Good morning, and welcome to the Diversified Healthcare Trust First 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.

Thanks, Nick. Good morning. 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, Tuesday, May 7, 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 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 figures 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 or 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 morning, everyone, and thank you for joining our call. Last evening, DHC reported first quarter results that reflect operating and financial improvements across our portfolio. On today's call, I will provide a high-level overview of DHC's first quarter financial and operating results along with key strategic initiatives that underpin our guidance. Later, Matt will review first quarter financial results and provide additional detail related to our strategy to strengthen our capital and liquidity profile. First quarter financial results reflect continued improvement within our SHOP segment, consecutive mark-to-market rent growth within our Medical Office and Life Science segment, along with continued advancement of targeted strategies for financing, capital deployment and operator transition. General market fundamentals supporting favorable trends for health care and senior housing, along with the senior housing construction supply/demand imbalance continue to be a bright spot as we advance through the year. Relative to the year ago period, our same property cash basis NOI increased 9.5% as a result of the strong performance within our SHOP segment. We credit our positive performance to several factors, including our community investments, our dedication to operator excellence in this segment and the favorable tailwinds in the health care industry. On the financing side, we remain active with our efforts targeting secured financing on select Medical Office, Life Science and SHOP properties to improve liquidity and repay the 2025 debt maturity, which Matt will provide additional details on momentarily. Turning to our first quarter SHOP performance. Strong results are demonstrated by our revenue increase of 10% over the year ago period, supported by a 200 basis point increase in occupancy and a 6.8% increase in total RevPOR. These results reflect consistent improvements across independent living, assisted living and memory care. On a sequential basis, revenue increased 4.7%, primarily driven…

Thanks, Chris, and good morning, everyone. Normalized FFO for the first quarter was $3.5 million or $0.01 per share and included $20.7 million or $0.09 per share of noncash amortization associated with the 0 coupon secured bond issued in December. The $20.7 million of quarterly amortization remains our quarterly run rate for 2024, resulting in a $0.36 drag on full year normalized FFO per share. Excluding this noncash amortization, normalized FFO increased $0.06 per share sequentially, mainly driven by continued improvement in our SHOP segment. Our consolidated same-property cash basis NOI was $63.6 million, representing a $5.5 million or 9.5% year-over-year improvement. The changes by segment are as follows: SHOP same-property cash basis NOI was $25.3 million representing an increase of $7.7 million or 43.6%. The increase was driven by an improvement in occupancy and average monthly rate, partially offset by higher operating expenses. The increase in expenses from the prior year was primarily due to an increase in salaries and benefits and higher insurance costs, partially offset by lower contract labor expenses. Our strong performance in SHOP was partially offset by a $1.1 million or a 3.6% decline in same-property cash basis NOI in our Medical Office and Life Science portfolio. This decline was primarily due to lower revenue related to vacancies that we highlighted on last quarter's call. Turning to liquidity, financing strategies and CapEx. We ended the quarter with $207 million in cash. Our financing strategies for 2024 remain unchanged and are summarized as follows: First, we are targeting a Q2 issuance of CMBS debt ranging from $175 million to $200 million secured by certain of our unencumbered Medical Office and Life Science properties. Second, we expect to issue securing fixed rate debt with select SHOP communities. The use of proceeds from these financings will be used…

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

A couple of questions for me this morning. Maybe starting with AlerisLife. I noticed you bought back your position that you sold when that company was taken over last year. Can you talk a little bit about the decision to do that? And what steps AlerisLife is taking to drive SHOP NOI higher?

