Q1 2024 Diversified Healthcare Trust Earnings Call
Good morning, and welcome to the diversified Health care Trust first quarter 'twenty 'twenty four earnings conference call.
Operator: Good morning, and welcome to the Diversified Healthcare Trust first quarter 2024 earnings conference call. All participants will be in 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 Kevin Brady, Director of Investor Relations. Please go ahead.
Operator: All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
Operator: After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone.
Operator: To withdraw your question. Please press Star then two 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.
Kevin Brady: Thanks, Nick Good morning, joining me on today's call are Crystal Auto President and Chief Executive Officer, and Matt Brown, Chief Financial Officer and Treasurer.
Kevin Brady: 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. This conference call contains four forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1995 and other security laws.
Kevin Brady: Today's call includes a presentation by management followed.
Kevin Brady: A question answer session with sell side analysts.
Kevin Brady: Please note that the recording and retransmission of today's conference call is prohibited.
Kevin Brady: The prior written consent of the company.
Kevin Brady: Today's conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 and other securities laws.
Kevin Brady: 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.
Kevin Brady: These forward looking statements are based upon <unk> beliefs and expectations as of today Tuesday may seven 2024.
Kevin Brady: 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 S. E C.
Kevin Brady: In addition, we will be discussing non-GAAP numbers, including normalized funds from operations or normalized <unk> net operating income or NOI and cash basis, net operating income or cash basis NOI.
Kevin Brady: 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 dot each sea wheat dot com.
Kevin Brady: 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. However, actual results may differ materially from those projected in any forward-looking statement. 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.
Kevin Brady: Actual results may differ materially from those projected in any forward looking statements.
Kevin Brady: Additional information concerning factors that could cause those differences is contained in our filings with the SEC.
Kevin Brady: <unk> are cautioned not to place undue reliance upon any forward looking statements.
Kevin Brady: 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.
Kevin Brady: We are not providing a reconciliation of these non-GAAP measures as part of our guidance because certain information required for such a 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.
Kevin Brady: 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.
Kevin Brady: With that, I will turn the call over to Chris.
Kevin Brady: 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 the first quarter financial results and provide additional detail related to our strategy to strengthen our capital and liquidity profile.
Speaker Change: Good morning, everyone and thank you for joining our call last evening DHT reported first quarter results that reflect the operating and financial improvements across our portfolio.
Chris: On today's call I will provide a high level overview of D. A C. Its 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.
Chris: 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.
Christopher J. Bilotto: 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 healthcare and senior housing, along with senior housing construction supply, demand, and balance, continue to be a bright spot as we advance through the year. Relative to the year-ago period, our same property cash base as NOI increased 9.5% as a result of the strong performance within our shop segment.
Christopher J. Bilotto: General market fundamentals supporting favorable transfer health care and senior housing along with the senior housing construction supply demand imbalance.
Christopher J. Bilotto: We need to be a bright spot as we advance through the year.
Christopher J. Bilotto: Relative to the year ago period, our same property cash basis, NOI increased nine 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 excellent in the segment and the favorable tailwind in the health care industry.
Christopher J. Bilotto: We credit our positive performance to several factors, including our community investments, our dedication to operator excellence in the segment, and the favorable tailwinds in the healthcare 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 performance,
Christopher J. Bilotto: On the financing side, we remain active with our efforts targeting secured financing on select medical office life Science and shop properties.
Christopher J. Bilotto: To improve liquidity and repay the 2025 debt maturity, which Matt will provide additional details on momentarily.
Christopher J. Bilotto: Turning to our first quarter shop performance.
Christopher J. Bilotto: 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 REV floors. These results reflect consistent improvements across independent living, assisted living, and memory care. On a sequential basis, revenue increased 4.7 percent, primarily driven by rate increases that occurred within the first quarter at our alert managed communities, along with increases within our level of care. Notably, NOI margin increased 180 basis points and 260 basis points on a year-over-year sequential quarter basis, respectively.
Christopher J. Bilotto: Strong results are demonstrated by a revenue increase of 10% over the year ago period supported by a 200 basis point increase in occupancy and a six 8% increase in total revpar.
Christopher J. Bilotto: These results reflect consistent improvements across independent living assisted living and memory care.
Christopher J. Bilotto: On a sequential basis revenue increased four 7%, primarily driven by rate increases that occurred within the first quarter at our managed communities along with increases within our level of care.
Christopher J. Bilotto: Notably NOI margin increased 180 basis points, and 260 basis points on a year over year and sequential quarter basis, respectively.
