Q4 2024 Diversified Healthcare Trust Earnings Call
Unknown Executive: Good morning, and welcome to the Diversified Healthcare Trust fourth 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.
Good morning, and welcome to the diversified Health care Trust fourth quarter 'twenty 'twenty four earnings conference call.
All participants will be in listen only mode.
Should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
Unknown Executive: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To draw your question, please press star then 2. Please note, this event is being recorded.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Please note this event is being recorded.
Matt Murphy: I would now like to turn the conference over to Matt Murphy, Manager of Investor Relations. Please go ahead.
Matt Murphy: I would now like to turn the conference over to Matt Murphy manager of Investor Relations. Please go ahead.
Chris Blotto: Good morning, joining me on today's call are Chris Blotto, President and Chief Executive Officer, Matt Brown, Chief Financial Officer, and Treasurer, and Anthony Paula Vice President.
Matt Murphy: Joining me on today's call are Chris Bilotto, 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.
Chris Blotto: Today's call includes a presentation by management, followed by a question and answer session with sell side analysts.
Unknown Executive: Please note that the recording and retransmission of today's conference call is strictly prohibited without the prior written consent of the company.
Chris Blotto: Please note that the recording and retransmission of today's conference call is strictly prohibited without the prior written consent of the company.
Unknown Executive: 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, Wednesday, February 26, 2025. 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.
Chris Blotto: Today's conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 and other securities laws.
Chris Blotto: These forward looking statements are based upon dht's beliefs and expectations as of today Wednesday February 26 2025.
Chris Blotto: 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.
Chris Blotto: In addition, this call may contain non-GAAP numbers, including normalized funds from operations or normalized <unk>.
Chris Blotto: Net operating income or NOI and cash basis, net operating income or cash basis NOI.
Unknown Executive: A reconciliation of these non-gap measures to net income is available in our financial results package, which can be found on our website at www.dhcreed.com. 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 FTC. Investors are cautioned not to place undue reliance upon any forward looking statement. 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.
Chris Blotto: 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 Dot D. H C <unk> dot 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.
Chris Blotto: 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.
Chris Blotto: <unk> real estate.
Christopher Bilotto: With that, I would now like to turn the call over to Chris. Thank you, Matt. And good morning, everyone. Thank you for joining our call.
Chris Blotto: With that I would now like to turn the call over to Chris.
Chris Blotto: Thank you, Matt and good morning, everyone. Thank you for joining our call.
Christopher Bilotto: Before I begin, I would like to welcome Anthony Paula as DHC's Vice President. Anthony is also a Vice President of the RMR Group, where he is responsible for the accounting, SEC reporting, and corporate financial functions for DHC. Welcome, Anthony.
Speaker Change: Before I begin I would like to welcome Anthony Paula S. Dht's Vice President Anthony is also a vice president of the RMR group, where he is responsible for the accounting SEC reporting and corporate financial functions for DHT welcome Anthony.
Christopher Bilotto: I will begin by providing a high-level review of DHC's strong fourth quarter and year-end financial and operating results, as well as an update to the progress and timing of our key strategic initiatives.
Speaker Change: I will begin by providing a high level review of DHT strong fourth quarter and year end financial and operating results as well as an update to the progress and timing of our key strategic initiatives.
Matthew Brown: Then, Anthony will provide more detail to our fourth quarter financials.
Speaker Change: Then Anthony will provide more detail to our fourth quarter financials, and finally, Matt will review our liquidity financing activities Capex in our 2025 guidance outlook.
Matthew Brown: And finally, Matt will review our liquidity, financing activities, CapEx, and our 2025 guidance outlook.
Christopher Bilotto: After the market closed yesterday, DEC reported total revenues of $379.6 million for the fourth quarter, which was a 5% year-over-year increase, and normalized FFO of $5.3 million, or $0.02 per share, which exceeded consensus estimates.
Speaker Change: After the market closed yesterday, we reported total revenues of $379 6 million for the fourth quarter, which was a 5% year over year increase in normalized <unk> of $5 $3 million or <unk> <unk> per share, which exceeded consensus estimates.
Christopher Bilotto: turning to our shop sector performance. DHC ended the fourth quarter on a high note by reaching 80% shop occupancy for the first time since the first quarter of 2020. On a year-over-year basis, DHC achieved a 56% improvement in shop NOI, a 7.3% increase in shop revenues, and a 6.7% improvement in average monthly rate, resulting in margin expansion of 250 basis points. These positive trends show our growing momentum and are the result of a dedicated asset management team throughout 2024. REV4 increased year over year by 6.7%, primarily driven by increases in levels of care services and a reduction in discounts and concessions.
