Diversified Healthcare Trust Q1 Earnings Call Highlights

Key Points

• Operational outperformance: DHC reported Q1 Normalized FFO of $33.1M ($0.14/share) and Adjusted EBITDAre of $74M, both above consensus, with same-property SHOP NOI up 13.5% YoY as occupancy reached 82.4% and average monthly rates rose roughly 5.9%.
• Expense controls and new operator partnerships drove meaningful savings—dietary costs fell 370 basis points sequentially, contract labor was down nearly 35% YoY, and labor costs declined about 70 basis points sequentially—supporting margin expansion.
• Balance-sheet and capital priorities: liquidity totaled $272M (cash $122M, $150M revolver), net debt/Adjusted EBITDAre improved to 7.8x, Moody’s upgraded to B3 with a positive outlook and no maturities until 2028, management reaffirmed 2026 guidance and is focusing on accretive conversions (phase one ~$20M to add ~150 units) to target mid‑teen returns and a 6.5–7.5x leverage goal.

Diversified Healthcare Trust NASDAQ: DHC reported first-quarter 2026 results that management said reflected improving operating performance following strategic changes made in its senior housing operating portfolio last year, alongside continued progress on balance sheet initiatives.

Quarterly results and operating momentum

President and CEO Christopher Bilotto said the company “delivered a strong first quarter” that highlighted the impact of “active asset management and the deep expertise of our expanded operating partners.” He said changes made within the company’s SHOP (senior housing operating portfolio) in 2025 continued to produce results, with a focus on “driving revenue, expense synergies, and overall margin improvement.”

DHC reported Normalized funds from operations (FFO) of $33.1 million, or $0.14 per share, and Adjusted EBITDAre of $74 million. Bilotto said both were “well ahead of the analyst consensus estimate.” Consolidated net operating income (NOI) rose 4.7% year over year to $75.9 million.

The company’s same-property SHOP portfolio posted NOI of $44.3 million, up 13.5% year over year. Bilotto attributed the improvement to same-property occupancy growth of 110 basis points and average monthly rate growth of 5.9%. He also said same-property NOI margin expanded 160 basis points to 14.9%, with occupancy at 82.4%.

SHOP performance: pricing, occupancy, and expense controls

Bilotto said revenue gains were supported by an average annual rate increase of 4.5% across 70% of the SHOP portfolio in January, as well as “a favorable shift in resident levels of care.” On the cost side, he said DHC’s new operator partnerships were helping to drive savings, citing new dietary and food and beverage contracts that improved the resident experience while “locking in significant cost savings for the year.” He also said labor costs were moderating due to reduced contract labor and rightsizing of regional and community staffing.

Vice President Anthony Paula provided additional detail on expense trends, noting that within the same-property SHOP portfolio the quarter included:

• A 370 basis point decrease in dietary costs sequentially,
• A 70 basis point sequential reduction in labor (adjusting for the number of days in the period), and
• A nearly 35% decrease in contract labor year over year.

Paula said same-property average monthly rate increased 590 basis points year over year and 320 basis points sequentially. He added that consolidated same-property cash basis NOI was $75.9 million, up 8.6% year over year and 7.8% sequentially, and that SHOP same-property NOI would have increased 22% year over year when adjusting for insurance proceeds received in the first quarter of 2025.

In the Q&A, management discussed quarter-over-quarter flat SHOP occupancy. Bilotto said the result reflected both seasonality and the effects of operator transitions, adding that “given the fact that we can hold occupancy while we're going through a major transition across the entire portfolio, I think is a real win.” He said the company expected to focus on occupancy growth as it enters seasonally stronger periods, but did not provide specific second-quarter figures, noting April results were still being finalized.

Medical office and life science leasing update

DHC also reported what Bilotto described as “solid results” in its medical office and life science portfolio. Same-property occupancy rose 60 basis points year over year to 95.3%, and NOI increased 3.7% from the prior year to $25.4 million, along with a 4.8% sequential increase.

