Q1 2025 Diversified Healthcare Trust Earnings Call
Speaker Change: 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 strictly prohibited without the prior written consent of the company today.
Speaker Change: Today's conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 and other securities laws.
Speaker Change: These forward looking statements are based upon DH sees beliefs and expectations as of today Tuesday may six 2025.
Speaker Change: 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.
Speaker Change: In addition, this call may contain 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.
Speaker Change: 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 THC read dotcom.
Speaker Change: Actual results may differ materially from those projected in any forward looking statements additional information.
Speaker Change: Information concerning factors that could cause those differences is contained in our filings with the SEC.
Speaker Change: Investors are cautioned not to place undue reliance upon any forward looking statements.
Speaker Change: 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: Disposition of real estate with that I would now like to turn the call over to Chris. Thank.
Chris: Thank you, Matt and good morning, everyone. Thank you for joining our call and.
Speaker Change: I will begin by providing a high level review of GAC solid first quarter results as well as an update to the progress and timing of our key strategic initiatives, then Anthony will provide more detail regarding our first quarter financials, and Capex and finally, Matt will review, our liquidity and financing activities before providing an update.
Speaker Change: On our 2025 guidance.
Speaker Change: After the market closed yesterday D. C reported total revenues of $386 $9 million for the first quarter, which was a 4% increase over last year.
Speaker Change: Adjusted EBITDA was $75 $1 billion up 17% year over year.
Speaker Change: Normalized <unk> was $14 $3 million or <unk> <unk> per share both of which exceeded the analyst consensus estimate and.
Speaker Change: In addition to the solid year over year results. We have made significant progress so far in 2025 addressing our upcoming debt maturities, while also delevering the balance sheet and the completion of $332 million in asset sales.
Speaker Change: Turning first to our shop sector performance GAC.
Speaker Change: <unk> experienced a meaningful improvement within and shop segment, our same property NOI came in at $38 $4 million or 33, 6% increase sequentially and a 42, 1% increase year over year.
Speaker Change: On a consolidated basis average monthly rate increased four 8% year over year and occupancy increased 130 basis points to 82%, resulting in a six 5% increase in shop revenue.
Speaker Change: Importantly shop, NOI margin improved 320 basis points year over year to 11, 2% on a consolidated basis and a 12, 9% on a same property basis. In addition, our 115 same property five start managed communities posted an NOI margin of 14, 6%.
Speaker Change: Yeah.
Speaker Change: Revpar increased year over year by four 8%, primarily driven by annual rate increases substantial increases in shop care level pricing and a reduction in discounts and concessions that fully occupied properties.
Speaker Change: Expense for increased by 2% due to merit increases and filling open positions offset by a reduction in contract labor usage and a decrease in our annual insurance premium.
Speaker Change: Overall, we continue to be pleased with the progress we are making controlling costs and we remain bullish on the outlook within the shop segment throughout 2025.
Speaker Change: Turning to our medical office and life Science portfolio.
Speaker Change: During the quarter, we completed approximately 145000 square feet of new and renewal leasing activity with weighted average rents that were $18, 4% higher than prior rents for the same space and a weighted average lease term of 10.2 years.
Speaker Change: Same property occupancy was 91% down 10 basis points from the fourth quarter.
Speaker Change: As we look ahead for 7% of annualized revenue and our MLP and lifestyle portfolio scheduled to expire through year end 2025. As previously noted we had one large known vacates in the first quarter in St. Louis, Missouri, occupying 233000 square feet. We have marketed this noncore property for sale.
Speaker Change: Entered into an LOI with the buyer.
Speaker Change: Known Vacates for Dac's Medical office building in life Science portfolio in 2020 Fives are modest at 115000 square feet and we have an active leasing pipeline of 603000 square feet of which a 152000 square feet of new absorptions. Our pipeline includes an average lease term of approximately eight years.
Speaker Change: And it's trending rents roll up in the double digits.
Speaker Change: Turning to our key strategic initiatives.
Speaker Change: The $321 million of property sales, we completed in the first quarter largely consisted of immune life science campus in San Diego for $159 million and 18 Triple net senior living communities leased to Brookdale for $135 million.
Speaker Change: Net proceeds from amused that brookdale as well as one smaller mob sale totaled $299 million, which was used to partially pay down D. A six zero coupon notes due in 2026.