Speaker Change: Turning to our shop sector performance DHT ended the fourth quarter on a high note by reaching 80% shop occupancy for the first time since the first quarter of 2020 on a year over year basis, DHT achieved a 56% improvement in shop NOI of seven 3% increase in shop revenues and a six 7%.
Speaker Change: Improvement in average monthly rates, resulting in margin expansion of 250 basis points. These positive trends show our growing momentum and are the result of a dedicated asset management team throughout 2024.
Speaker Change: Revpar increased year over year by six 7%, primarily driven by increases increases in levels of care services and a reduction in discounts and concessions.
Christopher Bilotto: Expense score increased by 3.9%, primarily driven by salary and wages, general maintenance, and certain one-time impacts due to weather events and community closure.
Speaker Change: Expense for increased by three 9%, primarily driven by salary and wages general maintenance and certain onetime impacts due to weather events and community closure.
Christopher Bilotto: Overall, we are pleased with the progress and remain bullish on the outlook within the segment going into 2025.
Speaker Change: Overall, we are pleased with the progress and remain bullish on the outlook within this segment going into 2025.
Christopher Bilotto: Turning to our Medical Office and Life Science Portfolio Performance. During the quarter, we completed approximately 112,000 square feet of new and renewal leasing activity with weighted average rent that were 6.9% higher than prior rents for the same space and a weighted average lease term of 6.5 years. Same store occupancy was flat at 90.2%. As we look ahead, roughly 7.9% of our annualized revenue in this portfolio is scheduled to expire through year-end 2025. As mentioned last quarter, our largest known vacate during this period is with a tenant whose expiration is in the first quarter of 2025 and located in St.
Speaker Change: Turning to our medical office and life science portfolio performance during.
Speaker Change: During the quarter, we completed approximately 112000 square feet of new and renewal leasing activity was weighted average rents that were six 9% higher than prior rents for the same space and a weighted average lease term of six five years same store occupancy was flat at 92%.
Speaker Change: As we look ahead, roughly 7.9% of our annualized revenue and this portfolio is scheduled to expire through year end 2025 as mentioned last quarter, our largest known vacate during this period with a tenant who is exploration is in the first quarter of 2025 and located in St. Louis Missouri occupying.
Christopher Bilotto: Louis, Missouri, occupying close to 233,000 square feet, or 2.3% of annualized revenue. This property is currently being marketed for sale. Further known vacates in 2025 are expected to be tempered for the MOB and life science portfolio, and we have an active lease pipeline of over 400,000 square feet, of which over 117,000 square feet is new absorption. Our pipeline includes an average lease term of seven to ten years and a trending rent roll up in the double digits. Our leasing activity and the strategic disposition of certain assets will help further drive performance of this portfolio.
Speaker Change: Close to 233000 square feet or two 3% of annualized revenue. This property is currently being marketed for sale.
Speaker Change: Further known Vacates in 2025 are expected to be tempered for the mob and life science portfolio and we have an active lease pipeline of over 400000 square feet.
Speaker Change: Of which over 117000 square feet is new absorption.
Speaker Change: Our pipeline includes an average lease term of seven to 10 years and are trending rent roll up in the double digits, our leasing activity and the strategic disposition of certain assets will help further drive performance of this portfolio.
Christopher Bilotto: turning to our key strategic initiatives.
Speaker Change: Turning to our key strategic initiatives, we completed in the fourth quarter with proceeds of $6 $6 million from the sale of a mostly vacant office building in the first quarter of 2025, we completed property sales close to $179 million, which included the sale of our music life Science campus in San Diego for 100.
Christopher Bilotto: We completed the fourth quarter with proceeds of $6.6 million from the sale of a mostly vacant office building.
Christopher Bilotto: In the first quarter of 2025, we completed property sales close to $179 million, which included the sale of our MUSE Life Science Campus in San Diego for $159 million, or $855 per square foot.
Speaker Change: $59 million or $855 per square foot.
Christopher Bilotto: Also, in the first quarter of 2025, we received a cash dividend of $17 million derived from our prorated 34% ownership stake in Alaris Life. The dividend resulted from strong overall performance improvement at Alaris, including the sale of the Agility business in 2024. This reflects a favorable return from our investment of $15.5 million made in 2024.
