Earnings call transcript: Diversified Healthcare Trust Q2 2025 sees mixed results

Diversified Healthcare Trust (DHC) reported its Q2 2025 earnings, revealing a mixed financial performance. The company posted an earnings per share (EPS) of -$0.38, falling short of the forecasted -$0.24, marking a significant 58.33% negative surprise. However, revenue came in at $382.7 million, slightly surpassing the forecast of $380.79 million. Following the earnings announcement, DHC’s stock experienced a modest premarket increase of 2.35%, trading at $3.49. According to InvestingPro data, the company’s market capitalization stands at $813 million, with a notable year-to-date return of 50%.

Key Takeaways

• EPS fell short of expectations with a 58.33% negative surprise.
• Revenue exceeded forecasts by $1.92 million, indicating operational resilience.
• Stock price saw a slight premarket increase, reflecting cautious investor optimism.
• Increased guidance for 2025 SHOP NOI to $132-142 million.
• Company targets addressing $641 million bond maturity through asset sales and new financing.

Company Performance

Diversified Healthcare Trust demonstrated a mixed performance in Q2 2025. While the company managed to increase its revenue by 3% year-over-year to $382.7 million, with a trailing twelve-month revenue growth of 5.33%, the EPS of -$0.38 was a disappointment compared to forecasts. This mixed result highlights the challenges in balancing operational improvements with financial expectations. Despite the earnings miss, the company continues to capitalize on strong sector fundamentals, particularly in senior housing. InvestingPro analysis indicates the stock is currently trading below its Fair Value, with 10 additional ProTips available to subscribers providing deeper insights into DHC’s investment potential.

Financial Highlights

• Revenue: $382.7 million, up 3% YoY
• Adjusted EBITDAre: $73.6 million, up 7% YoY
• Normalized FFO: $18.6 million, up 172% YoY
• Same property SHOP NOI: $37.4 million, up 18.5% YoY
• Occupancy rate: Increased by 160 basis points to 80.6%

Earnings vs. Forecast

DHC’s actual EPS of -$0.38 missed the forecast of -$0.24, representing a 58.33% negative surprise. This earnings miss contrasts with the slight revenue beat, where actual revenue of $382.7 million exceeded the forecast by $1.92 million. The earnings miss may indicate ongoing challenges in cost management or unexpected expenses.

Market Reaction

Following the earnings release, DHC’s stock price saw a premarket increase of 2.35%, reaching $3.49. This movement suggests a cautious optimism among investors, possibly driven by the revenue beat and positive operational updates. The stock remains within its 52-week range, with a high of $4.24 and a low of $2, indicating room for recovery. InvestingPro data reveals the stock has shown strong momentum with a 30% return over the past six months, though investors should note its high volatility with a beta of 2.51. The company maintains solid liquidity with a current ratio of 16.95, suggesting strong short-term financial health.

Outlook & Guidance

Looking ahead, DHC has increased its 2025 SHOP NOI guidance to $132-142 million and aims to achieve year-end occupancy above 82%. The company plans to address its $641 million zero-coupon bond maturity through asset dispositions and new financing, reflecting a strategic focus on strengthening its balance sheet.

Executive Commentary

CEO Chris Pilato expressed confidence in the company’s valuation, stating, "We believe our share price is undervalued." CFO Matt Brown highlighted the financial strategy, saying, "We are very pleased with the outcome of these financings as they highlight the value of our SHOP communities."

Risks and Challenges

• Ongoing financial underperformance may affect investor confidence.
• Macroeconomic pressures could impact occupancy rates and rental income.
• The success of asset dispositions and financing plans is critical for addressing bond maturity.
• Potential market saturation in senior housing could limit growth prospects.
• Execution risks associated with active leasing and disposition pipelines.

Q&A

During the earnings call, analysts inquired about the company’s disposition strategy and its impact on financials. Executives reaffirmed their commitment to completing asset sales by Q4 2025 and potentially into Q1 2026, emphasizing the strategic importance of these transactions for financial stability.

