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Diversified Healthcare Trust (DHC) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Real Estate· Aug 4, 2026

Source: earnings call transcript

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

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

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

Orderbook & backlog

SHOP Community Conversions (Units) 150 units Q2 FY26

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

Medical Office and Life Science Property for Sale 150,000 sq ft Q2 FY26

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

Medical Office and Life Science Properties for Lease 2 properties Q2 FY26

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

Deals & partnerships

Legacy Operators Renegotiation 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

SHOP Community Conversions underway $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

Temporary moderation in SHOP occupancy gains Near-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 segment H2 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 segment Q2 FY26

~$1 million

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

What to watch in Q3 FY26

SHOP Occupancy Gains

Next quarter
Current 83.1% (same-property)
Target Continued 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.

Find out whether DHC delivers this. Inve re-checks your case every morning.

Q&A highlights

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 read 5 chapters

Detailed narrative

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.

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.

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.

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.

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.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.