Good day. And welcome to the Diversified Healthcare Trust First Quarter 2022 Earnings Conference Call. During today’s call all participants will be in listen-only mode. Please note that today’s event is being recorded. I would now like to turn the conference over to Michael Kodesch, Director of Investor Relations. Please go ahead sir.

Good morning and welcome to Diversified Healthcare Trust's call covering the first quarter 2022 results. Joining me on today's call are Jennifer Francis, President and Chief Executive 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, Wednesday, May 4, 2022. 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, net operating income or NOI, and cash basis net operating income or cash basis NOI. Reconciliations of net income or loss attributable to common shareholders to 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. Now I'd like to turn the call over to Jennifer.

Thank you, Michael. And good morning. Thank you for joining us on today's call. Following the joint venture transaction completed in January, our portfolio today consists of diversified, high-quality and well-located healthcare assets. At the end of the first quarter, the size of our consolidated office portfolio is approximately 8.7 million square feet and our entire senior living portfolio comprises 264 communities with over 27,000 units. Given the impact that the COVID-19 pandemic had on our senior living communities over the past two years, our NOI remains disproportionately skewed toward the office portfolio. Over the next several quarters, we expect senior living segment NOI to increase as we deploy capital to rejuvenate and stabilize our SHOP segment, see renewed operator focus on occupancy, rate, and community level EBITDA growth, and as we continue to deliver exceptional leasing results in our Office Portfolio segment, as we've done since the onset of the pandemic. Meanwhile, we're eager to reduce debt and accelerate earnings growth. Within our Office Portfolio segment, leasing velocity in the first quarter remained approximately in line with the three-year quarterly average, highlighting the continued demand for high-quality medical office and life science space. During the first quarter, we executed 27 new and renewal leases totaling over 200,000 square feet, with an average roll-up in rents of 8.2% and a weighted average lease term of 7.4 years. As a result of this activity, same property occupancy during the first quarter increased 10 basis points from the previous quarter in this portfolio. Looking ahead, approximately 760,000 square feet, or 8.7% of our annualized rental income in this segment, comes from leases that are expiring during the remainder of 2022. Our leasing pipeline is generally in line with the fourth quarter of 2021 at almost 900,000 square feet. On a square footage basis, approximately 40% of the pipeline is for new tenants that could absorb over 400,000 square feet of vacant space. The RMR Group has an expert team of leasing professionals that do a great job getting ahead of renewals and leasing vacancy as we get space back. As a result, we feel confident about keeping this portfolio well occupied as we've done historically. We're pleased with the success at our recent redevelopment deliveries and are excited to announce additional redevelopment opportunities in this portfolio. On previous calls, we discussed a redevelopment of a medical office asset located in the strong suburb of Atlanta. The property sits on a prime corner in the historic district of Downtown Decatur and is walkable to numerous food, service, and retail options, as well as MARTA, Atlanta's public transportation system. With the addition of several onsite amenities, we believe this redevelopment elevates its leasing prospects and will help limit any downtime. We recently began construction and expect to deliver the asset later this year. In Irving, Texas, we have a 94,000 square foot medical office building that we're repositioning from a single to multitenant building. It's located within the Las Colinas area of Dallas, a historically desirable submarket for medical office space. Upon its delivery, the property will host various collaborative features, refreshed common areas, and move-in ready suites. We're also in the early stages of a redevelopment opportunity in Washington, DC, which will convert a medical office building into a mixed-use property. We expect design entitlement and permitting to take place in 2022, while construction is likely to begin next year. Finally, on the last call, we discussed the likelihood of a tenant in suburban Boston downsizing from two buildings to one, and plans are underway toward a potential redevelopment of the building that's being vacated into LEED certified GMP lab-ready space. Design and permitting is expected to take place this year, with delivery anticipated early next year. We have an active leasing pipeline for these developments and look forward to providing updates on our activity in future quarters. Moving to our SHOP Segment. Earlier this week, AlerisLife Inc., the manager of 120 communities in our SHOP Segment, announced a change to its senior management and appointed Jeff Leer as Interim President and Chief Executive Officer. With this change, AlerisLife also retained the Healthcare Consulting Group within Alvarez & Marsal to conduct an operational review of the company. They are expected to make recommendations to the AlerisLife Board by the end of the second quarter. We believe that their review and findings and the resulting plan will accelerate the improvement of the performance of the communities that Five Star manages on our behalf. In the first half of last year, the senior living industry experienced tremendous occupancy declines. And while occupancy has modestly improved since then, the pace of the recovery has been more measured than anticipated. That being said, and though it has been only a few months since the 107 community transitions were completed, our new operators have had more time to assess their respective communities and are now executing their business plans. We're pleased to begin seeing some of the plans materialize in our operating results this quarter. Occupancy in this portfolio increased approximately 100 basis points from the prior quarter with eight of the ten new operators reporting an increase. Additionally, seven of the ten new operators raised rates this quarter, resulting in non-same property revenue growth of $4.5 million or 5.8% compared to the fourth quarter. Following the completion of these transitions, we believe we have the right operator mix and are starting to see the benefits from both our capital spend and from the investment our operators are making in their communities and in their corporate and marketing teams. In our same property SHOP segment that is comprised of the 120 communities managed by Five Star, occupancy was flat for the fourth quarter. But same property revenues increased 4.3% sequentially, as rate increases took effect during the quarter and concessions began to dissipate. Generally speaking, our operators have not seen significant pushback from residents on rate increases as the media's coverage of inflation is widespread. The alternatives to our senior living communities, such as home care and competing senior living communities, are also increasing rates. Looking ahead, we're seeing that our operators are now largely using concessions as a closing tool, and at most offering one month of free rent to help drive occupancy. Labor is the biggest challenge facing the senior living industry today. But we're pleased with how our operators manage through these headwinds during the first quarter. Same property wages and benefits decreased approximately $800,000 or 1% from the fourth quarter, largely driven by lower agency costs. While we're encouraged by this level of cost containment in the quarter, we note that the competition for labor remains elevated. Looking forward, we expect wages and benefits to increase as our operators look to compete for and retain team members. We continue to encourage our operators to perform extensive care level assessments and to make market price adjustments where needed as part of a broader effort throughout 2022. Our manager, The RMR Group, continues to make significant investments in its senior living asset management team, which is focused on high-impact deliverables, targeted to improve operations at underperforming assets and optimize results elsewhere. As our teams identify areas of opportunity to prioritize and deploy revenue-enhancing capital, we remain confident of the SHOP Segment’s path towards stabilization. In total, we currently have 58 major capital projects that the RMR Group’s project and asset management teams are working on with AlerisLife to complete or kickoff in 2022. These include eight sizable projects that are either underway or in permitting, another 14 that are in the design phase, and we have another 29 projects that are building refreshes that will be completed by year-end. In total, these projects combined for a budgeted spend within the same property portfolio of approximately $110 million in 2022. The teams are also working with our new operators on capital improvement projects at some of the 107 communities transitioned to new operators last year. Finally, we're proud of the progress we continue to make to strengthen DHC’s corporate governance. In March, we welcomed David Pierce as the newest member of our Board of Trustees. David has more than 30 years of healthcare industry experience, and we look forward to drawing on his perspective to create value for DHC shareholders. I'll now turn the call over to Rick, to provide detail on our financial results.

