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Diversified Healthcare Trust Announces Second Quarter 2022 Results

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Net Loss Attributable to Common Shareholders of $0.46 Per Share

Normalized FFO Attributable to Common Shareholders of ($0.04) Per Share

NEWTON, Mass., August 03, 2022--(BUSINESS WIRE)--Diversified Healthcare Trust (Nasdaq: DHC) today announced its financial results for the quarter ended June 30, 2022.

Jennifer Francis, President and Chief Executive Officer of DHC, made the following statement:

"Second quarter results demonstrated the continued and encouraging recovery of our senior living portfolio. In our SHOP communities, occupancy improved 60 basis points while NOI increased by $6.3 million from the first quarter, primarily fueled by our operators' ability to increase rate. Office Portfolio leasing activity was strong with a 9.1% roll up from prior rents on 263,000 square feet of leasing. On a sequential basis, same property Office Portfolio cash basis NOI increased 2.4% and overall improvement in our portfolios' results drove a 23.3% increase in adjusted EBITDAre.

During the quarter, we took additional steps to strengthen our balance sheet. We sold a 10% equity interest in the existing joint venture that owns a life science property located in the Seaport District of Boston for $108 million and redeemed $500 million of our 9.75% senior notes in June, reducing our annual interest expense by approximately $49 million and leaving us well positioned to execute our strategic plan of making capital investments to improve portfolio performance and continue to reduce debt."

Quarterly Results:

  • Reported net loss attributable to common shareholders of $109.4 million, or $0.46 per share.

  • Reported normalized funds from operations, or Normalized FFO, attributable to common shareholders of ($10.4) million, or ($0.04) per share.

As of and For the Three Months Ended

June 30, 2022

March 31, 2022

June 30, 2021

Occupancy

Office Portfolio (period end)

88.1%

89.3%

91.0%

SHOP (average day for period)

73.6%

73.0%

70.9%

Same Property Occupancy

Office Portfolio (period end)

91.2%

92.5%

91.8%

SHOP (average day for period)

74.1%

74.1%

72.9%

Three Months Ended

June 30, 2022

March 31, 2022

Change

June 30, 2021

Change

Same Property Cash Basis NOI (dollars in thousands)

Office Portfolio

$28,019

$27,352

2.4%

$28,737

(2.5)%

SHOP

$12,878

$9,485

35.8%

$12,464

3.3%

Total Consolidated Same Property Cash Basis NOI

$50,788

$46,699

8.8%

$51,051

(0.5)%

Reconciliations of net income (loss) attributable to common shareholders determined in accordance with U.S. generally accepted accounting principles, or GAAP, to funds from operations, or FFO, attributable to common shareholders and Normalized FFO attributable to common shareholders for the quarters ended June 30, 2022 and 2021 appear later in this press release. Reconciliations of net income (loss) attributable to common shareholders determined in accordance with GAAP to net operating income, or NOI, and Cash Basis NOI, and a reconciliation of NOI to same property NOI and a calculation of same property Cash Basis NOI, for the quarters ended June 30, 2022, March 31, 2022 and June 30, 2021, as applicable, also appear later in this press release.

Office Portfolio Segment:

  • Same property Cash Basis NOI decreased compared to the second quarter of 2021 primarily resulting from decreases in occupancy, partially offset by increases in parking income.

  • DHC entered into new and renewal leases for an aggregate of 263,172 rentable square feet at weighted average rents that were 9.1% higher than prior rents for the same space.

SHOP Segment:

  • Same property Cash Basis NOI increased compared to the second quarter of 2021 primarily resulting from increases in occupancy, partially offset by increases in operating expenses on a per resident basis due to increased labor and dietary costs and insurance premiums for certain of DHC's senior living communities.

  • Recent same property occupancy rates in DHC's senior housing operating portfolio, or SHOP, segment consisting of 120 communities are as follows:

2021

2022

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

SHOP Same Property Average Occupancy

72.9

%

73.4

%

73.8

%

73.9

%

74.2

%

74.1

%

74.4

%

74.1

%

73.8

%

73.9

%

73.9

%

74.4

%

Sequential Occupancy Change

0.5

0.4

0.1

0.3

(0.1

)

0.3

(0.3

)

(0.3

)

0.1

0.5

  • Recent occupancy rates for the 107 senior living communities transitioned from Five Star Senior Living, Inc. to 10 new third party managers in DHC's SHOP segment are as follows:

2021

2022

Dec

Jan

Feb

Mar

Apr

May

Jun

SHOP Other Operator Managed Communities Average Occupancy

67.4

%

69.8

%

70.0

%

70.9

%

71.9

%

72.1

%

73.2

%

Sequential Occupancy Change

2.4

0.2

0.9

1.0

0.2

1.1

Joint Venture Activities:

  • In June 2022, DHC sold an additional 10% equity interest in its joint venture for a life science property located in Boston, Massachusetts to an existing joint venture investor for approximately $108.0 million. The purchasing investor now owns a 45% equity interest, the other investor continues to own a 45% equity interest and DHC owns the remaining 10% equity interest in this joint venture.

Liquidity and Financing Activities:

  • In June 2022, DHC redeemed $500.0 million of its outstanding 9.75% senior notes due 2025 for a redemption price equal to 104.875% of the $500.0 million principal amount of the notes being redeemed, using restricted cash on hand.

  • In April 2022, DHC prepaid approximately $10.9 million of secured debt encumbering one of its medical office properties with an annual interest rate of 6.28% and a maturity date in July 2022, using cash on hand.

  • As of June 30, 2022, DHC had approximately $868.4 million of cash and cash equivalents and restricted cash.

  • In July 2022, DHC prepaid approximately $15.3 million of secured debt encumbering two of its senior living communities with an annual interest rate of 5.75% and a maturity date in October 2022, using cash on hand.

Acquisition Activities:

  • In July 2022, DHC acquired one life science property located in California with approximately 89,000 square feet for a purchase price of approximately $82.0 million, excluding closing costs.

Conference Call:

At 10:00 a.m. Eastern Time tomorrow morning, President and Chief Executive Officer, Jennifer Francis, and Chief Financial Officer and Treasurer, Richard Siedel, will host a conference call to discuss DHC's second quarter 2022 financial results. The conference call telephone number is (877) 329-4297. Participants calling from outside the United States and Canada should dial (412) 317-5435. No pass code is necessary to access the call from either number. Participants should dial in about 15 minutes prior to the scheduled start of the call. A replay of the conference call will be available through 11:59 p.m. on Thursday, August 11, 2022. To access the replay, dial (412) 317-0088. The replay pass code is 6571102.

A live audio webcast of the conference call will also be available in a listen-only mode on DHC's website, www.dhcreit.com. Participants wanting to access the webcast should visit DHC's website about five minutes before the call. The archived webcast will be available for replay on DHC's website following the call for about one week. The transcription, recording and retransmission in any way of DHC's second quarter conference call are strictly prohibited without the prior written consent of DHC.

Supplemental Data:

A copy of DHC's Second Quarter 2022 Supplemental Operating and Financial Data is available for download at DHC's website, www.dhcreit.com. DHC's website is not incorporated as part of this press release.

DHC is a real estate investment trust, or REIT, focused on owning high-quality healthcare properties located throughout the United States. DHC seeks diversification across the health services spectrum by care delivery and practice type, by scientific research disciplines and by property type and location. As of June 30, 2022, DHC’s approximately $6.9 billion portfolio included 378 properties in 36 states and Washington, D.C., occupied by more than 500 tenants, and totaling approximately 9 million square feet of life science and medical office properties and more than 27,000 senior living units. DHC is managed by The RMR Group (Nasdaq: RMR), a leading U.S. alternative asset management company with more than $37 billion in assets under management as of June 30, 2022 and more than 35 years of institutional experience in buying, selling, financing and operating commercial real estate. To learn more about DHC, visit www.dhcreit.com.

Non-GAAP Financial Measures:

DHC presents certain "non-GAAP financial measures" within the meaning of applicable rules of the Securities and Exchange Commission, or SEC, including FFO attributable to common shareholders, Normalized FFO attributable to common shareholders, NOI, Cash Basis NOI, same property NOI, same property Cash Basis NOI, earnings before interest, income tax, depreciation and amortization, or EBITDA, EBITDA for real estate, or EBITDAre, and Adjusted EBITDAre for the three and six months ended June 30, 2022 and 2021, as well as certain of these measures for the three quarters prior to the quarter ended June 30, 2022. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) or net income (loss) attributable to common shareholders as indicators of DHC's operating performance or as measures of DHC's liquidity. These measures should be considered in conjunction with net income (loss) and net income (loss) attributable to common shareholders as presented in DHC's condensed consolidated statements of income (loss). DHC considers these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss) and net income (loss) attributable to common shareholders. DHC believes these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization, they may facilitate a comparison of DHC's operating performance between periods and with other REITs and, in the case of NOI, Cash Basis NOI, same property NOI and same property Cash Basis NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of DHC's properties.