Christopher J. Bilotto: While we are pleased with our progress with our performance, we retain an active asset management philosophy to support continued opportunities across our communities. This includes rationalizing further operator changes consistent with the 13 communities we transitioned earlier this year. As a reminder, these transition communities contributed negative EBITDA of $3.2 million during 2023 and, for the first quarter, negative EBITDA of $920,000.
Christopher J. Bilotto: We are pleased with our progress with our performance, we retain an active asset management philosophy to support continued opportunities across our communities.
Christopher J. Bilotto: This includes rationalization of further operator changes consistent with the 13 communities we transitioned earlier this year.
Christopher J. Bilotto: As a reminder, these transition communities contributed negative EBITDA of $3 $2 million during 2023 and for the first quarter negative EBITDA of $920000 with.
Christopher J. Bilotto: With the completion of the transition, we expect to see meaningful improvement in operating and financial performance for the back half of the year. Additionally, we will assess specific dispositions and future acquisitions, focusing on identifying our presence in certain markets. With this, we anticipate benefiting from sales and cost synergies, as well as providing broader options for residents. With respect to our capital refresh and renovation projects, we are advancing refresh projects in 23 of our shopping communities that are expected to be completed in Q4. These refreshed projects are mostly cosmetic upgrades and FF&E replacements.
Christopher J. Bilotto: With the completion of the transition, we expect to see meaningful improvement of operating and financial performance towards the back half of the year.
Christopher J. Bilotto: Additionally, we will assess specific dispositions and future acquisition, focusing on desktop buying our presence in certain markets.
Christopher J. Bilotto: This we anticipate benefiting from sales and cost synergies as well as providing broader options for resin.
Christopher J. Bilotto: With respect to our capital refresh and renovation projects, we are advancing refresh projects and 23 of our shop communities that are expected to be completed in Q4.
Christopher J. Bilotto: These refresh projects, mostly cosmetic upgrades and knee replacement.
Christopher J. Bilotto: Estimated costs for these projects are $25.7 million, or roughly $6,600 per unit, and we are targeting an ROI of 8% to 10% when stabilized. With respect to major renovations, in the first quarter, we completed the renovation of our community in Arlington Heights, Illinois, totaling $5 million, or $17,800 per unit, with additional qualifying renovations underway at two of our communities. Major renovations generally include base-level refresh work, along with changes to the acuity mix, amenity enhancements, and other potential NOI drivers, where we believe a minimum ROI of 15% is achievable upon stabilization.
Christopher J. Bilotto: Estimated cost for these projects are $25 $7 million or roughly 6600 per unit and we are targeting an ROI of 8% to 10% when stabilized.
Christopher J. Bilotto: With respect to major renovations in the first quarter, we completed the renovation of our community and Arlington Heights, Illinois, totaling $5 million or <unk> 17800 per unit with additional qualifying renovations underway at two of our communities.
Christopher J. Bilotto: Major renovations generally include base level of refresh work along with changes to the acuity mix amenity enhancements and other potential NOI drivers, where we believe a minimum rois of 15% is achievable upon stabilization.
Christopher J. Bilotto: These refreshed projects are a continuation of our business plan to improve our communities, having completed similar-scale renovations at more than 90 communities since 2021. We expect these improvements to better position our communities as a top choice for current and future residents, drive occupancy, and contribute to continued NOI growth and margin expansion. As provided with our prior call, our 2024 SHOP Full Year Guidance Outlook remains generally unchanged, which Matt will speak to in more detail, giving the highlights for the Medical Office Life Science and Wellness Center portfolio.
Christopher J. Bilotto: These refresh projects are a continuation of our business plan to improve our communities having completed similar scale of renovation at more than 90 communities. That's 2021.
Christopher J. Bilotto: We expect these improvements to better position our communities as a top choice for current and future residents drive occupancy and contribute to continued NOI growth and margin expansion.
Christopher J. Bilotto: As provided with our prior call our 2024 shop full year guidance outlook remains generally unchanged, which Matt will speak to in more detail.
Christopher J. Bilotto: Turning to highlights for the medical office life Science, and Wellness Center portfolio.
Christopher J. Bilotto: We ended the first quarter with 102 medical office and life science assets, consisting of $8 5 million square feet with same store occupancy of 89, 8% and a weighted average lease term of five five years.