Thanks, Jennifer. And good morning, everyone. For the first quarter of 2022, we reported net income attributable to common shareholders of $240.4 million or $1.1 per share, which includes a $327.5 million gain on the joint venture sale of 10 office portfolio assets that we discussed during our last earnings call. We have a 20% ownership in two ventures that combine for 2.2 million square feet of medical office and life science space that is 98% occupied and generated approximately $5.2 million of EBITDA for us during the first quarter. Our supplemental package includes additional detail regarding our joint venture investments on Pages 16 and 17. Our consolidated same property cash basis NOI increased 10.3% compared to last quarter, largely driven by a $6.6 million increase in same property SHOP NOI. Our general and administrative expenses decreased approximately 15% from last quarter to $7.3 million as a result of lower business management fees paid to RMR. Interest expense decreased approximately $6.4 million from the fourth quarter primarily due to $620 million of debt secured by the Boston Seaport asset that was deconsolidated following the joint venture transaction completed in December. Aggregating these results, we reported normalized FFO of negative $21.9 million, which roughly breakeven results in our SHOP segment and interest expense. Normalized FFO was approximately $5 million lower than we reported last quarter, due to approximately $2 million of percentage rent recognized in the fourth quarter and to the impact of the joint venture sales. We believe it's important to note that while normalized FFO was negative, DHC ended the quarter with approximately $1.5 billion of cash available to repay debt and make investments in our portfolio, and had total outstanding debt of $3.6 billion. Net debt was equal to just 25% of gross assets, and our next meaningful debt maturity is not until January of 2024, which gives us time for the SHOP segment to recover. As a reminder, the proceeds from the joint venture transactions that we completed at a blended 4.7% cap rate have not yet been deployed. Our nine and three-quarter percent senior notes become callable in June, and we expect to be in a position to reduce our interest expense at that time. In the first quarter, we spent $60.4 million on capital expenditures across our portfolio, which included approximately $36 million of CapEx within the SHOP segment and $24 million of capital that was deployed in the office portfolio. We continue to review and prioritize our capital spend on a property-by-property basis for its overall potential NOI impact. As Jennifer mentioned, we're excited about our capital program and the impact it'll have on our results. I'll now turn it back over to Jennifer.

Thank you, Rick. We're pleased with some of the progress made this quarter in our SHOP segment and are optimistic that our operators will continue to execute as industry fundamentals recover. Our financial position provides us the flexibility to reduce debt and lower interest expense and affords us the opportunity to continue investing in our portfolio, which we expect will accelerate the stabilization of our SHOP segment and maximize the value of our office portfolio segment. That concludes our prepared remarks. Operator, please open the line for questions.

Today's first question comes from Bryan Maher with B. Riley Securities. Please proceed.