Please see the pages attached hereto for a more detailed statement of DHC's operating results and financial condition, and for an explanation of DHC's calculation of FFO attributable to common shareholders, Normalized FFO attributable to common shareholders, NOI, Cash Basis NOI, same property NOI, same property Cash Basis NOI, EBITDA, EBITDAre and Adjusted EBITDAre and a reconciliation of those amounts to amounts determined in accordance with GAAP.

DIVERSIFIED HEALTHCARE TRUST

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(amounts in thousands, except per share data)

(unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2022

2021

2022

2021

Revenues:

Rental income

$

62,522

$

102,394

$

127,807

$

205,152

Residents fees and services

250,506

243,947

495,954

503,913

Total revenues

313,028

346,341

623,761

709,065

Expenses:

Property operating expenses

266,066

264,632

534,808

552,023

Depreciation and amortization

58,261

67,888

115,520

134,041

General and administrative

7,207

9,126

14,492

16,668

Acquisition and certain other transaction related costs

609

12,071

1,537

12,071

Impairment of assets

(174

)

Total expenses

332,143

353,717

666,357

714,629

(Loss) gain on sale of properties

(686

)

30,760

327,108

30,638

Losses on equity securities, net

(10,157

)

(3,849

)

(18,710

)

(12,188

)

Interest and other income (1)

2,266

16,038

2,661

18,873

Interest expense (including net amortization of debt premiums, discounts and issuance costs of $2,318, $3,017, $4,790 and $5,829, respectively)

(55,975

)

(67,657

)

(113,106

)

(127,748

)

Loss on modification or early extinguishment of debt

(29,560

)

(370

)

(30,043

)

(2,410

)

(Loss) income from continuing operations before income tax benefit (expense) and equity in earnings of investees

(113,227

)

(32,454

)

125,314

(98,399

)

Income tax benefit (expense)

640

(191

)

(832

)

(429

)

Equity in earnings of investees

3,204

6,558

Net (loss) income

(109,383

)

(32,645

)

131,040

(98,828

)

Net income attributable to noncontrolling interest

(1,577

)

(2,899

)

Net (loss) income attributable to common shareholders

$

(109,383

)

$

(34,222

)

$

131,040

$

(101,727

)

Weighted average common shares outstanding (basic and diluted)

238,197

237,871

238,173

237,853

Per common share amounts (basic and diluted):

Net (loss) income attributable to common shareholders

$

(0.46

)

$

(0.14

)

$

0.55

$

(0.43

)

(1)

DHC recognized funds received under the Coronavirus Aid, Relief, and Economic Security Act of $760 and $15,748 during the three months ended June 30, 2022 and 2021, respectively, and $959 and $18,181 during the six months ended June 30, 2022 and 2021, respectively.

DIVERSIFIED HEALTHCARE TRUST

FUNDS FROM OPERATIONS AND NORMALIZED FUNDS FROM OPERATIONS ATTRIBUTABLE TO COMMON SHAREHOLDERS

(amounts in thousands, except per share data)

(unaudited)

Calculation of FFO and Normalized FFO Attributable to Common Shareholders(1):

Three Months Ended June 30,

Six Months Ended June 30,

2022

2021

2022

2021

Net (loss) income attributable to common shareholders

$

(109,383

)

$

(34,222

)

$

131,040

$

(101,727

)

Depreciation and amortization

58,261

67,888

115,520

134,041

Loss (gain) on sale of properties

686

(30,760

)

(327,108

)

(30,638

)

Impairment of assets

(174

)

Losses on equity securities, net

10,157

3,849

18,710

12,188

FFO adjustments attributable to noncontrolling interest

(5,275

)

(10,548

)

Equity in earnings of unconsolidated joint ventures

(3,204

)

(6,558

)

Share of FFO from unconsolidated joint ventures

3,704

7,379

Adjustments to reflect DHC's share of FFO attributable to an equity method investment

(1,466

)

(3,005

)

(3,398

)

(969

)

FFO attributable to common shareholders

(41,245

)

(1,525

)

(64,415

)