Full transcript - Diversified Healthcare Trust (DHC) Q2 2025:

Conference Operator: Good morning and welcome to the Diversified Healthcare Trust Second Quarter twenty twenty five Earnings Conference Call. All participants will be in listen only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Matt Murphy, Manager of Investor Relations.

Chris Pilato, President and Chief Executive Officer, Diversified Healthcare Trust: Please Please go ahead.

Matt Murphy, Manager of Investor Relations, Diversified Healthcare Trust: Good morning. Joining me on today’s call are Chris Pilato, President and Chief Executive Officer Matt Brown, Chief Financial Officer and Treasurer and Anthony Paula, Vice President. Today’s call includes a presentation by management, followed by a question and answer session with sell side analysts. Please note that the recording and retransmission of today’s conference call is strictly prohibited without the prior written consent of the company. Today’s conference call contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws.

These forward looking statements are based upon DHC’s beliefs and expectations as of today, Tuesday, 08/05/2025. The company undertakes no obligation to revise or publicly release the results of any revision to the forward looking statements made in today’s conference call other than through filings with the Securities and Exchange Commission or SEC. In addition, this call may contain non GAAP numbers, including normalized funds from operations or normalized FFO, net operating income or NOI and cash basis net operating income or cash basis NOI. A reconciliation of these non GAAP measures to net income is available in our financial results package, which can be found on our website at www.dhcreit.com. Actual results may differ materially from those projected in any forward looking statements.

Additional information concerning factors that could cause those differences is contained in our filings with the SEC. Investors are cautioned not to place undue reliance upon any forward looking statements. And finally, we will be providing guidance on this call, including NOI. We are not providing a reconciliation of these non GAAP measures as part of our guidance because certain information required for such reconciliation is not available without unreasonable efforts or at all such as gains and losses or impairment charges related to the disposition of real estate. With that, I would now like to turn the call over to Chris.

Chris Pilato, President and Chief Executive Officer, Diversified Healthcare Trust: Thank you, Matt, and good morning, everyone. Thank you for joining our call today. I will begin by providing a high level review of DHC’s solid second quarter results as well as an update on the progress and timing of our key strategic initiatives. Then Anthony will provide more details regarding our second quarter financials and CapEx spending. And finally, Matt will review our liquidity and financing activities before providing an update on our 2025 guidance.

After the market closed yesterday, GHC reported second quarter results that beat analyst expectations on both the top and bottom line driven by a continued recovery in our SHOP segment. We made additional progress during the quarter in our efforts toward delevering our balance sheet through a combination of asset sales and new financings at attractive rates, and we paid off our maturing 2025 notes in June. Total revenue for the quarter was $382,700,000 a 3% increase over last year. Adjusted EBITDAre came in at $73,600,000 up 7% year over year, and normalized FFO increased 172% year over year to $18,600,000 or $08 per share. Looking at our SHOP sector performance, DHC continues to benefit from a combination of strong sector fundamentals as well as the significant capital expenditures we have made over the last several years to upgrade our communities.

This has resulted in an 18.5% year over year increase in same property SHOP NOI, which came in at $37,400,000 On a consolidated basis, average monthly rate increased 5.4% year over year and occupancy increased 160 basis points to 80.6% resulting in a 6.2 increase in SHOP revenue. Although sequentially flat, SHOP NOI margin improved 180 basis points year over year to 11.2% on a consolidated basis and came in at 12.8% on a same property basis. In addition, our 115 same property communities managed by Five Star posted an NOI margin of 14.1%, up 170 basis points year over year. RevPAR increased 5.4% year over year, primarily driven by annual rate increases, substantial increases in shop care level pricing and a reduction in discounts and concessions at higher occupied properties. Expense for increased by 3.3% due to merit increases and filling open positions and partially offset by lower insurance costs.

