Diversified Healthcare Trust sees positive outlook adjustment by S&P Global Ratings

Investing.com -- S&P Global Ratings has revised the outlook of Diversified Healthcare Trust (NASDAQ:DHC) to positive from negative, citing reduced refinancing risk due to the company’s successful repayment of upcoming debt maturities. The rating agency also noted an improvement in DHC’s operating performance, which could present additional financing opportunities.

S&P Global Ratings affirmed its ’CCC+’ issuer credit rating on DHC, along with its ’B’ issue-level ratings on DHC’s senior secured notes and guaranteed senior unsecured notes. The recovery ratings remain unchanged at ’1’. The agency also affirmed its ’CCC+’ issue-level rating on DHC’s non-guaranteed senior unsecured notes and revised the recovery rating to ’3’ from ’4’.

The positive outlook revision reflects the potential for a rating increase over the next 12 months, should DHC effectively manage its near-term debt maturities and maintain its positive operational performance, making its capital structure sustainable.

In 2025, DHC made significant strides in repaying its near-term debt maturities, thereby greatly reducing its refinancing risk. In March and April 2025, DHC secured two mortgage loans totaling approximately $249 million, which, along with cash on hand, was used to redeem $280 million of its remaining $380 million senior unsecured notes due in June 2025. The company also secured term sheets for another $94 million of secured loans, which will be used to repay the remainder of its June 2025 unsecured notes.

DHC has also started to address its senior secured notes due in January 2026. The company generated net proceeds of approximately $299 million in the first quarter of 2025 and used these proceeds to partially redeem the secured notes, leaving a principal balance of $641.4 million.

For the rest of the year, DHC expects about $350 million in dispositions, $110.5 million of which is already under agreement or letter of intent. Most of the proceeds are expected to be used to further repay its secured notes due in 2026.

In terms of operating performance, DHC’s SHOP portfolio has seen significant improvement. In the first quarter of 2025, same-property cash basis net operating income (NOI) increased by 33.6% sequentially and 42.1% year-over-year.

The positive outlook also reflects the possibility of a ratings increase if DHC continues to successfully manage its near-term debt maturities and maintains its positive operating performance. However, S&P Global Ratings could take a negative action if DHC fails to refinance its 2026 senior secured notes, if operating performance deteriorates, or if a specific default scenario becomes increasingly likely. Conversely, the ratings could be raised if DHC continues to execute on asset sales, successfully refinances its 2026 senior secured notes, and shows continued recovery in its operating performance.

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