Speaker Change: In March Phd closed on $140 million mortgage financing secured by 14th senior living communities with an appraised value of $164000 per unit.
Speaker Change: And in April we closed on a 10 year fixed rate Freddie Mac mortgage financing for $109 million.
Speaker Change: Third by seven senior living communities valued at 199000 per unit an.
Speaker Change: In April and May tacs, using $280 million in financing proceeds and cash on hand to further pay down our senior unsecured notes due in June 2025.
Speaker Change: Looking forward with marketing efforts of certain properties.
Speaker Change: As of quarter end, our active disposition pipeline included 65 properties of which 30 are MLB life science of walnuts properties totaling two 3 million square feet, and 35 properties or roughly 2600 units within our shop portfolio.
Speaker Change: This includes previously communicated asset sales along with the addition of 25 predominantly non core MLB life Science, a wellness center assets valued at approximately $190 million.
Speaker Change: We estimate the combined asset sales, we will produce proceeds between 350 and $400 million.
Speaker Change: Of which approximately $125 million as collateral for our 2026 maturity.
Speaker Change: We expect these asset sales will transact over the next several quarters.
Speaker Change: And currently we are under agreements with letters of intent with 19 of these properties for $116 million, which includes 15 noncore shop communities and for <unk> life Science assets.
Speaker Change: The first quarter, we have sold one shop community for $11 2 million.
Speaker Change: These asset sales should materially enhance the portfolio's future performance given that it will have a higher concentration of well positioned shop assets complemented by a portfolio of best in class Triple net MOBA life science properties and.
Speaker Change: In addition to deleveraging our balance sheet, we expect to see a reduction in our future your capex spending, thereby allowing us to increase overall portfolio cash flow and strategically allocate capital to the highest ROI opportunities.
Speaker Change: Before I turn the call over to Anthony I would like to highlight the recent publication of the RMR group's annual sustainability report, which offers a comprehensive overview of our managers commitment and progress in addressing sustainability.
Speaker Change: Investors will also find highlights of initiatives that DHT has undertaken to improve sustainability across the portfolio of senior living communities Medical office buildings and life science assets are linked to the report is available on our website now I would like to turn the call over to Anthony.
Anthony: Thank you, Chris and good morning, everyone our.
Anthony: Our same property cash basis, NOI was 71 $5 million, representing a 27% increase year over year and 14, 8% increase sequentially.
Anthony: These increases were primarily driven by strong results in our shops.
Anthony: Excellent at $38 4 million at the same property NOI driven.
Anthony: Driven by a four 8% increase in average monthly rate year over year, and three 1% sequentially.
Anthony: 82%, which was up 130 basis point increase year over year, and 20 basis point increase sequentially.
Anthony: This resulted in revenue growth of six 5% and margin expansion 310 basis points year over year our.
Anthony: Our shop level. After the first quarter was favorably impacted by $2 7 million proceeds.
Anthony: Interruptions by about one of our communities in Florida.
Anthony: Turning to G&A expense.
Anthony: The first quarter milestone of $2 $4 million of business management incentive fee and our total return exceeding the benchmark as of March 31st 2025.
Anthony: And he said of Bendamustine correct Rafi go through January 2026.
Anthony: Excluding the impact of the incentive management fee G&A expense would have been $6 $6 million for the quarter.
Anthony: During the quarter, we invested approximately $32 million of capital, including $27 million in our shop communities.
Anthony: Medical office and life science portfolio.
Anthony: First quarter, Spanish consistent with our expectations and therefore, we are reaffirming our 2020 capex guidance of $150 million to $170 million at this time now.
Matt: Now I'll turn the call over to Matt.
Matt: Thanks, Anthony and good morning, everyone.
Matt: We ended the quarter with approximately $300 million of unrestricted cash, including the $140 million. We received from the financing completed on March 31, we.
Matt: We stopped fully paid down our June 2025 bonds in April with that $140 million.
Matt: The $140 million financing is secured by 14th senior living communities has a three year term and two one year extension options. The financing is interest only for two years has options to extend the interest only period subject to meeting certain conditions and has a floating rate of silver plus 250 basis points.
Matt: That 7%.
Matt: In addition to this financing in April we closed on a $108 9 million financing secured by seven senior living communities.
