Earnings call transcript Q1 2023

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Operator

Good morning and welcome to the Diversified Healthcare Trust First Quarter 2023 Earnings Conference Call. [Operator Instructions] 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.

Melissa McCarthy

Good morning, and welcome to Diversified Healthcare Trust call covering first quarter of 2023 results.

call Rick Francis, and Siedel, today’s Executive and Treasurer. on and Officer; Chief me are President Jennifer Chief Joining Financial Officer question-and-answer Today’s followed presentation a session. a call by includes by management,

are laws. Litigation are and the DHC’s I like Tuesday, and retransmission obligation Commission, Exchange forward-looking as conference the the These May company. with today’s of to of written release revision that expectations Today’s other X, contains Securities or in strictly SEC. would call no within or made any recording the conference revise filings conference the without based the undertakes prohibited to meaning Reform call other note of XXXX and beliefs Securities upon today’s consent statements securities through of Act the results the of of and XXXX. prior call statements today, The to forward-looking forward-looking publicly company Private statements than

from including be available call this on and net addition, In cash are our income operating loss or of income financial to income figures www.dhcreit.com. net package, basis cash results or funds may at normalized non-GAAP these NOI basis net or our non-GAAP can numbers, FFO, EBITDA, Reconciliations operating NOI. in normalized which operations contain website or found

differ Actual statements. results from materially those may projected forward-looking in any

undue not place is our filings in to those upon with statements. contained concerning Investors information differences could SEC. are that Additional cautioned cause factors any the reliance forward-looking

discussing remarks. Properties Trust prepared Income will On Office today’s in call, the planned be with merger we our

and registration therefore, merger. and joint questions SEC yet will the about have filed taking not We preliminary with the proxy a not be statement

like the I’d Jennifer. to call now over turn to And

Jennifer Francis

analysts Thank you information issued combined call highlighting quarter digest efficiently the for earnings us and company format and Melissa, We be call. I’d today’s release about enhanced believe for will last first joining presentation the like by you, of information begin our results. investors night. that to to this Thank we good helpful XXXX conference on morning. and

performance our quarter for DHC DHC’s challenges. Trust, merger Before number discuss or the I with XXXX, I’ll a of facing announced short-term first of is review Office Properties OPI. Income recently

turnaround to While the housing we’ve senior recovery several the has see materialize, encouraged portfolio fast enough address begin our not operating in concerns. to occurred been to

First, due to afforded restricted issuing flexibility million we due Without financial by debt do before $XXX our from becomes not the these debt merger, refinancing be to covenants, or of we’re expect compliance debt XXXX. the with covenants in in debt.

not successful value shop turnaround realize communities to segment investment insufficient annual fund its this our to $X.XX critical liquidity Stand-alone a is DHC XXXX. to Second, to capital. the to of of we would constraints, increase in we dividend believe in due has to these until the capital And DHC’s continue and third, current long-term do ensure share per potential, position be additional needed.

merger with of these and The and financially both challenges strategically. benefits DHC OPI all addresses

to in as will well to greater completion multiple and of and and diversity address accretive our capital maturities. the the FFO upcoming company and compliance merger CAD. be Following access covenants to with will immediately is a business immediately the with have leverage combined as the scale The fund sources debt normalized debt merger,

represents dividend immediate annual DHC rata pro shareholders. for the addition, In a XXX% increase

to By potential broad navigates diversified a merger for significant growth unlock we challenges as creating only provides to facing near-term the with growth tenant opportunity opportunities. beneficial combination believe REIT does continued underway. portfolio. upside defensive office fund that more as a continue and more deployment the the mutually its with from the liquidity long-term DHC the headwinds traditional base, our benefit merger will business, will this necessary capital portfolio well. Not stronger, and SHOP shareholders OPI the long-term it provides needed it Strategically, turnaround in strategy also address value-creation

of third steps while We our to we segment in efficiencies close in SHOP the increase to combination line operating mutually focus enter bottom XXXX. take operational position And in on we’re transaction that the of expect continue strength. beneficial the combination, communities to we the to and continuing from our a quarter completing improve so this

negative With and DHC for share share The $X.XX that, closed FFO was $X.XX sequential per share, and I’ll FFO results. in After respectively, yesterday, quarter. improvement SHOP quarter. first the driven normalized $X.XX by segment during move to in DHC’s first our positive year-over-year per market first quarter the normalized reported of from several trends per

continuing trend first occupancy recovery. The is the positive

basis SHOP and occupancy a period. $XX.X SHOP NIC by same growth what by We increased seasonably is points occupancy considered in for the XX.X% XXX Our exceeded basis increased NOI points million generally benchmark year-over-year quarter. XX during the weak to

of starts continues construction and muted New SHOP financing, support our continue supply should the to been should operators’ on sales and construction costs our pandemic-related be recovery have marketing availability training. continued check slowdowns, by from which as limited in focus to high held and

trend margin The growth. positive NOI second is

by sequentially drove over revenue incremental to more increased operating XXX QX the bottom as margins XXX and basis efficiencies segment’s points SHOP line. ‘XX Our basis points

reduction agency effective trend agency agency of labor XX% operators the from The our about in third last by as ‘XX. quarter in since QX the positive labor been decreasing There have use expenses. contract has decrease costs lowest the level been clear costs to labor in is a –

past gap in agency that some in are reporting prohibitive markets, it’s operators use, the few is so narrowing is when agency our in-house years. cost between fact, staffing needed, less cost been and the In than

Office our to Portfolio Turning segment.