Yes. I think -- this is Chris, and I'll kind of start. I think as we've talked about last quarter kind of the strategy there is we were in a good position to kind of acquire that 34% at the tender and kind of given the meaningful progress that Aleris had made as a private company with reducing costs and kind of further kind of expanding on their strategy to drive performance is just it was a good investment on the onset to come in at that value kind of lower relative to where we are today. I think that from a holistic approach, Aleris has several different strategies underway. They're focused on certain strategies with respect to consistent performance across its communities, which is really a measure around kind of operational excellence and how it penetrates down to the community level and the senior leadership level, so think about kind of standard operating procedures. It's revamped its sales efforts kind of more focused on a kind of a hyperscale model, bringing select leaders around certain locations or certain types of opportunistic or challenged communities in an effort to kind of put more intensive focus on growth around those initiatives. And so I think the biggest opportunity where we believe Aleris is kind of putting the efforts in and we're aligned with is, is largely around its operating profile and kind of how that trickles down to consistent operations. And then also on the sales side, I mean, ultimately, we want to be in a position -- and it's not just with Aleris, it's across our other operators, where we can kind of get kind of a higher retention or a higher transition of [indiscernible] to actually sign residents in the communities. And so I think kind of all the steps are in place to allow that to happen given a lot of the work that's underway currently.

Okay. And we were a little surprised at the depth of the occupancy decline in MOB, Life Science this quarter. And I know you talked about it to a degree last quarter. But can you talk about your re-leasing efforts there? And any outlook you can provide us as to where you think we end up at the end of the year, either on a total occupancy basis or on a same-store basis, would be really helpful?

Yes. I think, look, generally speaking, as I -- in my prepared remarks, we talked about the pipeline and the potential absorption that go with that. I mean, I think we feel pretty good about the activity to date. As we look across maybe the next 3 quarters, we're projecting about 250,000 square feet in our occupancy numbers, which I'll provide for kind of new leasing, along with the retention outside of the known vacates that I highlighted. And really, it's kind of staggered across markets. I think when you look at where a lot of our vacancies reside today in markets like Boston, Dallas, the Kansas City being the vacancy that came from the tenant vacating last quarter and then even the Washington, D.C. Metro, mostly within the [indiscernible] I think we like the general outlook as that plays into kind of Life Science and MOB specifically. And so I think we remain optimistic about either backfilling those or in certain scenarios, we have select dispositions currently planned as well. But to get to the occupancy question, I think on a same-store basis, I think we could be between 86% and 88% assuming no sales and then certainly sales of communities, which those we currently have in the market are low occupied would only bolster that number to potentially get us to where we are currently.

And you used the word community there, but were you talking about -- I mean I was specifically referring to the Life Science and MOB occupancy.

Properties. So those are specific to the Life Science, MOB properties.

Okay. And then maybe for Matt, you mentioned doing some CMBS, I think you said in your prepared comments from 75 (sic) [ 175 ] to 200. Should we think of that as incremental to doing maybe $500 million of SHOP GSE debt or instead of doing $500 million of SHOP GSE debt, you do 300 and $200 million of CMBS? And what kind of pricing do you think if you had to go to market today on each you would get?

Sure. So I'll take the CMBS part first. That is incremental to what we're thinking about doing with agency financing in our SHOP portfolio. So for that, it's about $175 million to $200 million in proceeds. Based off last weeks 10-year treasury, the rate would be a little bit higher than 7% for that. We are working on finalizing appraisals and such, so pricing could change slightly, but we do expect within the next couple of weeks, we will probably execute on that strategy. And then as it relates to the agency financing. Right now, we have a portfolio that we have in front of the banks where we're targeting somewhere around $500 million of proceeds. And from a timing perspective, right now, my best guess would be that would execute sometime in September. As it relates to pricing, it's a little bit too early, but what we have in our internal forecast is 7% as a placeholder, but I'm hoping that we can do inside of that. But that's a couple of months away. As far as use of proceeds. I talked about the $500 million we have coming due next year that we will pay down with these financings and then the balance will really be used towards continued investment in our portfolio, and we have excess liquidity. So there's a potential that we don't take out the full $500 million of SHOP financing in 2024, but that is to be determined.

Should we be thinking about the $500 million of the $975 million the prepay there as a, let's say, beginning of the fourth quarter event or kind of midway through the third quarter? How should we think about taking that out of our model?

