Skip to content
    DHC
    Earnings call· Jun 2026(Q2 FY26)

    DIVERSIFIED HEALTHCARE TRUST Q2 FY26 earnings call DHC

    Aug 4, 2026 Source

    Executive summary

    Diversified Healthcare Trust Q2 FY26 — Strong SHOP NOI Growth and Improved Leverage

    Diversified Healthcare Trust delivered strong Q2 FY26 results, driven by significant operating momentum and margin expansion in its SHOP segment, despite a temporary moderation in occupancy gains. The company reaffirmed its full-year guidance, highlighting the effectiveness of its operator transition strategy and ongoing efforts to strengthen its balance sheet and enhance shareholder returns. Management is also focused on renegotiating legacy operator contracts and repositioning SHOP communities for future growth.

    Highlights

    5

    • Normalized FFO of $0.16 per share exceeded analyst estimates.

    • Consolidated NOI increased 20.4% year-over-year to $84 million.

    • SHOP same-property NOI increased 37.2% year-over-year to $52 million.

    • Net debt to annualized adjusted EBITDAre improved to 7.1x from 8.7x year-over-year.

    • Total liquidity of $267 million, including $117 million of cash and an undrawn $150 million revolving credit facility.

    Concerns

    3

    • SHOP average occupancy is pacing slightly below initial 2026 projections, though offset by profitability outperformance.

    • Medical Office and Life Science segment experienced a one-time bad debt charge of approximately $1 million.

    • Medical Office and Life Science segment faces known vacates representing 4.6% of expiring annualized revenue, with two tenants vacating July 1st (3.5% of annualized revenue) and one in December.

    Guidance & targets

    10
    CategoryTargetConfidence
    Total NOI
    $307 million to $323 million
    high materiality
    High
    SHOP NOI
    $185 million to $195 million
    high materiality
    High
    Adjusted EBITDAre
    $300 million to $315 million
    high materiality
    High
    Normalized FFO per share
    $0.56 to $0.62 per share
    high materiality
    High
    SHOP Occupancy Growth
    200 basis points
    medium materiality
    Medium
    SHOP Revenue Growth
    6.6%
    medium materiality
    Medium
    SHOP Average Monthly Rate Growth
    5.5%
    medium materiality
    Medium
    SHOP Operating Expense Growth
    2.5%
    medium materiality
    Medium
    SHOP Expense Core Growth
    1.5%
    medium materiality
    Medium
    Recurring CapEx
    $100 million to $115 million
    medium materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    SHOP
    Driven by increased occupancy, average monthly rate, and continued margin expansion from new operator agreements and expense discipline. Profitability per occupied unit is outperforming original underwriting.
    Same-property occupancy: 83.1%Same-property occupancy increase YoY: 160 bpsSame-property occupancy increase sequentially: 70 bpsSame-property average monthly rate increase YoY: 6.2%Same-property average monthly rate increase sequentially: 100 bpsSame-property expense core decrease sequentially: 170 bpsSame-property expense core growth YoY: 150 bps
    		—37.2%17.3%$52 million
    Medical Office and Life Science
    Same-property NOI was essentially flat year-over-year. Healthy leasing activity, but impacted by a one-time bad debt charge of $1 million and upcoming tenant vacates.
    Same-property occupancy: 95.8%Same-property occupancy increase YoY: 110 bpsNew and renewal leasing: 477,000 sq ftRent roll-up: 6.7%Weighted average lease term: 7.1 yearsKnown vacates: 4.6% of expiring annualized revenueKnown vacates (July 1st): 3.5% of annualized revenue, 213,000 sq ft
    		———$24.1 million

    Operational metrics

    24
    Normalized FFO
    $39 million
    Q2 FY26

    Exceeded analyst estimates.

    Normalized FFO per share
    $0.16
    Q2 FY26

    Exceeded analyst estimates.

    Adjusted EBITDAre
    $82 million
    Q2 FY26

    Reported for the quarter.

    Consolidated NOI
    $84 millionincreased 20.4% YoY
    Q2 FY26

    Reported for the quarter.

    Consolidated Same-Property Cash Basis NOI
    $83 millionincreased 20.2% YoY, 9.3% sequentially
    Q2 FY26

    Reported for the quarter.

