DHC - Earnings call transcript Q2 2024 | Diversified Healthcare Trust

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Operator

Good afternoon, and welcome to the Diversified Healthcare Trust Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the call over to Kevin Brady Director of Investor Relations. Please go ahead.

Kevin Brady

Thanks, Asia. afternoon. Good

today's Matt Bilotto, and Brown, on Executive and Treasurer. are and Officer; Chief call me President Chris Chief Joining Financial Officer

question-and-answer written retransmission of Today's followed conference call Please presentation a without today's the that session the company. prohibited a prior note and call analysts. of with recording by the is sell-side consent includes by management

based revise XXXX. revision publicly The the XXXX or Today's conference forward-looking upon company made other Act Private undertakes of no forward-looking and the the Securities filings as the obligation Friday, securities the in any Commission, beliefs to Securities of of statements through call conference contains Exchange August call DHC's are meaning forward-looking or than expectations SEC. results and X, Litigation statements today's of statements These release other within to with laws. today, Reform and

be addition, or is of operations net measures income normalized available FFO, from at we can numbers, basis to package, be financial website these In in operating which funds or www.dhcreit.com. cash will on including A found results normalized net reconciliation or basis and NOI. our net income discussing operating non-GAAP non-GAAP our NOI cash income

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

guidance not disposition at charges losses as required any factors upon Additional this for forward-looking estate. impairment SEC. our call, of related and filings statements. reconciliation Investors available or NOI, is differences finally, we information could with real on guidance non-GAAP that our SHOP or information reliance to not operating is income, because And concerning of measures will the place including to are those these cause contained reconciliation providing efforts be gains undue certain the in SHOP all, unreasonable cautioned without net part we of not a providing such are such as

will turn over to the With that, I call Chris.

Christopher Bilotto

second DHC quarter call. financial operating for expectations and results joining continued everyone, normalized thank priorities. Thank you reflect that FFO XXXX reported afternoon, evening, you, Kevin. our Last for and exceeded our and Good on progress

On today's Matt with key update financial an I DHC's of are review XXXX second provide Later, taking results and beyond. second operating we a on capital provide overview and strategic profile. will quarter on the call, liquidity quarter initiatives and results will and financial for along strengthen update high-level to steps our an

in segment. Life results momentum and SHOP our financial rent segment, quarter double-digit Second continued within activity along reflect our Office Sciences continued growth with with Medical leasing

compared the and and Our in favorable to consolidated NOI trends by basis GAAP in supported prior XX.X% senior year, cash general. respectively, X.X%, housing to increased care health

in In addition to favorable tailwinds housing. senior

secured Our to Office loan made million million capital to within partially from X $XXX and mortgage improving the issued scheduled operator senior from performance. a notes prudent properties, we the used and emphasis $XXX redeem XXXX. have of we million benefiting investments Science Life an on results May, in communities then our In Medical mature and are by $XX

XXXX debt to to the details the provide further Matt will and financing the secured maturity segment, SHOP are within establish in currently remainder shortly. liquidity. order working We our to repay our strategy additional enhance of on financing additional

which the and corresponding segment, operating in detail. the occupancy cash more in shop Matt driven SHOP NOI quarter Turning expand in Within year-ago increase same XX% increased our will an property second basis to by over increase performance. RevPOR, period,

and supporting initiatives SHOP to to year-to-date operators will on resident build our external to enhance experience, prioritizing of retention the the NOI growth. We XX%, continue continue growth with

team through we those emphasis with are To incremental stronger highlight rationalization management experience and this, on an with operator Further, initiatives capital sales. operator and communities in for we communities continue property through improvements and asset and residents markets, cost portfolio, portfolio additional advancement management enhanced to the transitions densification opportunities. accomplish relationships with that support of living will our certain of our underperforming working strengthen of the targeted the longer-term our including of performance and

the handover have current XX operator of broadened management, Midwest earlier the upper with into Regarding to and their their year communities. which marketably performance and transitioned of managed partnership latter XXXX. this enhanced communities our transitions, known strategy community-focused of performance path the foresee has XXXX new their successful we strong as the legacy for a continue for of communities, We newly comparable enhancement particularly part move