Speaker Change: Also in the first quarter of 2025, we received a cash dividend of $17 million derived from our pro rata at 34% ownership stake in <unk> life. The dividend resulted from strong overall performance improvement at <unk>, including the sale of the agility business in 2024.
Speaker Change: This reflects the favorable return from our investment of $15 $5 billion made in 2024.
Christopher Bilotto: looking forward with marketing efforts of certain properties. Within our shop segment, we have 34 communities that are in various stages of the disposition process. Currently, we have signed turnsheets with five of these communities for proceeds of $68 million, which we are targeting to close by the end of the second quarter. The balance of marketed communities are in various stages of the sale process, and we expect these will close over the next few quarters. Collectively, we still expect that the disposition communities will transact in the range of $55,000 to $65,000 per unit. As a reminder, removing these properties that are for sale from our shop portfolio will also enable us to focus our CapEx into our highest ROI communities, creating positive earnings momentum for our remaining portfolio.
Speaker Change: Looking forward with marketing efforts of certain properties.
Speaker Change: Within our shop segment, we have 34 communities that are in various stages of the disposition process. Currently we have signed term sheets with five of these communities for proceeds of $68 million, which we are targeting.
Speaker Change: <unk> to close by the end of the second quarter.
Speaker Change: The balance of marketing communities are in various stages of the sale process and we expect these will close over the next few quarters.
Speaker Change: Secondly, we still expect that the disposition communities will transact in the range of 55000 to $65000 per unit.
Speaker Change: As a reminder, removing these properties that are for sale from our shop portfolio will also enable us to focus our capex into our highest ROI communities, creating positive earnings momentum for our remaining portfolio.
Christopher Bilotto: In fact, removing the shopped assets that we're in the process of selling would have improved our fourth quarter NOI by 2.3 million dollars, margin by 180 basis points, and occupancy by 60 basis points.
Speaker Change: In fact, removing the shop assets that were in the process of selling would have improved our fourth quarter NOI by $2 3 million margin by 180 basis points in occupancy by 60 basis points.
Christopher Bilotto: With respect to our triple net lease senior living communities, we expect to close on the previously announced sale of 18 communities within the next week for $135 million or $154,000 per unit.
Speaker Change: With respect to our Triple net leased senior living communities, we expect to close on the previously announced sale of 18 communities within the next week for $135 million or $154000 per unit.
Christopher Bilotto: Outside of our shop and triple net activity, we are actively marketing six MOB life science properties for estimated proceeds of $35.2 million.
Speaker Change: Outside of our shop and Triple net activity, we are actively marketing six M Ob and life science properties for estimated proceeds of $35 $2 million.
Christopher Bilotto: We also wanted to provide an update on our refinancing strategy. Currently, we have signed three term sheets and one term sheet in final stages of negotiation for $340 million in anticipated loan proceeds. along with our cash position of $145 million, proceeds from dispositions to date, and $77 million of unencumbered assets under agreement for sale, we are well positioned to address the 25 debt majorities. Regarding our zero-coupon bonds maturing in 2026, we have begun the pay down process with proceeds of $301 million from asset sales, including MUSE, which closed in January, and the Brookdale portfolio, which we expect to close within the next week.
Speaker Change: We also wanted to provide an update on our refinancing strategy. Currently we have signed three term sheets and one term sheet in final stages of negotiation for $340 million and anticipated loan proceeds.
Speaker Change: Along with our cash position of $145 million proceeds from dispositions to date and $77 million of unencumbered assets under agreement for sale, we are well positioned to address the 25 debt maturities.
Speaker Change: Regarding our zero coupon bonds maturing in 2026, we have begun to pay down process with proceeds of $301 million from asset sales, including views, which closed in January and the Brookdale portfolio, which we expect to close within the next week.
Christopher Bilotto: As stated in last quarter's call, we are continuing with the top-to-bottom analysis of our portfolio to ensure we have the right mix of assets and operators and how can we expect to position DHC to benefit from stronger liquidity and position the company for further NOI growth.
Anthony: As stated in last quarters call, we are continuing with the top to bottom analysis of our portfolio to ensure we have the right mix of assets and operators and how can we expect will position <unk> to benefit from stronger liquidity and positioning the company for further NOI growth now I would like to turn the call over to Anthony.
