Diversified Healthcare Trust ((DHC)) has held its Q3 earnings call. Read on for the main highlights of the call.
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The recent earnings call for Diversified Healthcare Trust (DHC) presented a mixed sentiment, highlighting positive revenue growth, successful refinancing, and strategic asset sales. However, the discussion was tempered by challenges such as elevated labor costs and high leverage. Despite these hurdles, the company expressed optimism about its future performance and strategic initiatives.
Increased Total Revenue
The company reported a total revenue of $388.7 million for the quarter, marking a 4% increase year-over-year. This growth reflects the company’s ability to enhance its financial performance despite the challenging economic environment.
SHOP Occupancy Growth
DHC experienced a notable increase in SHOP occupancy, which rose by 210 basis points year-over-year to 81.5%. This marks the fourth consecutive quarter of occupancy growth, demonstrating the company’s effective strategies in managing its properties.
Successful Debt Refinancing
The company successfully completed a $1 billion refinancing of the Vertex Pharmaceuticals’ headquarters and issued $375 million of senior secured notes. This strategic move has resulted in no debt maturities until 2028, strengthening DHC’s financial stability.
Medical Office and Life Science Leasing Success
DHC completed approximately 86,000 square feet of leasing at weighted average rents 9% above prior rents, with an average lease term of nearly 7 years. This success underscores the company’s strong position in the medical office and life science sectors.
Asset Sale Proceeds
Year-to-date, DHC has sold 44 properties for $396 million and has agreements to sell an additional 38 properties for $237 million. These asset sales are part of the company’s strategy to optimize its portfolio and enhance liquidity.
Elevated Labor Costs
The company faced a temporary decline in net operating income (NOI) due to elevated labor costs associated with the transition of AlerisLife communities, adding an incremental cost of $5.1 million for the quarter.
Sequential Decline in SHOP NOI
There was a sequential decline in SHOP NOI, primarily due to higher seasonal utility costs and temporary labor costs related to community transitions. This reflects the ongoing challenges in managing operational expenses.
High Leverage
DHC’s net debt-to-adjusted EBITDAre was 10x, primarily due to temporary compensation expense increases. This high leverage indicates a need for careful financial management moving forward.
Forward-Looking Guidance
The company provided guidance that reflects continued progress despite temporary challenges. DHC maintained its full-year SHOP NOI guidance range of $132 million to $142 million and reported a 210 basis point year-over-year increase in SHOP occupancy to 81.5%. The company anticipates improved liquidity and expects to repay its January 2026 bonds by year-end, with no debt maturities until 2028, indicating a strong financial position moving forward.
In conclusion, Diversified Healthcare Trust’s earnings call presented a balanced view of its current financial health. While the company faces challenges such as elevated labor costs and high leverage, it remains optimistic about its strategic initiatives and future performance. The positive revenue growth, successful refinancing, and strategic asset sales are key highlights that reflect the company’s resilience in a competitive market.