engaged to are facilitate more we within in portfolio. discussions our transitions Additionally,

are marketing forthcoming within operating properties optimize transitions SHOP, an value the any part with encompass our have of for in an X,XXX LOIs line and process to our In Although expected of $XXX are strategy that signed modest with sale $XX we estimated units they between strategy. million. approximately integral size, to allocation in more be we're asset million

are maximized properties in investment, NOI an During These typically require resulted $XXX,XXX the second negative constrained, portfolio have occupancy or where value. in prospects seem further have where believe significant in XX%. locations we these quarter, growth properties of synergies rate of capital we lack approximately and circumstances

evaluating initiatives, noncore providing forward look divesting updates. We to optimization involve and portfolio future which will assets continue or from underperforming

upon to Regarding XX% X% our for allocate course we major renovation $XX With initiatives, incremental million renovations. or to year refurbishment to of an respect XX are projects stabilization. estimated an on this return

have or reflecting capital. period, to ramp-up at XX past communities, annual XX% invested XX% When completed which can major $XX incremental X to targeting NOI stabilized, within on have aggregate the close year, substantially renovation renovations the XX months. communities These take expense. are we of million we are completed Over to in

renovations typically expansion context, or acuity the major resident changes For to with in along mix. involve rooms. areas FF&E, common in substantial upgrades these

through XX.X%, a a care nursing units the living conversion with of favorable XX-plus addition We favorable units initially value in rate within given common population growth over X-mile this resident targeted and skilled the major including rooms, and are Scottsdale, completion following the a and a $X new million, labor at new a outlook outlook home community including Bistro renovation, to areas, Arizona. major outlook XX% of ] its and project upgraded renovation a amenities, on lounge of a of improvements underway located XX For The a includes When fundamentals. XXXX, to stabilized, closed example, equivalent NOI range, of return Cedar XX-plus new $XXX,XXX of statistical million experience a a we average for new the [ assisted XX estimate a other the with to up supporting incremental fitness X-year wing. we investment. memory $XX operating

roll-ups. The weighted Notably, of and average XXX leased fourth and and feet ended X.X rent square XX.X% double-digit We in the of with of totaling positive previously Science represents highlights average Office Science the same is Medical consecutive known portfolio. than Missouri consisting of we square Life decrease St. same-store assets were a property occupancy weighted at a the rents feet prior Office Life XXX,XXX that of Loss, X.X up Medical with feet. XXX,XXX communicated million for higher Bring quarter by term tenant primarily approximately occupancy quarter second with lease a which years. of space, XX.X% rents same quarter-over-quarter vacate the driven square

earliest tenants management properties. We engaging of to with through continue our leasing renewal proactive for initiatives, prioritize and asset

for end, stages XXX,XXX pipeline to advanced we potential of Our feet for new located includes successfully feet Science million. quarter negotiated and nearly new current square activity square leasing Medical absorption. absorption. renewal or more which $X.X of in the feet, Life vacant of of Texas with Subsequent XXX,XXX than XXX,XXX our new Also in we sold Irving, square Office leasing is quarter X negotiation half within and during segment, property over

Following quarterly X against the in July, million. LOI feet properties we with under assigned million, quarter Minnesota, their these represent in of NOI for properties Eagan, Illinois $XX XX% have sold X located Grove, Medical $XXX,XXX. with and $XX.X occupancy Collectively, properties and Buffalo of XXX,XXX totaling proceeds square and closed Office

for initiated XXX,XXX have square foot Torrey in Science Lastly, Life we campus Pines. our efforts marketing

updates pleased While quarters. view tenants for early the look the updates on Overall, quarters. upcoming to future in we of underway the with outcomes in and demand each hires our process, to NOI progress of providing more there in strategic initiatives look I'll discuss both forward in our are SHOP our the profile progress We our Life believe given providing market. and I forward within we segments. varying the are then for Science

Now Matt. I'd to to like call over the turn

Matthew Brown

improvements everyone. afternoon, good a in sequential share, driven and second per quarter NOI. million SHOP or FFO FFO mainly Chris, for $X.XX $X.X was by share. per Normalized normalized increased by Thanks, the quarter On $X.XX basis,

basis by $X.X million first declining leverage X.X%, Adjusted quarter. XX points from EBITDAre sequentially in which resulted grew the or