2,173

Acquisition and certain other transaction related costs

609

12,071

1,537

12,071

Loss on modification or early extinguishment of debt

29,560

370

30,043

2,410

Adjustments to reflect DHC's share of Normalized FFO attributable to an equity method investment

681

1,299

539

1,384

Normalized FFO attributable to common shareholders

$

(10,395

)

$

12,215

$

(32,296

)

$

18,038

Weighted average common shares outstanding (basic and diluted)

238,197

237,871

238,173

237,853

Per common share data (basic and diluted):

Net (loss) income attributable to common shareholders

$

(0.46

)

$

(0.14

)

$

0.55

$

(0.43

)

FFO attributable to common shareholders

$

(0.17

)

$

(0.01

)

$

(0.27

)

$

0.01

Normalized FFO attributable to common shareholders

$

(0.04

)

$

0.05

$

(0.14

)

$

0.08

Distributions declared

$

0.01

$

0.01

$

0.02

$

0.02

(1)

DHC calculates FFO attributable to common shareholders and Normalized FFO attributable to common shareholders as shown above. FFO attributable to common shareholders is calculated on the basis defined by the National Association of Real Estate Investment Trusts, or Nareit, which is net income (loss) attributable to common shareholders, calculated in accordance with GAAP, excluding any gain or loss on sale of properties, equity in earnings or losses of unconsolidated joint ventures, loss on impairment of real estate assets, gains or losses on equity securities, net, if any, including adjustments to reflect DHC's proportionate share of FFO of DHC's equity method investment in AlerisLife Inc. (Nasdaq: ALR), or AlerisLife, and DHC's proportionate share of FFO from its unconsolidated joint ventures, plus real estate depreciation and amortization of consolidated properties and minus FFO adjustments attributable to noncontrolling interest, as well as certain other adjustments currently not applicable to DHC. In calculating Normalized FFO attributable to common shareholders, DHC adjusts for the items shown above including similar adjustments for DHC's unconsolidated joint ventures, if any. FFO attributable to common shareholders and Normalized FFO attributable to common shareholders are among the factors considered by DHC's Board of Trustees when determining the amount of distributions to its shareholders. Other factors include, but are not limited to, requirements to maintain DHC's qualification for taxation as a REIT, limitations in the agreements governing DHC's debt, the availability to DHC of debt and equity capital, DHC's expectation of its future capital requirements and operating performance, and DHC's expected needs for and availability of cash to pay its obligations. Other real estate companies and REITs may calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders differently than DHC does.

DIVERSIFIED HEALTHCARE TRUST

CALCULATION AND RECONCILIATION OF NOI AND CASH BASIS NOI (1)

(dollars in thousands)

(unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2022

2021

2022

2021

Calculation of NOI and Cash Basis NOI:

Revenues:

Rental income

$

62,522

$

102,394

$

127,807

$

205,152

Residents fees and services

250,506

243,947

495,954

503,913

Total revenues

313,028

346,341

623,761

709,065

Property operating expenses

(266,066

)

(264,632

)

(534,808

)

(552,023

)

NOI

46,962

81,709

88,953

157,042

Non-cash straight line rent adjustments included in rental income

(2,710

)

(1,321

)

(4,455

)

(2,125

)

Lease value amortization included in rental income

57

(1,849

)

162

(3,715

)

Non-cash amortization included in property operating expenses

(199

)

(199

)

(398

)

(398

)

Cash Basis NOI

$

44,110

$

78,340

$

84,262

$

150,804

Reconciliation of Net Income (Loss) Attributable to Common Shareholders to NOI and Cash Basis NOI:

Net (loss) income attributable to common shareholders

$

(109,383

)

$

(34,222

)

$

131,040

$

(101,727

)

Net income attributable to noncontrolling interest

1,577

2,899

Net (loss) income

(109,383

)

(32,645

)

131,040

(98,828

)

Equity in earnings of investees

(3,204

)

(6,558

)

Income tax (benefit) expense

(640

)

191

832

429

Loss on modification or early extinguishment of debt

29,560

370

30,043

2,410

Interest expense

55,975

67,657

113,106

127,748

Interest and other income

(2,266

)

(16,038

)

(2,661

)

(18,873

)

Losses on equity securities, net

10,157

3,849

18,710

12,188

Loss (gain) on sale of properties

686

(30,760

)

(327,108

)

(30,638

)

Impairment of assets

(174

)

Acquisition and certain other transaction related costs

609

12,071