Good afternoon, and welcome to the Diversified Healthcare Trust Second Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [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.

Thanks, Asia. Good afternoon. Joining me on today's call are Chris Bilotto, President and Chief Executive Officer; and Matt Brown, Chief Financial Officer and Treasurer. 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 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, Friday, August 2, 2024. 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, we will be discussing 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.dhcreit.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 SHOP net operating income, or SHOP 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 at all, such as gains and losses or impairment charges related to the disposition of real estate. With that, I will turn the call over to Chris.

Thank you, Kevin. Good afternoon, everyone, and thank you for joining our call. Last evening, DHC reported second quarter results that exceeded expectations for normalized FFO and reflect continued progress on our 2024 operating and financial priorities. On today's call, I will provide a high-level overview of DHC's second quarter financial and operating results along with an update on key strategic initiatives for 2024 and beyond. Later, Matt will review second quarter financial results and provide an update on the steps we are taking to strengthen our capital and liquidity profile. Second quarter financial results reflect continued momentum within our SHOP segment, along with continued double-digit rent growth with leasing activity in our Medical Office and Life Sciences segment. Our consolidated GAAP and cash basis NOI increased 12.2% to 7.1%, respectively, compared to the prior year, supported by favorable trends in senior housing and health care in general. In addition to favorable tailwinds in senior housing. Our results are benefiting from the prudent capital investments we have made within our communities and from an emphasis on improving operator performance. In May, we issued a $120 million mortgage loan secured by eight Medical Office and Life Science properties, and used $60 million to partially redeem the then $500 million of senior notes scheduled to mature in 2025. We are currently working to establish additional secured financing within the SHOP segment, in order to repay the remainder of the 2025 debt maturity and to further enhance our liquidity. Matt will provide additional details on our financing strategy shortly. Turning to the second quarter operating performance. Within our SHOP segment, same property cash basis NOI increased 27% over the year-ago period, driven by an increase in shop occupancy and corresponding increase in RevPOR, which Matt will expand in more detail. We will continue…

Thanks, Chris, and good afternoon, everyone. Normalized FFO for the second quarter was $6.8 million or $0.03 per share. On a sequential quarter basis, normalized FFO increased by $0.02 per share, mainly driven by improvements in SHOP NOI. Adjusted EBITDAre grew by $4.8 million sequentially or 7.5%, which resulted in leverage declining 60 basis points from the first quarter. Our consolidated same-property cash basis NOI was $68.8 million, representing an 8.7% year-over-year improvement and a 7.4% sequential quarter improvement. The improvements were mainly driven by our SHOP segment, which saw NOI growth of 27% year-over-year and 17% sequentially. Highlights include occupancy increases of 160 basis points year-over-year and 20 basis points sequentially. Average monthly rate increased 6% year-over-year. Expenses decreased 1.4% sequentially driven by a 32% decline in contract labor and a 10% decline in utilities. These highlights contributed to NOI margin growth of 150 basis points both year-over-year and sequentially. As it relates to our senior living portfolio, I wanted to highlight that we have added two new pages in our earnings presentation to provide additional information, including NOI by manager, stats by market, and NOI by CBSAs. Turning to liquidity, financing strategies and CapEx. We ended the quarter with $266 million in unrestricted cash. In May, we completed the first of two financing strategies for the year by issuing an interest-only $120 million mortgage with a fixed interest rate of 6.86% in a term of 10 years which was secured by eight Medical Office and Life Science properties. We used half of the proceeds to redeem $60 million of our 9.75% notes due in June 2025 with the balance used for increased liquidity. Our other 2024 financing strategy is to issue secured fixed rate debt with select SHOP communities that we have discussed previously. We are having meaningful…

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

Just a few for me today. On the Medical Office buildings. So, you're in the market selling some. They've got low occupancy or maybe vacant -- should we then expect in our model that the balance of the portfolio, one would suspect occupancy to move higher on a total basis and close in on the same-store basis? And my guess is kind of mid- to high 80s. Is that a proper assumption?

It is. As we've talked about those properties that we're currently marketing have very low occupancy selectively, to your point, some vacant some with kind of moderate occupancy. So, yes, I think selling those assets is going to kind of push up NOI organically in the mid-80s kind of a range of probably 200 basis points of that is probably kind of the right metric, assuming we can close those this year. But I think where we are today with highlighting some of those under LOI. I think we have some good visibility in a handful of those transactions happening by year-end.

Okay. And given the sharp decline in interest rates, a today; and b, the last month in general, if you had to price the GSE agency debt, let's just say, today or this week or next week, I think in the past, we've talked about 7%, maybe just slightly below 7%, but that was a couple a few months ago. Where do you think that, that might shake out today?

Bryan, it's a good question. We would estimate that to be closer to 6% to 6.5% if we were pricing today.

Okay. And we should move quickly. On the CMBS front, we found it interesting that you did the $120 million in the second quarter. Should we expect any more of that? Or are you going to just rely on the GSE and if you rely on more of that, again, what might pricing be in today's market?

Yes. We're -- the CMBS financing was the first of two initiatives. So right now, we're not in the market looking at doing additional CMBS financing, we are purely focused on the GSE financing.

Okay. And I found it interest in your SHOP assets for sale. I think you said 1,100 units for $80 million to $100 million. How many properties would that be?

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

Okay. And given where the market has been pricing your SHOP portfolio for the past couple of years, I mean, I kind of come up with somewhere in the low to mid-80s per key for negative NOI properties with low occupancy. I mean that seems to be kind of a win, don't you think?

Absolutely. I think that we've talked about a scenario of how some of the negative drag with these communities, I think it's masking some of the upside potential with the better performing communities. And so, while we want to be able to kind of continue to improve communities and push additional value being in a position today in this scenario where we can kind of achieve kind of those rates and those price per unit is a positive and a win.

Okay. And just two more for me. Can you drill down a little bit? I didn't quite catch high-end commentary. I think you said an asset for sale there. Can you give me a little more color on that?

Yes. So, we have a Life Science property in Torrey Pines about 186,000 square feet. The reference there is that we talked about properties we're considering or marketing, and that's one of them. And so, given kind of that -- outside of the ones that are in active stages, that is kind of the one new entry for the quarter. So, we're at the early innings with that asset. And I think there's a lot of opportunity to unpack with different strategies and scenarios. But nonetheless, it's something that we're looking at.

Is that the one -- so, I think that you did some significant renovation inventory plans over the last couple of years. I think, correct me if I'm wrong, it's a couple of few buildings. Is this the one building that happens to be vacant but yet is freshly renovated. Is that the one you're talking about?

It is. Yes. This is a three-building campus. Two of the three buildings are fully occupied. One building is fully vacant. So right now, that campus is collectively just shy of 50% occupied. And so, we've invested in the property. There's a lot of demand kind of within that submarket. And so, it just seems an opportune time to kind of test the waters just to see where the investor appetite would be for what we consider to be a great location and a good asset.

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

No. For six months, we're slightly behind where we wanted to be, but we have been telling the market that we expect a lot of the growth to happen in the second half of the year and the preliminary results we're seeing for July move-ins is positive. So, we're standing behind the guidance we've laid out previously.

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

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

So, on the NOI growth, I just want to clarify, year-over-year, we had 27% NOI growth in that portfolio and sequentially from Q1 and NOI growth of 17%. You're right that occupancy was essentially muted from Q1 to Q2. But as I just responded to Bryan in his question, we're seeing good activity in move-ins in July, and we've always said, we expect a lot of that growth to happen in the second half of the year.

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

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

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.