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Diversified Healthcare Trust Announces Fourth Quarter and Year End 2019 Results

March 02, 2020

NEWTON, Mass.--()--Diversified Healthcare Trust (Nasdaq: DHC) (formerly known as Senior Housing Properties Trust) today announced its financial results for the quarter and year ended December 31, 2019.

We achieved several strategic milestones at the end of 2019, including the closing of the transformative restructuring of our business arrangements with Five Star Senior Living Inc., rebranding ourselves as Diversified Healthcare Trust to more accurately represent our current portfolio and business strategy and continuing to reposition and optimize our portfolio through our disposition efforts,” stated Jennifer Francis, President and Chief Operating Officer of Diversified Healthcare Trust. “With the disruption associated with the Five Star restructuring transaction behind us, in 2020 we will remain focused on our core competencies in order to increase shareholder value, including through asset management, the continued execution of our redevelopment plans and disciplined capital recycling strategy in order to further refine our high quality portfolio.”

Restructuring of Business Arrangements with Five Star:

As previously announced, on January 1, 2020, DHC completed the restructuring of its business arrangements, or the Restructuring Transaction, with Five Star Senior Living Inc. (Nasdaq: FVE), or Five Star. Pursuant to the Restructuring Transaction, the previously existing master leases and management and pooling agreements between DHC and Five Star were terminated and replaced with new management agreements for all of DHC's senior living communities operated by Five Star.

Also pursuant to the Restructuring Transaction, on January 1, 2020, Five Star issued 10,268,158 of its common shares to DHC and an aggregate of 16,118,849 of its common shares to DHC’s shareholders of record as of December 13, 2019. In consideration of these share issuances, DHC assumed $75.0 million of Five Star’s working capital liabilities related to DHC's senior living communities that were previously leased to Five Star.

Results for the Quarter Ended December 31, 2019:

Net loss attributable to common shareholders was $51.7 million, or $0.22 per share, for the quarter ended December 31, 2019 compared to net loss attributable to common shareholders of $118.5 million, or $0.50 per share, for the quarter ended December 31, 2018. The net loss attributable to common shareholders for the quarter ended December 31, 2019 primarily resulted from $73.7 million of impairment charges during the quarter ended December 31, 2019.

Normalized funds from operations attributable to common shareholders, or Normalized FFO attributable to common shareholders, were $70.8 million and $65.1 million, or $0.30 and $0.27 per share, for the quarters ended December 31, 2019 and 2018, respectively. Normalized FFO attributable to common shareholders increased primarily as a result of no business management incentive fees recognized for the quarter ended December 31, 2019 compared to $40.6 million of business management incentive fees recognized for the quarter ended December 31, 2018, partially offset by a decrease in rental income of $31.5 million during the quarter ended December 31, 2019 compared to the quarter ended December 31, 2018. The decrease in rental income was primarily the result of the reduction in rent paid to DHC by Five Star during the three months ended December 31, 2019 pursuant to the transaction agreement that was entered into in April 2019 for the Restructuring Transaction, or the Transaction Agreement, as well as dispositions since October 1, 2018.

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 attributable to common shareholders, or FFO attributable to common shareholders, and Normalized FFO attributable to common shareholders for the quarters ended December 31, 2019 and 2018 appear later in this press release.

Results for the Year Ended December 31, 2019:

Net loss attributable to common shareholders was $88.2 million, or $0.37 per share, for the year ended December 31, 2019 compared to net income attributable to common shareholders of $286.9 million, or $1.21 per share, for the year ended December 31, 2018. The net loss attributable to common shareholders for the year ended December 31, 2019 primarily includes:

  • $115.2 million of impairment charges during the year ended December 31, 2019 compared to $66.3 million of impairment charges during the year ended December 31, 2018;
  • $41.9 million of losses on equity securities, net, for the year ended December 31, 2019 compared to $20.7 million of losses on equity securities, net, for the year ended December 31, 2018, primarily as a result of DHC's sale of The RMR Group Inc. (Nasdaq: RMR), or RMR Inc., class A common stock on July 1, 2019;
  • $39.7 million of gains on sale of properties, net, during the year ended December 31, 2019 compared to $261.9 million of gains on sale of properties, net, during the year ended December 31, 2018; and
  • $13.1 million of acquisition and certain other transaction related costs incurred during the year ended December 31, 2019 related to the Restructuring Transaction.

Normalized FFO attributable to common shareholders were $310.2 million and $377.3 million, or $1.31 and $1.59 per share, for the year ended December 31, 2019 and 2018, respectively. Normalized FFO attributable to common shareholders decreased primarily as a result of a decrease in rental income of $94.1 million during the year ended December 31, 2019 compared to the year ended December 31, 2018, primarily as a result of the reduction in rent paid to DHC by Five Star during the year ended December 31, 2019 pursuant to the Transaction Agreement, as well as dispositions since January 1, 2018, partially offset by a decrease in general and administrative expenses during the year ended December 31, 2019 compared to the year ended December 31, 2018. The decrease in general and administrative expenses was primarily as a result of no business management incentive fees recognized for the year ended December 31, 2019 compared to $40.6 million of business management incentive fees recognized for the year ended December 31, 2018.

