Good day, and welcome to the Diversified Healthcare Trust First Quarter 2020 Results Conference Call and Webcast. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Michael Kodesch, Director of Investor Relations. Mr. Kodesch, the floor is yours, sir.

Thank you. Welcome to Diversified Healthcare Trust call covering the first quarter 2020 results. Joining me on today's call are Jennifer Francis, President and Chief Operating Officer; and Rick Siedel, Chief Financial Officer and Treasurer. Today's call includes a presentation by management followed by a question-and-answer session. I would like to note that the transcription, recording and retransmission of today's conference call are strictly prohibited without the prior written consent of Diversified Healthcare Trust or DHC. 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 present beliefs and expectations as of today, Thursday, May 7, 2020. 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, this call may contain non-GAAP numbers, including normalized funds from operations or normalized FFO, EBITDA, EBITDAR or adjusted EBITDA and cash basis net operating income or cash basis NOI. Reconciliations of net income attributable to common shareholders through these non-GAAP figures and the components to calculate AFFO, CAD or FAD, are available in our supplemental operating and financial data package 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. Under the current unique circumstances, the management team is conducting today's call from several locations and ask that the listeners on the call bear with us should any technical difficulties arise. Now I'd like to turn the call over to Jennifer.

Thank you, Michael. Good morning to our shareholders and call participants, and welcome to our first quarter 2020 earnings call. The first quarter saw the beginning of a worldwide health crisis with an immediate impact on the global economy, which has created new and unforeseen challenges for our industry. Over the last 2 months, our priority has been monitoring the development of the COVID-19 pandemic and its effect on our business, tenants, communities and families. I'd like to start the call this morning by expressing my gratitude and respect for healthcare workers and essential workers across all industries that are on the front lines of this global pandemic, risking their own health and safety for the sake of others. We have experienced some of that courage and commitment firsthand across our portfolio and thank those heroes as they continue to battle the virus and provide care and services to us, our residents and our tenants. I'd like to personally recognize the swift action and critical efforts made by our operator, Five Star Senior Living, in response to the pandemic. As soon as the spread of COVID-19 was anticipated in the United States, Five Star teams moved quickly to implement numerous protocols and precautionary measures throughout our communities to safeguard the health and well-being of residents, clients and team members. Among those protocols, Five Star is restricting all nonessential visitors from entering our communities and essential visitors must adhere to strict visitation protocols. All our communities are ensuring the highest standards of cleanliness, enforcing social distancing and shelter-in-place conventions, screening all team members and essential visitors before entering and monitoring the health of everyone living and working in our communities. I'd also like to commend RMR's real estate services team for their tireless efforts in response to the pandemic. This group has been working around the clock to modify and apply enhanced cleaning protocols, adapt to continually changing regulations surrounding the operation of our assets, employ cost-reducing measures as states have issued shelter-in-place mandates and prioritize nonemergency tenant work orders to limit face-to-face interaction. In addition, the team has worked to secure the availability of critical supplies, assist tenants with best practices for addressing confirmed COVID-19 cases, and are now in the process of implementing procedures for the reopening of certain tenant spaces to ensure the safety of our tenants and to help them cope with the realities of a new normal. We want to thank everyone in each of our regions as these efforts have and will continue to play a vital role in weathering through these challenging times. In the first quarter of 2020, DHC's normalized FFO attributable to common shareholders was $0.29 per share, down just $0.01 from the last quarter's results and a decrease of $0.08 from the prior year quarter, largely due to the restructuring transaction with Five Star, and to an extent, the effects of COVID-19. To kick off our portfolio performance review, I'd like to begin by touching upon our medical office and life science properties, now referred to as our Office portfolio segment, which represents approximately 53% of DHC's NOI for the first quarter of 2020. This portfolio contains close to 12 million square feet, comprised of roughly 7.2 million square feet of medical office buildings and 4.5 million square feet of life science properties, with a weighted average remaining lease term of 6.2 years. Notwithstanding the effects of COVID-19, which took a greater hold toward the end of the quarter, we reported strong leasing results across our office portfolio segment in the first quarter. We executed more than 302,000 square feet of new and renewal leases, with a 16% roll up in rents, a weighted average lease term of 7.7 years, with leasing costs of approximately $3.07 per square foot per year. The leasing results we have achieved over the past 12 months have been a direct result of the investments we've made in this segment. Over that time, we've executed over 1.3 million square feet of new and renewal leases with a 10% roll up in rents, a 10.5 years of weighted average lease term, and leasing costs of $2.18 per square foot per year. Our medical office and life science investment strategy is working, and we believe it has not only strengthened our portfolio but will demonstrate resilience as we navigate through this current economic downturn. Looking at our office portfolio results compared to the same quarter last year, we reported a 