Q2 2025 Diversified Healthcare Trust Earnings Call

Operator: Good morning and welcome to the DIVERSIFIED HEALTHCARE TRUST second quarter 2025 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 one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Matt Murphy, Manager of Investor Relations. Please go ahead.

Good morning and welcome to the Diversified Healthcare trust second quarter 2025 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.

Matt Murphy: Good morning. 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 sell-side analysts. Please note the recording and retransmission of today's conference call is strictly prohibited without the prior written consent of the company. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based upon DHC's beliefs and expectations as of today, Tuesday, August 5th, 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.

Please note the recording and retransmission of today's conference call is strictly prohibited without the prior written, consent of the company.

Today's conference, call contains forward-looking statements within the meaning of the private Securities. Litigation Reform, Act of 1995 and other Securities laws.

these 4 looking statements are based upon DHC beliefs and expectations as of today, Tuesday, August 5th, 2025

Matt Murphy: In addition, this call may contain non-GAAP numbers, including normalized funds from operations or normalized FFO, net operating income, or NOI, and cash basis net operating income, or cash basis NOI. A reconciliation of these non-GAAP measures to net income is available in our financial results package, which can be found on our website at www.dhcreit.com. Actual results may differ materially from those projected in any forward-looking statements. Additional information concerning factors that could cause those differences is contained in our filings with the SEC. Investors are cautioned not to place undue reliance upon any forward-looking statements. And finally, we will be providing guidance on this call, including NOI.

the company undertakes, no obligation to revise or publicly release the results of any revision to the poor looking statements made in today's conference call other than through filing with the Securities and Exchange Commission or sec.

In addition, this call may contain non-gaap numbers, including normalized funds. From operations, or normalized, ffo net, operating income, or noi, and cash basis, net operating income or cash basis. Noi

A Reconciliation of these non-gaap measures to net. Income is available in our financial results package, which can be found on our website at www.dhc.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 under Reliance upon any forward-looking statements.

Matt Murphy: We are not providing a reconciliation of these non-GAAP measures as part of our guidance because certain information required for such reconciliation is not available without unreasonable efforts or at all, such as gains and losses or impairment charges related to the disposition of real estate. With that, I would now like to turn the call over to Chris.

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 Bilotto: Thank you, Matt, and good morning, everyone. Thank you for joining our call today. I will begin by providing a high-level review of DHC's solid second quarter results, as well as an update on the progress and timing of our key strategic initiatives. Then, Anthony will provide more details regarding our second quarter financials and CAPEX spending. And finally, Matt will review our liquidity and financing activities before providing an update on our 2025 guidance. After the market closed yesterday, DHC reported second quarter results that beat analysts' expectations on both the top and bottom line, driven by a continued recovery in our shop segment. We made additional progress during the quarter in our efforts toward delivering our balance sheet through a combination of asset sales and new financing at attractive rates, and we paid off our maturing 2025 notes in June.

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 today.

I will Begin by providing a high-level review of dac's solid second quarter results as well as an update on the progress and timing of our key strategic initiatives, then Anthony will provide more details regarding our second quarter financials and capex spending. And finally, Matt will review our liquidity and financing activities before providing an update on our 2025 guidance.

After the market closed yesterday, DHC reported second quarter results. That deep analyst, expectations on both the top and bottom lines driven by a continued recovery in our shop segment.

We made additional progress.

Chris Bilotto: Total revenue for the quarter was $382.7 million, a 3% increase over last year. Adjusted EBITDA RE came in at $73.6 million, up 7% year over year, and normalized FFO increased 172% year over year to $18.6 million, or $0.08 per share. Looking at our shop sector performance, DHC continues to benefit from a combination of strong sector fundamentals, as well as the significant capital expenditures we have made over the last several years to upgrade our communities. This has resulted in an 18.5% year-over-year increase in same-property shop NOI, which came in at $37.4 million. On a consolidated basis, average monthly rate increased 5.4% year over year, and occupancy increased 160 basis points to 80.6%, resulting in a 6.2% increase in shop revenue.

Balance sheet through a combination of asset sales and new financing that attractive rates and we paid off our maturing 2025 notes in June.