Reconciliations of net income (loss) attributable to common shareholders determined in accordance with GAAP to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the year ended December 31, 2019 and 2018 appear later in this press release.

Portfolio Operating Results:

For the quarter ended December 31, 2019, cash basis net operating income, or Cash Basis NOI, at properties owned, in service and managed by the same operator continuously since October 1, 2018, or same property, decreased 19.2% compared to the quarter ended December 31, 2018, primarily as a result of the reduction in rent paid to DHC by Five Star during the quarter ended December 31, 2019 pursuant to the Transaction Agreement.

In connection with the Restructuring Transaction, DHC redefined its reportable segments to better reflect its current operating environment. As of December 31, 2019, DHC reports under the following two segments:

  • Office Portfolio, which consists of medical office properties leased to medical providers and other medical related businesses, as well as life science properties leased to biotech laboratories and other similar tenants; and
  • Senior Housing Operating Portfolio, or SHOP, which consists of senior living communities operated by Five Star.

DHC also continues to report all other operations, which consist of other triple net leased senior living communities and wellness centers.

For the quarter ended December 31, 2019, 49.4% of net operating income, or NOI, came from the 138 properties with 11.9 million leasable square feet in the Office Portfolio segment. Same property occupancy for this segment was 94.1% as of December 31, 2019 compared to 95.1% as of December 31, 2018. Same property Cash Basis NOI from this segment decreased 0.6% for the quarter ended December 31, 2019 compared to the quarter ended December 31, 2018.

For the quarter ended December 31, 2019, 37.2% of NOI came from the 244 senior living communities with 29,013 living units in the SHOP segment. Occupancy for this segment was 83.9% for the quarter ended December 31, 2019 compared to 85.8% for the quarter ended December 31, 2018. Same property occupancy for this segment was 84.7% for the quarter ended December 31, 2019 compared to 86.9% for the quarter ended December 31, 2018. Same property average monthly rates for senior living communities managed for our account in this segment were $4,222 for the quarter ended December 31, 2019 compared to $4,183 for the quarter ended December 31, 2018. Same property Cash Basis NOI from this segment decreased 37.1% for the quarter ended December 31, 2019 compared to the quarter ended December 31, 2018, primarily due to the reduction in rent paid to DHC by Five Star pursuant to the Transaction Agreement and increased community level operating expenses.

For the quarter ended December 31, 2019, 13.4% of NOI came from the 32 triple net leased senior living communities and 10 wellness centers comprising DHC's all other operations. The weighted average rent coverage for the 32 triple net leased senior living communities decreased to 1.65x for the 12-month period ended September 30, 2019 compared to 1.74x for the 12-month period ended September 30, 2018(1). The 10 wellness centers were 100% leased as of each of December 31, 2019 and 2018. Same property Cash Basis NOI for the 32 triple net leased senior living communities and 10 wellness centers on a combined basis increased 1.9% for the quarter ended December 31, 2019 compared to the quarter ended December 31, 2018.

Reconciliations of net income (loss) determined in accordance with GAAP to NOI and Cash Basis NOI, and a reconciliation of NOI to same property NOI and calculation of same property Cash Basis NOI by operating segment for the quarters ended December 31, 2019 and 2018 appear later in this press release. Prior periods have been recast to reflect DHC's new reportable segments.

(1) DHC reports rent coverage one quarter in arrears because operating results from tenants are usually provided to DHC three months after the end of a fiscal quarter. Operating data from triple net leased senior living communities is provided by tenants and excludes data for periods prior to DHC's ownership of certain properties, as well as properties sold or classified as held for sale during the periods presented. DHC has not independently verified this information.

Disposition Activities:

Since October 1, 2019, DHC has sold 20 properties for an aggregate sales price of $216.6 million, excluding closing costs:

Date Sold

 

Location

 

Type of Property

 

Number of Properties

 

Gross Sales Price (1)

October 2019

 

Various

 

Independent Living / Skilled Nursing Facility

 

3

 

$

10,500,000

 

October 2019

 

Bridgewater, NJ

 

Life Science

 

1

 

47,500,000

 

December 2019

 

Atlanta, GA

 

Medical Office

 

1

 

14,000,000

 

December 2019

 

Redmond, WA

 

Independent Living

 

1

 

32,500,000

 

December 2019

 

Various

 

Assisted Living

 

7

 

103,250,000

 

January 2020

 

Various

 

Medical Office

 

6

 

5,925,000

 

February 2020

 

Horsham, PA

 

Medical Office

 

1

 

2,900,000

 

 

 

 

 

 

 

20

 

$

216,575,000

 

(1) Excludes closing costs.