NOI growth were sequentially. X.X% Our which cash quarter XX% $XX.X year-over-year by and sequential year-over-year our basis saw segment, representing a X.X% was improvement. million, improvement consolidated an SHOP improvements NOI mainly driven same-property The XX% of and

decreased XX basis a highlights increases Highlights year-over-year basis XXX XX% sequentially both monthly basis increased points sequentially. sequentially. year-over-year. contract and These contributed include XXX Average occupancy in points utilities. growth Expenses driven decline XX% NOI rate X.X% to a labor decline of and of margin in by year-over-year points X% and

manager, living I information, to CBSAs. NOI to in added provide stats presentation our wanted we NOI As it additional earnings portfolio, by relates to by market our that have including X senior pages highlight by and new

with issuing financing a Turning cash. year of Science million the strategies with by and an the In XX Medical in strategies secured X X unrestricted We Life a ended $XXX financing we fixed interest to $XXX the completed rate million X.XX% liquidity, was term in interest-only which May, years and by of properties. mortgage CapEx. quarter first Office of for

redeem $XX balance the June with increased of We in the of XXXX notes proceeds used our used due X.XX% half to for million liquidity.

XXXX that discussed select is with secured communities we fixed issue Our financing debt previously. other have strategy rate to SHOP

process this $XXX through and to balance in due expect expect be notes this to XXXX We Proceeds redeem the the will in currently refinancing June we fall. million this of as financing the financing meaningful and we remaining are conversations earnings. to due X.XX% the from diligence work we to be accretive complete having used

proceeds million spent X second sell properties LOI property $XX segment. for million, of beginning under quarter, year, including of the we million in have on CapEx and million X $X.X have to our the aggregate million. under agreement sold have SHOP properties $XX.X Since X in We $XX.X the for $XX for

$XXX lowering investment and reduced XXXX to of for to is projects SHOP This CapEx year-to-date certain $XXX guidance $XXX being reduction related CapEx our certain to for communities total XXXX projects timing by activity, of evaluating on million is million. sale. includes pausing pushed range to Based or to million, driven are mainly $XXX which we the to million transition

year Turning to guidance We $XXX our to our $XXX reaffirm million. of outlook. NOI full SHOP million

million We expect range NOI to $XX to million. $XX quarter guidance SHOP from third

while Anchored continuing quarter positioned objectives. full underlying the second results is strength DHC to prudently year demonstrate by leverage well in to of and summary, grow NOI In against our good our invest reduce progress portfolio. our portfolio,

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

Operator

[Operator comes The Instructions] B. question Riley first Maher with FBR. from Bryan

Bryan Maher

Just a for few me today.

Office On the Medical buildings.

the low total basis the close market then selling the our suspect we got move vacant on So on balance same-store maybe would X should you're a or occupancy -- model They've basis? in higher to of expect the occupancy that some. in and in portfolio,

And assumption? to of my is Is proper kind mid- a that XXs. guess high

Christopher Bilotto

is. It

occupancy talked low to very those that As kind occupancy. some we've about point, properties your we're marketing have some of with moderate currently vacant selectively,

But probably of I right organically those are of points think range is we to going those push kind that think the some of year. highlighting mid-XXs of assets a close basis selling kind metric, LOI. can with is the up of today this assuming yes, where in kind we So under those probably of I NOI XXX

I year-end. transactions in by visibility good a happening those of think have we some handful

Bryan Maher

X%, month had think decline talked a in might interest this Okay. sharp rates, GSE the today out or a few And past, the do or general, about let's you was agency to ago. months shake below maybe in Where last week, X%, in just and you debt, today; next think if say, couple the the a given today? I that slightly that we've week that, but price b, just

Matthew Brown

we were Bryan, We would it's to to today. closer X.X% X% to pricing question. if that a estimate be good

Bryan Maher

move And quickly. Okay. should we

rely CMBS pricing it the more just you in on million again, $XXX what the GSE did that, in if the front, quarter. on more that rely On we expect that? to second and today's might we the are of Or be of market? Should you interesting you any found going