Matthew Brown: Now, I would like to turn the call over to Anthony. Thank you, Chris.
Anthony: Thank you, Chris Hey, good morning, everyone normalized <unk> for the fourth quarter was $5 $3 million.
Matthew Brown: Good morning, everyone. Normalized FFO for the fourth quarter was $5.3 million for two cents per share, representing a 31% sequential quarter increase. Our same property cash basis NOI was $63.7 million, representing an 18.7% improvement year over year, and a 1.4% decline sequentially.
Anthony: Per share representing a 31% sequential quarter increase.
Anthony: Same property cash basis, NOI was $63 $7 million, representing an 18, 7% improvement year over year, and a one 4% decline sequentially.
Matthew Brown: The sequential quarter decline was mainly caused by additional insurance and remediation costs from the hurricane's negatively impacting Q4 results in our SHOP segment. This decline was partially offset by the recognition of $3.4 million of percentage rent in our Triple Net Leased Senior Living Portfolio that is recognized on an annual basis. Shop highlights for our same property portfolio include a 6.7% increase in average monthly rate year-over-year, an oxy of 80.9%, resulting in a growth of 100 basis points year-over-year and 60 basis points sequentially. These increases resulted in revenue growth of 7.5% and margin expansion of 250 basis points per year.
Anthony: The sequential quarter decline was mainly caused by additional insurance intermediation costs from the hurricanes negatively impacting Q4 results and our shop segment. This decline was partially offset by the recognition of $3 $4 million of percentage rent in our triple net leased senior living portfolio that is recognized on an annual basis.
Anthony: Highlights for our same property portfolio include a six 7% increase in average bunch the rate year over year, and oxy of 89%, resulting in growth of 100 basis points year over year, and 60 basis points sequentially.
Anthony: These increases resulted in revenue growth of seven 5% and Martin expansion up 250 basis points year over year. Despite strong performance on the topline we experienced certain nonrecurring expense increases annually impact results that totaled $4 4 million and includes a $1 million insurance deductible related to hurricane Dorian.
Matthew Brown: Despite strong performance on the top line, we experienced certain non-recurring expense increases and impact results that totaled $4.4 million and includes a $1 million insurance deductible related to Hurricane Milton and water intrusion remediation that we discussed on our last call. Excluding these $4.4 million of additional weather-related expenses, our consolidated fourth quarter shop-and-wine margin would have been 140 basis points higher.
Anthony: And water intrusion remediation that we discussed on our last call.
Anthony: Excluding these four $4 million of additional weather related expenses.
Anthony: Consolidated fourth quarter shop, NOI margin would've been 140 basis points higher.
Matthew Brown: For full year 2024, our shop will have $106 million dollars from the high end of our revised shop guidance.
Anthony: Our full year 2020 for our shop NOI of $106 million. So the high end of our revised <unk> guidance.
Matthew Brown: Turning to G&A expense, the fourth quarter amount was a $6.9 million reversal of business management incentive fee, as our total returns fell below the benchmark, resulting in no incentive fee incurred for 2024. Excluding this rehearsal, G&A expense would have been $5.7 million.
Anthony: Turning to G&A expense, the fourth quarter Mt was the $6 9 million reversal of business management incentive fee as our total returns fell below the benchmark, resulting in no incentive fee incurred for 2024.
Excluding this rehearsal G&A expense would have been $5 7 million now I'll turn the call over to Matt.
Matthew Brown: Now I'll turn the call over to Matt. Thanks, Anthony, and good morning, everyone. We ended the quarter with approximately $145 million of unrestricted cash, which reflects a $60 million pay down towards our 2025 unsecured senior notes in November, leaving $380 million due in June. Since our Q3 earnings call, we have made significant progress on our financing strategy with three executed term sheets and one term sheet in final stages of negotiation for anticipated aggregate loan proceeds of $340 million, secured by 27 of our shop community members. Based on current spreads, the weighted average interest rate on these expected financings, which is subject to fluctuating changes in treasury rates, is approximately 6.5%, which compares very favorably to the 9.75% debt being paid off.
Thanks, Anthony and good morning, everyone.
Anthony: We ended the quarter with approximately $145 million of unrestricted cash, which reflects a $60 million paid out towards our 2025 unsecured senior notes in November leaving $380 million due in June.
Anthony: Since our Q3 earnings call, we have made significant progress on our financing strategy with three executed term sheets and one term sheet in final stages of negotiation for anticipated aggregate loan proceeds of $340 million.