Both revenue for the quarter was 382.7 million, a 3% increase over last year. Adjusted Eva re came in at 73.6%, year-over-year and normalized ffo, increase 172% year-over-year to 18.6 million or 8 cents per share.

Looking at our shop sector performance, DHC continues to benefit from a combination of strong sector fundamentals, as well as a significant Capital expenditures. We have made over the last several years, to upgrade our communities

This has resulted in an 18.5% year-over-year increase in same property shop in Hawaii.

Chris Bilotto: Although sequentially flat, shop NOI margin improved 180 basis points year over year to 11.2% on a consolidated basis and came in at 12.8% on a same-property basis. In addition, our 115 same-property communities managed by FiveStar posted an NOI margin of 14.1%, up 170 basis points year over year. RevPOR increased 5.4% year over year, primarily driven by annual rate increases, substantial increases in shop care level pricing, and a reduction in discounts and concessions at higher occupied properties. Expense score increased by 3.3% due to merit increases and filling open positions and partially offset by lower insurance costs. Overall, we continue to be pleased with the progress we are making controlling costs, and we remain bullish on the outlook for our shop segment. Turning to our medical office and life science portfolio.

Which came in at 37.44%, year-over-year and occupancy increased 160 basis points to 80.6% resulting in a 6.2% increase in shop Revenue.

All the sequentially Flats shop in a wide margin, improved 180 basis, points year-over-year to 11.2% on a Consolidated basis and came in at 12.28% on the same property basis.

In addition, our 115. Same property communities managed by 5-star and posted. An noi margin of 14.1% of 170 basis points year-over-year.

Revenue, primarily driven by annual rate increases substantially increases in shock care, level pricing and a reduction in discounts and concessions at higher occupied properties. Expense for increased by 3.3%, due to Merit increases in filling, open positions and partially offset by lower Insurance costs.

Overall we continue to be pleased with the progress. We are making controlling costs and we remain bullish on the outlook for our shop segment.

Chris Bilotto: During the second quarter, we completed over 106,000 square feet of new and renewal leasing activity, with weighted average rents that were 11.5% higher than prior rents for the same space at a weighted average lease term of seven years. Same-property occupancy was 89.9%, down 10 basis points from the first quarter. As we look ahead, 4% of annualized revenue in our medical office and life science portfolio is scheduled to expire through year-end 2025, of which 101,000 square feet, or 1.9% of annualized revenue, is a known vacate. Our active leasing pipeline of 691,000 square feet, of which 246,000 square feet is new absorption, provides momentum towards filling vacancy and increasing occupancy, along with the potential for double-digit rent growth. Turning to our key strategic initiatives.

Turning to our medical office and life science portfolio.

During the second quarter, we completed over 106,000 square feet of new and renewal leasing activity with weighted average rents that were 11.5% higher than prior ends for the same space at a weighted average lease term of 7 years.

Same property. Occupancy was 89.9% down, 10 basis points from the first quarter.

As we look ahead, 4% of annualized revenue in our medical office and life science portfolio is scheduled to expire through year-end 2025, of which 101,000 square feet, or 1.9% of annualized revenue, is a known vacate.

Are active leasing pipelines of 691,000 square feet of which 246,000 square feet of new is new absorption provides momentum. Toward filling, vacancy and increasing occupancy along with a potential for double-digit rent growth.

Chris Bilotto: During the second quarter, DHC sold two unencumbered properties, including one senior living community and one medical office building, for a total of $16.4 million. We subsequently sold another three unencumbered properties in July of 2025 for an aggregate sales price of $8.8 million. In support of our balance sheet initiatives, we completed an aggregate of $343 million of mortgage loans since March, obtained a new $150 million credit facility in June, which is currently undrawn, and redeemed all of our outstanding senior notes due in June 2025. Matt will provide more color on these transactions shortly. As of the end of July, our active disposition pipeline included 53 properties, of which 23 are medical office and life science properties totaling 1.6 million square feet, while 30 properties encompassing roughly 2,000 units are within our shop segment.

Starting to our key strategic initiatives during the second quarter DHC sells 2 unemployed properties including 1 Senior Living Community and 1 medical office building for a total of 16.4 million. We subsequently sold another 3, unemployment properties in July 2025, for an aggregate sales, price of 8.88 million,

In support of our balance sheet initiatives, we completed an aggregate of $343 million of mortgage loans. Since March, we obtained a new $150 million credit facility in June, which is currently on track and redeemed. All of our outstanding senior notes are due in June 2025.