Before recent to Annual comprehensive to our of Report, which Group’s I overview publication acknowledge Sustainability want long-term managers’ results, provides RMR this the goals. commitment The a I of ESG segment’s discuss

corporate continue We’re deeply sustainability DHC’s advance to committed enhancing sustainability our initiatives. to and practices

sheet links the at on to DHC’s find to dhcreit.com. and can website tear report You our highlights the specific

quarter NOI cash to X.X% our and first income segment to the On compared results. basis for increased Rental the Portfolio property year. last Office X.X% same increased of

quarter lease square We Office leases XX,XXX renewal X.X executed weighted and term of our roll-up leasing feet we ended in For XX.X% and new of the of years. in average rents in with average quarter a activity Portfolio, at same under square in pipeline our million and Portfolio our at the a had quarter. just end, segment, line leasing feet XX.X% with fourth X in roughly in the property pipeline quarter occupancy of Office

being We of signed have letter our leases end transactions, close or stage been of to to square are with feet or of have quarter XX% XXX,XXX pipeline, in where leases negotiated. intent subsequent

to centers, provide accounted like our on a X.X% quarter first NOI. – update which I’d first for of our quick wellness

we Tampa with and XX-year Time like regional Since existing an years lease Atlanta leases club then, in Life XX Atlanta D.C. the three for wellness locations, clubs suburban area. a we’ve Washington, operator a the strong terminated X the the in for centers for X all tenant in X January, suburban leases property. signed wellness in Tampa, athletics, As reminder, with D.C. and for located and

is relationship encouraged this our management stabilized, that to properties. and We’re testament a Group’s well-located portfolio strong quickly tenant The RMR

like Now that XX-Q filed results information our address to was financial in included yesterday. package I’d also and Form

going to next our will to few DHC. shortly. and raise our company. action not cash enough. company’s XX it projected This months, capital balance is OPI more the current needs why sheet for we need benefit our position reason meet take on and operating cash fund the merger debt based But with to obligations. As times, our is cash detail another doubt go into requirements SHOP will conditions substantial but on stand-alone is as recovery Rick underway, the ability concern about happening a Current continue fast our I’ve stated a and as a balance

our on I’ll more now turn results. the to Rick, over call details financial will who Rick? provide

Rick Siedel

good Jennifer everyone. Thanks morning and

For XXXX, increased Normalized the to million improved and or adjusted first EBITDA reported of $XX.X quarter, or per $XX.X $X.XX XX% of FFO FFO from million. first million $XX.X quarter the we $XX.X normalized million share.

million. we additional last NOI. Our or consolidated segment, said are they approximately to increased basis residents levels communities to increase cash many see improvements costs, our fixed that. cash attributable million to This of able see and the beginning had to margin in to significant better SHOP quarter were to of first NOI we that occupancy in getting $XX.X as are We in increase bring and $XX.X previously our expansion where from leverage expected was basis resulting an of year XX% $XX million

Occupancy in basis the since XX quarter and year XXXX. points fourth increased last our of of basis XXX segment points first quarter SHOP from the

increase to average rates, the in margin fourth to XX.X% able while increase translated the just of X.X% XXXX in monthly points. a and also rates were quarter improved X% year-over-year operators X.X% over revenues property expenses increased SHOP from occupancy increases and first quarter. basis XXX Our from and operating These

on negative we NOI which NOI. margin average towards with average for the path of remaining positive from communities communities first of considerable generated the had is NOI million last that stabilization. still communities had The there quarter positive of communities XX%, of These quarter, of communities XX%. and NOI. occupancies of an had $XX.X when Further, average XXX XX% margins during our XXX positive XXX XX.X% these For at XX just of had produced million, the below improvement in quarter we first the $XX.X the is communities occupancy fourth an $XX.X which believe XXX of improvement an first room with quarter communities financial on XX.X% for that from million, NOI are illustrates negative improvement we XXX occupancy these when produced that of quarter

focus and of to reduction totaling of our senior prepayment during occupancy, communities quarter, $XX.X from occupied. the and a a the million for XXXX, XX% part $XXX on Attributable first as credit of X.XX% the business of expense repayments communities continue to quarter. million rate year ago. the Interest facility million will their XX notes June $XXX in under plans. control expense was were These representing XX.X%

our facility relief. amended rate X.X% compared the quarter a in during a on reminder, to our X.X% weighted ago. credit February, was continued exchange year The reduced in credit and of for facility first covenant the As size facility average we the interest