    Total Liquidity
    $267 million
    Q2 FY26

    As of quarter end.

    Cash Balance
    $117 million
    Q2 FY26

    As of quarter end.

    Undrawn Revolving Credit Facility
    $150 million
    Q2 FY26

    Part of total liquidity.

    Net Debt to Annualized Adjusted EBITDAre
    7.1x1.6x YoY reduction, 0.7x sequential reduction
    Q2 FY26

    Improved from 8.7x in the prior year.

    Adjusted EBITDAre to Interest Expense
    2.2ximproved from 1.4x YoY
    Q2 FY26

    Meaningful improvement.

    Next Debt Maturity
    February 2028
    Future

    Provides flexibility for options.

    Annualized Cost Savings from New Food and Beverage Contracts
    $14 million to $16 million
    Annualized

    Included in revised guidance provided in June.

    Incentive Management Fees
    $10 million
    Q2 FY26

    Included in G&A expense due to stock price outperformance.

    Noncash Share-Based Compensation
    $2.3 million
    Q2 FY26

    Included in G&A expense.

    G&A Expense (excluding incentive fees and noncash items)
    $7.1 million
    Q2 FY26

    Adjusted G&A expense for the quarter.

    Total Capital Invested
    $25.8 million
    Q2 FY26

    Includes investments in SHOP and Medical Office/Life Science.

    Capital Invested in SHOP Communities
    $19.1 million
    Q2 FY26

    Part of total capital invested.

    Capital Invested in Medical Office and Life Science
    $6.7 million
    Q2 FY26

    Part of total capital invested.

    Year-to-Date Capital Spend
    $47.6 millionreduction of $18.4 million or 28% YoY
    YTD Q2 FY26

    In line with expectations.

    Medical Office and Life Science Expiring Annualized Revenue from Known Vacates
    4.6%
    Future

    Represents future revenue impact from vacates.

    Medical Office and Life Science Rent Roll-Up
    6.7%
    Q2 FY26

    For new and renewal leasing activity.

    Medical Office and Life Science Weighted Average Lease Term
    7.1 years
    Q2 FY26

    For new and renewal leasing activity.

    One-time Bad Debt Charge
    $1 million
    Q2 FY26

    Impacted Q2 results for MOB/Life Science segment, unrelated to upcoming vacancies.

    One-time Expense Benefit in SHOP NOI
    $1.5 million
    Q2 FY26

    Related to timing of expense recognition (over-accruals in Q1 offset in Q2), not expected to repeat in Q3.

    Industry KPIs

    8
    MetricValueDetails
    Exppor growth1.5%%
    Revpor growth6.2%%
    Coverage ratios2.2xx
    Senior housing occupancy83.1%%
    Revpor minus exppor spread—
    Operator tenant concentration80+operators
    Same store noi growth by segment37.2%%
    Investment volume and sourcing mix$25.8 millionUSD

    Orderbook & backlog

    3
    SHOP Community Conversions (Units)150 unitsQ2 FY26

    Expected to come online in H2 2027 from 6 communities, adding to SHOP portfolio.

    Medical Office and Life Science Property for Sale150,000 sq ftQ2 FY26

    One property being marketed for sale, part of known vacates.

    Medical Office and Life Science Properties for Lease2 propertiesQ2 FY26

    Actively marketing two remaining properties for lease, part of known vacates.

    Deals & partnerships

    1
    Legacy OperatorsRenegotiation of existing management contracts to a highly aligned fee structure, including lower base fees and a tiered fee structure tied to operational outperformance, plus tighter cost controls.

    Applies to 80+ communities outside of those transitioned with the Aleris contract. Aims to bring contracts in line with upgraded operator framework.

    Capital programs

    1
    SHOP Community Conversionsunderway$20 million
    Funding: DHC's capital
    Start: later this year

    Benefit: 150 units

    Initial phase for 6 of 16 identified SHOP communities to convert closed skilled nursing wings into high-demand units. Expected to generate unlevered mid-teens returns.

    Risks & headwinds

    3
    Temporary moderation in SHOP occupancy gainsNear-term

    Pacing slightly below initial 2026 projections

    Mitigation: Offset by profitability outperformance from higher acuity care levels and rapid expense synergies; rebuilding local leadership and sales teams post-transition.