Secured by 27 of our shop communities.
Anthony: Based on current spreads the weighted average interest rate was expected financings, which is subject to fluctuate changes in treasury rates is approximately six 5%, which compares very favorably to the 975% debt being paid off.
Matthew Brown: While the closings are contingent on the completion of diligence and certain structuring requirements with licensing, we expect the closings to occur over the next 60 days.
Anthony: While the closings are contingent on the completion of diligence and certain structuring requirements with licensing we expect the closings to occur over the next 60 days.
Matthew Brown: To ensure we have ample liquidity and to improve our portfolio, we continue to target select properties for disposition, many of which have underperformed. Since the beginning of the fourth quarter, we have sold three unencumbered properties, including two medical office and life science properties and one shop community, for an aggregate sales price of $26.3 million. We are also currently under agreements to sell seven unencumbered properties, including five shop communities, one medical office and life science property, and one former senior living community, for an aggregate estimated gross sales price of $77 million. In addition, we have other properties in various stages of marketing.
Anthony: To ensure we have ample liquidity and to improve our portfolio. We continue to target select properties for disposition, many of which have underperformed.
Anthony: Since the beginning of the fourth quarter, we have sold three unencumbered properties, including two medical office and life Science properties and one shop community for an aggregate sales price of $26 $3 million.
Anthony: We are also currently under agreement to sell seven unencumbered properties, including five shop communities, One medical office and life Science property and one former senior living community for an aggregate estimated gross sales price of $77 million in.
Anthony: In addition, we have other properties in various stages of marketing.
Matthew Brown: Based on the progress we've made on our financing strategy, the sale of unencumbered properties and our current liquidity position, we are very comfortable with our ability to repay the $380 million of bonds due in June. In January of this year, we sold the MUSE Life Science Portfolio, which secures our zero-coupon bond for a gross sales price of $159 million and have 19 additional collateral properties under agreements to sell for $142 million, including 18 triple net leases, senior living communities leased to Brookdale, and one MOB, which are expected to close within the next week. We are required to use the net proceeds from these sales to partially redeem our $940,000,000 euro coupon bonds due in January 2026, highlighting our proactiveness in addressing this bond.
Anthony: Based on the progress we've made on our financing strategy the sale of unencumbered properties and our current liquidity position, we are very comfortable with our ability to repay the $380 million of bonds due in June.
Anthony: In January of this year, we sold them used life science portfolio, which secures our zero coupon bond for a gross sales price of $159 million and have 19 additional collateral properties under agreement to sell for $142 million.
Anthony: Including 18, Triple net leased senior living communities leased to Brookdale and one MOBA, which are expected to close within the next week.
Anthony: We are required to use the net proceeds from these sales to partially redeem our $940 million euro coupon bonds due in January 2026, highlighting our proactive in addressing this bond.
Matthew Brown: After these repayments, we will have approximately $640 million outstanding and continue to focus on this maturity, including additional property sales and secured financings to address the balance of this maturity. As a reminder, we do have an option to extend the maturity by one year to January 2027. After addressing our 2025 and 2026 debt maturities, we have no maturities until 2028 with a well-ladder debt expiration schedule.
Anthony: After these repayments, we will have approximately $640 million outstanding.
Anthony: To focus on this maturity, including additional property sales and secured financings to address the balance of this maturity.
Anthony: As a reminder, we do have an option to extend the maturity by one year to January 2027.
Anthony: After addressing our 2025 and 2026 debt maturities, we have no maturities until 2028 with a well ladder that expiration schedule.
Matthew Brown: We are confident that the continued execution of our financing strategy will ultimately position us to drive growth and deliver meaningful value. During the quarter, we invested approximately $73 million of capital, including $61 million into our shop communities, which included the completion of 23 refresh projects, $8 million in our medical office and life science portfolio, and $4 million at our wellness center. For the full year of 2024, CapEx spend was $191 million, including $140 million in our shop segment. Turning to our 2025 outlook, we expect to spend between $150 and $170 million on CapEx in 2025, with approximately $105 to $120 million being invested in our senior living communities.
Anthony: We are confident that the continued execution of our financing strategy will ultimately position us to drive growth and deliver meaningful value.
Anthony: During the quarter, we invested approximately $73 million of capital, including $61 million into our shop communities, which included the completion of 23 refresh projects $8 million in our medical office and life science portfolio and $4 million on our wellness centers for the full year of 2020 for Capex spend was 100.