That will provide more color on these transactions shortly.

Chris Bilotto: We are under agreements or letters of intent on 49 of these properties for $280 million, including 28 non-core shop communities and 21 medical office and life science assets. Of this $280 million, approximately $91 million is collateral for our zero-coupon notes that are due in January. We expect the majority of these asset sales will transact in Q3 and Q4. In addition to these asset sales providing funds to help retire our 2026 notes and further reduce leverage for the balance sheet, this also positions the REIT with a materially enhanced portfolio that has a higher concentration of shop assets without size growth potential, given strong sector tailwinds, and complemented by a portfolio of triple net medical office and life science properties, providing stable cash flows with embedded annualized rent increases.

As in the end of July, our active disposition pipeline included, 53 properties, of which 23 are medical office and life science properties. Totaling 1.6 million square feet while 30 properties encompassing roughly, 2,000 units are within our shop segment.

We are under agreements or letters of intent on 49 of these properties, for 280 million, including 28, non-core, shop communities, and 21, medical office, and life, science assets.

Of this $280 million, approximately $91 million is collateral for zero coupon notes that are new in January. We expect the majority of these asset sales will transact in Q3 and Q4.

In addition to these assets sales, providing funds to help retire retire, our 202026 notes and further reduce leverage for the balance sheet.

Chris Bilotto: We also expect these sales to result in a reduction in CAPEX spending in 2026 and beyond, substantially increasing our overall portfolio cash flow. We remain encouraged, having delivered on the many initiatives communicated over the past year as it relates to growing shop NOI, selling non-core assets to delever the balance sheet, and refinancing debt at materially lower interest rates. We believe our share price is undervalued, and through a continuation of these initiatives, paying off our 2026 notes due in January, which Matt will lay out momentarily, and continued improvement within our shop results, each will serve as catalysts to drive share performance. Now I'd like to turn the call over to Anthony.

This also positions the rate with the materially enhanced portfolio, that has a higher concentration of shop access without size growth potential. Given strong sector tailwind and complemented by a portfolio of triple Net. Medical office and life, science properties, providing stable, cash flows with embedded annualized, rent increases

Going to be on substantially increasing our overall portfolio cash flow.

Anthony Paula: Thank you, Chris, and good morning, everyone. During the second quarter, our same-property cash basis NOI was $71.2 million, representing an 11.2% increase year over year and a 30 basis point decrease sequentially. The year-over-year increase was primarily driven by improvement in our shop segment, which delivered $37.4 million in same-property NOI. This increase was driven by a 5.2% increase in average monthly rate and a 100 basis point increase in off-seat to 81%. These drivers resulted in year-over-year same-property shop revenue growth of 5.9% and margin expansion of 140 basis points. As a reminder, our Q1 2025 shop revenues included the $2.7 million of proceeds from business interruption claims, one of our communities in Florida. Normal ledger design, we would have achieved a sequential increase in same-property shop NOI of 4.9%.

We remain encouraged having delivered on the many initiatives, communicated over the past year, as it relates to Growing shop. Noi selling non-core assets to deliver the balance sheet and refinancing debt and materially lower interest rates. We believe our share price is undervalued and through a continuation of these initiatives paying off our 2026 notes due in January, which Matt will lay out momentarily and continue to Improvement within our shop results, each will serve as Catalyst to drive. Share performance. Now, I'd like to turn the call over to Anthony.

Thank you, Chris and good morning, everyone.

During the second quarter, our same property Cash basis and why the 71.2 million representing an 11.2% increase year-over-year and a 30 basis point decrease sequentially.

the year we are increased is primarily driven by improvement in our shop segment, which delivered 37.4 million dollars in the same property and why this increase was driven by 5.2% increase in average monthly rate and a 100 basis points, increase in oxygen to 81%

These drivers resulted in a year-over-year, same property shop. Revenue growth is 5.0% in margin expansion, 100 140 basis points,

Anthony Paula: Turning to G&A expense, the second quarter amount includes $4.1 million of business management incentive fee, as our total return exceeded the benchmark as of June 30th, 2025. Any incentive management fee incurred would not be due until January 2026. Excluding the impact from the incentive management fee, G&A expense would have been $7 million for the quarter. During the quarter, we invested approximately $34 million in capital, including $29 million in our shop communities and $5 million in our medical office and life science portfolio. Looking back at our recently completed refreshments and redevelopments, we've achieved incremental NOI of $3.8 million during the quarter when compared to pre-renovation NOI. We believe there's continued upside in NOI and occupancy growth in these communities.

