Good morning, and welcome to the Diversified Health Care Trust 2nd Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the call over to Matt Murphy, Manager of Investor Relations. Please go ahead.

Joining me on today's call are Chris Bellotto, President and Chief Executive Officer, Matt Brown, Chief Financial Officer and Treasurer, and Anthony Paula, Vice President. Today's call includes a presentation by management, followed by a question and answer session with sales side analysts. Please note that the recording and retransmission of today's conference call is strictly 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, August 4, 2026. 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, 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.dhcreate.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 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 would now like to turn the call over to Chris.

Thank you, Matt. Good morning, everyone, and thank you for joining our call today. DEC delivered impressive second quarter results that exceeded analyst estimates, highlighted by continued operating momentum across the portfolio. The strategic changes we have implemented within our SHOP segment over the past year continue to drive improved profitability. As I will highlight shortly, we believe there is meaningful upside to our current results as new initiatives we are implementing with our operators gaining traction. Turning to the quarter, after the market closed yesterday, DAC reported normalized FFO of $39 million, or 16 cents per share, and adjusted EBITDA RE of $82 million. Consolidated NOI increased 20.4 percent year-over-year to $84 million. Beginning with our shop segment, same property NOI increased 37.2 percent year-over-year to $52 million. This was driven by a 160 basis point increase in the same property occupancy to 83.1 percent, a 6.2 percent increase in average monthly rate and continued margin expansion. These strong results highlight solid business plan execution by our senior housing partners. Given that operator transitions were completed in late 2025, DAC remains in the early innings of benefiting from more regionalized community oversight and shared best practices. Our agreements are structured to ensure mutual success, and our continued margin expansion clearly demonstrates the effectiveness of this approach. Turning to our outlook, we are pleased to reaffirm our recently raised full-year guidance and continue to identify additional growth initiatives as we make our way through the As we progress, however, the key contributors of our NOI growth continue to evolve alongside the rapid ramp-up of our operators. As Matt will highlight, while average occupancy and corresponding revenue are pacing slightly below our initial 2026 projections, the profitability of each occupied unit is currently outperforming our original underwriting. To be clear, the pacing and occupancy gains is strictly a function of timing, and we continue to see steady month-over-month improvement. This is largely attributed to the foundational work of rebuilding local leadership and sales teams in conjunction with the operator transition and establishing essential infrastructure across the transition portfolio. This process made meaningful progress throughout the second quarter. Simultaneously, our profitability outperformance is being driven by an accelerated capture of higher acuity care levels and the rapid realization of expense synergies by our operators, resulting in notable improvements in REV4 and Expense4 expectations. As such, the temporary modernization in our top-line volume is being fully offset by these structural margin enhancements. This dynamic directly protects our bottom line, validates our transition strategy, and continues to position our assets for sustained long-term growth. Looking ahead, we are focused on additional opportunities to improve performance across our shop segment. Following the success we have achieved from the new operator agreements, we are currently renegotiating our contracts with our legacy operator base to bring them more in line with our upgraded operator framework. Specifically, these new contracts will transition our legacy partners to a highly aligned fee structure. This includes lower base fees coupled with a tier fee structure tied directly to annual operational outperformance. Furthermore, the updated agreements will introduce tighter, more disciplined cost controls to ensure baseline efficiency. We expect the new contracts to provide immediate cost savings of close to $2 million annually before consideration of further growth driven through the incentive fee structure. These updated agreements are expected to commence in January 2027. We continue to make progress on the repositioning opportunities we discussed last quarter. As a reminder, we identified 16 shop communities with the potential to convert closed skilled nursing wings or floors into high-demand independent living, assisted living, and memory care units. We plan to initially spend approximately $20 million on six of these communities, which will add roughly 150 units to our shop portfolio. Importantly, given that we are currently absorbing the carrying costs of these closed wings, completing these conversions will transition carrying cost headwinds into revenue-generating units, providing further uplift to our shop margins and overall profitability. We believe these projects represent an attractive use of DHC's capital and should generate unlevered mid-teens returns while also improving the overall marketability of these communities. We anticipate the initial phase of construction to begin later this year with the first deliveries of these new units coming online in the second half of 2027. Turning to our medical office and life science portfolio. During the second quarter, same property occupancy increased 110 basis points year over year to 95.8 percent. Leasing activity remained healthy with approximately 477,000 square feet of new and renewal leasing at a 6.7% rent roll-up and a weighted average lease term of 7.1 years. Same property NOI in this segment was $24.1 million, essentially flat with last year. As discussed in prior quarters, we have three known vacates representing roughly 4.6% of the segment's expiring annualized revenue. Two of these tenants vacated effective July 1st, representing 3.5% of annualized revenue and 213,000 square feet, with the remaining tenant vacating effective December 1st. We plan to market for sale one of these properties representing 150,000 square feet and are actively marketing for lease the two remaining properties. We look forward to providing updates on the progress of each of these next quarter. Turning to capital allocation and the balance sheet, we ended the quarter with approximately $267 million of liquidity, and materially improved our leverage over the past year to 7.1 times net debt to EBITDA from 8.7 times. We have also significantly improved our interest coverage and strengthened our outlook with the rating agencies. With DHC's large-scale capital recycling program substantially complete, our focus is squarely on improving operations, reducing leverage, and identifying the best uses for a growing free cash flow. What makes our investment thesis so compelling today is that our path to substantial earnings growth is entirely organic with significant upside already embedded within our existing portfolio. Beyond maintaining liquidity for high-return internal projects such as our shop redevelopments and continued deleveraging, our strengthening balance sheet provides flexibility to evaluate broader strategies to enhance shareholder returns, including revisiting the dividend, which the Board reviews quarterly. In conclusion, our second quarter results demonstrate meaningful progress on improving operations, driving shop NOI margins higher, and strengthening our financial position. We remain confident in our outlook for the remainder of 2026 and continue to believe the actions we have taken over the past two years will continue to deliver strong returns and create value for our shareholders. With that, I will turn the call over to Anthony.