Overall, we continue to be pleased with the progress we are making controlling costs, and we remain bullish on the outlook for our SHOP segment. Turning to our medical office and life science portfolio. During the second quarter, we completed over 106,000 square feet of new and renewal leasing activity with weighted average rents that were 11.5% higher than prior rents for the same space at a weighted average lease term of seven years. Same property occupancy was 89.9%, down 10 basis points from the first quarter. As we look ahead, 4% of annualized revenue in our medical office and life science portfolio is scheduled to expire through year end 2025, of which 101,000 square feet or 1.9% of annualized revenue is a known vacate.

Our active leasing pipeline of 691,000 square feet, of which 246,000 square feet of new is new absorption, provides momentum towards filling vacancy and increasing occupancy along with the potential for double digit rent growth. Turning to our key strategic initiatives. During the second quarter, DHC sold two unencumbered properties, including one senior living community and one medical office building for a total of $16,400,000 We subsequently sold another three unencumbered properties in July 2025 for an aggregate sales price of $8,800,000 In support of our balance sheet initiatives, we completed an aggregate of $343,000,000 of mortgage loans since March, obtained a new $150,000,000 credit facility in June, which is currently undrawn and redeemed all of our outstanding senior notes due in June 2025. Matt will provide more color on these transactions shortly. As of the July, our active disposition pipeline included 53 properties, of which 23 are medical office and life science properties totaling 1,600,000 square feet, while 30 properties encompassing roughly 2,000 units are within our SHOP segment.

We are under agreements or letters of intent on 49 of these properties for $280,000,000 including 28 non core SHOP communities and 21 medical office and life science assets. Of this $280,000,000 approximately $91,000,000 is collateral for our zero coupon notes that are due in January. We expect the majority of these asset sales will transact in Q3 and Q4. In addition to these asset sales providing funds to help retire our twenty twenty six notes and further reduce leverage for the balance sheet, this also positions the REIT with a materially enhanced portfolio that has a higher concentration of SHOP assets with outsized growth potential given strong sector tailwinds and complemented by a portfolio of triple net medical office and life science properties providing stable cash flows with embedded annualized rent increases. We also expect these sales to result in a reduction in CapEx spending in 2026 and beyond, substantially increasing our overall portfolio cash flow.

We remain encouraged having delivered on the many initiatives communicated over the past year as it relates to growing SHOP NOI, selling noncore assets to delever the balance sheet and refinancing debt at materially lower interest rates. We believe our share price is undervalued. And through a continuation of these initiatives, paying off our twenty twenty six notes due in January, which Matt will lay out momentarily, and continued improvement within our SHOP results, each will serve as catalysts to drive share performance. Now I’d like to turn the call over to Anthony.

Anthony Paula, Vice President, Diversified Healthcare Trust: Thank you, Chris, and good morning, everyone. During the second quarter, our same property cash basis NOI was $71,200,000 representing an 11.2% increase year over year and a 30 basis point decrease sequentially. The year over year increase was primarily driven by improvement in our SHOP segment, which delivered $37,400,000 in same property NOI. This increase was driven by a 5.2% increase in average monthly rate and a 100 basis point increase in occupancy to 81%.

Matt Brown, Chief Financial Officer and Treasurer, Diversified Healthcare Trust: These drivers resulted in year

Anthony Paula, Vice President, Diversified Healthcare Trust: over year same property SHOP revenue growth of 5.9% and margin expansion of 140 basis points. As a reminder, our Q1 twenty twenty five SHOP revenues included $2,700,000 of proceeds from business interruption claims in one of our communities in Florida. Normalizing for this item, we would have achieved a sequential increase

Matt Murphy, Manager of Investor Relations, Diversified Healthcare Trust: in

Anthony Paula, Vice President, Diversified Healthcare Trust: same property SHOP NOI of 4.9%. Turning to G and A expense. The second quarter amount includes $4,100,000 of business management incentive fee as our total return exceeds the benchmark as of 06/30/2025. Any incentive management fee incurred will not be due until January 2026. Excluding the impact of the incentive management fee, G and A expense would have been $7,000,000 for the quarter.