Leasing activity included 169,000 square feet of new and renewal leases at rents 12% above prior rents and a 9.5-year weighted average lease term, according to Bilotto. He said just over 9% of analyzed rental income in the segment is scheduled to expire through 2026, with 304,000 square feet—about 4.9% of annualized rental income—expected to vacate. He also noted that after quarter-end the company signed 390,000 square feet of leases, primarily renewals, representing 29% of its 2027 expirations.

Capital allocation, repositioning pipeline, and balance sheet

Bilotto said DHC is increasingly focused on selectively deploying capital into what he described as higher-return projects, including converting underutilized or closed skilled nursing wings into independent living, assisted living, or memory care. He said the company identified opportunities across 16 communities, with six communities in a first phase expected to cost about $20 million and add roughly 150 units. Bilotto said DHC currently absorbs carrying costs on the vacant wings, and the projects are expected to be “immediately accretive” upon completion, with expected returns “starting in the mid-teens.”

On portfolio and balance sheet actions, Bilotto said DHC sold 13 unencumbered non-core SHOP communities in March for aggregate proceeds of $23 million. He also said the company exercised land lease purchase options on two properties in April for $14.5 million, and expects “low to mid-teen returns” from eliminating ground rent on those communities. Bilotto added that with its “large-scale capital recycling program now complete,” DHC has shifted from portfolio transformation “to value creation,” and he emphasized the company’s debt profile includes “no maturities until 2028.”

Chief Financial Officer Matthew Brown said total liquidity at quarter-end was $272 million, including $122 million of cash and cash equivalents and $150 million available under a secured revolving credit facility. Net debt to annualized Adjusted EBITDAre was 7.8 times, down from 8.8 times a year ago, which Brown said was driven primarily by improved operating performance. Adjusted EBITDAre to interest expense improved to 2.0 times from 1.3 times a year earlier. Brown said DHC remained confident in reaching a near-term leverage target of 6.5–7.5 times, with most improvement expected from continued growth in SHOP NOI.

Brown also noted that Moody’s upgraded DHC’s corporate family rating to B3 from Caa1 in April and revised its outlook to positive, citing progress in operations and balance sheet strengthening. He added that DHC has 197 unencumbered properties, representing nearly 64% of the portfolio’s gross book value.

Guidance and expense considerations

For full-year 2026, Brown said DHC reaffirmed guidance ranges previously outlined in its fourth-quarter earnings, including:

• $175 million–$185 million of SHOP NOI,
• $94 million–$98 million of medical office and life science segment NOI,
• $28 million–$30 million of NOI from triple net lease senior living communities and wellness centers,
• Adjusted EBITDAre of $290 million–$305 million, and
• Normalized FFO of $0.52–$0.58 per share.

Paula said first-quarter general and administrative expense included $6.6 million of incentive management fees due to stock performance; excluding the incentive fee, G&A expense would have been $7.4 million. He also said DHC invested $21.8 million of capital during the quarter—$17.2 million in SHOP communities and $4.6 million in the medical office and life science portfolio—and reaffirmed 2026 recurring capital expenditure guidance of $100 million to $115 million, which he said represented an approximately 18% reduction at the midpoint.

In response to analyst questions, management said recurring CapEx in SHOP includes both maintenance and some “refresh” capital, and indicated the per-unit maintenance run rate is expected to decline in future periods. Bilotto said new investment activity is expected to be “mostly the renovations” within the portfolio, rather than acquisitions, as the company prioritizes internal opportunities.

About Diversified Healthcare Trust NASDAQ: DHC

Diversified Healthcare Trust is a real estate investment trust (REIT) specializing in the acquisition, ownership and management of healthcare properties across the United States. The company focuses on assets that serve the senior housing and post-acute care sectors, including skilled nursing facilities, assisted living communities, memory care centers and medical office buildings. By partnering with experienced operators, Diversified Healthcare Trust aims to generate stable, long-term cash flows through triple-net leases and percentage rent structures tailored to each property type.

The company's portfolio spans multiple states and encompasses a mix of single-tenant and multi-tenant properties.

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