2.6% increase in same-property cash rates with NOI. We had several large tenants that signed long-term renewals in the first quarter last year, and they were given free rent as part of these transactions. These concessions were effective in the first quarter of '19 and are primarily what makes up the growth from the prior year quarter. Through the first 3 business days of May, we collected approximately 86% of the office portfolio's May rents due, which is in line with where we were at this point in April. For April, DHC collected approximately 99% of the office portfolio's rents due. Much like our peers and the rest of the real estate industry, our portfolio is not immune to the economic effects of the stay-at-home orders our tenants are facing. The state and local government mandates have resulted in a temporary halt of nonessential and elective medical procedures; the volume of patients our tenants have seen has fallen, and some nonessential businesses have temporarily closed their doors. Even the most critical medical practices are seeing a material decrease in patients. While most of our biotech and laboratory tenants are considered essential businesses, some of the small to midsized organizations are temporarily working from home due to local and state restrictions on nonessential workforce. With that said, it comes as no surprise that most of our requests have come from the smaller businesses and medical practices. Of the 184 rent relief requests we've received in our office portfolio segment, only a handful came from life science tenants. 70% of these rent relief requests came from tenants at least under 5,000 square feet from us. Approximately 55% of the deferrals granted were to tenants in two of our strongest medical office buildings, Cedars-Sinai in Los Angeles and 1145 19th Street in Washington, D.C. Both are properties where we believe there is potential to more quickly recover any deferrals granted. We're working with each tenant that's asked for relief on an individual basis to understand their financial situation and assess their ability to meet their rent obligations. Generally, we provided rent deferral a month at a time with the expectation that the deferred amounts are to be repaid over a 12-month period, mostly beginning this fall. We've not granted any outright rent abatements, but in some cases, have favored restructuring leases to give small concessions now in exchange for extended lease terms and rent growth. As of Monday, we had granted rent deferrals equal to $1.7 million in the office portfolio segment. This represents 1.4% of the recurring monthly cash revenue we expect to collect over the deferral period and only 0.4% of the annualized revenue from our Office Portfolio segment. We believe partnering with our tenants that are experiencing financial challenges will provide support for their businesses and ultimately provide for greater assurances for collection in the long term, thus preserving our tenant relationships, retention and portfolio stability. While we're pleased with how resilient our office portfolio has been during the pandemic, as one would expect, our wellness centers have all been closed by government-mandated or voluntary closure of health clubs across the United States. As of today, we've deferred $2.75 million of rent and are in ongoing discussions with each of our wellness center tenants. Similarly, we're having regular discussions with our triple-net senior living tenants, where we have agreed to defer approximately $360,000 of rent in that segment. One of DHC's highest priorities is the health and wellbeing of the residents at our senior living communities, our tenants, and all of our stakeholders. As of April 30, across our shop and triple-net senior living communities, we have 350 confirmed resident cases of COVID-19 across 46 communities, representing less than 1.5% of our total resident population. These 46 communities afflicted with confirmed cases represent about 17% of our shop and triple-net senior living communities combined. Five Star's earnings call is scheduled for this afternoon at 1:00 p.m. Eastern, and we encourage you to listen to its senior leadership discuss both their COVID-19 response and updates on their company-wide initiatives. Looking at the first quarter 2020 results on a comparable basis, our same-property shop segment revenues were down 140 basis points due to expense pressure, labor costs, and reduced occupancy. First quarter EBITDA for the same-property shop portfolio was down 14.4% from the prior year quarter. As a reminder, we believe EBITDARM is a meaningful transitional performance measure as it presents historical community level operating results regardless of lease or management structure and removes the impact of any changes in the agreements during the periods presented. Diving deeper into our same-property shop segment revenue decrease, average rate was down 80 basis points, with occupancy for the quarter at 83.3%. Due to restrictions intended to prevent the spread of COVID-19, including a decrease in in-person tours and limitations on nonessential visitors to our communities, like other senior living operators, Five Star is experiencing significant challenges in attracting new residents to our communities. Additionally, we're experiencing cost increases as a result of the pandemic. Salaries and benefits were the primary drivers of our cost increase this quarter, accounting for 72% of the EBITDARM decrease. Prior to the start of the pandemic, Five Star continued to invest in its employees during the first quarter in a meaningful way. We expect our labor costs to move higher in the second quarter as a result of Five Star's initiatives and the pandemic. On dispositions, as previously announced, we completed an additional $56 million of asset sales since our last earnings call, the majority of which closed well after the COVID pandemic started to ramp up. This brings our 2020 property disposition total up to $64.6 million. Today, we have approximately $164 million of assets under agreement to sell. We expect the majority of these to sell as due diligence is delayed and capital markets remain relatively restrictive. We remain committed to our disposition program, and our target remains $900 million of property sales.