During the quarter, we invested approximately $34,000,000 of capital, including $29,000,000 in our shop communities and $5,000,000 in our medical office and life science portfolio. Looking back at our recently completed refreshes and redevelopments, we’ve achieved incremental NOI of $3,800,000 during the quarter when compared to prerenovation NOI. We believe there’s continued upside in NOI and occupancy growth in these communities. Based on our spend to date and our expectations moving forward, we are reducing our 2025 CapEx guidance to 140,000,000 to $160,000,000 a $10,000,000 reduction from our prior guidance. Now I’ll turn the call over to Matt.

Matt Brown, Chief Financial Officer and Treasurer, Diversified Healthcare Trust: Thanks, Anthony, and good morning, everyone. We ended the quarter with approximately $292,000,000 of liquidity, including $142,000,000 of unrestricted cash and $150,000,000 available under our new revolving credit facility we closed in June. This new facility is secured by 14 SHOP communities, including approximately 2,600 units at an implied valuation of $184,000 per unit. The facility has a maturity date of June 2029 with two six month extension options and provides us with additional liquidity while also demonstrating our lender support of our long term strategy. In addition to our $150,000,000 secured revolving credit facility, during 2025, we obtained an aggregate $343,000,000 of financings secured by 27 of our SHOP communities, including approximately 4,100 units with a weighted average interest rate of 6.5%.

All of this debt is at fixed rates with the exception of our 140,000,000 mortgage loan, which is effectively fixed through an interest rate cap with a 4.5% SOFR strike rate. Dollars $279,000,000 of the principal balance is interest only for periods ranging from two to five years. On a weighted average basis, the debt has a maturity of approximately six years and reflects an implied valuation of $174,000 per unit. We are very pleased with the outcome of these financings as they highlight the value of our SHOP communities, addressed our 2025 bond maturity and reduced our annual cash interest expense by almost $15,000,000 or $06 per share. As we have discussed previously, our strategy to address the remaining $641,000,000 of January ’60 coupon bond includes using the $280,000,000 of proceeds from dispositions that Chris discussed, all of which are under PSA or LOI, new financing activity in the range of 300,000,000 to $350,000,000 expected in the third quarter and our strong liquidity position.

As a reminder, we do have the option to extend some or all of this remaining bond by one year to January 2027. Our net debt to adjusted EBITDAre was 8.7 times at June 30, driven by our refinancing and disposition activities. We expect our leverage to continue to decrease towards our target of 6.5 times to 7.5 times as we address our 2026 bond maturity, close the dispositions highlighted earlier and continue to realize improved performance in our SHOP segment. In closing, we remain confident that we will meet our 2026 debt maturity, which leaves us until 2028 before our next maturity. Given the results so far and our expectations for the remainder of the year, we are increasing our 2025 SHOP NOI guidance by $10,000,000 at the midpoint of the guidance range to $132,000,000 to $142,000,000 It is important to note that our year to date CHOP NOI of $73,400,000 includes certain non recurring items that benefited NOI in the first six months as well as three fewer days in the first half of the year as compared to the second half of the year.

As a result, we expect expense increases based on the increased number of days in Q3 and Q4 and increased utilities in Q3 due to seasonality. That concludes our prepared remarks. Operator, please open the line for questions.

Conference Operator: Thank you. We will now begin the question and answer session. And our first question will come from John Massocca with B. Riley Securities. Please go ahead.

Hello, John. Your line may be muted.

John Massocca, Analyst, B. Riley Securities: Apologies, I was muted. Good morning, everybody. Maybe digging in a little bit on the 2Q results, just given kind of the change to guidance and you’re kind of calling out of some onetime items in the first half of the year. Anything notable specifically in 2Q twenty twenty five? I know there were some, I believe, insurance reimbursements in 1Q, but is there anything in 2Q that would be considered kind of one time issue?

