Diversified Healthcare Trust Announces Fourth Quarter 2020 Results

Fourth Quarter Net Loss Attributable to Common Shareholders of $0.07 Per Share

Fourth Quarter Normalized FFO Attributable to Common Shareholders of $0.09 Per Share

Diversified Healthcare Trust DHC today announced its financial results for the quarter ended December 31, 2020.

"The commencement of vaccine distribution in December of 2020 marked a major milestone in the early stages of the senior living industry recovery," stated Jennifer Francis, President and Chief Operating Officer of Diversified Healthcare Trust. "As of February 20, 2021, we are pleased that our operator has vaccinated over 23,500 total residents and staff in our SHOP communities, including over 14,500 residents and staff who have received both doses of the vaccine, and we expect our operator to largely conclude the vaccination clinic program by the end of the first quarter of 2021. Additionally, in our Office segment, we reported another strong quarter of rent collections, which were 99% of quarterly obligations, and our rent deferrals remain modest at just 0.4% of annualized revenues. Subsequent to quarter end, DHC took several critical steps to preserve liquidity as we amended our credit facility to secure waivers of most financial covenants through June 2022, and completed a $500 million senior notes offering which effectively addressed all of our significant maturities into 2024."

Quarterly Results:

• Reported net loss attributable to common shareholders of $16.2 million, or $0.07 per share.
• Reported normalized funds from operations, or Normalized FFO, attributable to common shareholders of $20.5 million, or $0.09 per share.

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 December 31, 2020 and 2019 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 December 31, 2020 and 2019, also appear later in this press release. Reconciliations of net income (loss) determined in accordance with GAAP to pro forma earnings before interest, taxes, depreciation, amortization, impairment of assets, gains or losses on sale of properties, gains or losses on early extinguishment of debt, rent and management fees, or EBITDARM, and a reconciliation of pro forma EBITDARM to same property pro forma EBITDARM and a calculation of same property pro forma EBITDARM, for the quarters ended December 31, 2020 and 2019, appear later in this press release as well.

Office Segment:

• Same Property Cash Basis NOI increased slightly compared to the fourth quarter of 2019 primarily resulting from lower bad debt recognized in the fourth quarter of 2020, offset by decreased parking revenue related to the COVID-19 pandemic.
• DHC entered into new and renewal leases for an aggregate of 413,528 rentable square feet at weighted average rents that were 7.9% lower than prior rents for the same space.
• DHC collected approximately 99% of rents due during the fourth quarter of 2020 after giving effect to rent deferrals.

SHOP Segment: As of February 20, 2021, approximately 99% of DHC's communities were currently accepting new residents. Recent same property occupancy rates in DHC's senior housing operating portfolio, or SHOP, segment consisting of 217 communities are as follows:

• Same Property Cash Basis NOI decreased compared to the fourth quarter of 2019, primarily resulting from decreased rental income due to the conversion of DHC's previously existing leasing arrangements with Five Star Senior Living Inc. FVE, or Five Star, to management arrangements as part of the restructuring of DHC's business arrangements with Five Star, or the Restructuring Transaction, on January 1, 2020 and the results from the converted managed communities for the 2020 period being less than DHC's rental income for these communities for the 2019 period, along with the decline in results from the communities that were managed for both periods presented. DHC's results from managed communities were adversely impacted by decreases in occupancy and increases in operating expenses on a per resident basis related to the COVID-19 pandemic.
• As of February 20, 2021, approximately 23,500 total residents and staff, or more than 87% of residents and more than 43% of staff, of DHC's senior living communities have received one or more doses of the vaccine, including over 14,500 residents and staff who have received both doses of the vaccine.

Disposition Activities:

• In October 2020, DHC sold three senior living communities for a sales price of $46.0 million, excluding closing costs.
• In November 2020, DHC sold one senior living community for a sales price of $3.0 million, excluding closing costs.
• In December 2020, DHC sold one medical office property, two life science properties and three senior living communities for aggregate sales prices of $3.9 million, $7.9 million, and $11.5 million, respectively, excluding closing costs.
• In February 2021, DHC sold one medical office property for a sales price of $9.0 million, excluding closing costs.
• As of February 23, 2021, DHC had four properties under an agreement to sell for a sales price of approximately $95.5 million, excluding closing costs. This sale is subject to various conditions; as a result, this sale may not occur, it may be delayed or the terms may change.

Liquidity and Financing Activities:

• As of December 31, 2020, DHC had approximately $74.4 million of cash and cash equivalents, and $1.0 billion available to borrow under its revolving credit facility.
• As previously announced, in January 2021, DHC amended the agreements governing its revolving credit and $200.0 million term loan facilities. The key terms of the amendments include:
  • certain financial covenants under the revolving credit and term loan facilities have been waived through June 30, 2022;
  • DHC has an additional option to extend the maturity of the revolving credit facility to January 2024;
  • the revolving credit facility commitments have been reduced from $1.0 billion to $800.0 million;
  • DHC has pledged the equity interests of certain of its subsidiaries which own properties with an undepreciated book value of $1.4 billion as of December 31, 2020, and has agreed to provide first mortgage liens on 91 medical office and life science properties owned by these subsidiaries to secure its obligations under the credit and term loan facilities;
  • the interest rate premiums over LIBOR under the credit and term loan facilities increased by up to 30 basis points;
  • DHC has the ability to fund up to $250.0 million of capital expenditures, as defined, per year, which amount increased to $350.0 million per year following DHC's repayment of its $200.0 million term loan in February 2021;
  • certain other covenants and conditions, including restrictions on DHC's ability to make distributions, to incur debt and to acquire real property (in each case subject to various exceptions), and the requirement that DHC maintain a minimum liquidity of $200.0 million, remain in place through the waiver period; and
  • DHC is generally required to apply any net cash proceeds from dispositions or debt refinancings to repay its senior notes due in December 2021, its $200.0 million term loan and any outstanding borrowings under its revolving credit facility.
• Also as previously announced, in February 2021, DHC issued $500.0 million aggregate principal amount of its 4.375% senior notes due 2031 in an underwritten public offering. These notes are guaranteed by all of DHC's subsidiaries, except for certain excluded subsidiaries. DHC used a portion of the net proceeds from this offering to prepay in full its $200.0 million term loan and plans to use the remaining net proceeds to redeem the $300.0 million principal amount outstanding of its 6.75% Senior Notes due 2021 in June 2021, when the notes become redeemable with no prepayment premium.

Conference Call:

At 10:00 a.m. Eastern Time tomorrow 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 2020 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, March 4, 2021. To access the replay, dial (412) 317-0088. The replay pass code is 10150783.

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 2020 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, 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 The RMR Group 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, same property Cash Basis NOI, earnings before interest, income tax, depreciation and amortization, or EBITDA, EBITDA for real estate, or EBITDAre, Adjusted EBITDAre, pro forma EBITDARM and same property pro forma EBITDARM for the three months and years ended December 31, 2020 and 2019. 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 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, Adjusted EBITDAre, pro forma EBITDARM and same property pro forma EBITDARM and a reconciliation of those amounts to amounts determined in accordance with GAAP.