As of February 28, 2020, DHC had 52 properties under agreements to sell or in first or second round offer stages for an aggregate sales price of approximately $539.7 million, excluding closing costs. These sales are subject to various conditions; as a result, these sales may not occur, they may be delayed or their terms may change.

Acquisition Activities:

In December 2019, DHC acquired an active adult rental community located in Plano, Texas with 169 living units for a purchase price of approximately $50.3 million, excluding closing costs, which is classified as an independent living community in the SHOP segment.

Financing Activities:

As previously announced, in December 2019, DHC obtained a new short term $250.0 million senior unsecured term loan. The maturity date of the term loan is June 12, 2020, which may be extended by six months subject to DHC's satisfaction of certain conditions, including the payment of an extension fee. DHC used the net proceeds from this term loan, together with proceeds from its dispositions, borrowings under its revolving credit facility and cash on hand, to prepay in full its $350.0 million senior unsecured term loan that was scheduled to mature on January 15, 2020. The interest rate on the new term loan is LIBOR plus 125 basis points, subject to adjustment based on changes to DHC's credit ratings.

Leasing Activities:

During the quarter ended December 31, 2019, DHC entered new and renewal leases for an aggregate of 393,785 rentable square feet at weighted (by rentable square feet) average rents that were 17.1% above prior rents for the same space. The weighted (by rentable square feet) average lease term for these leases was 9.0 years and leasing concessions and capital commitments were $13.0 million, or $3.66 per square foot, per lease year.

Conference Call:

At 10:00 a.m. Eastern Time this morning, President and Chief Operating Officer, Jennifer Francis, and Chief Financial Officer and Treasurer, Richard Siedel, will host a conference call to discuss DHC's fourth quarter and full year 2019 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 Monday, March 9, 2020. To access the replay, dial (412) 317-0088. The replay pass code is 10137810.

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 fourth quarter conference call are strictly prohibited without the prior written consent of DHC.

Supplemental Data:

A copy of DHC’s Fourth Quarter 2019 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.

Diversified Healthcare Trust (formerly known as Senior Housing Properties Trust) is a real estate investment trust, or REIT, that owns medical office and life science properties, senior living communities and wellness centers throughout the United States. DHC is managed by the operating subsidiary of RMR Inc., an alternative asset management company that is headquartered in Newton, MA.

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 and same property Cash Basis NOI, for the three months and years ended December 31, 2019 and 2018. 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 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 at 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 and same property Cash Basis NOI and a reconciliation of those amounts to amounts determined in accordance with GAAP.

DIVERSIFIED HEALTHCARE TRUST
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(amounts in thousands, except per share data)
(unaudited)

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

2019

 

2018

 

2019

 

2018

Revenues:

 

 

 

 

 

 

 

 

Rental income

 

$

147,209

 

 

$

178,680

 

 

$

606,558

 

 

$

700,641

 

Residents fees and services

 

108,830

 

 

106,542

 

 

433,597

 

 

416,523

 

Total revenues

 

256,039

 

 

285,222

 

 

1,040,155

 

 

1,117,164

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

Property operating expenses

 

126,572

 

 

117,440

 

 

489,070

 

 

451,581

 

Depreciation and amortization

 

69,503

 

 

71,935

 

 

289,025

 

 

286,235

 

General and administrative (1)

 

8,741

 

 

657

 

 

37,028

 

 

85,885

 

Acquisition and certain other transaction related costs

 

1,893

 

 

56

 

 

13,102

 

 

194

 

Impairment of assets

 

73,683

 

 

61,273

 

 

115,201

 

 

66,346

 

Total expenses

 

280,392

 

 

251,361

 

 

943,426

 

 

890,241

 

 

 

 

 

 

 

 

 

 

Gain on sale of properties

 

17,803

 

 

 

 

39,696

 

 

261,916

 

Dividend income

 

 

 

923

 

 

1,846

 

 

2,901

 

Losses on equity securities, net

 

(422)

 

 

(106,367)

 

 

(41,898)

 

 

(20,724)

 

Interest and other income

 

351

 

 

305

 

 

941

 

 

667

 

Interest expense (including net amortization of debt premiums, discounts and issuance costs of $1,440, $1,642, $6,032 and $6,221, respectively)

 

(43,272)

 

 

(45,506)

 

 

(180,112)

 

 

(179,287)

 

Loss on early extinguishment of debt

 

(27)

 

 

 

 

(44)

 

 

(22)

 

(Loss) income from continuing operations before income tax expense and equity in (losses) earnings of an investee

 

(49,920)

 

 

(116,784)

 

 

(82,842)

 

 

292,374

 

Income tax expense

 

(483)

 

 

(32)

 

 

(436)

 

 

(476)

 

Equity in (losses) earnings of an investee

 

(217)

 

 

(366)

 

 

400

 

 