Matthew Brown

was the the X financing Yes. We're initiatives. CMBS first -- of

we financing, now, on market right not So are at CMBS in financing. the looking we're additional the focused purely doing GSE

Bryan Maher

I found it Okay. assets your interest for in And SHOP sale.

units you to think $XX $XXX I would be? . many that X,XXX said million. for million How properties

Christopher Bilotto

And NOI. properties X that we under we communities then that to stages have kick advanced for getting so are off property, total in marketing. are have The signed X another ready

Bryan Maher

I been couple negative pricing market per win, I to kind to Okay. of low where past a up portfolio seems of key in occupancy. for with the mid-XXs low I the properties given of come the don't mean years, that your SHOP somewhere with be And has for NOI think? kind you mean,

Christopher Bilotto

Absolutely.

talked masking potential better we've these that upside some how scenario negative of it's drag think about I the the of with think with communities, performing I the some communities. of a

while price And this a win. and and want to continue communities in unit scenario can achieve we kind and improve a in those so be additional a those we rates value kind where to kind to positive push of able of is of position being per today

Bryan Maher

bit? little And I quite X you for high-end Can didn't catch a down more Okay. just commentary. me. drill

asset little an Can that? on for there. color you said me I more sale you a give think

Christopher Bilotto

Yes.

in a The marketing, one we there we're properties about we and XXX,XXX reference feet. that's Life So Pines have them. is Science talked square considering Torrey that is of about property or

so active that is for stages, of the And that new outside given in are of X kind quarter. the the entry kind ones of that --

scenarios. at of we're lot the that and at. with to opportunity unpack I But asset. And we're different So that a there's something with think looking nonetheless, innings it's early strategies

Bryan Maher

did years. the over that couple some think Is you X of renovation plans I that inventory the so -- significant last

the freshly happens I'm vacant you're correct Is few is talking that a this be think, of building X the buildings. about? couple I Is X if renovated. yet me it's wrong, but that to

Christopher Bilotto

It is. of vacant. occupied. is are One Yes. building the buildings fully is X-building a X campus. X fully This

that campus of So right XX% shy now, is just collectively occupied.

invested kind the submarket. we've that of so a within of demand in And property. There's lot

be it an and asset. see seems to location to opportune where would kind we consider so be for great investor And time a appetite the what waters of to the just a just good test

Bryan Maher

Okay.

like, Just than between expectation, rate. NOI been with least guidance. last occupancy to the SHOP a It appreciate line. well, me. that a full on relative for anything model, that year have about lighter to our rates seems there you to going little I running been mix bit higher reaffirming your has at but [ relative know expectations in there than opt we and margins bit need Is little ]

Christopher Bilotto

No.

been of we wanted to For the behind the to is lot but X positive. the telling we half of that a the in months, we market year be, slightly growth happen have we're we're preliminary and where seeing expect the move-ins second results for July

previously. we're we've So out guidance standing behind laid the

Operator

The RBC Markets. next Justin with question comes from Capital Haasbeek

Justin Haasbeek

you growth provide Just most will you occupancy SHOP occur back X quarter? the half highlighted the the Can know NOI But flattish from the me. performance? I on the NOI the -- of that you will in year. by of in growth were surprised some gain color sequential

Matthew Brown

of we from NOI So growth XX%. clarify, and on and year-over-year, want growth portfolio had that in I XX% the NOI to sequentially growth, QX just NOI

occupancy to question, seeing growth Bryan and But said move-ins second QX I we're July, year. that as to was that activity lot the the always in half right You're a of expect his of in happen QX. to in essentially just responded good we from in we've muted

Operator

ahead. concludes the remarks. back go Bilotto would I session. closing for Please Chris the to This to question-and-answer like conference turn over any

Christopher Bilotto

conferences. talking Thank we forward you and look today, future our to for to joining call

Operator

conference call. today's concludes This

You and for may disconnect pleasant participating, your lines. have Thank a you day.

Diversified Healthcare Trust (DHC) 2 Aug 242024 Q2 Earnings call transcript