Christopher J. Bilotto: We ended the first quarter with 102 medical office and life science assets consisting of 8.5 million square feet with same store occupancy of 89.8% and a weighted average lease term of 5.5 years. Notably, we leased approximately 101,000 square feet at weighted average rents that were 11.5% higher than prior rents for the same space, which represents the third consecutive quarter of double-digit positive rent rollout. Within our Wellness Center portfolio, we completed a five-year renewal for three of our Wellness Centers in Albuquerque, New Mexico, totaling 130,000 square feet, including a 7.5% rent roll-up and no leasing capital.
Christopher J. Bilotto: Notably we leased approximately 101000 square feet at weighted average rents that were 11, 5% higher than prior rents for the same space, which represents the third consecutive quarter of double digit positive rent roll ups.
Christopher J. Bilotto: Within our wellness center portfolio, we completed a five year renewal for three of our wellness centers in Albuquerque, New Mexico, totaling 130000 square feet, including a seven 5% rent roll up and no leasing capital.
Christopher J. Bilotto: As of quarter end, our 10 wellness centers are well covered at 1.67 times with a wealth of 15.9 years. As discussed on our prior call, we are proactively working through opportunities to support current vacancies, along with our known vacant properties. The change in occupancy from the fourth quarter was primarily driven by known vacates, with two tenants totaling 225,000 square feet and located in Kansas City, MSA. In 2024, tenants representing roughly 4.1% of our expiring annualized revenue are anticipated to vacate, with move-outs staggered throughout the year.
Christopher J. Bilotto: As of quarter end, our 10 wellness centers are well covered at 167 times with a wall of 15 nine years.
Christopher J. Bilotto: As discussed on our prior call we are proactively working through opportunities supporting current vacancies along with our known Vacates. The change in occupancy from the fourth quarter was primarily driven by known Vacates with two tenants totaling 225000 square feet and located in Kansas City and Chicago MSA.
Christopher J. Bilotto: 2024 tenants, representing roughly four 1% of our filing annualized revenue are anticipated to vacate with move outs staggered throughout the year.
Christopher J. Bilotto: We retain an active leasing pipeline for new and renewal activity, reflecting close to 650,000 square feet, which includes 372,000 square feet of potential net absorption. Subsequent to quarter end, we signed new and renewal leases totaling 55,000 square feet for a weighted average lease term of close to five years and a roll-up in rent. Also, within our medical office and life science segment, we sold one vacant property during the quarter located in Phoenix, Arizona for $3.6 million.
Christopher J. Bilotto: We retained an active leasing pipeline for new and renewal activity, reflecting close to 650000 square feet, which includes 372000 square feet of potential net absorption.
Christopher J. Bilotto: Subsequent to quarter end, we signed new and renewal leases totaling 55000 square feet for a weighted average lease term of close to five years and a roll up in rent.
Christopher J. Bilotto: Also within our medical office and life Science segment, we sold one vacant property during the quarter located in Phoenix, Arizona for $3 $6 million. In addition, we are currently marketing for sale eight properties totaling over 800000 square feet, which includes two properties currently under agreement for 159000 square feet and the.
Christopher J. Bilotto: In addition, we are currently marketing for sale eight properties totaling over 800,000 square feet, which includes two properties currently under agreement for 159,000 square feet, and the remaining six properties are in various stages of marketing. We expect the sale of these properties to have a positive impact on occupancy and NOI and estimate proceeds of $50 to $60 million in the event we are successful in transacting on these dispositions.
Christopher J. Bilotto: Our remaining six properties are in various stages of marketing.
Christopher J. Bilotto: We expect the sale of these properties to have a positive impact on occupancy and NOI and estimate proceeds of $50 million to $60 million in the event. We are successful transacting on these dispositions.
Speaker Change: Before I turn the call over to Matt I want to make you aware of the recent publication of the RMR group's annual sustainability report.
Christopher J. Bilotto: Before I turn the call over to Matt, I want to make you aware of the recent publication of the R-Mark Group's Annual Sustainability Report. The report highlights insights, accomplishments, and data regarding our managers' commitment to long-term ESG goals. We are proud of the progress made to strengthen DHC's sustainability practices and enhance our ESG transparency and disclosure. You can find the links to the complete report, as well as the DHC-specific tier sheet, on our website at dhcreed.com. And I'll turn it over to Matt. Thanks, Chris, and good morning, everyone.
Matt: Port highlights insights accomplishments and data regarding our managers commitment to long term ESG goals. We are proud of the progress made to strengthen D. H C sustainability practices and enhance our ESG transparency and disclosure you can find the link to the complete report.
Christopher J. Bilotto: As well as the D. C specific testing on our website at D. H D. REIT Dot Com I would now I'll turn it over to Matt.