Thank you, Chris, and good morning, everyone. During the second quarter, our consolidated its same property cash basis NOI was $83 million, representing a 20.2% increase year-over-year and 9.3% increase sequentially. These increases are driven by continued robust growth in our shop segment, as same property NOI increased 37.2% year-over-year and 17.3% sequentially. Our operators continue to be a major factor in driving the improvement in shop NOI by managing expenses while also increasing occupancy and pricing. As an example of this disciplined expense management, we work with our operators to procure new food and beverage contracts. These new contracts have led to many optimization and reduced fees. We anticipate annualized cost savings of $14 to $16 million, of which approximately $8 million is expected to be recognized this year and is included in our revised guidance provided in June. In-property expense board decreased 170 basis points sequentially and grew just 150 basis points year-over-year, which is in line with our revised full-year guidance assumptions that Matt will highlight shortly. During the quarter, same-property occupancy grew 70 basis points sequentially and 160 basis points year-over-year. We also continue to see strong momentum in pricing, with same-property average monthly rate increasing 100 basis points sequentially and 620 basis points year-over-year. DHC shares continue to deliver among the highest total shareholder returns across all REITs in the U.S. over both the past one-year and three-year measurement periods. Year-to-date alone, DHC's stock price has appreciated 81.7 percent versus an 11 percent gain in the S&P 500 and a 23 percent gain in the MSCI U.S. Healthcare REIT Index. As a result of this L performance, our second quarter GNA expense includes approximately $10 million of incentive management fees. Second quarter GNA also includes $2.3 million of non-cash share-based compensation, more than half of which represents a one-time expense for the accelerated vesting of previously granted share awards, with a remainder consistent with prior year periods. Excluding the incentive fee in these non-cash items, GNA expense was $7.1 million for the During the quarter, we invested $25.8 million of capital, including $19.1 million into our shop communities and $6.7 million into our medical office and life science portfolio. Our year-to-date spend of $47.6 million represents a reduction of $18.4 million, or approximately 28%, when compared to the same period in 2025. Our capital expenditures are in line with our expectations, and as a result, we are reaffirming our 2026 recurring CapEx guidance of $100 to $115 million. Now, I'll turn the call over to Matt.

