DHC — Diversified Healthcare Trust

Summary of DHC Q1 2026 Earnings Call

1. Key Financial Results and Metrics:

• Normalized Funds from Operations (FFO): $33.1 million, or $0.14 per share, exceeding analyst expectations.
• Adjusted EBITDAre: $74 million, also above consensus estimates.
• Consolidated Net Operating Income (NOI): Increased 4.7% year-over-year to $75.9 million.
• Same-Property SHOP NOI: Rose 13.5% year-over-year to $44.3 million, driven by a 110 basis point increase in occupancy and a 5.9% rise in average monthly rates.
• Same-Property NOI Margin: Expanded by 160 basis points to 14.9%.
• Liquidity Position: Total liquidity of $272 million, including $122 million in cash.
• Net Debt to Adjusted EBITDAre: Improved to 7.8x from 8.8x year-over-year.

2. Strategic Updates and Business Highlights:

• Continued focus on active asset management and partnerships with new operators.
• Successful implementation of cost-saving measures, particularly in dietary and labor expenses.
• Capital deployment strategy includes repositioning underutilized skilled nursing wings into independent living or assisted living facilities, with an initial investment of approximately $20 million expected to yield mid-teen returns.
• Strong performance in the Medical Office and Life Science portfolio, with same-property occupancy increasing to 95.3%.

3. Forward Guidance and Outlook:

• Reaffirmed guidance for 2026:
  • SHOP NOI: $175 million to $185 million.
  • Medical Office and Life Science NOI: $94 million to $98 million.
  • Adjusted EBITDAre: $290 million to $305 million.
  • Normalized FFO: $0.52 to $0.58 per share.
• Anticipated continued growth in SHOP NOI, driven by effective expense management and improved occupancy.

4. Bad News, Challenges, or Points of Concern:

• Occupancy Rates: Same-property occupancy in the SHOP segment remained flat quarter-over-quarter, attributed to seasonal factors and ongoing operator transitions.
• Potential Risks: Approximately 9% of annualized rental income in the Medical Office and Life Science portfolio is set to expire through 2026, with 4.9% expected to vacate.
• G&A Expenses: Increased due to incentive management fees linked to stock performance, which could impact overall profitability.

5. Notable Q&A Insights:

• Management confirmed that the recurring CapEx guidance includes both maintenance and refresh capital, with expectations for a modest pullback in maintenance costs over time.
• Future capital investments will primarily focus on renovations rather than acquisitions, as current opportunities within the existing portfolio are prioritized.
• Management expressed confidence in achieving their SHOP NOI growth targets despite potential seasonal fluctuations and ongoing transitions with new operators.
• The transition from AlerisLife is progressing well, with incremental benefits expected to continue throughout 2026.

Overall, DHC's first quarter results reflect strong operational performance and strategic initiatives aimed at enhancing long-term value, despite some challenges related to occupancy and potential expirations in rental income.