zero coupon note due in 2026. In March, DHC closed on $140 million mortgage financing secured by 14 senior living communities with an appraised value of $164,000 per unit. And in April, we closed on a 10-year fixed-rate Freddie Mac mortgage financing for $109 million secured by seven senior living communities valued at $199,000 per unit. In April and May, DHC is using $280 million in financing proceeds and cash on hand to further pay down our senior unsecured notes due in June, 2025. Looking forward with marketing efforts of certain properties. As of quarter end, our active disposition pipeline included 65 properties of which 30 are MOB life science and wellness properties totaling 2.3 million square feet and 35 properties are roughly 2,600 units within our shop portfolio. This includes previously communicated asset sales, along with the addition of 25 predominantly non-core MOB life science and wellness center assets, valued at approximately $190 million. We estimate the combined asset sales will produce proceeds between $350 and $400 million, of which approximately $125 million is collateral for our 2026 maturity. We expect these asset sales will transact over the next several quarters. Concurrently, we are under agreements with letters of intent with 19 of these properties for $116 million, which includes 15 non-core shop communities and four MOB life science assets. And since the first quarter, we have sold one shop community for $11.2 million. These asset sales should materially enhance the portfolio's future performance, given that it will have a higher concentration of well-positioned shop assets, complemented by a portfolio of best-in-class triple net MOV and life science properties. In addition to deleveraging our balance sheet, we expect to see a reduction in our future year capex spending, thereby allowing us to increase overall portfolio cash flow and strategically allocate capital to the highest ROI opportunities. Before I turn the call over to Anthony, I would like to highlight the recent publication of the RMR Group's Annual Sustainability Report, which offers a comprehensive overview of our manager's commitment and progress in addressing sustainability. Investors will also find highlights of initiatives that DHC has undertaken to improve sustainability across its portfolio of senior living communities, medical office buildings, and life science assets. A link to the report is available on our website. Now, I'd like to turn the call over to Anthony.