Anthony: $91 million.
Anthony: Including $140 million in our shop segment.
Anthony: Turning to our 2025.
Anthony: We expect to spend between 150 and $170 million on Capex in 2025, with approximately $105 million to $120 million being invested in our senior living communities.
Matthew Brown: As we've stated previously, 2025 CapEx levels are declining from the prior years, as much of the refresh capital in deferred maintenance is now behind us. Using the midpoint of our 2025 CapEx guidance, the forecast represents a 16% reduction from 2024 levels and a 49% reduction from 2022, which was our highest level of CapEx spend over the past several years. As it relates to NOI, we expect NOI to range from $120 to $135 million in our shop segment and $104 to $112 million in our medical office and life science segment. From a modeling perspective, the MUSE that sold in January generated approximately $5 million of NOI in 2024 and the Brookdale portfolio that we expect to sell within the next week generated $10 million of NOI in 2024, inclusive of $2.2 million of percentage rent recognized in the fourth quarter.
Anthony: As we've stated previously 2025 capex levels are declining from the prior years as much of the refresh capital and deferred maintenance is now behind us.
Anthony: Using the midpoint of our 2025 Capex guidance the forecast represents a 16% reduction from 2024 levels and a 49% reduction from 2022, which was our highest level of capex spend over the past several years.
Anthony: As it relates to NOI, we expect NOI to range from $120 million to $135 million in our shop segment and $104 million to $112 million in our medical office and life Science segment.
Anthony: From a modeling perspective, some use that sold in January generated approximately $5 million of NOI in 2024, and the Brookdale portfolio that we expect to sell within the next week generated $10 million of NOI in 2024 inclusive of $2 $2 million or percentage rent recognized in the fourth quarter.
Matthew Brown: The impact of these sales is reflected in the guidance ranges provided.
Anthony: The impact of these sales as reflected in the guidance ranges provided.
Matthew Brown: Lastly, as it relates to guidance, we've implemented several initiatives, which we expect will have an impact on our results. We plan to update investors as to the timing of key events on future calls, and we'll refine our outlook as the year progresses.
Anthony: Lastly, as it relates to guidance, we have implemented several initiatives, which we expect will have an impact on our results. We plan to update investors as to the timing of key events on future calls and we'll refine our outlook as the year progresses.
Matthew Brown: I would like to highlight that we have published an updated investor presentation, which includes additional details which outline our 2025 initiatives and support our guidance on our disposition and transition plans.
Anthony: I would like to highlight that we have published an updated investor presentation, which includes additional details, which outline our 2025 initiatives and support our guidance on our disposition and transition plans.
Matthew Brown: In closing, we are confident that we will accretively meet our $380 million June 2025 debt maturity and will continue to proactively address our zero-coupon bonds that mature in January 2026.
Anthony: In closing we are confident that we will accretively meet our $380 million June 2025 debt maturity and we will continue to proactively address our zero coupon bonds that mature in January 2026 <unk>.
Unknown Executive: That concludes our prepared remarks. Operator, please open the line for questions. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.
Anthony: That concludes our prepared remarks, operator, please open the line for questions.
Anthony: We will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
Anthony: If you are using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Justin Haasbeek: Our first question is from Justin Haasbeek with RBC Capital Markets. Please go ahead. Hi, thanks.
Speaker Change: Our first question is from Justin <unk> with RBC capital markets. Please go ahead.
Justin: Hi, Thanks can you provide us some.
Christopher Bilotto: Can you provide some more color on why SHOP beat your guidance this quarter, and whether or not the insurance-related costs didn't materialize in 4Q24? Good morning, Justin. So, as it relates to SHOP guidance for Q4, we did have occupancy growth in the fourth quarter, and we reached 80% for the first time in a few years. Additionally, we did model in, in our revised guidance provided in Q3, the insurance impact that we had estimated around $4.4 million, so that came in right in line. So, overall, we're continuing to see our positive trends, and I will say, for the full year 2024, as Anthony had noted, our SHOP MOI was $106 million, which was towards the high end of our revised guidance that we had provided.
Speaker Change: Some more color on why shop be your guidance this quarter and.
Speaker Change: Whether or not the insurance related costs.
Speaker Change: Materialise and <unk> 24.
Justin: Good morning, Justin so as it relates to the shop guidance for Q4.