Matthew C. Brown: Normalized FFO for the first quarter was 3.5 million dollars, or 1 cent per share, and included 20.7 million dollars, or 9 cents per share, of non-cash amortization associated with a zero-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 non-cash amortization, normalized FFO increased six cents 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.
Matt: Thanks, Chris and good morning, everyone.
Matthew C. Brown: Normalized <unk> for the first quarter was $3 $5 million or one cents per share and included $27 million were nine cents per share of noncash amortization associated with the zero coupon unsecured bonds issued in December the.
Matthew C. Brown: $27 million of quarterly amortization remains our quarterly run rate for 2024, resulting in a 36 cent drag on full year normalized <unk> per share.
Matthew C. Brown: Excluding this noncash amortization normalized <unk> increased six cents per share sequentially, mainly driven by continued improvement in our shop segment.
Matthew C. Brown: Our consolidated same property cash basis, NOI was $63 $6 million, representing a $5 $5 million or nine 5% year over year improvement the changes by segment are as follows.
Matthew C. Brown: 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.
Matthew C. Brown: Same property cash basis, NOI was $25 $3 million, representing an increase of $7 $7 million or 43, 6% the.
Matthew C. Brown: 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.
Matthew C. Brown: Our strong performance in CHOP was partially offset by a $1.1 million or 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 in CapEx, we ended the quarter with $207 million in cash. Our financing strategies for 2024 remain unchanged and are summarized as follows.
Matthew C. Brown: Our strong performance in shop was partially offset by a $1 1 million dollar or three 6% decline in same property cash basis NOI in our medical office and life science portfolio.
Matthew C. Brown: This decline was primarily due to lower revenue related to vacancies that we highlighted on last quarter's call.
Matthew C. Brown: Turning to liquidity and 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.
Matthew C. Brown: First, we are targeting a Q2 issuance of CMBS debt ranging from $175 to $200 million, secured by certain of our unencumbered medical office and life science properties. Second, we expect to issue secured fixed-rate debt with select shop communities. The proceeds from these financings will be used to fund capital investments in our portfolio and to repay our $500 million of notes maturing in June 2025 that have an interest rate of 9.75%.
Matthew C. Brown: First we are targeting a Q2 issuance of C. M D S debt ranging from $175 million to $200 million secured by certain of our unencumbered medical office and life Science properties.
Matthew C. Brown: Second we expect to issue secured fixed rate debt with select shop communities.
Matthew C. Brown: The use of proceeds from these financings will be used to fund capital investments in our portfolio and to repay our $500 million of notes maturing in June 2025 that have an interest rate of 975%. Therefore, we expect more than 200 basis points of interest expense reduction from these refinancings.
Matthew C. Brown: Therefore, we expect more than 200 basis points of interest expense reduction from these refinances. The June 2025 notes become prepayable without penalty in June of this year, and we expect to begin making prepayments during the second quarter.
Matthew C. Brown: The June 2025 notes become pre payable without penalty in June of this year and we expect to begin making prepayments during the second quarter.
Matthew C. Brown: Finally, we continue to evaluate properties across the portfolio for disposition to improve our liquidity profile and improve operating results. We invested $26 million in the first quarter, including $8 million in our medical office and life science segment and $11 million in our shop segment. We expect to accelerate our investments as the year progresses. Prudent investments in our senior living communities are a key initiative to continue driving the NOI recovery.
Matthew C. Brown: Finally, we continue to evaluate properties across the portfolio for disposition to improve our liquidity profile and improve operating results.
Matthew C. Brown: We invested $26 million in the first quarter, including $8 million in our medical office and life Science segment and $11 million in our shop segment we.
Matthew C. Brown: We expect to accelerate our investments as the year progresses.
Matthew C. Brown: Prudent investments in our senior living communities is this is a key initiative to continue driving NOI recovery.
Matthew C. Brown: Our CapEx guidance for 2024 is reduced slightly to $240-$260 million, and our shop CapEx guidance of $190-$200 million remains unchanged, although the first quarter was a slow start to the year. In summary, first quarter results reflect the strength of our underlying portfolio and continued momentum in the shop segment supported by higher occupancy and rates. We are well positioned to capitalize on industry tailwinds by executing on our strategy and achieving our four-year objectives.
Matthew C. Brown: Our capex guidance for 2024 is reduced slightly to $240 million to $260 million and our shop capex guidance of $190 million to $200 million remains unchanged. Although the first quarter was a slow start to the year.
Matthew C. Brown: In summary, first quarter results reflect the strength of our underlying portfolio and continued momentum in the shop segment supported by higher occupancy and rates, we are well positioned to capitalize on industry tailwind by executing on our strategy and achieving our full year objectives.