516

 

Net (loss) income

 

(50,620)

 

 

(117,182)

 

 

(82,878)

 

 

292,414

 

Net income attributable to noncontrolling interest

 

(1,077)

 

 

(1,361)

 

 

(5,356)

 

 

(5,542)

 

Net (loss) income attributable to common shareholders

 

$

(51,697)

 

 

$

(118,543)

 

 

$

(88,234)

 

 

$

286,872

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (basic)

 

237,659

 

 

237,568

 

 

237,604

 

 

237,511

 

Weighted average common shares outstanding (diluted)

 

237,659

 

 

237,573

 

 

237,604

 

 

237,546

 

 

 

 

 

 

 

 

 

 

Per common share amounts (basic and diluted):

 

 

 

 

 

 

 

 

Net (loss) income attributable to common shareholders

 

$

(0.22)

 

 

$

(0.50)

 

 

$

(0.37)

 

 

$

1.21

 

(1) General and administrative expenses include the reversal of $10,066 of previously accrued business management incentive fee expense for the three months ended December 31, 2018 and $40,642 of business management incentive fee expense for the year ended December 31, 2018.

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 December 31,

 

Year Ended December 31,

 

 

2019

 

2018

 

2019

 

2018

Net (loss) income attributable to common shareholders

 

$

(51,697)

 

 

$

(118,543)

 

 

$

(88,234)

 

 

$

286,872

 

Depreciation and amortization

 

69,503

 

 

71,935

 

 

289,025

 

 

286,235

 

FFO attributable to noncontrolling interest

 

(5,276)

 

 

(5,300)

 

 

(21,147)

 

 

(21,200)

 

Gain on sale of properties

 

(17,803)

 

 

 

 

(39,696)

 

 

(261,916)

 

Impairment of assets

 

73,683

 

 

61,273

 

 

115,201

 

 

66,346

 

Losses on equity securities, net

 

422

 

 

106,367

 

 

41,898

 

 

20,724

 

FFO attributable to common shareholders

 

68,832

 

 

115,732

 

 

297,047

 

 

377,061

 

 

 

 

 

 

 

 

 

 

Estimated business management incentive fees (2)

 

 

 

(50,708)

 

 

 

 

 

Acquisition and certain other transaction related costs

 

1,893

 

 

56

 

 

13,102

 

 

194

 

Loss on early extinguishment of debt

 

27

 

 

 

 

44

 

 

22

 

Normalized FFO attributable to common shareholders

 

$

70,752

 

 

$

65,080

 

 

$

310,193

 

 

$

377,277

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (basic)

 

237,659

 

 

237,568

 

 

237,604

 

 

237,511

 

Weighted average common shares outstanding (diluted)

 

237,659

 

 

237,573

 

 

237,604

 

 

237,546

 

 

 

 

 

 

 

 

 

 

Per common share data (basic and diluted):

 

 

 

 

 

 

 

 

Net (loss) income attributable to common shareholders

 

$

(0.22)

 

 

$

(0.50)

 

 

$

(0.37)

 

 

$

1.21

 

FFO attributable to common shareholders

 

$

0.29

 

 

$

0.49

 

 

$

1.25

 

 

$

1.59

 

Normalized FFO attributable to common shareholders

 

$

0.30

 

 

$

0.27

 

 

$

1.31

 

 

$

1.59

 

Distributions declared

 

$

0.15

 

 

$

0.39

 

 

$

0.84

 

 

$

1.56

 

(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, which is net income (loss) attributable to common shareholders, calculated in accordance with GAAP, excluding any gain or loss on sale of properties, loss on impairment of real estate assets and gains or losses on equity securities, net, if any, plus real estate depreciation and amortization and minus FFO 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 and includes business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of DHC’s core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year. 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 DHC’s revolving credit facility and term loan agreements and DHC’s public debt covenants, 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.

(2) Incentive fees under DHC’s business management agreement with The RMR Group LLC are payable after the end of each calendar year, are calculated based on common share total return, as defined, compared to returns for the SNL U.S. REIT Healthcare Index over the applicable measurement period and are included in general and administrative expense in DHC’s consolidated statements of income (loss). In calculating net income (loss) attributable to common shareholders in accordance with GAAP, DHC recognizes estimated business management incentive fee expense, if any, in the first, second and third quarters. Although DHC recognizes this expense, if any, in the first, second and third quarters for purposes of calculating net income (loss) attributable to common shareholders, DHC does not include these amounts in the calculation of Normalized FFO attributable to common shareholders until the fourth quarter, when the amount of the business management incentive fee expense for the calendar year, if any, is determined. Normalized FFO attributable to common shareholders includes business management incentive fee expense of $40,642 for both the three months and year ended December 31, 2018.