As a reminder, our q1 2025 shop revenues through the 27th at 2.7 million dollars, of proceeds from business, Interruption claims 1 of our communities in Florida. We would have achieved a sequential increase in the same property shop in Hawaii with 4.9%.

Returning from GNA expense the second. Quarter amount includes 4.1 million in business management centipedes as our total return exceeds The Benchmark as in June 30th 2025

Any management of the current will not be done until January 2026.

Excluding the impact on the incentive management fees, GNX would have been $7 million for the quarter.

During the quarter, we invested approximately $34 million of capital, including $29 million in our shop communities and $5 million in our medical office and life science portfolio.

Looking back at our recently, completed refreshes and redevelopments, we have achieved incremental noi 3.8 million dollars during the quarter with compared to pre-renovation noi.

Anthony Paula: Based on our spend to date and our expectations moving forward, we are reducing our 2025 CAPEX guidance to $140 to $160 million, a $10 million reduction from our prior guidance. Now I'll turn the call over to Matt.

we believe there's continued upside in noi, in occupancy growth that these communities

They sent our expectations to date. Moving forward, we are reducing our 2025 capex guidance to $140 million to $160 million, a $10 million reduction from our prior guidance.

Matt Murphy: Thanks, Anthony, and good morning, everyone. We ended the quarter with approximately $292 million of liquidity, including $142 million of unrestricted cash and $150 million available under our new revolving credit facility we closed in June. This new facility is secured by 14 shop communities, including approximately 2,600 units at an implied valuation of $184,000 per unit. The facility has a maturity date of June 2029 with two six-month extension options and provides us with additional liquidity while also demonstrating our lenders' support of our long-term strategy. In addition to our $150 million secured revolving credit facility, during 2025, we obtained an aggregate $343 million of financings secured by 27 of our shop communities, including approximately 4,100 units with a weighted average interest rate of 6.5%.

Now, we'll send a call over to that. Thanks, Anthony and good morning, everyone.

We ended the quarter with approximately $292 million of liquidity, including $142 million of unrestricted cash and $150 million available under our new revolving credit facility. We closed in June.

This new facility is secured by 14 shop communities, including approximately 2,600 units, at an implied valuation of $184,000 per unit.

The facility has a maturity date of June 2029 with 2 6-month extension options and provides us with additional liquidity while also demonstrating our lender, support of our long-term strategy.

Matt Murphy: All of this debt is at fixed rates with the exception of our $140 million mortgage loan, which is effectively fixed through an interest rate cap with a 4.5% SOFR strike rate. $279 million of the principal balance is interest only for periods ranging from two to five years. On a weighted average basis, the debt has a maturity of approximately six years and reflects an implied valuation of $174,000 per unit. We are very pleased with the outcome of these financings as they highlight the value of our shop communities, addressed our 2025 bond maturity, and reduced our annual cash interest expense by almost $15 million, or $0.06 per share.

In addition to our 150 million secured revolving credit, facility during 2025, we obtained an aggregate 343 million of financing secured by 27 of our shop communities, including approximately 4,100 units with a weighted average interest rate of 6.5%.

All of this debt is at fixed rate with the exception of our 140 million mortgage loan, which is effectively fixed through an interest rate cap with a 4.5%. So for strike rate,

279 million of the principal balance is interest only for periods ranging from 2 to 5 years.

On a weighted average basis, the debt has a maturity of approximately 60 years and reflects an implied valuation of $174,000 per unit.

