Diversified Healthcare Trust

Good morning and welcome to the Diversified Healthcare Trust third quarter 2025 earnings conference call. All participants will be in listen or pause. If 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, Tuesday, November 4th, 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.dhcreek.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 today. I will begin by providing a high-level review of DHC's third quarter results and an update on the progress we are making toward our key strategic objectives, including an update to the previously announced transition of our Alaris Life managed communities. Then, Anthony will provide more details regarding our quarterly financials and capital spending. And finally, Matt will review our financing activity and liquidity before discussing our outlook for the remainder of the year. After the market closed yesterday, DHC reported third quarter results that highlight continued momentum across our operating segments and steady execution on our initiative to strengthen DHC's financial position. Total revenue for the quarter was $388.7 million, an increase of 4% year-over-year. Adjusted EBITDA RE was $62.9 million, and normalized FFO was $9.7 million, or 4 cents per share. During the quarter, we took a significant step forward in repositioning our senior housing operating portfolio with the announced sale by Alaris Life of its management contracts, and our results reflected temporary decline in NOI due to elevated labor costs as we transitioned the 116 Alaris Life communities to new operators. For the transitioning portfolio, compensation expense as a percent of revenue was approximately 240 basis points above the portfolio average for prior period. representing an incremental cost of roughly $5.1 million for the quarter. These elevated labor costs are primarily driven by required investments in operational support, including payroll allocations for property tours, community reviews, training, and onboarding to support incoming operators. Additionally, temporary employee overlap necessary to meet required notice periods prior to terminations has contributed to the increase. As previously communicated, These transitions are part of Hilarious Life's planned wind down of its business, which included a broadly marketed process for the sales and management contracts for the DHC-owned communities to seven operators and the sale of 17 Hilarious-owned communities to unique buyers. Twenty-one of the 116 communities were transitioned to new operators as of quarter end, and a total of 85 communities have transitioned as of today's call. We are tracking all 116 communities to transition by year end. As a 34% owner of Alaris Life, we expect to receive approximately $25 to $40 million of net proceeds upon the completion of the wind down in 2026. Importantly, this transaction advances our strategy to establish a more efficient and geographically aligned operating model in line with broader industry trends favoring regional densification. The new DHC operating agreements include a 10-year term and incorporate performance-based incentive and termination structures that enhance accountability and align operator interests with DHC's objectives reinforced by the operator's purchase of these contracts. As part of the diligence and selection of the seven operators, five of whom are new to DHC, our asset management team developed specific criteria to evaluate each operator's capabilities and market expertise. We expect these measures will result in occupancy rates and NOI margins that are more consistent with industry averages. During the third quarter, shop occupancy increased 210 basis points year-over-year to 81.5%, marking the fourth consecutive quarter of occupancy growth. And REV4 rose 5.3%, reflecting annual rate increases, gains in care-level pricing, and reduced discounts and concessions at higher-occupied communities. Expense core for the same period, increased by 5.1%, driven primarily by temporary labor cost increases associated with the community transitions, wage adjustments, and filling of previously open positions. Collectively, these trends resulted in a 6.9% year-over-year increase in shop revenues and a 7.8% increase in consolidated shop NOI to $29.6 million. Sequentially, the decline in shop NOI is primarily attributable to higher seasonal utility costs favorable one-time adjustments in Q2, and the noted temporary labor costs related to the community transitions, which are expected to moderate through Q4. Initial feedback from the new operators has been encouraging, with feedback complementing opportunities to drive top-line revenue with the introduction of additional care levels, above-market rent increases, the opportunity to reduce expenses through right-sizing services with meal offerings, equipment leases, and procurement of recurring services, and the ability to improve lead to move-in conversion across the portfolio through the integration of each operator's broader CRM tools. We expect to see these initiatives complement our performance over the next several quarters. Based on year-to-date performance and current trends, we are maintaining our full-year shop NOI guidance range of $132 to $142 million. Turning to our medical office and life science portfolio, during the quarter, we completed approximately 86,000 square feet of leasing at weighted average rents of 9% above prior rents for the same space with an average term of nearly seven years. Consolidated occupancy increased 370 basis points sequentially to 86.6%, primarily driven by the asset sales of vacant or low occupancy properties and leasing during the quarter. Same property cash basis NOI increased 1.6% year over year, with margins improving 100 basis points to 58.9%. Looking ahead, 1.5% of annualized revenue in our medical office and life science portfolio is scheduled to expire through year-end 2025, of which 22,000 square feet are approximately 30 basis points of annualized revenues expected to vacate. We maintain an active leasing pipeline totaling 717,000 square feet, including approximately 103,000 square feet of new absorption, providing momentum toward higher portfolio occupancy and continued rent growth, with average lease terms of 7.6 years and gap rent spreads averaging more than 8%. Turning to our capital markets and balance sheet initiatives, In August, our Seaport Innovation joint venture completed a $1 billion refinancing of the Vertex Pharmaceuticals headquarters in Boston. As part of this transaction, DHC received a $28 million cash distribution, reflecting our 10% share of the proceeds. Following our September issuance of $375 million of senior secured notes in 2030, and with the expected payoff of our remaining 2026 zero coupon bond notes as early as the fourth quarter, DHC will have no debt maturities until 2028. We continue to make significant progress with our non-core asset sales. Year to date, DHC has sold 44 properties for $396 million. And as of November 3rd, we are under agreements or letters of intent to sell 38 properties for $237 million. We are also tracking close to close on 25 of these properties in Q4. for total proceeds of $211 million with the remaining balance plan for Q1, 2026. These asset sales will reduce capital spending in 2026 and beyond, improve overall occupancy and margins, and will contribute to the portfolio's cash flow growth. Looking ahead to 2026, the company is positioned to have its strongest liquidity maturity profile in several years. We believe our share price does not reflect the underlying value of our portfolio or the initiatives management has undertaken this year. With a fully transitioned shop portfolio, we believe DHC is well-positioned to drive margin expansion, cash flow growth, and continued balance sheet improvement, all of which are clear catalysts to drive shareholder value. With that, I will turn the call over to Anthony.