Matt: This mortgage was financed through Freddie Mac with a 10 year term and a fixed interest rate of six 2% with interest only payments for five years.
Matt: We are pleased with the valuations of these properties as they represent an aggregate valuation of approximately $181000 per unit.
In April we provided notice to redeem an additional $140 million of our 2025 senior notes in May leaving $100 million outstanding after this latest repayment.
Matt: Pro forma for this additional $140 million Paydown, we have approximately $120 million of cash on hand, we.
Matt: We have two executed term sheets with lenders for aggregate proceeds of approximately $94 million, which will be secured by six senior living communities.
Matt: We expect these financings to close in May and are confident the proceeds from these financings along with cash on hand will address our bonds due in June.
Matt: With our June 2025 bond maturity addressed as noted above we have turned our focus to proactively addressing our January 2026 zero coupon bond.
Matt: As Chris noted we have sold 22 properties that were collateral to our zero coupon bond and used net proceeds of $299 million to partially redeem these bonds, leaving $641 million outstanding on that debt.
Matt: We intend to use most of the proceeds from the $350 million to $400 million of pending property dispositions. So further pay down this bond.
Matt: We expect these property dispositions will cover more than half of the remaining outstanding balance with the rest coming from additional financing activity.
Matt: As a reminder, we do have the option to extend the maturity by one year to January 2027.
Matt: Once these bonds have been addressed we have no debt maturities until 2028, providing ample runway to continue improving operations and results in our shop segment and driving shareholder value.
Matt: The improvement in shop, NOI, coupled with strengthening our balance sheet through dispositions and refinancings resulted in our net debt to adjusted EBITDA. Our E declining significantly from 11 two times at December 31 to eight eight times at March 31.
Matt: In closing we are confident that we will meet our 2025 and 2026 debt maturities, leaving us until 2028 before our next maturity. Additionally.
Speaker Change: Additionally, as Anthony noted we are pleased with our Q1 results, including the growth in shop NOI and at this time are reaffirming our 2025 shop NOI guidance range of $120 million to $135 million with the potential to increase our guidance. If these trends continue in the second quarter and we get more clarity.
Matt: And the timing of dispositions.
Matt: That concludes our prepared remarks, operator, please open the line for questions.
Matt: 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 speaker phone. Please pick up your handset before pressing the keys.
Matt: At any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Matt: Our first question will come from Justin has been with RBC capital markets. Please go ahead.
Justin: Yeah. Thanks for taking the question it looks like during the seasonally weak quarter for the industry occupancy was up 20 bps sequentially for the entire shop versus down 40 bps sequentially. If this time last year can you just provide some color on the on the occupancy gains for the first quarter.
Matt: Okay.
Matt: Yeah, you know occupancy in general has improved for a variety of different reasons. I think you know kind of more specifically as we worked through the last couple of years with investing capital in our communities.
Matt: Certainly getting the benefit of that.
Matt: More broadly speaking across the U S and I think we should expect to see more of that as we go into 2025, having completed an additional 23 refreshes in Q1, and so you know one part it's just overall kind of operations and the managers are focusing on certain initiatives.
Matt: Five occupancy is the capital and then kind of just being positioned appropriately within the market to drive overall improvement.
Matt: Okay.
Speaker Change: Can you provide some color on though Eric life dividend is this a onetime payment or could it could DHT continued to receive future dividends like this.
Eric Life: I would say for modeling purposes. This was more of a one time dividend that we received for our 34% interest based off some strategic actions that <unk> taken.
Eric Life: <unk> performing well with positive EBITDA. So there is potential for dividends in the future, but I wouldn't think at this time thereof. The magnitude of what we saw in February.
Eric Life: Okay.
Eric Life: And then on the shop results. The if you annualize the NOI for the current quarter. It's it's significantly above the top end of your range for shop got it for the full year shop Guide just wondering if theres any reasoning behind not non increasingly guidance that you guys expect something that we that the in the.
Eric Life: In the future quarters that we don't know about or.
Eric Life: Any color there would be great.
Eric Life: Look we've come out of the gate strong beginning 2025, we're very pleased with our NOI performance in the first quarter.
Eric Life: As we noted we did have some business interruption.
Eric Life: Proceeds of $2 $7 million that was favorably impacting NOI in the quarter, so that needs to be stripped out from a run rate basis, we are trending to the high end of our guidance.
