Good morning, and welcome to the Diversified Healthcare Trust Second Quarter 2025 Earnings Conference Call. [Operator Instructions] 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. 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 5, 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. 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. 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.

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 results that meet analyst expectations on both the top and bottom line driven by continued recovery in our SHOP segment. We made additional progress during the quarter, in our efforts towards delevering our balance sheet through a combination of asset sales and new financings at attractive rates and we paid off our maturing 2025 notes in June. Revenue for the quarter was $382.7 million, a 3% increase over last year. Adjusted EBITDAre came in at $73.6 million, up 7% year-over-year and 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% over year, and occupancy increased 160 basis points to 80.6%, resulting in a 6.2% increase in SHOP revenue. 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 Five Star posted an NOI margin of 14.1%, up 170…

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 occupancy 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 include the $2.7 million of proceeds for business interruption claims at one of our communities in Florida. Normalizing for this item, we would have achieved a sequential increase in same-property SHOP NOI of 4.9%. Turning to G&A expense, the second quarter amount includes $4.1 million business management incentive fee and our total return exceeded the benchmark as of June 30, 2025. An incentive management fee incurred will not be due until January 2026. Excluding the impact of the incentive management fees, G&A expense 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, $5 million in our Medical Office and Life Science portfolio. Looking back at our recently completed refreshes 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 at these communities. Based on our spend to date and our expectations moving forward, we are reducing our 2025 CapEx guidance to $140 million to $160 million, a $10 million reduction from our prior guidance. Now I'll turn the call over to Matt.

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 6-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%. 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 2 to 5 years. On a weighted average basis, the debt has a maturity of approximately 6 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. 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 million to $350 million expected in the third quarter and our strong liquidity position. As a reminder,…

Maybe digging in a little bit on the 2Q results, just given kind of the change to guidance and you're kind of calling out of some onetime 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 1Q, but just anything in 2Q that would be considered kind of onetime issue? Maybe how much could that impact the model going forward?

Yes, 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 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 will add some costs as it relates to salaries and benefits, et cetera.

Okay. And then as I think about the CapEx guidance change, was that all tied to reductions in kind of SHOP CapEx? Or is there other kind of other parts of the portfolio where you're seeing less of a need for CapEx?

There's a few different pieces. So really, part of it is dispositions and 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 of what we underwrote for budgeting. We're just trying to tighten our range a little bit. And then also we have some tenant managed [indiscernible] and [ speculative ] leasing in the MOB and Life Science portfolio that can fluctuate but we kind of feel good about I think that range to what we did earlier today in the prepared remarks.

Okay. And then on the disposition front, specifically, is there anything maybe beyond the 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 '26. Just kind of trying to balance out what was closed year-to-date, what was kind of in the pipeline as of the June presentation and 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 the works and maybe could close later this year?

Yes, 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, 4 different properties, 2 MOB, Life Science, 2 SHOP for another $20 million that is kind of behind with respect to the marketing process versus the LOI PSA. And so 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 3 post quarter end as I mentioned in our prepared remarks so things are trending accordingly. But yes, this will conclude kind of the broader stretch of asset dispositions and then 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.

Okay. And then not a huge differential, but it seemed a little bit like the 5 Star assets, 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 Five Star?

Yes. I mean, look, I think that Five Star has been really kind of working towards improving its overall business model and kind of bringing kind of the right team members in place. And we've talked about some of the general improvements to the operating platform that they've instilled. We've invested capital in many of those Five-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, some of the Five Star properties are located in more primary markets. So we're going to get some outside benefit from that. For the balance of the portfolio, there's still a lot of upside opportunity with there. I mean we talked about some of the onetime impacts. We saw a pullback in Q2 with our SNF properties. We have 10 of those with an operator and with some onetime 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 a Five Star manage just given the properties, the renovations more specifically with that portfolio.

And then last question for me. In terms of occupancy, 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 a fulfillment of the CapEx plan, something around seasonality? Or should that kind of, in your mind, gradually build towards that guidance number?

It gradually builds over the year. I mean we provided kind of the year-end spot occupancy north of 82%, about 82.5% was kind of the midpoint we're targeting. And so that's going to be a byproduct of just improvement. 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.

Our next question will be from Michael Carroll with RBC Capital Markets.

Just have a few clarification questions. I know you said there was nonrecurring benefit, mostly in 1Q, but there was a little in 2Q. What was the amount in 2Q that was nonrecurring? And where was that included in the P&L? Is that in SHOP NOI?

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

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?

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 generally, we're thinking into high-teen returns on that CapEx.

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 there is -- or is there any other heavier CapEx years that we should expect?

I'd say we're caught up for the most part in terms of deferred CapEx at this point.

Okay. Great. And then just lastly, I know you mentioned -- and I believe I heard this correctly, the new debt financings of $300 million to $350 million in 3Q. 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?

Yes. We've been working on this for a bit of time now. We have a couple of different options at play. Some is 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. End of Q&A :

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.

Thank you for joining our call today and that concludes our call. Thank you.

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