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DIVERSIFIED HEALTHCARE TRUST (DHC)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 revenue was $388.7M, up 4.0% year over year and modestly above S&P Global consensus by ~$6.6M; Primary EPS was slightly below consensus, while Normalized FFO was $0.04 per share as SHOP margin compressed sequentially due to transition labor costs . Revenue vs. consensus and EPS vs. consensus shown below (S&P Global) . Primary EPS consensus and actual marked with asterisks; see S&P disclaimer.
  • Management reaffirmed FY25 SHOP NOI guidance of $132–$142M and introduced FY25 Adjusted EBITDAre guidance of $275–$285M; CapEx guidance maintained at $140–$160M .
  • Balance sheet/liquidity improved: ~$351M liquidity (cash + undrawn revolver); company expects to repay remaining 2026 zero-coupon notes as early as year-end, leaving no maturities until 2028; JV refinancing yielded $28M cash distribution .
  • Strategic transitions: 85 of 116 AlerisLife-managed communities were transitioned to new operators by the call; transition labor added ~$5.1M expense in Q3 but is expected to normalize in Q4, with occupancy still trending to 82–83% by year-end .
  • Leasing momentum: Medical Office & Life Science (MOLSP) leased ~86k sq ft at +9.1% rent spreads and raised consolidated occupancy to 86.6%; active pipeline (717k sq ft) supports further rent growth and occupancy .

What Went Well and What Went Wrong

  • What Went Well
    • SHOP demand and pricing: YOY occupancy +210 bps to 81.5% and average monthly rate +5.3%; consolidated SHOP NOI +8% YOY to $29.6M. CEO: “DHC continued to deliver operational improvements... SHOP… occupancy increase of 210 bps to 81.5%, alongside an average monthly rate growth of over 5%...” .
    • Leasing strength in MOLSP: 85,992 sq ft leased at +9.1% rent spreads; consolidated occupancy up 370 bps sequentially to 86.6% .
    • Balance sheet progress: $1.0B JV refinancing led to $28M distribution; issued $375M 2030 secured notes; partially redeemed 2026 notes; on track to repay remaining 2026 maturity by year-end .
  • What Went Wrong
    • Net loss widened to $(164.0)M, driven by $93.2M impairments and $11.2M debt extinguishment loss in the quarter .
    • SHOP margin compression: SHOP NOI margin fell to 8.9% (from 11.2% in Q2) due to ~$5.1M transition compensation costs and higher seasonal utilities; management expects ~$1.5–$2.0M of remaining transition impact in Q4 .
    • Consolidated Same Property Cash NOI fell 9.5% sequentially; SHOP same-property Cash NOI declined 15.9% sequentially as transitions progressed .

Financial Results

Revenue, EPS, FFO and Adjusted EBITDAre

MetricQ3 2024Q2 2025Q3 2025
Total Revenues ($M)$373.6 $382.7 $388.7
Net Loss per Share (GAAP)$(0.41) $(0.38) $(0.68)
Normalized FFO per Share$0.02 $0.08 $0.04
Adjusted EBITDAre ($M)$66.8 $73.6 $62.9

Actual vs. S&P Global Wall Street Consensus (Q3 2025)

MetricActualConsensusSurprise
Revenue ($M)$388.7 $382.1*+$6.6
Primary EPS-0.2248*-0.215*Slight miss

Values marked with * retrieved from S&P Global.

Segment Mix and Profitability

SegmentQ3 2024 Revenue ($M)Q3 2024 NOI ($M)Q2 2025 Revenue ($M)Q2 2025 NOI ($M)Q3 2025 Revenue ($M)Q3 2025 NOI ($M)
SHOP$312.0 $27.4 $327.5 $36.6 $333.4 $29.6
MOLSP$52.9 $27.8 $48.1 $26.5 $48.2 $26.7
All Other$8.7 $8.7 $7.1 $7.0 $7.1 $7.0
Total$373.6 $63.9 $382.7 $70.1 $388.7 $63.3