Matthew C. Brown: Turning to our outlook for 2024, we are reaffirming our 2024 SHOP NOI guidance of $120 to $140 million and introducing Q2 SHOP NOI guidance. While our Q1 results fell just short of forecast, we remain confident in our full-year guidance as we expect the majority of the growth to come in the second half of the year. With that said, we expect Q2 SHOP NOI guidance of $26 to $31 million. I would also like to note that more details about our 2024 SHOP NOI guidance will be provided in our investor presentation that will be published in the near future.
Matthew C. Brown: Turning to our outlook for 2024, we are reaffirming our 2024 shop NOI guidance of $120 million to $140 million and introducing Q2 shop NOI guidance, while our Q1 results fell just short of forecast we remain confident in our full year guidance as we expect the majority of the growth.
Matthew C. Brown: Come in the second half of the year with that said, we expect Q2 shop NOI guidance of $26 million to $31 million I would also like to note that more details about our 2024 shop NOI guidance will be provided in our investor presentation that will be published in the near future.
Matthew C. Brown: As we are now providing quarterly and full-year SHOP NOI guidance, we are no longer going to issue the monthly SHOP results releases, given the volatility in results from month to month, which can be caused by many factors, including the number of days in a given month. That concludes our prepared remarks. Operator, please open the line for questions.
Matthew C. Brown: As we are now providing quarterly and full year shop NOI guidance, we're no longer going to issue. The monthly shop results releases given the volatility in our results from month to month, which can be caused by many factors, including the number of days in a given month that.
Matthew C. Brown: That concludes our prepared remarks, operator, please open the line for questions.
Speaker Change: 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're using a speakerphone. Please pick up your handset before pressing the keys.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Bryan Maher with B. Reilly Securities. Please go ahead.
Bryan Anthony Maher: Any time your question has been addressed and you would like to withdraw your question. Please press Star then two.
Operator: At this time, we will pause momentarily to assemble our roster.
Operator: The first question comes from Bryan Maher with B Riley Securities. Please go ahead.
Bryan Anthony Maher: Thank you and good morning. I have a couple of questions for you this morning. Maybe starting with Laris Life. I noticed you brought 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 Solaris Life is taking to drive shop NOI higher?
Bryan Anthony Maher: Thank you and good morning couple of questions from me. This morning, maybe starting with the layoffs life 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 Solaris life is taking to drive our shop NOI higher.
Bryan Anthony Maher: Yeah, I think you know this is Chris and I'll kind of start I think as we've talked about last quarter kind of the strategy. There as we were in a good position to kind of acquire that 34% at the tender.
Christopher J. Bilotto: Yeah, I think, you know, this is Chris, and I'll kind of start. I think, as we talked about last quarter, kind of the strategy there is that we were in a good position to kind of acquire that 34% at the tender, and kind of given the meaningful progress that Alaris had made as a private company with reducing costs and kind of further kind of expanding on their strategy to drive performance, it's just it was a good I think that, from a holistic approach, Alaris has several different strategies underway.
Christopher J. Bilotto: And kind of given the meaningful progress that Alere has had made as a private company with reducing costs and kind of further kind of expanding on their strategy to drive performance. It's just it was a good investment on the onset to come in at that value.
Christopher J. Bilotto: Kind of lower relative to where we are today.
Christopher J. Bilotto: They're focused on, you know, certain strategies with respect to consistent performance across these communities, which is really a measure of kind of operational excellence and how it penetrates down to the community level and the senior leadership level. So, think about some kind of standard operating procedures. It's revamped its sales efforts, kind of more focused on a kind of hyperscale model, you know, 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.
Christopher J. Bilotto: I think that you know from a holistic approach you know all layers has several different strategies underway are they're focused on certain strategies with respect to our consistent performance across those communities, which is really a measure around kind of operational excellence and how it penetrates are down to that.
Christopher J. Bilotto: Community level and the senior leadership level, So think about kind of standard operating procedures.
Christopher J. Bilotto: It's revamped its sales efforts are kind of more focused on a kind of a hyper scale model, bringing select leaders around certain locations or certain types of opportunistic or challenged communities in effort to kind of put more intensive focus on growth around those initiatives and so I think.
Christopher J. Bilotto: I think the biggest the biggest opportunity.
Christopher J. Bilotto: Where we believe the layers as kind of you know putting the efforts in and we're aligned with US is largely around its operating profile and kind of how that trickles down to consistent the operations and then also on the sales side I mean, ultimately we want to be in a position and it's not just with the layer sits across our other operators, where we can.