Thanks, Anthony, and good morning, everyone. As highlighted by Chris and Anthony, our second quarter results continue to show the cash-generating ability of our business, embedded growth in our shop segment, and reduced leverage. At quarter end, we had total liquidity of $267 million, including $117 million of cash and our undrawn $150 million secured revolving credit to cycle. Net debt to annualized adjusted EBITDA RE was 7.1 times at quarter end, a 1.6 times year-over-year and 0.7 times sequential leverage reduction. This was driven primarily by continued strong performance in our shop segment and over $600 million of asset sales completed since the beginning of 2025. We expect our leverage to continue to decrease given the favorable trends at our senior living communities and primarily fixed rate debt profile. Adjusted EBITDA RE to interest expense improved meaningfully to 2.2 times from 1.4 times in the prior year. As a reminder, our next debt maturity is not until February 2028. With growing SHOP NOI, decreasing leverage, and a portfolio of over $4 billion of unencumbered assets, we believe we have numerous options available to us as this maturity approaches. In June, we increased each of our SHOP NOI, adjusted EBITDA RE, and normalized FFO guidance by $10 million at the midpoint. Today, we are reaffirming this guidance as follows. total NOI of $307 to $323 million, including $185 to $195 million of SHOP NOI, adjusted EBITDA RE of $300 to $315 million, and normalized FFO of $0.56 to $0.62 per share. While our SHOP NOI guidance remains unchanged, we have updated our assumptions as follows. Occupancy growth of 200 basis points, a reduction of 100 basis points. Revenue growth of 6.6%, a reduction of 140 basis points, partially offset by average monthly rate growth of 5.5%, an increase of 20 basis points. These revenue changes are offset as we have seen meaningful expense control from our new operators. Assumptions include operating expense growth of 2.5%, a reduction of 200 basis points, and expense-poor growth of 1.5%, a reduction of 70 basis points. Our second-quarter results were consistent with the outlook we laid out when we raised guidance in June, and today's reaffirmation reflects that performance combined with our expectations for the remainder of the year. Our second-quarter shop, Same Store NOI of $52 million, included a one-time benefit of approximately $1.5 million related to expenses that we do not expect to see repeated in Q3. These expense one-time benefits contributed 50 basis points of margin in the quarter. We are encouraged by our results so far in 2026, particularly the continued growth in SHOP-NOI, which is tracking towards the high end of our June guidance. Our new operators continue to drive margin expansion through a combination of revenue growth and expense discipline, and we remain confident in the years ahead. That concludes our prepared remarks. Operator, please open the line for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. At this time, we'll pause momentarily to assemble the roster. The first question will come from Michael Carroll with RBC Capital Markets. Please go ahead.

Thanks, Chris. I know you touched on this in your prepared remarks, but I wanted to know if you can give us some additional color on why the shop top line is tracking below your expectations. It sounds like this is mainly driven by just the lower occupancy uptick. Are you just seeing a slower trend in the key leasing season that's driving that, or is there something more temporary or one-off that's holding that back, at least here in the near term?

A lot of it is just kind of more attributed to kind of the transition noise. You know, I think one thing that's important to note is when these communities were transitioned, it wasn't uncommon that many of the operators took on kind of the existing operations infrastructure and team members, and over the course of the last six months have continued to kind of rework that. And I think where it's most relevant with respect to the portfolio is in kind of the sales teams and those programs, and so those are largely now in place, and, you know, we're seeing kind of the benefit of some of that occupancy flow through as we've seen in the Q2 results, but nonetheless, the pace of where we think that growth will occur is going to be somewhat muted, and so this isn't a function in our view of hitting kind of certain occupancy levels.

It's just the kind of a delay in the timing of that ramp up and so i think overall we remain bullish on our outlook for driving occupancy across the portfolio and and again kind of have the tools and the resources in place to do that okay then what's the lower rev poor um driven by um is this just that is it kind of tied within the occupancy uptick or or did you have to also be a little bit more judicious on increasing rates to to your existing residents because of these transitions?

Well, total REV4 is actually increasing, so that in itself is not going down. I think maybe total revenue is what you're referring to where there's a decrease and that's tied to the occupancy. Where we're getting kind of better REV4 throughout the portfolio is outside of just kind of work that's being done and opportunities identified through driving occupancy, There's also seeing – we're also seeing kind of a good pace and uptake in other ancillary revenues in the level of care, which is driving outside results with respect to how that informs Rev4. And so I think that will continue to pace accordingly. And then as occupancy ramps, we'll start to recapture that incremental revenue.

Okay, great. And then on the export side, I know that has been reduced or improved. And I think you kind of highlight it just due to these new group contracts that these new operators have been able to obtain. I mean, kind of within guidance, kind of moving into 2017, is there more benefit related to that, or is this kind of a good baseline and they've already seen the benefits of getting those new contracts and the new export run rate is a good base kind of growing going forward?

I think for now the new guidance is a good run rate, at least through the end of this year. We are expecting additional synergies as we move into 2027, both in the new operators and even in some of the legacy operators with expected changes to the management contracts for those. But we are, you know, for 2026, seeing significant savings in dietary. We've seen maintenance come down significantly, and that's a function of the capex we've put into these communities over the last several years. and then some other wins we're seeing in contract labor, et cetera. Okay, great. Thank you.