Good morning, Jennifer and Rick. A couple of questions, on the JV sales with the two that you've completed at this point, are you done with that or do you think we could see more of that over the balance of the year?

We're not looking at adding any of our existing properties into those JVs. So we know we haven't assembled any additional portfolios.

Okay. And then as it relates to the $1.5 billion in cash and the $1 billion callable this June, can you elaborate on the thought process there, whether to pay it all down, pay down half and refinance half, where is management thinking about taking that?

It's a good question, Bryan. We definitely expect to prepay some portion of the nine and three-quarter notes, but as you said we do need to be thoughtful and we need to continue to assess our investments and liquidity. The key thing for us is to make sure that we're investing in the portfolio and positioning ourselves to grow earnings so we can get a more normal dividend in place. But all that being said, we definitely expect to call some portion of the nine and three-quarter notes.

I think last year, maybe it was in the first quarter, I forget, you issued some debt and I think that interest rate was maybe in the 4s. Given what's going on with interest rates now, if you had to refinance some of that debt, how much higher do you think the interest rate might be?

It's a good question, Bryan. You're right; we were below 4.5 on that last issuance. Interest rates have come up a bit, but to be honest, I haven't been as focused on where we would issue debt. We're sitting on $1.5 billion of cash. When we look at our total debt, net debt to gross assets is just 25%. So we're not really looking to issue more debt right now. The key is again focusing on the performance of the portfolio and getting EBITDA back up to where it should be.

Okay. And then Jennifer, I think you mentioned, and we would concur that it appears that the SHOP occupancy is not kind of recovering in the past several months, maybe as fast as we had thought. Do you think that the first quarter really was omicron? Do you think it was maybe rate increases and maybe a little bit of pushback there? What are your thoughts related to the first quarter and how are you thinking the rest of this year plays out?

I think that the recovery in senior living is more heavily weighted towards needs-based. And so we've seen more occupancy growth in our needs-based communities than in our choice-based communities. And so our same-store portfolio is definitely more heavily weighted to independent living. So I think that is some of the issue. We are seeing some increases; we've seen increases in leads, increases in qualified leads over the fourth quarter and increases in tours. The key is converting those, having the operators, and really the folks out in the communities convert those tours to move-ins. They're all very focused on training the sales force. In the first quarter, AlerisLife saw the lowest percentage of voluntary move-outs since Q1 2020. So it's not as much a move-out issue or a voluntary move-out issue. It's really converting the tours to move-ins.

Okay. And maybe shifting gears Rick, you did touch upon CapEx for 2022. I think you said $110 million in the Five Star associated SHOP portfolio, but can you give us a total CapEx breakdown for the year between MOB full year SHOP full year, including the new operators? What are you thinking along those lines?

Certainly. Yes, Jennifer mentioned the $110 million that we're actively working to deploy throughout the AlerisLife/Five Star portfolio. Overall, we are expecting CapEx for this year to be close to that $400 million number we spoke about previously. The breakout there, there's a couple of different ways to split it. I would say probably $125 million or so is in the Office Portfolio while the rest is dedicated to SHOP. Depending on how you slice it, the recurring versus redevelopment repositioning capital is a split that we're asked about somewhat regularly. Of the $400 million, it's probably a little over $100 million on the recurring side, and then a little under $300 million on the redevelopment side.

So, Bryan, just to clarify, the number that I was talking about is the number that the RMR project management group is deploying. The operators are also, as Rick mentioned, doing the lighter capital for projects on their own.

Okay. Maybe I'm a little confused, so $400 million total, $125 million is going to be MOB and $275 million is going to be SHOP?

Potentially, yes. If we can – if we can get it all deployed, there are still supply chain issues that are slowing us down in some cases, but the team is making great progress.

And are you done at that point or are we going to have some spillover into 2023 and 2024?

It'll definitely be continued spend in 2023. Our goal was to spend a great deal of capital last year and the year before, and it really got delayed because of the pandemic. So it will not be as elevated next year as it is this, but it will still be a pretty heavy capital year.

Okay. And maybe one more if I might, on the expense side of the equation, and maybe you could break it out between shop and MOB. Can you tell us where your biggest concerns are and what the trend might be in SHOP? And then my guess would be on MOB, it's a combination of taxes and utilities that's going to drive that higher. Can you give us just a little bit of color on that?

Yes. I think labor is obviously a big issue. We saw an increase in salaries and benefits in our Office Portfolio segment this quarter, and we will continue to see it in senior living. Utilities are up; it's all the things that people are talking about. There's a lot of discussion about the cost of food in senior living. So, in the first quarter, we saw increased snow removal, but that's just seasonal and really depends on how much it snows from quarter to quarter. But utilities, salaries, and benefits are really going to be a push.

Okay. Thank you. That's all for me.

Thanks. Thank you, Bryan.

At this time, there are no further questions in the queue. And I would like to turn the conference back over to Jennifer Francis for any closing remarks.

Thank you, operator, and thank you all for joining our call today. We look forward to seeing many of you in person at NAREIT in June. Operator, that concludes our call.

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