March cash of had million $XXX.X of and XX, DHC cash. As restricted approximately

has We fast segment are the not SHOP beginning enough. encouraged but is improve, been recovery to our that

not turnaround delay capital, of raise raise concern. of of our financings conditions, to merge refinancing ability cannot will sufficient we the with is it the capital we incur we that limited and plan does forced to to look segment, provide defer about market our seek alleviate capital in we months, a debt doubt which the close. as do today, the to issuing cannot probable going debt. believe or are debt may investments but in our capital today, substantial we Due we million will April, our we merger as as we substantially If will will us we to close, will assurance next $XXX merger have incurrence not as the that noted, Jennifer be in In announced of OPI, new to we portfolio, but from As prevent XX covenants additional maturing and debt. the continue SHOP any the

immediately However, dividend FFO will share in with to $X the with company debt. with an will and and merger of covenants The immediately annualized combined DHC financial OPI the result shareholders combined a compliance all in be be merger able will company. to refinance accretive provide that per be of

We are value. to business actively executing remain our long-term working towards plan the merger and committed closing to create

the the OPI financial long-term that merger better to position necessary maturities liquidity confident flexibility are We debt near-term and us address provide will for and all with growth.

please open up prepared questions. for the our concludes remarks. Operator, line That

Operator

first [Operator ahead. Thank question B. Instructions] Bryan The Bryan, Riley. go from comes Please, from Maher you.

Bryan Maher

Jennifer Rick. and good you morning, Thank and

bit year you down Can Just more uplift more what the bps XXX morning. that properties at the little XX And renovations just how And trends? a properties this the a on color be? for bps, the was going for. maybe couple it looking did questions year. give metric it the little last a are color occupancy that occupancy? us on this one we little the of of complete impacting Is renovations on should shy was were occupancy a That of me the

Rick Siedel

Bryan, the thanks question. for

senior talk living. just QX kind the slow selling viewed are and occupancy, the and seasonally think as about are I to traditionally season as generally QX QX of traditionally quarters. you for QX know,

continued So is growing though, in focus we The growth optimistic we’ll that really, go forward. are occupancy we see as NOI. on

So we at will but not expense continue of occupancy, the rate certainly or to grow NOI.

goes. So see that we where will

work that We question not There’s that number around projects of But of folks the rooms great. your are impact so of significant mean some really time, occupancy taking is residents a exactly is. hat same have the refresh at I We projects. that light from projects. sales offline take dream some fairly easily. things of of of the some disruption done of – believe see at and But But can projects and part have pretty we they’ve a that other do The service, hard the residents that tours some communities. rooms done. our get work about that the can the not happening know what open can a like are and number prospective They’re residents. we to it’s the disruptive. progress there was the to sell I of quantify with some out of units number move hard capital and

overall, to So at to hope are the pleased the is right residents given on certainly the continue communities. in I that we’re building going we’re reinvesting the path, that workforce renewed the communities and think a push. It’s

of the we continue do focus, expect see the grow to rest through occupancy is So NOI, the year. again, to on really but

Bryan Maher

not standpoint, is traded senior or code to maybe beyond XX%, most everybody It like from all pushing guys, you about expect would that in. higher. housing rate market that important. hearing those in ZIP but companies mean, kind outside where yes, that your the pushback you dollar – what increases to acceptance been And the to Great. most NOI We’ve bandwidth? the competitors would go any a people from X% you you is get at publicly seeing that of only clearly, seems are Are I settling

Jennifer Francis

may there have pushback – now there’s then. Well, been and

in increases our pretty and of I it’s communities as accepting think communities it’s said, you rate. everybody I of – mean, happening is peers. the the in happening our

and pressures deploying residents think we’re inflationary pretty the these that with into capital understanding. the I the communities, So are

as think the communities cost appropriately varying I looking the the in living And also there’ll charging of rate. so to to our push associated and be levels And really, that operators our closely ability continue assisted are care for then at with well. very

Bryan Maher

stands variable to the Okay. clearly. as CapEx, be the going But on I’m or trend the CapEx just now, And upon depending year? the this lastly, is month of then it sure out, for how next balance what it’s plays X

Jennifer Francis

$XXX So hasn’t ‘XX, – about in million million SHOP year in we’ve a been and talking and about the that of really specifically $XXX CapEx changed. ‘XX portfolio,

we’re in ‘XX total. a year ‘XX think $XXX million about in and at I

Bryan Maher

Okay, thank you.

Jennifer Francis

Bryan. Thanks,

Operator

closing concluding Executive [Operator our and turn I remarks. to Instructions] ahead. Officer, for are At this point, And question-and-answer Go to would over Jennifer session. conference the Chief we back like President Francis, some

Jennifer Francis

seeing That joining May you, concludes for Thank We look operator. at of you. you all Thank Thank NAREIT many you B. June. our call. our conference call the to forward in today. Riley in and at

Operator

presentation. The conference today’s has now for concluded. Thank you attending

may You disconnect. now

Diversified Healthcare Trust (DHC) 9 May 232023 Q1 Earnings call transcript