Thank you, Jennifer, and good morning, everyone. To begin, as a segue from Jennifer's disposition remarks, I wanted to first provide color around our liquidity position in light of the pandemic. We believe DHC is well positioned to weather the near-term challenges presented by the pandemic, and we expect to meet all of our upcoming capital obligations, including our debt maturities and a number of planned capital projects to improve our portfolio. We ended the first quarter with approximately $70 million of cash on hand and $415 million available on our $1 billion revolving credit facility. As previously announced, we sold $47 million of senior living assets subsequent to the quarter end. Additionally, in early April, our Board made the difficult decision to reduce our dividend to $0.01 per share per quarter from $0.15 per share per quarter, preserving roughly $33 million of capital each quarter. As of March 31, our debt to adjusted EBITDA was 7.4x, roughly in line with the previous quarter. As Jennifer stated, we expect the pace of our asset disposition program to slow considerably, with some deals falling out of agreement as a result of the difficulties of conducting physical diligence while under shelter-in-place orders in the current state of the markets. For those asset sales we do complete, however, we will continue to use the proceeds to reduce debt. Moving to our uses of capital. Subsequent to the quarter end, we repaid $200 million of 6.75% senior notes that matured in mid-April. We expect to utilize a 6-month extension option on the $250 million unsecured term loan currently scheduled to mature in June. After that, our next scheduled debt maturity is not until December of 2021. Turning to our capital expenditure outlook, as previously disclosed, we are deferring $150 million of previously budgeted capital expenditures in both our shop and office portfolios. Many of these deferrals are the result of being realistic about the work that can be completed while we are restricting nonessential visits at our senior living communities and leasing expectations while under shelter-in-place orders. It's important to understand that we are continuing to invest in our properties in order to improve our future returns, and we still expect to spend approximately $160 million at our properties for the remainder of this year, approximately one-third being spent on completing the redevelopment of our life science asset in Torrey Pines that we've talked about on prior calls. Lastly, if business conditions deteriorate beyond our current expectations, there are additional levers we can pull to ensure sufficient liquidity. We, for example, after preliminary discussions with certain members of our banking group, believe we could possibly add additional extension options to our $250 million unsecured term loan and amend certain terms in our credit agreement to provide additional cushion for our covenants. It is also important to remember that the vast majority of our assets remain unencumbered. In the past, we have utilized financing from Fannie Mae and believe we could raise capital by placing secured debt on a portfolio of our senior living properties to provide additional liquidity if we thought it was necessary. These are just two examples of potential sources of liquidity that may be helpful to understanding why we believe we are well positioned to manage through this challenging environment with our current balance sheet and liquidity options. That concludes our prepared remarks. Operator, please open lines for questions.

Our first question will come from Bryan Maher of B. Riley FBR.

Jennifer, when you think about the senior housing component, kind of down the road. And I think you used the term new normal. How do you think that looks in 2 to 3 quarters, maybe from an increased regulatory standpoint, visitation, social distancing, et cetera? Can you elaborate on how you're thinking that this industry looks in maybe by year end 2020?

Yes. Well, I think social distancing is here to stay in senior living for a period of time regardless of whether states start to open up. I think that just because of the at-risk population, operators will continue to have social distancing and sheltering in place residents staying in their units for the time being. Regulatory, it's hard to say. I know that there's been an increase in regulatory discussions regarding assisted living. I think independent living is pretty different. And 2 to 3 quarters out, it's hard to know. I mean, these operators are living in the moment, doing everything they can to keep COVID-19 out of the communities. I think they're doing a great job regardless of what we see in the press.

And then when we think about occupancy for modeling purposes, I don't know, maybe I missed it if you shared what occupancy was looking like in April. I know Lon Power was putting out some kind of biweekly with the degradation in occupancy was. I didn't know if you would be willing to share that. Or put another way, where you think it could go over the next couple of quarters before eventually rebounding?

Yes. I think with the current state, we're thinking occupancy will likely drop by 40 to 50 basis points a week. For how long that lasts? Again, it's hard to know. It really depends on how long COVID-19 is ranging through the country. But I think those are good numbers to use.

The 40 to 50 basis points per week, not five a week.

Per week. No, that's per week.

And then lastly from me. And maybe, Rick, this might be a question for you. You talked at the end of your comments about the ability to raise additional capital above and beyond the liquidity that you currently have and things that you could do to do that with your bankers and with the assets that you have available. What world would you be living in that you think you need to access materially more than the roughly $0.5 billion of liquidity that you currently have? How bad would things have to get? Where do you see the levers to make you have to make those phone calls?

Brian, there's just a lot of uncertainty related to the pandemic. If we had a crystal ball and knew where it was going, we wouldn't have to worry about it. But I believe our Investor Relations team is getting a lot of inbound calls asking about liquidity. Part of that may be related to the $200 million of senior notes that we just retired in mid-April. So while we ended the quarter with $415 million available on the revolver, we did use $200 million of it initially to pay down those notes. So we still have plenty of capacity for our limited upcoming maturities and again, we've scaled back our CapEx assumptions a bit. But really, that was just being realistic about what can physically be done in this environment. So we still feel very comfortable, but because there's been some questions, we wanted to just to make sure we address that.

Well, at this time, we're showing no further questions. We will go ahead and conclude today's question-and-answer session. I would now like to turn the conference call back over to management for any closing remarks.

Thank you for joining us on our first quarter earnings call. We hope you and your families and colleagues stay well, and look forward to connecting with many of you at the virtual NAREIT conference in June.

Thank you, madam. And for the rest of the management team for your time today. The conference call is now concluded. At this time, you may disconnect your lines. Thank you. Take care, and have a great day, everyone.