Matt Murphy: As we've discussed previously, our strategy to address the remaining $641 million of January 2026 zero-coupon bond includes using the $280 million of proceeds from dispositions that Chris discussed, all of which are under PSA or LOI, new financing activity in the range of $300 to $350 million expected in the third quarter, and our strong liquidity position. As a reminder, we do have the option to extend some or all of this remaining bond by one year to January 2027. Our net debt to adjusted EBITDA RE was 8.7 times at June 30th, driven by our refinancing and disposition activities. We expect our leverage to continue to decrease towards our target of 6.5 to 7.5 times as we address our 2026 bond maturity, close the dispositions highlighted earlier, and continue to realize improved performance in our shop segment.

We are very pleased with the outcome of these financing as they highlight the value of our shop communities addressed our 2025 Bond maturity and reduced our annual cash interest expense by almost 15 million or 6 cents per share.

As we have discussed previously, our strategy to address the remaining 641 million of January 2026 zero coupon Bond includes using the 280 million of proceeds from dispositions that Chris discussed, all of which are under PSA or Loi new financing activity in the range of 300 to 350 million expected in the third quarter and our strong liquidity position.

As a reminder, we do have the option to extend some or all of this remaining bond by 1 year to January 2027.

Are refinancing and disposition activities.

Matt Murphy: In closing, we remain confident that we will meet our 2026 debt maturity, which leaves us until 2028 before our next maturity. Given the results so far and our expectations for the remainder of the year, we are increasing our 2025 shop NOI guidance by $10 million at the midpoint of the guidance range to $132 to $142 million. It is important to note that our year-to-date shop NOI of $73.4 million includes certain non-recurring items that benefited NOI in the first six months, as well as three fewer days in the first half of the year as compared to the second half of the year. As a result, we expect expense increases based on the increased number of days in Q3 and Q4 and increased utilities in Q3 due to seasonality. That concludes our prepared remarks. Operator, please open the line for questions.

We expect our leverage to continue to decrease towards our target of 6.5 to 7.5 times as we address our 2026 bond maturity close. The dispositions highlighted earlier continue to realize improved performance in our shop segment.

In closing, we remain confident that we will meet our 2026 debt maturity, which leaves us until 2028 before our next maturity.

Given the results so far in our expectations for the remainder of the year, we are increasing our 2025 shop. Noi guidance by 10 million dollars at the midpoint of the guidance range to 132 to 142 million.

It is important to note that our year-to-date shop and AI of 73.4 million include certain non-recurring items that benefited, noi in the first 6 months as well as 3 fewer days, in the first half of the year as compared to the second half of the year.

As a result, we expect expenses based on the increased number of days in Q3 and Q4 and increase Utilities in Q3 due to seasonality.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. And our first question will come from John Masaka with eReilly Securities. Please go ahead. Hello, John. Your line may be muted.

That concludes our prepared remarks. Operator, please open the line for questions.

Thank you. We will now begin the question and answer session to ask a question. You may press star then 1 on your touchtone phone, if you are using a speaker-phone please pick up your handset before pressing the keys.

if at any time your question has been addressed and you would like to withdraw your question, please press star then 2

At this time, we will pause momentarily to assemble our roster.

And our first question will come from John Masa with B Riley Securities. Please go ahead.

John Massocca: Apologies. I was muted. Good morning, everybody. Maybe digging in a little bit on the Q2 results, just given kind of the change to guidance and your kind of calling out of some one-time items in the first half of the year. Anything notable specifically in Q2 25? I know there were some, I believe it was insurance reimbursements in in one Q, but just anything in Q2 that would be considered kind of one-time issue, maybe, you know, how much did that impact the model going forward?

Hello, John, your line may be muted.

Apologies, I was muted. Um, good morning everybody. Uh maybe digging in a little bit on the uh 2 key results. Just giving kind of the change to guidance in in your kind of calling out of some 1-time items in the first half of the Year, anything notable specifically in 2q, 25. I know there were some, I believe it was Insurance reimbursements in in 1 Cube but just anything in 2 Cube that would be considered kind of 1 time issue. Maybe, you know, how much could that impact? The model going forward?

Matt Murphy: Yeah, the majority of the NOI benefit came in the first quarter, as we noted with those insurance proceeds. We had a little bit of benefit to Q2 PLGL insurance, but not as material to Q1. As we look forward, we expect to continue to see occupancy growth towards the year-end target that we'd previously highlighted. We do expect some seasonal increases in Q3 with utilities that happen every year. And then with a few more days in the second half, that'll add some costs as it relates to salaries and benefits, etc.