Eric Life: We do get the benefit in the first quarter of a few fewer days in the quarter that helps with salaries and benefits that normalizes as we go out through the year. So look we're very pleased we do have a lot of dispositions that are in flux and as we get more clarity on the timing of those dispositions. We're hopeful we'll be in a position to increase our guidance as early as the.
Eric Life: The second quarter.
Eric Life: That's it for me thank you very much.
Speaker Change: Again, if you have a question. Please press Star then one hour.
Speaker Change: Our next question will come from John <unk> with B Riley. Please go ahead.
John: Good morning.
Speaker Change: Good morning kind of building on that maybe you're kind of building on that last question.
John: Yeah, you were able to keep it.
Speaker Change: Shop property operating expenses pretty flat.
Speaker Change: Anything specific there to call out anything one time ish beyond.
Speaker Change: The favorable kind of game mix versus you know.
Speaker Change: <unk>, just just kind of curious what's going on there.
Speaker Change: Yes, so sequentially, our operating expenses and shop were flat on a year over year basis. They were up about 3%. We would expect for 2025, our expenses the trend about 3% higher than where we were in 2004, we add.
Speaker Change: Spoken previously about savings in our insurance premiums from our policy that resets on July one of each year. So we are we've been seeing a benefit of that since the third quarter of 'twenty four but nothing really material one time that would impact that.
Speaker Change: Okay.
Speaker Change: And then on the Capex front anything notable to call out there just thinking obviously seasonally Q3 Q tend to be the highest you know it is.
Speaker Change: That guidance kind of reaffirmed and was there anything maybe essentially drive savings there for the remainder of the year.
Speaker Change: Yes. Good morning. This is Anthony so historically, you're right most of our spend tends to be weighted towards the second half of the year last year I believe roughly two thirds of our spend came in the second half. So that's why our rate of our current guidance at this time. So we're in line with what we expected during the first quarter, but as announced related to palace.
Speaker Change: Any changes to stave off disposition timing or whatnot.
Speaker Change: For me, what we've previously guided towards.
Speaker Change: Okay, and then on the on the debt front and what are you expecting in terms of pricing maybe on the 94 million, but even beyond that as you look to kind of address.
Speaker Change: Zero coupons kind of half with financing.
Speaker Change: Yeah. So on this first phase of financing.
Speaker Change: We spoke last quarter of a weighted average interest rate of about six 5% and I would say give or take thats pretty close for once we complete this $94 million.
Speaker Change: Which we're very pleased with given we're paying off 975% debt. So it's extremely accretive for us as we look forward to any partial financing for the repayment of the 2026 is it's too early to really tell just because theres a lot of different options, we have with financing given our.
Speaker Change: Our large unencumbered balance sheet.
Speaker Change: But I would say pricing is probably below 7% for any financing we were to do one on a secured basis.
Speaker Change: Yeah, and I would just add to that too.
Speaker Change: We talked about it you know we have a significant amount of dispositions that we've talked about we've added new dispositions to the market are noncore and we'll be in life science properties and so I think more specifically as we're able to kind of look forward to transact over the next several quarters, that's going to have a meaningful.
Speaker Change: <unk> favorable impact further reducing those twenty-six isn't so what we're left with at the end.
Speaker Change: Can it be kind of a smaller tranche of financing with what we believe to be kind of a good quality portfolio of remaining encumbered properties within that debt tranche.
Speaker Change: Okay any thoughts on timing for the financing to kind of address the 'twenty fixes.
Speaker Change: Definitely.
Speaker Change: In the coming months or is that something that maybe its closer to year end.
Speaker Change: So I think a lot of the I think a lot of the dispositions are going to happen in the second half of the year. So more kind of back weighted and financings is probably beginning of the fourth quarter rather than waiting till the end of the maturity in January.
Speaker Change: Okay.
Speaker Change: That's it for me and I appreciate all the color. Thank you.
Speaker Change: With no further questions. This will conclude our question and answer session I would like to turn the conference back over to Christopher <unk>, President and Chief Executive Officer for any closing remarks.
Speaker Change: Yes. Thank you for joining our call today, we look forward to seeing many of you at the upcoming NAREIT conference in June institutional.
Speaker Change: Institutional investors should contact our investor relations, if you'd like to schedule a meeting with management.
Speaker Change: You.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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