DIVERSIFIED HEALTHCARE TRUST
CALCULATION AND RECONCILIATION OF NOI AND CASH BASIS NOI
(amounts in thousands)
(unaudited)

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

2019

 

2018

 

2019

 

2018

Calculation of NOI and Cash Basis NOI(1):

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

Rental income

 

$

147,209

 

 

$

178,680

 

 

$

606,558

 

 

$

700,641

 

Residents fees and services

 

108,830

 

 

106,542

 

 

433,597

 

 

416,523

 

Total revenues

 

256,039

 

 

285,222

 

 

1,040,155

 

 

1,117,164

 

Property operating expenses

 

(126,572)

 

 

(117,440)

 

 

(489,070)

 

 

(451,581)

 

NOI

 

129,467

 

 

167,782

 

 

551,085

 

 

665,583

 

Non-cash straight line rent adjustments

 

(958)

 

 

(1,720)

 

 

(4,508)

 

 

(10,227)

 

Lease value amortization

 

(1,869)

 

 

(1,497)

 

 

(6,791)

 

 

(5,787)

 

Non-cash amortization included in property operating expenses(2)

 

(200)

 

 

(200)

 

 

(797)

 

 

(797)

 

Cash Basis NOI

 

$

126,440

 

 

$

164,365

 

 

$

538,989

 

 

$

648,772

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Net (loss) income

 

$

(50,620)

 

 

$

(117,182)

 

 

$

(82,878)

 

 

$

292,414

 

 

 

 

 

 

 

 

 

 

Equity in losses (earnings) of an investee

 

217

 

 

366

 

 

(400)

 

 

(516)

 

Income tax expense

 

483

 

 

32

 

 

436

 

 

476

 

Loss on early extinguishment of debt

 

27

 

 

 

 

44

 

 

22

 

Interest expense

 

43,272

 

 

45,506

 

 

180,112

 

 

179,287

 

Interest and other income

 

(351)

 

 

(305)

 

 

(941)

 

 

(667)

 

Losses on equity securities, net

 

422

 

 

106,367

 

 

41,898

 

 

20,724

 

Dividend income

 

 

 

(923)

 

 

(1,846)

 

 

(2,901)

 

Gain on sale of properties

 

(17,803)

 

 

 

 

(39,696)

 

 

(261,916)

 

Impairment of assets

 

73,683

 

 

61,273

 

 

115,201

 

 

66,346

 

Acquisition and certain other transaction related costs

 

1,893

 

 

56

 

 

13,102

 

 

194

 

General and administrative

 

8,741

 

 

657

 

 

37,028

 

 

85,885

 

Depreciation and amortization

 

69,503

 

 

71,935

 

 

289,025

 

 

286,235

 

NOI

 

129,467

 

 

167,782

 

 

551,085

 

 

665,583

 

 

 

 

 

 

 

 

 

 

Non-cash amortization included in property operating expenses(2)

 

(200)

 

 

(200

 

 

(797)

 

 

(797)

 

Lease value amortization

 

(1,869)

 

 

(1,497)

 

 

(6,791)

 

 

(5,787)

 

Non-cash straight line rent adjustments

 

(958)

 

 

(1,720)

 

 

(4,508)

 

 

(10,227)

 

Cash Basis NOI

 

$

126,440

 

 

$

164,365

 

 

$

538,989

 

 

$

648,772

 

(1) The calculations of NOI, Cash Basis NOI, same property NOI and same property Cash Basis NOI exclude certain components of net income (loss) in order to provide results that are more closely related to DHC’s property level results of operations. DHC calculates NOI and Cash Basis NOI as shown above. DHC defines NOI as income from its real estate less its property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that DHC records as depreciation and amortization. DHC defines Cash Basis NOI as NOI excluding non-cash straight line rent adjustments, lease value amortization, lease termination fee amortization, if any, and non-cash amortization included in property operating expenses. DHC calculates same property NOI and same property Cash Basis NOI in the same manner that it calculates the corresponding NOI and Cash Basis NOI amounts, except that it only includes same properties in calculating same property NOI and same property Cash Basis NOI. DHC uses NOI, Cash Basis NOI, same property NOI and same property Cash Basis NOI to evaluate individual and company wide property level performance. Other real estate companies and REITs may calculate NOI, Cash Basis NOI, same property NOI and same property Cash Basis NOI differently than DHC does.

(2) DHC recorded a liability for the amount by which the estimated fair value for accounting purposes exceeded the price DHC paid for its investment in RMR Inc. Class A common stock in June 2015. A portion of this liability is being amortized on a straight line basis through December 31, 2035 as a reduction to property management fees expense, which is included in property operating expenses. On July 1, 2019, DHC sold its investment in RMR Inc. Class A common stock.

