• Normalized FFO: $4 million or $0.02 per share for the third quarter.
• Consolidated SHOP NOI: Increased 32.6% year-over-year.
• Same-Store Occupancy (SHOP): Increased 40 basis points sequentially.
• Same-Store Occupancy (Medical Office and Life Science): Decreased 150 basis points to 87.8%.
• Revenue Growth (SHOP): 6.4% year-over-year.
• Average Monthly Rate Increase (SHOP): $0.054 year-over-year.
• Margin Expansion (SHOP): 240 basis points year-over-year.
• Quarterly NOI (SHOP): $27.4 million, a 32.6% increase year-over-year but a sequential decline.
• Cash Position: Over $256 million at the end of the quarter.
• CapEx Guidance for 2024: Reduced to $180 million to $190 million.
• Full-Year SHOP NOI Guidance: Lowered to $102 million to $107 million.
• Property Dispositions: Under agreements or letters of intent to sell 28 properties for an estimated $348 million.

• Warning! GuruFocus has detected 6 Warning Signs with DHC.

Release Date: November 05, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• DHC's consolidated SHOP NOI increased by 32.6% year-over-year, supported by operational improvements and favorable market trends in the senior housing portfolio.
• The company completed 83,000 square feet of new and renewal leasing activity with a rent roll-up of 4.8% and a weighted average lease term of 7.4 years.
• DHC is actively managing its leasing pipeline with close to 400,000 square feet of activity, including potential absorption of 117,000 square feet and an overall double-digit rent rollout.
• The company successfully renewed its annual insurance program, resulting in a $6.8 million or 26% reduction in premiums, which is expected to benefit future quarters.
• DHC is under agreements or letters of intent to sell 25 properties for gross proceeds of $333 million, including a significant sale of 18 triple-net leased senior living communities, highlighting its ability to achieve premium valuations.

Negative Points

• Same-store occupancy in the medical office and life science segment decreased by 150 basis points to 87.8%, largely due to a known vacate in Durham, North Carolina.
• DHC lowered its full-year guidance due to slower-than-expected SHOP occupancy growth and varying expense impacts.
• The company experienced certain expense increases totaling $2.5 million, including an insurance deductible related to a fire and water intrusion remediation costs.
• DHC's SHOP NOI for the quarter, despite a year-over-year increase, declined sequentially due to increased expenses and muted occupancy growth.
• The company faces refinancing challenges with $440 million of maturities due in June 2025, requiring a broadened strategy to include financing smaller tranches and tapping diversified financing sources.

Q & A Highlights

Q: Can you provide more details on the GSE agency debt issuances and the terms involved? A: Matthew Brown, CFO, explained that they are negotiating a formal quote for $106 million in proceeds, involving eight communities. They are also exploring other lenders to maximize proceeds. Terms are similar to previous discussions, with a loan-to-value around 60% and interest rates between 6% to 6.5%.

Q: Given the cash reserves and incoming proceeds, is there a plan to start buying back some of the $975 million bonds? A: Matthew Brown, CFO, stated that while they are focused on advancing their financing strategy, they have adequate cash and may start chipping away at the bonds.

Q: Why has the SHOP NOI recovery been slower than expected, and what are the main cost drivers? A: Matthew Brown, CFO, noted that nonrecurring expenses, such as a fire-related insurance deductible and hurricane remediation costs, impacted results. Seasonal utility costs also contributed, but overall costs have moderated.

Q: Were there any significant property closures or damages due to recent hurricanes? A: Christopher Bilotto, CEO, mentioned one property was significantly impacted, requiring temporary resident relocation. There was also a fire event causing temporary move-outs, impacting results.

Q: What is the estimated value of the SHOP portfolio if liquidated today? A: Christopher Bilotto, CEO, indicated that stabilized assets in tertiary markets are valued at $150,000 per unit, while more challenged assets are valued at $50,000 to $60,000 per unit. The value of better communities in primary and secondary markets is expected to be higher.

Q: Can you explain the expected drop in SHOP NOI for Q4 and the occupancy outlook? A: Christopher Bilotto, CEO, confirmed the expected drop due to hurricane-related costs and insurance deductibles. Occupancy is expected to end the year just shy of 80% due to a softer selling season.

Q: What is the timeline for closing on the 29 communities with negative NOI? A: Christopher Bilotto, CEO, stated that transactions are expected to complete in early Q1 2025, with current market activities likely concluding thereafter.

Q: What caused the increase in wellness center NOI? A: Christopher Bilotto, CEO, explained that the increase was due to transitioning leases to Lifetime, with one lease commencing during the year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.