DHC — Diversified Healthcare Trust

Summary of DHC Q3 2025 Earnings Call

1. Key Financial Results and Metrics

• Total Revenue: $388.7 million, up 4% year-over-year.
• Adjusted EBITDAre: $62.9 million.
• Normalized Funds from Operations (FFO): $9.7 million, or $0.04 per share.
• Same-Property Cash Basis NOI: $62.6 million, a 70 basis point increase year-over-year, but down 9.5% sequentially.
• SHOP Revenue Growth: 6.6% year-over-year.
• SHOP NOI: $29.6 million, a 7.8% increase year-over-year, but sequentially affected by higher costs.
• SHOP Occupancy: Increased to 81.5%, a 210 basis point rise year-over-year.

2. Strategic Updates and Business Highlights

• Transition of 116 AlerisLife-managed communities to new operators is underway, with 85 communities transitioned as of the call.
• Elevated labor costs due to the transition resulted in a temporary decline in NOI, with an additional $5.1 million in compensation expenses.
• New operating agreements with a 10-year term include performance-based incentives to align operator interests with DHC’s objectives.
• DHC completed approximately 86,000 square feet of leasing in its Medical Office and Life Science portfolio at rents 9% above prior levels.
• Significant asset sales: 44 properties sold for $396 million year-to-date, with 38 more under agreements for $237 million.

3. Forward Guidance and Outlook

• Full-year SHOP NOI guidance maintained at $132 million to $142 million.
• Anticipated improvements in adjusted EBITDAre for 2025, with a range of $275 million to $285 million.
• Expectation to repay January 2026 bonds as early as year-end 2025, with no debt maturities until 2028.

4. Bad News, Challenges, or Points of Concern

• Increased operational costs due to the transition from AlerisLife, with temporary labor costs impacting NOI.
• Sequential decline in SHOP NOI attributed to higher seasonal utility costs and the noted labor costs.
• The company’s net debt-to-adjusted EBITDAre stood at 10x, reflecting temporary expense increases; excluding these, leverage would improve to 9.3x.
• Potential disruptions in revenue during the operator transition period, although management is optimistic about future performance.

5. Notable Q&A Insights

• Management expects operator transition costs to decrease to $1.5 million to $2 million in Q4.
• The guidance for SHOP occupancy remains at 82% to 83% by year-end.
• The transition was deemed necessary for long-term strategic positioning, despite short-term disruptions.
• DHC plans to maintain liquidity and may not prioritize additional debt repayment beyond the upcoming maturity in 2026, focusing instead on operational improvements and strategic initiatives.

Overall, DHC is navigating a significant transition in its operations while maintaining a positive outlook on long-term performance and financial stability, despite facing short-term challenges related to elevated costs and transitions.