    Known tenant vacates in Medical Office and Life Science segmentH2 FY26

    4.6% of expiring annualized revenue (3.5% from two tenants vacating July 1st, 213,000 sq ft; remaining tenant vacating December 1st)

    Mitigation: Marketing one property (150,000 sq ft) for sale and actively marketing two remaining properties for lease.

    One-time bad debt charge in Medical Office and Life Science segmentQ2 FY26

    ~$1 million

    Mitigation: Unrelated to upcoming vacancies; not expected to recur.

    What to watch in Q3 FY26

    5

    SHOP Occupancy Gains

    Next quarter
    Current83.1% (same-property)
    TargetContinued steady month-over-month improvement

    Why it matters

    Occupancy gains are a key driver of SHOP NOI growth and overall portfolio performance, especially as sales teams are rebuilt post-transition.

    To be clear, the pacing in occupancy gains is strictly a function of timing, and we continue to see steady month-over-month improvement.

    Q&A highlights

    6

    Why is SHOP top-line tracking below expectations, specifically regarding lower occupancy uptick, and is it due to a slower leasing season or something temporary?

    The slower occupancy pace is primarily attributed to 'transition noise' and the foundational work of rebuilding local leadership and sales teams after operator transitions. While the pace is muted, the company remains bullish on driving occupancy, viewing it as a delay in timing rather than an inability to reach target levels.

    “A lot of it is just kind of more attributed to kind of the transition noise. I think one thing that's important to note is when these communities were transitioned, it wasn't uncommon that many of the operators took on kind of the existing operations infrastructure and team members. And over the course of the last 6 months have continued to kind of rework that.”

    asked by Michael Carroll · answered by Christopher Bilotto

    2 min read5 chapters

    Detailed Narrative

    01

    Strong SHOP Segment Performance Despite Occupancy Pacing

    DHC's SHOP segment delivered impressive results with same-property NOI increasing 37.2% year-over-year to $52 million. This growth was driven by a 160 basis point increase in same-property occupancy to 83.1% and a 6.2% increase in average monthly rate. While average occupancy is pacing slightly below initial 2026 projections due to timing related📎 to operator transitions and rebuilding sales teams, the profitability per occupied unit is outperforming expectations, driven by higher acuity care levels and rapid expense synergies.

    02

    Strategic Operator Contract Renegotiations

    Following the success of new operator agreements, DHC is renegotiating contracts with its legacy operator base (80+ communities) to align with an upgraded framework. These new agreements, expected to commence in January 2027, will feature lower base fees, a tiered fee structure tied to operational outperformance, and tighter cost controls. This initiative is projected to yield immediate annual cost savings of close to $2 million, before considering growth from incentive fees.

    03

    SHOP Community Repositioning Initiatives

    The company is pursuing repositioning opportunities within its SHOP segment, planning to convert closed skilled nursing wings or floors in 16 communities into high-demand independent living, assisted living, and memory care units. An initial investment of approximately $20 million is planned for 6 communities, adding roughly 150 units. These projects are expected to generate unlevered mid-teens returns, with construction beginning later this year and first unit deliveries anticipated in the second half of 2027.

    04

    Medical Office and Life Science Portfolio Update

    The Medical Office and Life Science portfolio saw healthy leasing activity, with same-property occupancy increasing 110 basis points year-over-year to 95.8%. Approximately 477,000 square feet of new and renewal leasing was completed at a 6.7% rent roll-up and a weighted average lease term of 7.1 years. However, the segment is managing known vacates representing 4.6% of expiring annualized revenue, with one property of 150,000 square feet being marketed for sale and two others for lease.

    05

    Strengthened Balance Sheet and Capital Allocation Focus

    DHC materially improved its leverage, with net debt to annualized adjusted EBITDAre decreasing to 7.1x from 8.7x year-over-year. The company ended the quarter with $267 million in total liquidity. With its capital recycling program largely complete, DHC is focusing on improving operations, further deleveraging, and evaluating strategies to enhance shareholder returns, including revisiting the dividend, which the Board reviews quarterly. The next debt maturity is not until February 2028.

    AI-generated summary of the company’s earnings call. Not investment advice.