Justin: We did have occupancy growth in the fourth quarter, and we reached 80% for the first time in a few years. Additionally.
Justin: Additionally, we did model in our revised guidance provided in Q3, the insurance impact that we had estimated around $4 $4 million of that came in right in line. So overall, we're continuing to see our positive trends and I will say for the full year of 2024 as Anthony had noted our.
Justin: Our shop, NOI was $106 million, which was towards the high end of our revised guidance that we've provided.
Christopher Bilotto: Okay, and then on the shop, I look for 2025. How confident are you guys in the existing operators to help drive the recovery? I think we're very comfortable. I think, you know, as we've talked about before, you know, we've been making changes with operators, some in the form of transitions, and then in certain scenarios, you know, selling assets, which will have an impact on the number of assets being managed by different operators. And so, you know, as we look into 2025, we've been spending a significant amount of time with each of the operators, we have a dedicated in-house asset team that is super focused on, you know, working with these groups daily.
Justin: Okay, and then on the shop outlook for 2025.
Justin: And then are you guys in the existing operators to help drive the recovery.
Justin: So I think we're very comfortable I think as we've talked about before you know we've been making changes with operators. Some in the form of transitions and then uncertain scenarios.
Justin: Elling assets, which will have an impact on the number of assets being managed by different operators and so.
Justin: As we look into 2025, we have been spending a significant amount of time with each of the operators. We have a dedicated in house asset management team that is super focused on working with these groups daily and so it's really a joint effort to ensure we're kind of hitting our targets.
Christopher Bilotto: And so it's really a joint effort to ensure we're kind of hitting our targets.
Christopher Bilotto: Okay, then turning to debt. What's the plan for the zero coupon bond? And can you guys completely pay it down over the next year? And kind of how are you guys thinking about extending that to 2027? Sure. So first, we're not planning on extending it to 2027. I did note in our prepared remarks, we have that option, but that's not our plan today. Look, we've made a lot of progress on the pay down. We have $301 million of asset sales either completed or very close to completion. The net proceeds from that will go to paying it down.
Justin: Okay, and then turning to debt.
Justin: Is the plan for the zero coupon bond and can you guys completely paid down over the next year and kind of how are you guys thinking about extending that to 2027.
Justin: Sure. So first we're not planning on extending into 2027.
Justin: I did note in our prepared remarks, we have that option, but that's not our plan today look we've made a lot of progress on the Paydown, we have $301 million of asset sales either completed or very close to completion. The net proceeds from that will go to paying it down so thats going to leave us about $640 million and then we're looking at additional.
Christopher Bilotto: So that's going to leave us about $640 million. And then we're looking at additional property sales. Some of those are unencumbered assets today. Some of them may secure the zero coupon bond, in addition to additional financings that we're going to be kicking off to put us in a great position to repay that prior to the January 26 maturity.
Justin: Property sales some of those are unencumbered assets today some of them may secure the zero coupon bond. In addition to additional financings that we are going to be kicking off to put us in a great position to repay that prior to the January 26 maturity.
Christopher Bilotto: Okay, then last one, the $340 million of term sheets for the secured financing, what's the rate on that? So based off today's rates, we would expect it to have a weighted average rate of about 6.5%. And as a reminder, we're paying off 9.75% debt, so it's extremely accretive to us. Okay, thank you.
Justin: Okay, and then last one the $340 million of term sheets for the secured financing whats the whats the rate on that.
Justin: Okay.
Justin: Based off today based off today's rates, we would expect it to have a weighted average rate of about six 5% and as a reminder, we're paying off 975% debt. So it is extremely accretive to us.
Justin: Okay. Thank you.
Unknown Executive: Again, if you have a question, please press star then 1.
Speaker Change: Again, if you have a question. Please press Star then one the next question from John Masako with B Riley. Please go ahead.
John Masaka: The next question is from John Masaka with B Riley. Please go ahead. Good morning. So just on that last comment, to confirm, the interest rate there is still not set, right? I mean, that can fluctuate based on where base rates move in the next, you know, couple months or so. That is correct. They could move between now and closing each of the loans.
John Masako: Good morning.
John Masako: So just on that last one just.
John Masako: Just on that last one I can confirm the interest rate that was still not set right and that can fluctuate based on where base rates move in the next.
John Masako: A couple of months or so.
John Masako: That is correct it could move between now and closing each of the loss okay.
