Diversified Healthcare Trust upgraded to ’B-’ by S&P on refinancing

Investing.com -- S&P Global Ratings has upgraded Diversified Healthcare Trust (NASDAQ:DHC) to ’B-’ from a lower rating, citing reduced refinancing risk following a successful senior secured notes offering. The outlook is stable.

The rating agency also assigned a ’B+’ rating to DHC’s new senior secured notes. The company will use proceeds from the offering, along with cash on hand, revolving credit facility borrowings, and contracted asset sales, to repay senior secured notes due January 2026.

After this repayment, DHC’s next debt maturity will be in February 2028, when $500 million of senior unsecured notes come due. S&P expects the company to raise approximately $1 billion in 2025 through asset sales, mortgage loans, and secured note issuance to improve its capital structure.

The healthcare REIT has gained significant headroom under its debt service covenant, providing greater financial flexibility to address upcoming debt maturities even in a high interest rate environment. The company also has substantial room under its secured debt to total assets covenant to issue additional secured debt.

DHC’s operating performance continues to strengthen, with occupancy in its senior housing operating property portfolio increasing 160 basis points year-over-year to 80.6% in the second quarter of 2025. This improvement drove same-property net operating income growth of 18.5%.

The company recently announced plans to sell AlerisLife’s 116 management agreements to seven different operators, which could accelerate operating performance improvements. These sales would enhance operator diversification, reduce related party risk, and help deleverage DHC as it monetizes its 34% investment in AlerisLife.

S&P projects DHC’s adjusted debt to EBITDA will decline to about 10x by year-end 2025 from 11.9x in 2024, and further improve to the high-8x to low-9x range in 2026. Fixed-charge coverage is expected to increase to the low- to mid-1x range by year-end 2025 from 1.0x in 2024, and reach the mid- to high-1x range in 2026.

The stable outlook reflects expectations for continued operational improvement supported by favorable demographic trends in senior housing, with robust growth in the elderly population expected over the next two decades amid limited near-term supply.

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