DIVERSIFIED HEALTHCARE TRUST Q4 FY2024 earnings call

Strategic Initiatives

• Sales and Dividends: Completed Q4 with $6.6M from office building sale. Q1 2025: ~$179M in property sales (including Muse Life Science for $159M), $17M dividend from Alaris Life.
• Disposition Progress: 34 SHOP communities in disposition process, 5 signed term sheets for $68M (target to close by Q2). 18 triple net leased senior living communities to close for $135M. Actively marketing 6 MOB life science properties for $35.2M.
• Refinancing and Debt: 3 term sheets signed, 1 in final negotiation for $340M. Paying down zero coupon bonds with $301M from asset sales.

Financials

• Normalized FFO: Q4 normalized FFO $5.3M ($0.02/share), 31% sequential increase. Same property cash basis NOI $63.7M, 18.7% Y/Y improvement but 1.4% sequential decline due to insurance costs.
• SHOP Metrics: SHOP occupancy 80.9%, revenue up 7.5%, margin up 250 basis points. G&A: $6.9M reversal of business management incentive fee

SHOP Sector

• Financial Performance: Ended Q4 with 80% SHOP occupancy (first time since Q1 2020). Year-over-year, SHOP NOI increased by 56%, revenues by 7.3%, and average monthly rate by 6.7% with margin expansion of 250 basis points. RevPOR rose 6.7% due to care services and reduced discounts. Expenses grew 3.9% due to salary, maintenance, and weather events.
• Revenue Contribution: Not explicitly stated as a percentage, but SHOP is a key segment with notable performance metrics.

Medical Office and Life Science Portfolio

• Financial Performance: Completed ~112,000 sq ft of new/renewal leasing with weighted average rent 6.9% higher than prior, weighted average lease term 6.5 years. Same-store occupancy 90.2%. ~7.9% of annualized revenue expiring by end-2025, with largest vacate in Q1 2025 (233,000 sq ft, 2.3% of revenue). Active lease pipeline over 400,000 sq ft with new absorption over 117,000 sq ft.
• Revenue Contribution: Not explicitly stated as a percentage, but it's a significant portfolio with leasing activity details

NOI Guidance

• SHOP Segment: NOI expected $120-$135M.
• Medical Office and Life Science: NOI expected $104-$112M.

CapEx Guidance

• 2025 CapEx: Expected $150-$170M, with $105-$120M in senior living communities.

Debt Guidance

• Repayment: Confident in repaying $380M bonds due June 2025; progress on zero coupon bonds maturing 2026 with $301M from sales

• Weather Impact: Insurance remediation costs from hurricanes affected Q4 SHOP results.
• Interest Rate Sensitivity: Interest rates on secured financings can fluctuate before closing.
• Weather Events: Difficulty in predicting weather impacts on guidance, no baking into forecasts but will update if events occur

Q: Provide some more color on why SHOP beat your guidance this quarter? And whether or not the insurance-related costs didn't materialize in Q4 2024?

A: As it relates to SHOP guidance for Q4, occupancy growth was seen and insurance impact modeled in Q3. SHOP NOI was $106M for 2024, towards the high end of revised guidance.

Q: How confident are you guys in the existing operators to help drive the recovery for SHOP outlook in 2025?

A: Comfortable with dedicated asset management team working with operators daily to hit targets.

Q: What's the plan for the zero coupon bond? And can you guys completely pay it down over the next year? And how are you guys thinking about extending that to 2027?

A: Not planning to extend to 2027. Made progress with $301M from asset sales, aiming to repay prior to 2026 maturity.

Q: What's the rate on the $340 million of term sheets for the secured financing?

A: Based on today's rates, weighted average rate of about 6.5%, replacing 9.75% debt.

Q: Are you baking in some kind of assumption of the impact of adverse weather events or other impacts to insurance in 2025 guidance?

A: Hard to predict weather events, generally don't bake into forecasts but will update if events occur.

Q: Who's kind of the buyer base for the assets being currently marketed? And how interest rate sensitive are they?

A: Buyer mix includes operators, private equity, local regional groups; financing path can be challenging for less occupied assets but buyers come to table with financing.

Q: Are there opportunities for additional H2C financing beyond what you kind of expect to close in the next 60 days?

A: Expect more after first round of financing