DIVERSIFIED HEALTHCARE TRUST
Calculation and Reconciliation of NOI, Cash Basis NOI, Same Property NOI and Same Property Cash Basis NOI by Segment
(1)
(dollars in thousands)
(unaudited)

 

 

For the Three Months Ended December 31, 2019

 

For the Three Months Ended December 31, 2018

Calculation of NOI and Cash Basis NOI:

 

Office Portfolio

 

SHOP

 

Non-Segment (2)

 

Total

 

Office Portfolio

 

SHOP

 

Non-Segment (2)

 

Total

Rental income / residents fees and services

 

$

97,400

 

 

$

141,277

 

 

$

17,362

 

 

$

256,039

 

 

$

103,316

 

 

$

163,956

 

 

$

17,950

 

 

$

285,222

 

Property operating expenses

 

(33,462)

 

 

(93,110)

 

 

 

 

(126,572)

 

 

(32,959)

 

 

(84,481)

 

 

 

 

(117,440)

 

NOI

 

$

63,938

 

 

$

48,167

 

 

$

17,362

 

 

$

129,467

 

 

$

70,357

 

 

$

79,475

 

 

$

17,950

 

 

$

167,782

 

NOI change

 

(9.1)%

 

 

(39.4)%

 

 

(3.3)%

 

 

(22.8)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOI

 

$

63,938

 

 

$

48,167

 

 

$

17,362

 

 

$

129,467

 

 

$

70,357

 

 

$

79,475

 

 

$

17,950

 

 

$

167,782

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash straight line rent adjustments

 

845

 

 

 

 

113

 

 

958

 

 

1,703

 

 

 

 

17

 

 

1,720

 

Lease value amortization

 

1,813

 

 

 

 

56

 

 

1,869

 

 

1,442

 

 

 

 

55

 

 

1,497

 

Non-cash amortization included in property operating expenses (3)

 

200

 

 

 

 

 

 

200

 

 

200

 

 

 

 

 

 

200

 

Cash Basis NOI

 

$

61,080

 

 

$

48,167

 

 

$

17,193

 

 

$

126,440

 

 

$

67,012

 

 

$

79,475

 

 

$

17,878

 

 

$

164,365

 

Cash Basis NOI change

 

(8.9)%

 

 

(39.4)%

 

 

(3.8)%

 

 

(23.1)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of NOI to Same Property NOI:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOI

 

$

63,938

 

 

$

48,167

 

 

$

17,362

 

 

$

129,467

 

 

$

70,357

 

 

$

79,475

 

 

$

17,950

 

 

$

167,782

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOI not included in same property

 

4,064

 

 

(42)

 

 

3,185

 

 

7,207

 

 

8,652

 

 

2,854

 

 

3,987

 

 

15,493

 

Same property NOI (4)

 

$

59,874

 

 

$

48,209

 

 

$

14,177

 

 

$

122,260

 

 

$

61,705

 

 

$

76,621

 

 

$

13,963

 

 

$

152,289

 

Same property NOI change

 

(3.0)%

 

 

(37.1)%

 

 

1.5%

 

 

(19.7)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Same Property NOI to Same Property Cash Basis NOI:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same property NOI (4)

 

$

59,874

 

 

$

48,209

 

 

$

14,177

 

 

$

122,260

 

 

$

61,705

 

 

$

76,621

 

 

$

13,963

 

 

$

152,289

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash straight line rent adjustments

 

364

 

 

 

 

114

 

 

478

 

 

2,030

 

 

 

 

164

 

 

2,194

 

Lease value amortization

 

1,836

 

 

 

 

55

 

 

1,891

 

 

1,655

 

 

 

 

55

 

 

1,710

 

Non-cash amortization included in property operating expenses (3)

 

183

 

 

 

 

 

 

183

 

 

174

 

 

 

 

 

 

174

 

Same property cash basis NOI (4)

 

$

57,491

 

 

$

48,209

 

 

$

14,008

 

 

$

119,708

 

 

$

57,846

 

 

$

76,621

 

 

$

13,744

 

 

$

148,211

 

Same property cash basis NOI change

 

(0.6)%

 

 

(37.1)%

 

 

1.9%

 

 

(19.2)%

 

 

 

 

 

 

 

 

 

(1) See page 8 for the calculation of NOI and a reconciliation of net income (loss) determined in accordance with GAAP to that amount. See footnote 1 on page 8 of this press release for a definition of NOI, Cash Basis NOI, same property NOI and same property Cash Basis NOI, and page 5 for a description of why management believes they are appropriate supplemental measures and a description of how management uses these measures.

(2) Consists of the operating results of triple net leased senior living communities that are leased to third party operators other than Five Star and wellness centers.

(3) DHC recorded a liability for the amount by which the estimated fair value for accounting purposes exceeded the price DHC paid for its investment in RMR Inc. class A common stock in June 2015. A portion of this liability is being amortized on a straight line basis through December 31, 2035 as a reduction to property management fees expense, which is included in property operating expenses. On July 1, 2019, DHC sold its investment in RMR Inc. Class A common stock.