Yeah. The, the majority of the noi benefit came in the first quarter as we noted with those insurance. Proceeds, we had a little bit of benefit to Q2, um, plg insurance but not as material to, to q1. Um, as we look forward, we expect to continue to see occupancy growth towards the, uh, year-end Target that we've previously highlighted. Uh, we do expect some seasonal increases in Q3 with utilities that that happen every year. Uh and then with a few more days in the second half that'll uh add some costs as it relates to salaries and benefits, uh, Etc.

John Massocca: Okay. And then as I think about the CAPEX guidance change, was that all tied to reductions in kind of shop CAPEX, or was there other kind of other parts of the portfolio where you're seeing less of a need for CAPEX?

Anthony Paula: There's a few different pieces. So really, part of its disposition has been just generally, as we advance towards closer to year-end, just kind of comparing where we're at from an actual year-to-date spend to what we underwrote for budgeting. We're just trying to tighten our range a little bit. And then also, we have some tenant-managed PIs and speculative leasing in the MLB and life science portfolio that can fluctuate, but we kind of feel good about tightening that range to what we did earlier today during the prepared remarks.

Okay? And then as I think about the capex guidance change um was that all tied to reductions in kind of shocked capex? Or was there other kind of uh other parts of the portfolio where you're seeing less of a need for capex?

Is it 2 different pieces? So really part of its dispositions and just generally as we advance towards closer to a year end. Just kind of comparing where we're at from a actual year to date spend and what we underwrote for budgeting. We're just trying to tighten our range a little bit and then

John Massocca: Okay. And then on the disposition front specifically, is there anything maybe beyond the, you know, pipeline of sales that are under PSA and LOI that you think you could continue to close either by year-end or maybe heading into Q2 26, just kind of trying to balance out what was closed, you know, year-to-date, what was kind of in, you know, the pipeline as of the June presentation, and you know, what's kind of in the just-under-contract bucket per the kind of supplemental? I mean, does that imply that maybe you're going to sell less stuff that was being marketed previously, or is that still kind of in in the works and maybe could close later this year?

Also, we have some tenant advantages. TI's Inspectiv leasing in the MLB life science portfolio can fluctuate. But we kind of feel good about paying that range to what we did earlier today, kind of prepared remarks.

Okay. And then on the disposition front specifically. Um, is there anything maybe beyond the, you know, pipeline of sales that are under PSA and Loi that you think you could continue to close either by year, end or maybe heading into to 26? Just kind of trying to balance out

Chris Bilotto: Yeah, it's a it's a mix, right? We noted the $280 million, as you alluded to, on the PSA and LOI front. Those are kind of the Q3, Q4 targets. We do have a handful of other assets, four different properties, two MLB, life science, two shop for another $20 million that is kind of behind with respect to the marketing process versus the LOI PSA. And so, you know, I don't, I would look at that as late Q4 and even into Q1 as a guide, but that really rounds out kind of the active marketing that we're doing. We did sell the three post-quarter end, as I mentioned in our prepared remarks. So, you know, things are trending accordingly. But yes, this will conclude kind of the broader stretch of asset disposition.

What was closed, you know, year to date, what was kind of in, you know, the pipeline as of the June presentation and, you know, what's kind of in the just under contract bucket per the kind of supplemental? I mean, is that imply that maybe you're going to sell less stuff that was being marketed previously? Or is that still kind of in in the works and maybe could close later this year?

Chris Bilotto: And then, you know, we'll just kind of turn to more hand-to-hand combat or strategic capital recycling on an ongoing basis as we get into 2026.

John Massocca: Okay. And then, you know, not a huge differential, but it seemed a little bit like the FiveStar assets, you know, at least on a kind of comparative basis, maybe even a quarter-over-quarter comparative basis, kind of outperformed some of the other shop properties in the portfolio. Anything to call out there as to why that was? And how does that, if at all, change your philosophy on how much of the portfolio you want to have being operated by FiveStar?