Christopher Bilotto: And then I'm thinking about 2025 guidance, just given the impact the weather had on 4Q results. I mean, are you baking in some kind of assumption of the impact of adverse weather events or, you know, other impacts to insurance? And I guess maybe with that insurance, something that, because it was a deductible, could be, you know, one time for a longer period of time than, you know, just being an annually recurring thing if we see other kind of hurricane issues. In a given year. Yeah, so, you know, more broadly, as it relates to the guidance in that portfolio, it's really hard to predict weather events.
John Masako: Okay, and then I'm thinking about 2025 guidance just given the impact.
John Masako: Weather had on <unk> results I mean are you baking in some kind of athene chin of the impact of adverse weather events or other impacts to insurance and I guess, maybe with that insurance some thing that.
John Masako: Because it was a deductible could be onetime for a longer period of time than just being an annually recurring thing if we see other kind of hurricane issues.
John Masako: Any given year.
John Masako: Yes, so more broadly as it relates to the guidance in that portfolio, it's really hard to predict weather events. So we generally don't.
Christopher Bilotto: So we generally don't bake any of that into our forecasts.
John Masako: Bake any of that into our forecasts, but along the way if we do experience those types of events, we would notify the market an update guidance accordingly.
Christopher Bilotto: But along the way, if we do experience those types of events, we would notify the market and update guidance accordingly.
Christopher Bilotto: Okay, and then lastly, I mean, you know, on the disposition side, particularly the stuff that is being currently marketed, who's kind of the buyer base for those assets? And I guess maybe how interest rate sensitive are they? Yeah, I mean, the buyer's a mix. You know, we're seeking we're seeing operators, you know, as as buyer candidates with certain sources of capital, and that can be through stuff, you know, cash on their balance sheet, it could through be through other private equity relationships or financing, you know, certainly with scenarios where, you know, there is less occupancy or more work to do financing paths can be a little bit more challenging.
John Masako: Okay.
John Masako: And then lastly, I mean on the.
John Masako: The disposition side, particularly the stuff that is being currently marketed who's the buyer base for those assets and I guess, maybe how interest rate sensitive or are they.
John Masako: Yes, I mean, the buyers the mix.
John Masako: We're seeing operators.
John Masako:
John Masako: As buyer candidates with certain sources of capital and that could be through stock cash on their balance sheet. It could be through other private equity relationships or financing.
John Masako: Certainly with scenarios where.
John Masako: There is less occupancy or more work to do the financing path can be a little bit more challenging but.
Christopher Bilotto: But in most cases, as these buyers are coming to the table, and again, these are operators, these are private equity, these are local regional groups, it kind of runs the gamut, they're coming to the table with kind of their financing partner or sources as part of that process. And so, you know, it really is a mix, just given kind of the assets and locations we are selling.
John Masako: In most cases these buyers are coming to the table and again. These are operators. These are private equity. These are local regional groups. It kind of runs the gamut theyre coming to the table with kind of their financing partner or sources as part of that process and so.
John Masako: It really is a mix just given kind of the assets and locations we are selling.
Christopher Bilotto: And then last one for me on the balance sheet side, as you look at the portfolio today, are there opportunities for additional agency financing beyond what you kind of expect to close in the next 60 days? Yes, we expect there to be. First, we just want to get through this first round of financing before potentially introducing other communities into the agency. That's it for me.
Speaker Change: Okay, and then last one for me on the balance sheet side. If you look at the portfolio today are there opportunities for additional agency financing beyond what you'd kind of expect to close in the next 60 days.
John Masako: Yes, we expect there to be.
John Masako: First we just want to get through this first round of financing before potentially introducing other communities into the agencies.
John Masako: Okay.
Unknown Executive: Thank you very much. Thank you.
Thank you for me thank you very much.
John Masako: Thank you.
Christopher Bilotto: This concludes our question and answer session.
John Masako: This concludes our question and answer session I would like to turn the conference back over to Chris Blotto for any closing remarks.
Christopher Bilotto: I would like to turn the conference back over to Chris Bilotto for any closing remarks. Well, thank you for joining our call today.
John Masako: Well, thank you for joining our call today and that concludes our call. Thank you.
Unknown Executive: And that concludes our call. Thank you.
Unknown Executive: The conference is now concluded.
John Masako: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Unknown Executive: Thank you for attending today's presentation.
Unknown Executive: You may now disconnect.
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