Key Operating KPIs

KPIQ3 2024Q2 2025Q3 2025
SHOP Occupancy79.4% 80.6% 81.5%
SHOP Avg Monthly Rate ($)5,199 5,440 5,472
SHOP NOI Margin %8.8% 11.2% 8.9%
MOLSP Occupancy80.8% 82.9% 86.6%
MOLSP Leasing Spread (GAAP, total)4.8% (Q3’24) 11.5% 9.1%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
SHOP NOIFY 2025$132–$142M $132–$142M Maintained
Adjusted EBITDAreFY 2025—$275–$285M Introduced
CapExFY 2025$140–$160M $140–$160M Maintained
2026 Zero-Coupon NotesRepayment timing—Expect repayment in full as early as year-end 2025 New timing detail
DividendQuarterly$0.01/share (declared Oct 9) $0.01/share (paid ~Nov 13) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2025 and Q2 2025)Current Period (Q3 2025)Trend
SHOP occupancy & pricingQ1: SHOP NOI +49% YoY; occupancy 80.2%; avg rate +4.8% . Q2: same-property SHOP NOI +18.5% YoY; occupancy 80.6% .Occupancy 81.5%; avg rate +5.3% YoY; sequential NOI down on transition labor and seasonal utilities .Positive demand/pricing; near-term margin dip on transitions.
Operator transitionsQ1/Q2: AlerisLife remained key manager; dispositions and financing advanced .85 of 116 transitioned by call; +$5.1M transition labor in Q3; ~$1.5–$2.0M remaining in Q4 .Execution underway; cost headwinds receding.
MOLSP leasing & occupancyQ1: +18.4% GAAP rent spreads; occupancy 80.6% . Q2: +11.5% spreads; occupancy 82.9% .86k sq ft, +9.1% spreads; occupancy 86.6%; active 717k sq ft pipeline .Broadly improving occupancy with healthy spreads.
Balance sheet & maturitiesQ1: $249M financings; $299M note paydown . Q2: $343M mortgages; new $150M revolver; 2025 notes repaid .$375M 2030 notes; plan to fully repay 2026 notes by YE; liquidity ~$351M .De-risking maturities; stronger liquidity glide path.
Dispositions pipelineQ1: Under LOIs ~$116M . Q2: Under agreements/LOIs ~$280M .Under agreements/LOIs $237M; >$200M targeted closings in Q4 .Continues; proceeds earmarked for debt.
Non-GAAP fees/costsQ1: Incentive fee $2.4M . Q2: Incentive fee $4.1M .Incentive fee $5.7M in G&A; not payable until Jan’26 .Rising with stock performance.

Management Commentary

  • CEO framing: “DHC continued to deliver operational improvements and further strengthened its balance sheet... MOLSP... occupancy rising to 86.6%. Our SHOP segment experienced a year-over-year occupancy increase of 210 bps to 81.5%... While near-term labor costs have been elevated due to these transitions... we anticipate labor expenses will normalize... we intend to repay our 2026 debt maturity as early as year-end and enter 2026 with no debt maturities until 2028.” — Chris Bilotto .
  • Transition cost quantification: Compensation expense in transitioning portfolio “~240 bps above... representing an incremental cost of roughly $5.1M for the quarter.” — Chris Bilotto .
  • Path forward: “We are maintaining our full-year SHOP NOI guidance range of $132–$142M... with the expected payoff of our remaining 2026 zero-coupon bond notes as early as the fourth quarter, DHC will have no debt maturities until 2028.” — Management remarks .
  • Liquidity and leverage: “We ended the quarter with approximately $351M of liquidity... After this repayment, we estimate the weighted average interest rate on our remaining debt to be ~5.7%, with no maturities until 2028.” — CFO Matt Brown .

Q&A Highlights

  • Transition cost cadence: ~$5.1M impact in Q3; ~$1.5–$2.0M expected in Q4 as most communities transitioned by October/mid-November .
  • Occupancy target: Still expecting 82–83% SHOP occupancy by year-end .
  • Revenue disruption: Management acknowledged potential sales-process noise but emphasized expense-side impact as the main driver; disruption should abate post-transition completion .
  • Dispositions timing: “Close to $200M” expected to close in Q4; some portfolio deals (mainly SHOP) to slip into Q1 2026 .
  • Capital allocation: Any excess capital post-2026 bond repayment to remain as dry powder; next maturity (2028) at 4.75% to remain outstanding .

Estimates Context

  • Q3 revenue beat: $388.7M actual vs. $382.1M consensus; Primary EPS slight miss: -0.2248 vs. -0.215 (S&P Global). Estimate table above.
  • Implications: Sequential SHOP margin compression from transition costs and seasonal utilities likely prompts modest near-term EPS/FFO trimming for Q4, while reaffirmed SHOP NOI and new Adj. EBITDAre ranges bracket full-year outcomes (S&P Global; company commentary) .
    Values marked with * in estimates are retrieved from S&P Global.

Key Takeaways for Investors

  • Transition headwinds are temporary; with ~$1.5–$2.0M expected Q4 impact, SHOP NOI margins should stabilize as new operators ramp, supporting FY25 guide and 2026 margin expansion .
  • Balance sheet de-risking is a near-term catalyst: expected full repayment of 2026 notes by year-end removes the most acute maturity overhang; no maturities until 2028 .
  • Demand/pricing remain constructive: SHOP occupancy and rates improved YOY; MOLSP leasing spreads remain positive with a robust pipeline, backing medium-term NOI growth .
  • Q3’s GAAP loss was driven by non-cash impairments and financing actions; Normalized FFO of $0.04 underscores underlying cash performance amid transitions .
  • Asset sales provide incremental deleveraging capacity and potential operating simplification; >$200M targeted closings in Q4 with remainder in early 2026 .
  • Near-term trading setup: modest EPS/FFO pressure near term vs. clearer multi-quarter path to higher occupancy/margins and lower risk profile as maturities are addressed .
  • Dividend remains symbolic at $0.01/share; capital is prioritized to transitions, asset sales execution, and debt reduction .

S&P Global estimates disclaimer: Values marked with * were retrieved from S&P Global.