Diversified Healthcare Trust Q3 FY2024 earnings call

• DHC is implementing a portfolio transition strategy, with progress seen in SHOP despite sequential NOI decline due to costs and occupancy. - 32 SHOP communities are being disposed of, generating negative NOI, with a per unit valuation range. - DHC is under agreements to sell 25 properties for $333 million, including 18 senior living communities scheduled to close in Q4 2024. - Refinancing strategy for $440 million maturing in 2025 is being broadened to include diversified financing sources. - Over $50 million in CapEx was invested during the quarter, with $40 million into SHOP communities and 23 refresh projects advanced.

SHOP Segment: Third-quarter NOI was $27.4 million, a 32.6% increase over Q3 last year but a sequential decline. Revenue grew 6.4%, occupancy was 75.2%, and these 32 SHOP communities generated negative NOI of $2 million with a per unit valuation range of $55,000 to $65,000. Medical Office and Life Science Segment: Completed 83,000 square feet of new and renewal leasing with a 4.8% rent roll up and 7.4-year weighted average lease term. Same-store occupancy decreased by 150 basis-points to 87.8% due to a known vacate, and there's an active leasing pipeline of close to 400,000 square feet.

• Full-year CapEx guidance reduced to $180 million to $190 million, with $118 million spent by September 30. - Full-year SHOP NOI guidance lowered to $102 million to $107 million, impacted by additional costs from hurricanes and lower occupancy expected at year-end. - Q4 SHOP results expected to be negatively impacted by October hurricanes, with ~$4 million in related costs, and occupancy expected to end just shy of 80%.

• Impact of hurricanes on costs (e.g., insurance deductibles, remediation) and occupancy. - Slower-than-expected agency financing for refinancing. - Performance of SHOP communities in tertiary markets with negative NOI and smaller unit counts. - Challenges in achieving expected occupancy and NOI growth in SHOP.

Q: Can you give more color on GSE agency debt and issuances?

A: We have a formal quote for ~$106 million on eight communities, negotiating with agencies, terms similar to previous with LTV ~60% and interest rates 6%-6.5%.

Q: Any material damage from hurricanes?

A: One property had temporary resident relocation due to hurricane, a community had fire damage requiring temporary move out.

Q: What's the value of SHOP portfolio if liquidated today?

A: Smaller tertiary communities with NOI drag at $50,000-$60,000 per unit, better communities in primary/secondary markets have outsized potential.

Q: Why drop in SHOP NOI in 4Q?

A: Negatively impacted by October hurricane, expected ~$4 million in costs.

Q: Occupancy reason for not meeting expectation?

A: Ended September at 79.4%, expected to end near 80% due to softer selling season.

Q: Value of 29 SHOP communities with negative NOI?

A: Range $135M-$155M per unit, transactions not expected prior to year-end.

Q: Why wellness center NOI ticked up?

A: Transitions of wellness centers leased to Lifetime.

Q: Muse occupancy and marketing?

A: Occupancy just below 50%, marketing in advanced stages, potential close in 2024.