Maybe how much did that impact the model going forward?

Matt Brown, Chief Financial Officer and Treasurer, Diversified Healthcare Trust: Yes. The majority of the NOI benefit came in the first quarter as we noted with those insurance proceeds. We had a little bit of benefit to Q2 PLGL insurance, but not as material to Q1. As we look forward, we expect to continue to see occupancy growth towards the year end target that we’ve previously highlighted. We do expect some seasonal increases in Q3 with utilities that happen every year.

And then with a few more days in the second half that will add some costs as it relates to salaries and benefits etcetera.

John Massocca, Analyst, B. Riley Securities: Okay. And then as I think about the CapEx guidance change, was that all tied to reductions in kind of shop CapEx Or is there other kind of other parts of the portfolio where you’re seeing less of a need for CapEx?

Anthony Paula, Vice President, Diversified Healthcare Trust: There’s a few different pieces. So really part of it’s dispositions and just generally as we advance towards closer to year end, just kind of comparing where we’re at from an actual year to date spend to what we underwrote for budgeting. We’re just trying to tighten our range a little bit. And then also we have some tenant managed TIs, respectively, seeing in the MOB and life science portfolio that can fluctuate, but we kind of feel good about taking that range to what we did earlier today in the prepared remarks.

John Massocca, Analyst, B. Riley Securities: Okay. And then on the disposition front specifically, is there anything maybe beyond the pipeline of sales that are under PSA and LOI that you think you could continue to close either by year end or maybe heading into 2026? Just kind of trying to balance out what was closed year to date, what was kind of in the pipeline as of the June presentation and what’s kind of in the just under contract bucket per the kind of supplemental? I mean, that implied that maybe you’re going to sell less stuff that was being marketed previously? Or is that still kind of in the works and maybe could close later this year?

Chris Pilato, President and Chief Executive Officer, Diversified Healthcare Trust: Yes. It’s mix, right? We noted the $280,000,000 that you alluded to on the PSA and LOI front. Those are kind of the Q3, Q4 targets. We do have a handful of other assets, four different properties, two MOB, Life Science, two SHOP for another $20,000,000 that is kind of behind with respect to the marketing process versus the LOI PSA.

And I don’t I would look at that as late Q4 and even into Q1, as a guide, but that really rounds out kind of the active marketing that we’re doing. We did sell the three post quarter end, as I mentioned in our prepared remarks. So things are trending accordingly. But, yes, this will conclude kind of the broader stretch of asset dispositions. And we’ll just kind of turn to more hand to hand combat or strategic capital recycling on an ongoing basis, as we get into 2026.

John Massocca, Analyst, B. Riley Securities: Okay. And then, not a huge differential, but it seemed a little bit like the Five Star assets, at least on a kind of comparative basis, maybe even quarter over quarter comparative basis, kind of outperformed some of the other SHOP properties in the portfolio. Anything to call out there as to why that was? And how does that, if at all, change your philosophy on how much of the portfolio you want to have being operated by Five Star?

Chris Pilato, President and Chief Executive Officer, Diversified Healthcare Trust: Yes. I mean, look, I think that Five Star, has been really kind of working towards, you know, improving its overall business model and and kind of bringing kind of the right team members in place. And, you know, we’ve talked about some of the, you know, general improvements to the operating platform that they’ve instilled. We’ve invested capital in many of those five star properties. And so we’re starting to see the benefit of that as well.

And I think kind of generally speaking, I would say net net, some of the five star properties are located in more primary markets. So we’re going to get some outside benefit from that. For the balance of the portfolio, there’s still a lot of upside opportunity with there. I mean, we talked about some of the onetime impacts. We saw a pullback in Q2 with our SNF properties.