(4) Consists of properties owned, in service and managed by the same operator continuously since October 1, 2018, including DHC's life science property owned in a joint venture arrangement in which DHC owns a 55% equity interest; excludes properties classified as held for sale or in redevelopment, if any.

DIVERSIFIED HEALTHCARE TRUST
Calculation and Reconciliation of NOI, Cash Basis NOI, Same Property NOI and Same Property Cash Basis NOI by Segment
(1)
(dollars in thousands)
(unaudited)

 

 

For the Year Ended December 31, 2019

 

For the Year Ended December 31, 2018

Calculation of NOI and Cash Basis NOI:

 

Office Portfolio

 

SHOP

 

Non-Segment (2)

 

Total

 

Office Portfolio

 

SHOP

 

Non-Segment (2)

 

Total

Rental income / residents fees and services

 

$

405,016

 

 

$

571,495

 

 

$

63,644

 

 

$

1,040,155

 

 

$

412,813

 

 

$

629,145

 

 

$

75,206

 

 

$

1,117,164

 

Property operating expenses

 

(132,348)

 

 

(356,722)

 

 

 

 

(489,070)

 

 

(127,732)

 

 

(323,849)

 

 

 

 

(451,581)

 

NOI

 

$

272,668

 

 

$

214,773

 

 

$

63,644

 

 

$

551,085

 

 

$

285,081

 

 

$

305,296

 

 

$

75,206

 

 

$

665,583

 

NOI change

 

(4.4)%

 

 

(29.7)%

 

 

(15.4)%

 

 

(17.2)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOI

 

$

272,668

 

 

$

214,773

 

 

$

63,644

 

 

$

551,085

 

 

$

285,081

 

 

$

305,296

 

 

$

75,206

 

 

$

665,583

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash straight line rent adjustments

 

3,996

 

 

 

 

512

 

 

4,508

 

 

8,189

 

 

 

 

2,038

 

 

10,227

 

Lease value amortization

 

6,569

 

 

 

 

222

 

 

6,791

 

 

5,566

 

 

 

 

221

 

 

5,787

 

Non-cash amortization included in property operating expenses (3)

 

797

 

 

 

 

 

 

797

 

 

797

 

 

 

 

 

 

797

 

Cash Basis NOI

 

$

261,306

 

 

$

214,773

 

 

$

62,910

 

 

$

538,989

 

 

$

270,529

 

 

$

305,296

 

 

$

72,947

 

 

$

648,772

 

Cash Basis NOI change

 

(3.4)%

 

 

(29.7)%

 

 

(13.8)%

 

 

(16.9)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of NOI to Same Property NOI:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOI

 

$

272,668

 

 

$

214,773

 

 

$

63,644

 

 

$

551,085

 

 

$

285,081

 

 

$

305,296

 

 

$

75,206

 

 

$

665,583

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOI not included in same property

 

37,460

 

 

7,367

 

 

14,198

 

 

59,025

 

 

44,689

 

 

12,351

 

 

26,278

 

 

83,318

 

Same property NOI (4)

 

$

235,208

 

 

$

207,406

 

 

$

49,446

 

 

$

492,060

 

 

$

240,392

 

 

$

292,945

 

 

$

48,928

 

 

$

582,265

 

Same property NOI change

 

(2.2)%

 

 

(29.2)%

 

 

1.1%

 

 

(15.5)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Same Property NOI to Same Property Cash Basis NOI:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same property NOI (4)

 

$

235,208

 

 

$

207,406

 

 

$

49,446

 

 

$

492,060

 

 

$

240,392

 

 

$

292,945

 

 

$

48,928

 

 

$

582,265

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash straight line rent adjustments

 

2,533

 

 

 

 

514

 

 

3,047

 

 

8,954

 

 

 

 

1,410

 

 

10,364

 

Lease value amortization

 

7,255

 

 

 

 

221

 

 

7,476

 

 

6,631

 

 

 

 

221

 

 

6,852

 

Non-cash amortization included in property operating expenses (3)

 

714

 

 

 

 

 

 

714

 

 

699

 

 

 

 

 

 

699

 

Same property cash basis NOI (4)

 

$

224,706

 

 

$

207,406

 

 

$

48,711

 

 

$

480,823

 

 

$

224,108

 

 

$

292,945

 

 

$

47,297

 

 

$

564,350

 

Same property cash basis NOI change

 

0.3%

 

 

(29.2)%

 

 

3.0%

 

 

(14.8)%

 

 

 

 

 

 

 

 

 

(1) See page 8 for the calculation of NOI and a reconciliation of net income (loss) determined in accordance with GAAP to that amount. See footnote 1 on page 8 of this press release for a definition of NOI, Cash Basis NOI, same property NOI and same property Cash Basis NOI, and page 5 for a description of why management believes they are appropriate supplemental measures and a description of how management uses these measures.

(2) Consists of the operating results of triple net leased senior living communities that are leased to third party operators other than Five Star and wellness centers.

