Diversified Healthcare Trust ((DHC)) has held its Q4 earnings call. Read on for the main highlights of the call.
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Diversified Healthcare Trust’s recent earnings call painted a picture of positive momentum, with strong revenue growth and strategic property sales leading the charge. Despite challenges such as a sequential NOI decline, tenant vacancies, and increased expenses due to weather impacts, the overall sentiment was optimistic, driven by the company’s successful initiatives.
Revenue Growth and SHOP Performance
Diversified Healthcare Trust reported a notable increase in total revenues, reaching $379.6 million for the fourth quarter, marking a 5% year-over-year rise. The SHOP segment showed significant improvement, with occupancy hitting 80% for the first time since early 2020. This was complemented by a 56% boost in SHOP NOI and a 7.3% increase in SHOP revenues, underscoring the segment’s robust recovery and contribution to the company’s overall performance.
Successful Property Sales and Strategic Dispositions
The company successfully completed property sales totaling nearly $179 million in the first quarter of 2025, including the significant sale of the Muse Life Science campus for $159 million. Active marketing efforts for 34 communities are underway, with signed term sheets for five communities targeting proceeds of $68 million by the second quarter of 2025, reflecting a strategic approach to asset management and capital allocation.
Financing Strategy and Debt Management
Diversified Healthcare Trust has made strides in its financing strategy, securing term sheets for $340 million in anticipated loan proceeds at a favorable interest rate of approximately 6.5%. The company is proactively addressing its 2025 and 2026 debt maturities through substantial asset sales and refinancing plans, demonstrating a commitment to maintaining financial stability and flexibility.
Increased FFO and NOI
The fourth quarter saw a significant increase in normalized FFO, reaching $5.3 million or $0.02 per share, which represents a 31% sequential quarter increase. Additionally, same property cash basis NOI improved by 18.7% year over year, highlighting the company’s operational efficiency and effective cost management.
Sequential Decline in NOI
Despite the positive trends, the company experienced a 1.4% sequential decline in same property cash basis NOI, primarily due to additional insurance remediation costs from hurricanes that impacted the SHOP segment’s fourth-quarter results.
Tenant Vacancy and Lease Expirations
Tenant vacancies pose a challenge, with approximately 7.9% of annualized revenue in the medical office and life science portfolio scheduled to expire by the end of 2025. This includes a significant tenant vacating in the first quarter of 2025, occupying close to 233,000 square feet, which could impact future revenue streams.
Expense Growth and Weather Impacts
The company faced a 3.9% increase in expenses, driven by rising salary and wages, general maintenance, and one-time weather-related impacts totaling $4.4 million. These factors contributed to the overall cost pressures experienced during the quarter.
Forward-Looking Guidance
Looking ahead, Diversified Healthcare Trust provided optimistic guidance for 2025, with expectations of SHOP NOI ranging from $120 to $135 million and medical office and life science NOI projected at $104 to $112 million. The company anticipates a significant reduction in CapEx, expected to be between $150 and $170 million. Additionally, the refinancing strategy includes $340 million in anticipated loan proceeds, addressing upcoming debt maturities and ensuring financial resilience.
In conclusion, Diversified Healthcare Trust’s earnings call highlighted a generally positive outlook, with strong revenue growth and strategic initiatives driving optimism. While challenges such as tenant vacancies and increased expenses remain, the company’s proactive measures in financing and asset management position it well for future success.