We have 10 of those with an operator and with some onetime adjustments. And so that is impairing some of the results for the quarter. But we would expect both to kind of trend favorably, but with a slight tilt towards the five star managed just given the properties, the renovations more specifically with that portfolio.

John Massocca, Analyst, B. Riley Securities: And then last question for me. In terms of occupancy, as we think about where you are today versus kind of getting to the target range and guidance, is there some reason that that could maybe kind of hockey stick up at the tail end of the year either fulfillment of the CapEx plan, something around seasonality? Or should that kind of in your mind gradually build towards that guidance number?

Chris Pilato, President and Chief Executive Officer, Diversified Healthcare Trust: It gradually builds over the year. I mean we provided kind of the year end spot occupancy north of 82%. That 82% was kind of the midpoint we’re targeting. And so that’s going to be a byproduct of just improvements. I mean, we’re seeing some favorable results coming into July.

And again, as we get through these months kind of being more in favor with seasonality, we would expect that trend to continue. And then you’re going to have the inflows and outflows of the dispositions that are currently under LOI or PSA that will also kind of fluctuate that occupancy number ultimately getting us to that guidance towards the end of the year.

John Massocca, Analyst, B. Riley Securities: Okay. That’s it for me. Thank you very much. Thanks.

Conference Operator: Our next question will come from Michael Carroll with RBC Capital Markets. Please go ahead.

Michael Carroll, Analyst, RBC Capital Markets: Yes, thanks. Just have a few clarification questions. I know you said there was a nonrecurring benefit mostly in 1Q, but there was a little in 2Q. What was the amount in 2Q that was nonrecurring? And where was that included in the P and L?

Was that in SHOP NOI?

Matt Brown, Chief Financial Officer and Treasurer, Diversified Healthcare Trust: Yes. It’s in SHOP NOI. It was on the expense side, related to a benefit in PLGL insurance. It was about $1,000,000

Michael Carroll, Analyst, RBC Capital Markets: Okay, great. And then I know that the CapEx number has been coming down a little bit. What is the correct, recurring CapEx per unit in your SHOP portfolio? So if you kind of fast forward into ’26 and beyond, is all the extra CapEx dollars that you’ve been spending, is that done? And what is the right run rate per unit going forward?

Anthony Paula, Vice President, Diversified Healthcare Trust: So from a recurring SHOP standpoint, we’re thinking about $3,500 per unit. And on the redevelopment side, we’re trying to be strategic in terms of how we deploy capital there. But in general, we’re thinking mid to high teen returns on that CapEx.

Michael Carroll, Analyst, RBC Capital Markets: And then as you go into 2026, are we done with the extra maintenance CapEx that you’ve been kind of going through the past few years? Or there is an or is there any other heavier CapEx years that we should expect?

Anthony Paula, Vice President, Diversified Healthcare Trust: I’d say we’re caught up for the most part in terms of deferred CapEx at this point.

Michael Carroll, Analyst, RBC Capital Markets: Okay, great. And then just lastly, I know you mentioned, and I believe I’ve heard this correctly, the new debt financings of three secured debt on SHOP assets? Or how should we think about how that potential secured financing could come in?

Matt Brown, Chief Financial Officer and Treasurer, Diversified Healthcare Trust: Yes. We’ve been working on this for a bit of time now. We have a couple of different options at play. Some are secured financing or unsecured in the form of a bond or more traditional type financing. As of now, we’re not expecting it to be on SHOP communities, but we expect to report more in the coming months on that.

Matt Murphy, Manager of Investor Relations, Diversified Healthcare Trust: Okay, great. That’s all I got. Thanks.

Conference Operator: With no further questions, this will conclude our question and answer session. I would like to turn the conference back over to Chris Bellotto, President and Chief Executive Officer for any closing remarks.

Chris Pilato, President and Chief Executive Officer, Diversified Healthcare Trust: Thank you for joining our call today and that concludes our call. Thank you.

Conference Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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