Good morning and welcome to the Diversified Healthcare Trust Fourth Quarter 2020 Financial Results Conference Call. [Operator Instructions] I'd now like to turn the conference over to Michael Kodesch, Director of Investor Relations. Please go ahead.

Good morning, and welcome to Diversified Healthcare Trust call covering the fourth quarter 2020 results. Joining me on today's call are Jennifer Francis, President and Chief Operating Officer; and Rick Siedel, Chief Financial Officer and Treasurer. Today's call includes a presentation by management followed by a question-and-answer session. I would like to note that the transcription, recording and retransmission of today's conference call are strictly prohibited without the prior written consent of Diversified Healthcare Trust or DHC. 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 present beliefs and expectations as of today, Thursday, February 25, 2021. 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, EBITDA, EBITDARM and cash basis net operating income or cash basis NOI. Reconciliations of net income or loss attributable to common shareholders to these non-GAAP figures and the components to calculate AFFO, CAD or FAD, are available in our supplemental operating and financial data package found on our Web site 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. Now, I'd like to turn the call over to Jennifer.

Thank you, Michael, and good morning. Welcome to our fourth quarter 2020 earnings call. To begin today's call, I'd like to take a minute to talk about our shift in strategy in 2020. We started the year with a strategic plan that began with the completion of the transition of Five Star senior livings leases to management agreements. With that we had our primary operator undergoing a turnaround but on sure financial footing. We plan to spend considerable capital in our shop segment and we had a plan to sell properties with the intent to reduce leverage in order to maintain an investment grade rating. Because of COVID-19, these plans changed. We swiftly mobilized to combat the effects of the pandemic, operationally and financially, our focus shifted to working closely with the tenants in our office portfolio segments to ensure their continued success through the pandemic and to support Five Star's extensive measures to safeguard the health and well being of residents and employees and our senior living communities. The fact that they were financially secure allowed them to be laser focused on their COVID response. Where necessary, we altered the timing of our capital spend in our portfolios and also worked to strengthen the financial stability of DHC by reducing our dividend eliminating near-term debt maturities and by working with our lenders to ensure our liquidity position. Finally, in the second quarter as part of our multi-year review of our governance policies, we were pleased to expand the company's board with a new independent trustee with deep commercial real estate and capital markets expertise. While, we can say that we did not expect this unprecedented global pandemic nor the wake of its economic and social disruption. We're pleased that our asset diversification provided some stability through the year evidenced…

Thanks, Jennifer, and good morning, everyone. To begin today's financial commentary; I'd like to first provide an update on our liquidity position. On January 29, we amended our credit facilities to provide for waivers of most of our financial covenants through June of 2022 and added an additional option to extend the maturity of the revolving credit facility into January of 2024. Shortly after completing our credit facility amendments, we issued $500 million of senior notes due 2031 at a 4.375% interest rate. The proceeds of this offering were primarily used to prepay our $200 million term loan and to set money aside to redeem the $300 million of senior notes due December 2021, in June when these notes become redeemable without a prepayment penalty. Following the redemption, our next senior notes maturity is not until May of 2024. At December 31, 2020, we had $74 million of cash and following these transactions we had $800 million available on our revolving credit facility, which today remains undrawn. The DHC reported normalized FFO attributable to common shareholders of $0.09 per share, which was $0.03 per share higher than the third quarter. Sequentially same property EBITDARM in our SHOP segment actually increased 32.1% from the third quarter due to the recognition of $10.1 million of CARES Act benefits and other income during the fourth quarter excluding this benefit EBITDARM decreased 5.9%. Same property revenues in the SHOP segment were down 2.1% from the third quarter driven by lower occupancy. Same property average monthly rates, however, were up 70 basis points compared to the third quarter which includes the impact of concessions. Same property expenses in the SHOP segment decreased 2.2% from the third quarter or approximately $5.6 million. Most of our expense line items decreased in the fourth quarter with the exceptions of repair and maintenance and marketing expenses. Looking at our year-over-year office portfolio results, the slight increase in occupancy Jennifer mentioned earlier was offset by decreased parking revenues of $800,000 resulting in approximately flat same property cash basis NOI. Interest expense was $57.8 million for the fourth quarter of 2020, generally consistent with the third quarter but increased approximately $14.5 million a year-over-year, primarily due to the $1 billion of senior notes issued in June of 2020 offset by lower revolver and term loan interest. In the fourth quarter, we spent $64.7 million on capital expenditures, an increase of $19.5 million over the third quarter. Approximately $39.9 million of our fourth quarter spend was considered recurring and included building improvements in both our office portfolio and SHOP segments and tenant improvements and leasing costs in our office portfolio. The remaining portion of our capital expenditures or $24.8 million was spent on redevelopment capital projects. Lastly, I wanted to touch on rent collections which continue to be strong. In our office portfolio approximately 99% of our contractual rent dues were collected during the fourth quarter and in January and February. I'll now turn it back over to Jennifer.

Thanks Rick. Much of 2020 and early 2021 has been spent with a focus on the effects of the global pandemic and recent extreme weather events in parts of the United States. With that said, we're cautiously optimistic at the progress that's been made with vaccinations in our senior living communities and are looking forward to moving out of this difficult chapter and into a more normal world where we can set in place our plans to improve our portfolio and resume DHC's path to growth and profitability. That concludes our prepared remarks. Operator, please open the line for questions.

And I'll begin the question and answer session. [Operator Instructions] First question comes from Bryan Maher, B. Riley FBR.

Rick, thanks for those comments. A couple of questions as it relates to the dispositions aside from what you've already announced for 2021. What might be a reasonable expectation, given what you're seeing out in the landscape? And is there any change to your cap rate expectations on what you've been selling?

Our cap rate expectations remain -- we've talked about cap rates at about 8% and more, we still believe that number, we have one property that's still under agreement that we expect to close in the next 60 days or so and we have a handful of properties that we're currently marketing their properties that we work with Five Star. Five Star moved residents out and more marketing them for sale vacant. Other than that, we're really on hold with our disposition program; our focus is going to be on repositioning our portfolio, investing the capital recovering from COVID in the effects of COVID in our senior living portfolio. And so, other than what I just talked about, we're really we have no plans for dispositions.

Okay. And that kind of brings me up to my next question as you know, I covered Five Star as well. And we noticed when they reported last night, the impact of some sales on their numbers, how do those discussions go between DHC and Five Star as it relates to selling DHC owned Five Star managed property? Is there back and forth on which ones to sell? Can you give us some color on that?

Sure, there is back and forth, the senior management folks at Five Star and Rick and I, and then members of our asset management teams go through the list of communities very regularly. And we look at ones that have that are underperforming, where we think if we were to invest capital, the returns still wouldn't be, what we should be targeting. And so those are the ones that we decided to close and sell. And we didn't want to sell them occupied with residents, because they competed with some of our other communities and we didn't want to create competition for ourselves.

Got it. And then just lastly, for me, is there any situation in which you would have to return any of the 10 million in CARES Act funds?

I can't really envision a scenario where we'd have to return it. There are some audit requirements that will take care of. But no, there's not a lot. I mean, we still have some money sitting on the balance sheet that we haven't -- that we've received but not recognized. So, once we've met the criteria to recognize it, we're really confident that there's not much risk of it going back.

[Operator Instructions] This concludes our question-and-answer session. Now, I'd like to turn the conference back over to Jennifer Francis for closing remarks.

Thank you, everyone for joining our call today. Have a nice day.

Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.