2, MLB Life Science 2 shop for another 20 million dollars. That is kind of behind with respect to the marketing process versus the LOI PSA. And so, you know, I don't, I would look at that as late Q4 and even into q1, uh, as a guide but that really rounds out kind of the active marketing that we're doing. Uh, we did sell the 3, uh, post quarter end. As I mentioned in our prepared remarks. Uh, so you know, things are trending accordingly. But uh, yes, this will conclude kind of the broader stretch of asset disposition. And then, you know, we'll just kind of turn to more hand-to-hand combat or strategic Capital recycling on an ongoing basis. Uh, as we get into the 2026.

and then, um,

You know, not a huge.

Differential. But it seemed a little bit like the the 5-star assets, you know, at least on the kind of comparative basis, maybe even a quarter over quarter comparative basis, kind of outperformed.

Some of the other shop properties in the portfolio, anything to call out there is to to why that was and how does that if at all, change your philosophy on how much of the portfolio you want to have being operated by 5-star?

Chris Bilotto: Yeah, I mean, look, I think that, you know, FiveStar has been really kind of working towards, you know, improving its overall business model and kind of bringing kind of the right team members in place. And, you know, we've talked about some of the, you know, general improvements to the operating platform that they've instilled. You know, we've invested capital in many of those FiveStar properties, and so we're starting to see the benefit of that as well. And I think kind of generally speaking, I would say net-net, you know, some of the FiveStar properties are located in more primary markets, and we're going to get some outside benefit from that. You know, for the balance of the portfolio, you know, there's still a lot of upside opportunity with there. I mean, we talked about some of the one-time impacts.

Chris Bilotto: We saw a pullback in Q2 with our Smith properties. We have 10 of those with an operator and with some one-time adjustments. And so that is impairing some of the results for the quarter. But we would expect both to kind of trend favorably, but with a slight tilt towards the FiveStar managed, just given the properties, the renovations more specifically with that portfolio.

Yeah, I mean look I think that uh you know 5-star um has been really kind of working towards, you know, improving its overall business model and and kind of bringing kind of the right team members in place. And you know, we've talked about some of the, you know, General improvements to the operating platform that they've instilled, you know, we've invested capital in many of those 5-star properties. And so we're starting to see the benefit of that as well. And I think kind of generally speaking, I would say net net, you know, some of the 5-star properties are located in more primary markets and we're going to get some outside benefit from that, you know, for the, for the balance of the portfolio, you know, there's still a lot of upside opportunity with their. I mean, we talked about some of the 1-time impacts. We saw a pullback in Q2, with our sniff properties. We have 10 of those, uh, with an operator, uh, and with some 1-time, uh, adjustments. And so that is impairing some of the results, uh, for the quarter. But, uh, we would

John Massocca: And then last question for me. In terms of occupancy, you know, as we think about where you are today versus kind of getting to the target range and guidance, is there some reason that that could maybe kind of hockey stick up at the tail end of the year, either, you know, fulfillment of the CAPEX plan, something around seasonality, or should that kind of, you know, in your mind, gradually build towards that that guidance number?

Expect both to kind of trend favorably but with a slight tilt towards a 5-star manage just given the properties, the renovations uh more specifically uh with that portfolio.

And then last question for me, in terms of occupancy, you know, as we think about where you are today versus kind of getting to, you know, the target range and guidance is there. Some reason that that could maybe kind of hockey stick up at the tail end of the year either? You know, a fulfillment of the capex plan, something around seasonality or should that kind of, you know, in your mind gradually build towards that that guidance number

Chris Bilotto: It gradually builds over the year. I mean, we provided kind of the year-end spot occupancy north of 82%. That 82.5% was kind of the midpoint we're targeting. And so that's going to be a byproduct of just improvements. I mean, we're seeing some favorable results coming into July. And again, as we get through these months kind of being more in favor with seasonality, we would expect that trend to continue. And then you're going to have the inflows and outflows of the dispositions that are currently under LOI or PSA that will also kind of fluctuate that occupancy number, ultimately getting us to that guidance towards the end of the year.

John Massocca: Okay. That's it for me. Thank you very much.

I gradually builds over the year, I mean, we provide a kind of the year, end spot occupancy, uh, north of 82%, but 82 and a half percent was kind of the midpoint where targeting and so that's going to be a byproduct of just improvements. I mean, we're seeing some favorable results coming into July. And and again, as we get through these months, kind of being more in favor with seasonality, we would expect that Trend to continue. And then you're going to have the inflows and outflows of the dispositions that are currently under Loi or PSA. That will also kind of fluctuate that occupancy. Number ultimately, getting us to that guidance towards the end of the year.