Christopher J. Bilotto: And then also on the sales side, I mean, ultimately, we want to be in a position, and it's not just with Alaris, it's across our other operators, where we can kind of get, you know, kind of a higher retention or a higher transition of tours 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.
Christopher J. Bilotto: Get you know kind of a higher retention or a higher transition of of tours are to actually signed our residents in their 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.
Bryan Anthony Maher: Okay, and we're 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, you know, your marketing efforts there, and, you know, any outlook you can provide us as to where you think we end up at the end of the year, you know, either on a total occupancy basis or on a same-store basis would be really
Christopher J. Bilotto: And we were a little surprised that the depth of the occupancy decline in M O be life science this quarter and I know you.
Bryan Anthony Maher: Talked about it to a degree last quarter, but can you talk about you know 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 you know either on a total occupancy basis or on a same store basis would be really helpful.
Speaker Change: Yeah, I think look generally speaking as I read 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 today, you know as we look across maybe the next three quarters, we're projecting about 250000 square.
Christopher J. Bilotto: Yeah, I think, look, generally speaking, as I said in my prepared remarks, we talked about the pipeline and the potential absorption to go with that. I mean, I think we feel pretty good about the activity to date. You know, as we look across maybe the next three 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 vacants that I highlighted.
Christopher J. Bilotto: Feat in our occupancy numbers, which I'll provide for kind of new leasing along with the retention outside of the known Vacates that are highlighted.
Christopher J. Bilotto: 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 and Dallas.
Christopher J. Bilotto: 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, Kansas City being the vacancy that came from the tenant vacating last quarter, and then even the Washington, D.C. Metro, mostly within the CBD, 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 positions or, you know, in certain scenarios, we have select dispositions currently planned as well.
Christopher J. Bilotto: Kansas City being the vacancy that came from the tenant vacating last quarter, and then even though Washington D. C Metro mostly within the C. V. D. I think we like the general outlook as that plays into kind of life science and M. Obese, specifically and so I think we remain optimistic about either back filling those or.
Christopher J. Bilotto: You know in certain scenarios, we have select dispositions currently plans as well.
Christopher J. Bilotto: But to get to the occupancy question, you know, I think, on a same-store basis, I think we could be between 86 and 88 percent, 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.
Christopher J. Bilotto: To get to the occupancy question you know I think you know on a same store basis.
Christopher J. Bilotto: I think we could be between 86, and 88% assuming no sales and uncertainty sales up communities, which those we currently have in the market our low occupied with only bolster that number potentially get us to where we are currently.
Speaker Change: And you used the word community there, but what are you talking about I mean, I was specifically, referring to the life science and M O B occupancy.
Christopher J. Bilotto: And you used the word community there, but were you talking about, I mean, I was specifically referring to life science and MOB occupancy.
Christopher J. Bilotto: properties. So those are specific to the lifeline that will be
Christopher J. Bilotto: Prof property, so bills are specific to the lifetime that'll be properties.
Bryan Anthony Maher: of the Lifeline, MLB Properties. 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 CNBS? And what kind of pricing do you think, if you had to go to market today, on each would you get?
Bryan Anthony Maher: And then maybe for Matt you mentioned doing some C. M. B S. I think you said in your prepared comments 175 to 200.
Bryan Anthony Maher: Should we think of that as incremental to dealing maybe $500 million of shop, GSE debt or instead of doing $500 million of shop GSE debt, you did 300 and $200 million of C. N b at.
Bryan Anthony Maher: And what kind of pricing do you think if you had to go to market today on E. You would get.
Speaker Change: Sure. So I'll take the C. M. B S. Part first that is incremental to what we're thinking about doing with with agency financing in our shop portfolio.
Matthew C. Brown: 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 to $200 million in proceeds. Based on last week's 10-year Treasury rates, the rate would be a little bit higher than 7% for that.
Matthew C. Brown: So for that it's about $175 million to $200 million in proceeds.
Matthew C. Brown: Based off last week's 10 year treasury the rate would be a little bit higher than 7% for that are 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.
Bryan Anthony Maher: 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 agency financing, right now, we have a portfolio that we have in front of the banks where we're targeting somewhere around $500 million in proceeds. And from a timing perspective, right now, my best guess would be that it would execute sometime in September.
Bryan Anthony Maher: Right now we have a portfolio that we have in front of the banks are 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.
Bryan Anthony Maher: 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 something inside of that, but that's a couple months away. As far as use of proceeds is concerned, 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, you know, 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.