Again, if you have a question, please press star and then one. The next question will come from John Masoka with B. Riley. Please go ahead.

Good morning. We'll be starting off with the new management agreements that are going to start in 2027 that you announced. Is there opportunities, is there thinking longer term for additional agreement changes, or does that pretty much encompass the entire portfolio once that's in place?

Once that's in place, that will encompass the entire portfolio. So really just, you know, just to kind of go back a little bit, this is all of the agreements outside of those that were transitioned with the ALARIS contract. So that will be the balance of, you know, 80-plus communities. And I don't anticipate, you know, any major changes to the contracts in the near term. There are, you know, additional opportunities we're evaluating that is more related to kind of the operators and kind of how we think about opportunities there. But the contract itself, I think, would roll forward in any particular type of relationship.

And then in the quarter, you mentioned $1.5 million of, you know, benefits to expenses you don't expect to roll forward. Or can you provide a little color on what those were?

It was really just the timing of expense recognition. We had some over accruals in the first quarter that were offset in the second quarter. And that's really the noise from the quarter.

I guess kind of even factoring that in, you know, if I look at kind of 1-H shop NOI performance, it kind of feels like if you continue with any kind of a growth trajectory, you know, that you saw from 1Q to 2Q that you're getting towards or above the high end of the new guidance, anything to kind of be aware of seasonality-wise in 3Q or 4Q that would cause you to kind of keep guidance in place? I know it was relatively recently updated, but just was kind of curious if there's something to be aware of beyond those one-time expense savings.

Sure. So to your point, yes, we are tracking to the high end of guidance. We do expect a little bit of seasonality in the third quarter, you know, related to just increases in utilities, but nothing overly material. So overall, we still feel good about, you know, kind of the high end of that guidance as of now.

And then maybe kind of a similar question on rate, you know, it feels It was like 5.5 for the full year, but you've already done somewhere closer to 6 in 1H. Any kind of reason not to raise that further? Are you kind of lapping tougher comps in 2H? I was just curious if there's any kind of color around that.

No, I mean, look, I think just being comfortable with kind of where the trajectory is, is, you know, we're trying to be mindful. I think that the key theme here, at least for us this quarter, is there's just a lot of moving pieces. all for the positive in many ways with respect to these transitions. And so I think as time progresses, we're just kind of unpacking other parts of the business and opportunities. And, again, I think for the revised guidance on kind of the rate or rev poor growth, I think we feel comfortable with where that is. But at the same time, I think that there's a reasonable expectation that we can kind of continue that run rate as we go into 2027 with seeing consistent growth across the portfolio. And so, I think, again, I think we feel good about where that number is.

Okay. And then, in terms of the occupancy guidance, holistically speaking, is maybe a way to view it that the new operators are kind of not chasing expensive occupancy, if you will? Or is it, to your point, is it just kind of a focus is maybe more on the expense side for them today and less on the kind of top-line growth side, and that will come in time? I'm just kind of curious if it's more like a dynamic of how these operators think about the business or if it's something that's just kind of a timing of getting their kind of teeth fully into these new locations.

I think it's the latter, right? I don't think there's any delay in focus on driving top line. You know, and just a reminder, this is average occupancy growth for the year, so this is a combination of kind of a 12-month trajectory. I mean, we still feel good around, as we get to the end of the year, around there being kind of real growth throughout the portfolio, and those things kind of remain, even with this revised guidance. And so, you know, there's a certain communities that we have as identified as kind of more focus-related communities where we can drive outside occupancy. There's opportunities, you know, with kind of the teams that I referenced earlier, kind of getting integrated in these communities. And then, you know, outside of just the occupancy side, as I referenced, there's also other upside we're seeing with levels of care and ancillary revenue, which is also going to continue to drive performance.

Okay. And then last one for me, just kind of switching away from the shop portfolio, what drove the kind of quarter-over-quarter decline in MOB life science rental revenue? It seems like a lot of the vacancy is going to hit in 3Qs. Just was curious if there's something else going on there.

Sure. We had a one-time bad debt charge in the quarter of about a million dollars that was impacting Q2 results.

Is that related at all to these upcoming vacancies, or is that a separate credit event? That's it for me. Thank you very much.

Again, if you have a question, please press star and then one. Please stand by as we poll for questions. Showing no further questions, this will conclude our question and answer session. I would like to turn the conference back over to Chris Bilotto, President and Chief Executive Officer, for any closing remarks.

Thank you for joining our call today. Please reach out to our investor relations team if you're interested in scheduling a call with the DHC management.

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