Diversified Healthcare Trust Signals Ongoing Turnaround Momentum

Diversified Healthcare Trust ((DHC)) has held its Q4 earnings call. Read on for the main highlights of the call.

Diversified Healthcare Trust’s latest earnings call struck an upbeat tone, underscoring powerful NOI growth, accelerating performance in its senior housing operating portfolio and meaningful balance sheet repair. Management acknowledged lingering leverage, integration noise from operator transitions and select asset sales weighing on some metrics, but framed these as manageable issues against a backdrop of improving cash flow and visibility.

Strong NOI growth underpins recovery story

Full-year consolidated NOI surged 31.3% in 2025, underscoring how operational execution and portfolio pruning are reshaping DHC’s earnings base. Management emphasized that this growth reflects both better fundamentals in core senior housing and medical office assets and deliberate moves to recycle capital out of noncore properties.

SHOP segment delivers sharp improvement

The senior housing operating portfolio was a standout, with Q4 SHOP NOI up 27.6% year over year to $38.3 million and 2025 SHOP NOI hitting $139.3 million, near the high end of guidance. Same-property occupancy climbed 90 basis points to 82.4%, average monthly rates increased about 5.8%, and NOI margins expanded 230 basis points, signaling pricing power and better cost control.

Same-property cash NOI shows broad momentum

Same-property cash NOI reached $70.4 million in Q4, rising 15.4% from a year ago and 12.4% sequentially, pointing to strengthening fundamentals across the portfolio. Within Medical Office and Life Science, same-property cash NOI grew 3.8% year over year and margins widened by 100 basis points to 59.6%, highlighting the durability of that segment.

Deleveraging and capital markets activity gain traction

DHC executed more than $1.4 billion of capital markets actions in 2025, spanning financings, property sales and a new $150 million undrawn credit facility. Net debt to adjusted EBITDAre improved sharply from 11.2 times at year-end 2024 to 8.1 times by year-end 2025, and the company now faces no debt maturities until 2028.

Asset sales reshape portfolio and repay debt

The REIT sold 37 noncore properties in Q4 for roughly $250 million and 69 properties for about $605 million over 2025, using the proceeds to fully repay its 2026 zero-coupon bonds. Those actions also released 45 collateral properties with a gross book value around $850 million, giving DHC more flexibility to pursue future financing or repositioning.

Fourth-quarter results land near the high end

For Q4, DHC reported total revenue of $379.6 million, adjusted EBITDAre of $72.4 million and normalized FFO of $21.8 million, or $0.09 per share. Full-year adjusted EBITDAre reached $284 million, coming in at the high end of guidance and reflecting the combined impact of solid operations and completed transactions.

Liquidity bolstered by cash and distributions

The company ended the quarter with about $255 million of liquidity, including $105 million of unrestricted cash and the full $150 million capacity on its revolver. Liquidity was further supported by a $27.2 million distribution received after quarter end tied to the wind-down of AlerisLife, giving DHC additional financial cushion.

Medical office and life science leasing remains solid

In its Medical Office and Life Science segment, DHC completed approximately 81,000 square feet of leasing during Q4 at rents 7.9% above expiring levels and with average terms exceeding eight years. The leasing pipeline stands near 1.0 million square feet with average lease terms of about 6.9 years and double-digit GAAP rent spreads, underpinning future income.

CapEx discipline supports free cash flow

Capital spending totaled $146 million in 2025, a 23% reduction versus 2024 as management tightened the focus on high-return projects. For 2026, recurring CapEx is guided to $100 million to $115 million, implying a further decline and including $80 million to $90 million for SHOP and $20 million to $25 million for MOB and Life Science assets.

Operational upside from redevelopment pipeline

Management highlighted a multi-year pipeline to convert closed skilled nursing wings into roughly 500 additional SHOP units, targeting unlevered mid-teens returns on investment. The required capital for these projects is estimated at $125 million to $175 million, presenting a sizable internal growth lever as capacity is brought back online.

Transition noise weighs on near-term trends

The transition of 116 communities to seven new operators following the AlerisLife wind-down created what management called operational noise during 2025. While most of the work is now behind the company, some of these handoffs temporarily dampened sequential revenue growth and will take time for operators to fully optimize.

Leverage still above target despite progress

Even after material improvement, net debt to adjusted EBITDAre at 8.1 times remains above DHC’s desired range of 6.5 to 7.5 times. Management reiterated deleveraging as a priority, signaling that additional asset sales and earnings growth will be important to bring leverage closer to peers and reduce risk.

Underperforming SHOP assets headed for the exit

To clean up the portfolio, DHC has agreements to sell 13 underperforming SHOP communities for $23 million, expected to close in March. These properties lost $1.2 million in Q4 and $3 million for the full year, so their sale should modestly improve earnings quality even if it trims reported NOI in the near term.

MOB and life science NOI pressured by prior sales

The company flagged that 2026 Medical Office and Life Science NOI will decline, largely because it sold 31 properties that contributed $12.3 million of NOI in 2025. Looking ahead, about 10.1% of annualized segment revenue is scheduled to expire through 2026, with roughly 241,000 square feet, or 3.9% of revenue, expected to vacate and requiring backfill.

Interest coverage improving but still modest

Adjusted EBITDAre to interest expense improved to 1.5 times in 2025, reflecting higher earnings and lower debt, but management conceded that coverage remains modest. The goal is to reach at least 2.0 times by the end of 2026, which would meaningfully reduce vulnerability to interest rate volatility and further stabilize the capital structure.

Dividend policy remains an open question

On capital allocation, management said the board will review the dividend but stressed that changing it is not an immediate priority. That stance leaves near-term dividend policy somewhat uncertain for income-focused investors, who may need to rely more on the recovery narrative and leverage reduction for total returns.

Guidance points to continued earnings and cash flow growth

For 2026, DHC guided to SHOP NOI of $175 million to $185 million, Medical Office and Life Science NOI of $94 million to $98 million and triple-net NOI of $28 million to $30 million, implying adjusted EBITDAre of $290 million to $305 million and normalized FFO per share of $0.52 to $0.58. The outlook assumes continued SHOP occupancy gains, lower interest costs, tighter CapEx and ongoing selective dispositions, with leverage trending toward the 6.5 to 7.5 times target and interest coverage moving to at least 2.0 times.

DHC’s earnings call painted the picture of a REIT moving from defense to offense, with strong NOI growth, improving SHOP fundamentals, disciplined CapEx and a clearer balance sheet runway to 2028. Risks remain around leverage, interest coverage and some asset churn, but the operational momentum and guidance suggest that earnings and free cash flow could continue to build into 2026, a constructive setup for investors monitoring the turnaround.