Bryan Anthony Maher: 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.
Bryan Anthony Maher: As far as use of proceeds I talked about the 500 million we have coming due next.
Bryan Anthony Maher: Next year that we will pay down.
Bryan Anthony Maher: Are these financings and then the balance will really be used towards continued investment in our portfolio.
Bryan Anthony Maher: And we have excess liquidity, so there's a potential that we don't take out the full 500 million.
Bryan Anthony Maher: Of shop financing in 2024, but that is a to be determined.
Matthew C. Brown: Should we be thinking about the 500 million in the 975s, 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?
Bryan Anthony Maher: Should we be thinking about.
Matthew C. Brown: The 500 million of benign 70 side 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.
Matthew C. Brown: The way we're thinking about it currently is actually taking some of the C. M. B S. Proceeds. So let's just say we ended 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.
Bryan Anthony Maher: The way we're thinking about it currently is actually taking some of the CMBS proceeds. So let's just say we end up with $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 the September and October timeframe, assuming that we close on the agency financing in September.
Bryan Anthony Maher: Down in September October time frame, assuming that we close on the agency financing in September.
Bryan Anthony Maher: 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 and you prepared comments, although that was a little bit fast. We couldn't write as fast as you were talking.
Speaker Change: Okay and just last for me is if you look at the market and your disposition thought.
Speaker Change: You know.
Bryan Anthony Maher: How deep can that be a I know you talked in your prepared comments, although it was a little bit fast we couldn't write as fast as you were talking.
Christopher J. Bilotto: But also, are there any thoughts of taking out the wellness centers? I mean, I think that with the lease renewal there, those have to have some pretty juicy valuations at this point that you could probably monetize. Can you just give us a little bit more color on what we should think about the absolute level of dispositions for this year?
Speaker Change: But also is there any thoughts of taking out the wellness centers I mean, I think that the you know with the lease renewal there yeah. It does have to have some pretty juicy valuation at this point that you could probably monetize and can you just give us a little bit more collar on.
Christopher J. Bilotto: What would you think about absolute level of dispositions for this looks good this year.
Christopher J. Bilotto: Yeah, I think kind of I think more broadly we you know we've talked about you know the disposition. The eight properties in the market now are those are MLB life science properties, we've got a handful of others. We're evaluating some of which are the known vacates that will bring to market. Some I guess.
Christopher J. Bilotto: Yeah, I think kind of, I think more broadly, you know, we talked about the disposition of the eight properties in the market now. Those are MOB life science properties.
Christopher J. Bilotto: We've got a handful of others we're evaluating, some of which are known vacants that we'll bring to market. So my guess is, you know, maybe there's a couple more that we can transact on this year. And then outside of MOB life science, I think, you know, our focus on the shop side is more around organic growth through kind of capital investment in the communities and driving occupancy there. And so, you know, we do have some vacant communities that we're marketing for sale.
Christopher J. Bilotto: As you know maybe Theres a couple more that we can transact on this year.
Christopher J. Bilotto: And then outside of that won't be life science.
Christopher J. Bilotto: Thank you know our focus on the shop side is more around organic growth through kind of a capital investment in the communities and driving occupancy there and so you know we do have something baked in our communities that we're marketing for sale and then maybe there's a handful.
Christopher J. Bilotto: For a potential disposition, but that's that's not a near term focus that's a back half of the year focus for US I think there's other areas, where we're focused on on the shop side.
Christopher J. Bilotto: And then maybe there's a handful of potential dispositions, but that's not a near-term focus. That's the 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 side, look, I mean, we've got a Walt there for north of 15 years. You know, we still have a handful of lifetime locations where they have yet to take formal or physical occupancy as they finish their TI. I think we like that segment.
Christopher J. Bilotto: And then on the wellness.
Christopher J. Bilotto: Look I mean, we've got a wall there north of 15 years are you know we still have a.
Christopher J. Bilotto: A handful of all the the lifetime locations, where they have yet to take formal or physical occupancy as they finish their Gi I think we like that segment. It produces a good NOI with annual growth.
Christopher J. Bilotto: It produces a 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 term north of 15 years. And so that could be a strategy in the future where we can still get favorable cap rates if we elect to do so.
Christopher J. Bilotto: 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.
Christopher J. Bilotto: And again, we have plenty of time, given the fact that we have in turn north of 15 years, and so that could be a strategy in the future, where we still didn't get favorable cap rates would be allowed to do so.
Bryan Anthony Maher: Okay, thank you very much.
Speaker Change: Okay. Thank you very much.