(3) DHC recorded a liability for the amount by which the estimated fair value for accounting purposes exceeded the price DHC paid for its investment in RMR Inc. class A common stock in June 2015. A portion of this liability is being amortized on a straight line basis through December 31, 2035 as a reduction to property management fees expense, which is included in property operating expenses. On July 1, 2019, DHC sold its investment in RMR Inc. Class A common stock.

(4) Consists of properties owned, in service and managed by the same operator continuously since January 1, 2018, including DHC's life science property owned in a joint venture arrangement in which DHC owns a 55% equity interest; excludes properties classified as held for sale or in redevelopment, if any.

DIVERSIFIED HEALTHCARE TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
(unaudited)

 

 

December 31, 2019

 

December 31, 2018

ASSETS

 

 

 

 

Real estate properties

 

$

7,461,586

 

 

$

7,876,300

 

Accumulated depreciation

 

(1,570,801)

 

 

(1,534,392)

 

Total real estate properties, net

 

5,890,785

 

 

6,341,908

 

 

 

 

 

 

Assets of properties held for sale

 

209,570

 

 

1,928

 

Cash and cash equivalents

 

37,357

 

 

54,976

 

Restricted cash

 

14,867

 

 

15,095

 

Acquired real estate leases and other intangible assets, net

 

337,875

 

 

419,244

 

Other assets, net

 

163,372

 

 

327,275

 

Total assets

 

$

6,653,826

 

 

$

7,160,426

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

Unsecured revolving credit facility

 

$

537,500

 

 

$

139,000

 

Unsecured term loans, net

 

448,741

 

 

548,286

 

Senior unsecured notes, net

 

1,820,681

 

 

2,216,945

 

Secured debt and capital leases, net

 

694,739

 

 

744,186

 

Liabilities of properties held for sale

 

6,758

 

 

 

Accrued interest

 

24,060

 

 

26,182

 

Assumed real estate lease obligations, net

 

76,705

 

 

86,304

 

Other liabilities

 

167,592

 

 

219,653

 

Total liabilities

 

3,776,776

 

 

3,980,556

 

 

 

 

 

 

Total equity

 

2,877,050

 

 

3,179,870

 

Total liabilities and equity

 

$

6,653,826

 

 

$

7,160,426

 

Warning Concerning Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Whenever DHC uses words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, "will", “may” and negatives or derivatives of these or similar expressions, DHC is making forward-looking statements. These forward-looking statements are based upon DHC’s present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur. Actual results may differ materially from those contained in or implied by DHC’s forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond DHC’s control. For example,

  • Ms. Francis’s statement that DHC will remain focused in 2020 on its core competencies in order to increase shareholder value, including through asset management, the continued execution of its redevelopment plans and disciplined capital recycling strategy in order to further refine its high quality portfolio, may imply that DHC's redevelopment plan or capital recycling strategy will be successful and that the quality of DHC's portfolio and results of operations and financial condition will improve as a result of those efforts. However, DHC's ability to successfully execute on its core competencies is subject to various risks. Further, even if DHC is able to execute on its core competencies, it may not realize increased shareholder value. As a result, DHC may not succeed in increasing shareholder value.
  • Ms. Francis states that DHC completed the transformative restructuring of its business arrangements with Five Star. This may imply that DHC’s returns from the senior living communities that Five Star manages for DHC’s account will improve as a result of this restructuring. However, Five Star’s ability to profitably operate DHC’s managed senior living communities remains subject to various risks, some of which are beyond DHC’s and Five Star’s control, including senior living industry conditions and the market demands and preferences of seniors. As a result, Five Star may not profitably operate DHC’s managed senior living communities and DHC’s returns from those communities may not improve and may decline.
  • DHC has classified certain properties as held for sale as of December 31, 2019. This may imply that all of the properties that DHC has classified as held for sale will be sold; however, any such sales may not occur and DHC may incur losses with respect to such sales of those properties.
  • As of February 28, 2020, DHC had 52 properties under agreements to sell or in first or second round offer stages for an aggregate sales price of approximately $539.7 million, excluding closing costs. This may imply that DHC will sell the properties under agreement or for which it has received offers and receive proceeds from those sales equal to or greater than the expected amounts. However, DHC may not complete the sales of any or all of the properties it currently plans to sell. Also, DHC may sell some or all of these properties at amounts that are less than currently expected and/or less than the carrying values of such properties and DHC may incur losses on any such sales as a result.

The information contained in DHC’s filings with the SEC, including under “Risk Factors” in DHC’s periodic reports, or incorporated therein, identifies important factors that could cause DHC’s actual results to differ materially from those stated in or implied by DHC’s forward-looking statements. DHC’s filings with the SEC are available on the SEC’s website at www.sec.gov. You should not place undue reliance upon forward-looking statements. Except as required by law, DHC does not intend to update or change any forward-looking statements as a result of new information, future events or otherwise.

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