Chris Bilotto: Thanks.

Okay. Um that's it for me. Uh, thank you very much.

Operator: Again, if you have a question, please press star, then one. Our next question will come from Michael Carroll with RBC Capital Markets. Please go ahead.

Thanks.

again, if you have a question, please press star then 1

Michael Carroll: Yeah, thanks. Just have a few clarification questions. I know you said there was a non-recurring benefit, mostly in one Q, but there was a little in two Q. What was the amount in two Q that was non-recurring, and where was that included in the P&L? Was that in shop NOI?

Our next question will come from Michael Carroll with RBC Capital markets, please go ahead.

Matt Murphy: Yes, it's in shop NOI. It was on the expense side related to a benefit in PLGL insurance. It was about $1 million.

A few clarification questions. Um I know you said there was a non-recurring benefit mostly in 1 Cube but there was a little in 2 Cube. What was the amount in 2 q? That was non-recurring and and where was that included in the p&l? Is that in shop? Noi?

Michael Carroll: Okay, great. And then I know that the CAPEX number has been coming down a little bit. What is the correct recurring CAPEX per unit in your shop portfolio? So if you kind of fast forward into '26 and beyond, is all the extra CAPEX dollars that you've been spending, is that done? And what is the right run rate per unit going forward?

Yes, it's in shop. Noi. It was on the expense side, uh, related to a benefit in pgl insurance. It was about a million dollars.

Okay, great. And then I know that the the capex number has been coming down a little bit. Um, what is the correct? Um, recurring capex per unit in your shop portfolio, so it would be kind of fast forward and to 26. And Beyond is all the um, extra capex. Dollars that you've been spending. It is that done and what is the right run rate per unit going forward?

Anthony Paula: So from a recurring shop standpoint, we're thinking about $3,500 per unit. And on the redevelopment side, we're trying to be strategic in terms of how we deploy capital there. But in general, we're thinking mid to high team returns on that CAPEX.

Michael Carroll: And then as you go into 2026, are we done with the extra maintenance CAPEX that you've been kind of going through the past few years, or is there any other heavier CAPEX years that we should expect?

Anthony Paula: I'd say we're caught up for the most part in terms of the current CAPEX at this point.

And then as you go into 2026, or are we done with the extra maintenance capex that you can kind of go through the past few years or there is, or is there any other heavier capacity years that we should expect?

Michael Carroll: Okay, great. And then just lastly, I know you mentioned, and I believe I've heard this correctly, the new debt financing of $300 to $350 million in three Q. Is that going to be new secured debt on shop assets, or how should we think about how that potential secured financing could come in?

I'd say we're caught up in the most part in terms of deferred capex. At this point.

Okay, great. And then just, lastly, I know you mentioned, um, and I believe I've heard this correctly, the new debt financings of $300 to $350 million in Q3. Is that going to be new secured debt on shops or how should we think about, um, how that potential secured financing could come in?

Matt Murphy: Yeah, we've been working on this for a bit of time now. We have a couple of different options at play. Some are secured financing or unsecured in the form of a bond or more traditional type financing. As of now, we're not expecting it to be on shop communities, but we expect to report more in the coming months on that.

Yeah, we've, uh, we've been working on this for a bit of time now. Uh, we have a couple different options at play. Uh, some are is, secured financing, uh, or unsecured, um, in the form of a bond or more traditional, uh, type financing, uh, as of now, we're not expecting it to be on shop communities, um, but we expect to report more, uh, in the coming months on that.

Michael Carroll: Okay, great. That's all I got. Thanks.

Okay, great. That's all I got. Thanks.

Operator: With no further questions, this will conclude our question and answer session. I would like to turn the conference back over to Chris Bilotto, President and Chief Executive Officer, for any closing remarks.

With no further questions, this will conclude our question and answer session. I would like to turn the conference back over to Chris bolato, president and chief executive officer for any closing remarks.

Chris Bilotto: Thank you for joining our call today, and that concludes our call. Thank you.

Thank you for joining our call today. That concludes our call. Thank you.

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

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