The way we're thinking about it currently is actually taking some of the CMBS proceeds. So let's just say we end up at $200 million of loan proceeds, taking 50% of that and making a prepayment towards the $500 million in June of this year and then the remainder would be paid down in September-October time frame, assuming that we close on the agency financing in September.

Okay. And just last for me. As we look at the market and your disposition thoughts, how deep can that be? I know you talked in your prepared comments, although it was a little bit fast, I couldn't write as fast as you were talking, but also, is there any thoughts of taking out the wellness centers? I mean I think that the -- with the lease renewal there, those have to have some pretty juicy valuation at this point that you could probably monetize. Can you just give us a little bit more color on what we should think about absolute level of dispositions for this year?

Yes. I think kind of -- I think more broadly, we talked about the disposition, the 8 properties in the market now. Those are MOB, Life Science properties. We've got a handful of others, we're evaluating some of which are the known vacates that we'll bring to market. So my guess is maybe there's a couple more that we can transact on this year. And then outside of MOB, Life Science, I think our focus on the SHOP side is more around organic growth through kind of the capital investment in the communities and driving occupancy there. And so we do have some vacant communities that we're marketing for sale, and then maybe there's a handful of potential dispositions. So that's not a near-term focus, that's a back half of the year focus for us. I think there's other areas we're focused on, on the SHOP side. And then on the wellness, look, I mean, we've got a WAULT there north of 15 years, we still have a handful of the lifetime locations where they have yet to take formal or physical occupancy as they finish their TI. I think we like that segment. It produces good NOI with annual growth. And given where the markets are today, I don't think we're in any hurry to consider wanting to transact on that if that were the ultimate goal. And again, we have plenty of time given the fact that we have a turn north of 15 years and so that could be a strategy in the future, where we still can get favorable cap rates if we elected to do so.

[Operator Instructions] The next question comes from Aaron Hecht with Citizens JMP.

I know there was a -- you said that you're going to provide more insight on full year guidance in upcoming presentation. But just wondering the split between Aleris and other operators, what's kind of embedded in the NOI guide for the full year? And how much improvement should we expect here from the other operators given the occupancy gains this quarter?

Yes. I mean, look, I think we're looking at guidance more globally across the spectrum and not necessarily digging it up between operator. I think one of the things to consider is as we're transitioning operators in some cases and so we think that there'll be further transition potential. And so I think trying to kind of slice it between operators is not the way that we're thinking about it. But with respect to overall occupancy growth, I think it's relatively even across the spectrum as we think about kind of that 300 to 500 basis point opportunity for occupancy growth. And again, just to kind of caveat, a lot of that growth and that performance is anticipated towards the back half of the year. And again, the other thing I would add is as we think about outliers, as you know, we've transitioned to the 13 communities to one of our operators, that's a scenario today where that occupancy is in the low 60s, as we alluded to on last quarter's call. And so in scenarios like that, if we could execute on the material and meaningful improvement towards the back half of the year, that will have kind of an outsized impact on growth of the portfolio. So it's going to be a mix.

Okay. And then dispositions within that SHOP portfolio to densify the operations, is that going to be more focused on Aleris or the other operators? And I guess, part of that question is, is this a timing situation where you need to wait for the other operators to improve operations or is this more on the stabilized stuff that you're ready to go on?

Yes. I think, one, I would caveat to say a lot of that is kind of later in the year. I think our initial focus, as I referenced, is on improvement in certain areas. I mean, certainly, if we're going to sell communities, we want to be able to maximize proceeds. And then obviously, there's going to be some outliers where we feel like there's better runway for kind of a local operator owner who's willing to kind of pay a premium in its current state. But it will be a mix. I think, again, we're still trying to rationalize across the portfolio with the right plan and what the kind of right strategy is going to be to execute that. And I think we'll have more information as we start to kind of advance our thoughts there in future quarter calls.

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

Thank you for joining our call today, and we look forward to seeing you at some of the upcoming conferences.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.