Speaker Change: Again, if you have a question. Please press Star then one.
Operator: Again, if you have a question, please press star then 1. The next question comes from Aaron Hecht with Citizens JMP. Please go ahead.
Operator: The next question comes from Aaron Hecht with citizens JMP. Please go ahead.
Aaron Randall Hecht: Hey, guys. Thanks for taking my question.
Aaron Randall Hecht: You guys, thanks for taking my question. I know there was a You said that you're going to provide more insight on full year guidance in an upcoming presentation, but just wondering the split between Alaris 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?
Aaron Randall Hecht: I know there was a.
Aaron Randall Hecht: You said that you're going to provide more insight on full year guidance and upcoming presentation, but just wondering.
Aaron Randall Hecht: Ah the split between <unk> and other operators.
Aaron Randall Hecht: What's kind of embedded in the NOI guide for the full year.
Aaron Randall Hecht: And how much improvement should we expect here from the other operators given the occupancy gains this quarter.
Aaron Randall Hecht: Yeah.
Speaker Change: Yeah, I mean look I think you know, we're looking at guidance more globally across the spectrum and not necessarily doing it up between operator, I think one of the things to consider is as were transitioning operators in some cases and so we think that there'll be further transition potential.
Christopher J. Bilotto: Yeah, I mean, look, I think, you know, we're looking at guidance more globally across the spectrum and not necessarily divvying it up between operators. I think one of the things to consider is that 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 splice it between operators is not the way that we're thinking about it.
Christopher J. Bilotto: And so I think trying to kind of slice it.
Christopher J. Bilotto: Between operators is it's about the way that we're thinking about it.
Christopher J. Bilotto: But, you know, with respect to overall occupancy growth, I think it's relatively even across the spectrum, as we think about kind of that, you know, three to five hundred basis points 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 that we think about outliers, you know, we're transitioning the thirteen communities to one of our operators, and that's a scenario today where that occupancy is in the low sixties, as we alluded to on last quarter's call.
Christopher J. Bilotto: But you know with with respect to our overall occupancy growth I think it's relatively even across the spectrum.
Christopher J. Bilotto: As we think about kind of that three to 500 basis point opportunity.
Christopher J. Bilotto: For occupancy growth in again.
Christopher J. Bilotto: 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 you now we're transitioning to the 13 communities to one of our operators.
Christopher J. Bilotto: The scenario today, where that occupancy is in the low sixty's as we alluded to on last quarter's call and so in scenario like that if we can execute on.
Christopher J. Bilotto: And so in scenarios like that, if we could execute on, you know, 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 gonna, it's gonna, it's gonna be.
Christopher J. Bilotto: The material or 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 gonna it's gonna.
Christopher J. Bilotto: It's gonna be a mix.
Speaker Change: Alright, and then dispositions within the shop portfolio to densify. The operations is that going to be more focused on awareness.
Aaron Randall Hecht: And then dispositions within that shop portfolio to densify the operations. Is that going to be more focused on Elaris? 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?
Aaron Randall Hecht: Or the other operators and I guess part of that question is.
Aaron Randall Hecht: 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, but are you ready to go out.
Speaker Change: Yeah, 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 an 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 gonna be somehow.
Christopher J. Bilotto: Yeah, I think one caveat I would make is that 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 that 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.
Christopher J. Bilotto: Liars, 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.
Christopher J. Bilotto: It'll it'll be a mix are you know I think again, we're still trying to rationalize across the portfolio. What the right plan and was there kind of a right strategy is going to be to execute that and I think.
Christopher J. Bilotto: But it'll be a mix. You know, I think, again, we're still trying to rationalize across the portfolio what the right plan and what the kind of right strategy is going to be to execute that. And I think, you know, we'll have more information as we start to kind of advance our thoughts there in future quarterly calls.
Christopher J. Bilotto: More information as we start to kind of advance our thoughts there in future quarter calls.
Speaker Change: Okay I appreciate the thoughts.
Christopher J. Bilotto: Okay, I appreciate the thoughts. This concludes our question and answer session. I would like to turn the conference back over to Chris Bilotto for any closing remarks.
Christopher J. Bilotto: This concludes our question and answer session I would like to turn the conference back over to Chris Balado for any closing remarks.
Christopher J. Bilotto: Thank you for joining our call today, and we look forward to seeing you at some of the upcoming conferences.
Christopher J. Bilotto: Thank you for joining our call today, and we look forward to seeing you at some of the upcoming conferences.
Christopher J. Bilotto: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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Operator: Yeah.
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