Diversified Healthcare Trust (DHC) Q3 2026 Earnings Call Highlights: SHOP NOI Surges 50% as ...

Release Date: November 03, 2026

For the complete transcript of the earnings call, please refer to the full earnings call transcript .

Positive Points

• Diversified Healthcare Trust ( NASDAQ:DHC ) raised its same-property SHOP NOI guidance by $5 million at the midpoint, reflecting strong operating momentum and added conviction in SHOP results.

• Same-property SHOP NOI increased 50.4% year over year to $48 million, driven by a 200 basis point occupancy gain and 5.2% average monthly rate growth, with margin expanding 470 basis points to 15.8%.

• Diversified Healthcare Trust ( NASDAQ:DHC ) reduced 2026 recurring CapEx guidance by $10 million at the midpoint to $90 million-$105 million, with further declines expected in 2027 and 2028.

• The Ensign triple-net lease transition for seven skilled nursing facilities increases first-year contractual rent to approximately $8 million, up from $5.1 million of prior NOI, while shifting reimbursement, labor, and capital exposure to the tenant.

• Diversified Healthcare Trust ( NASDAQ:DHC ) improved its balance sheet, with net debt to annualized adjusted EBITDAre down 2.5x year over year to 8.2x (7.4x excluding incentive fees, within target range), and adjusted EBITDAre to interest expense improving to 2.0x from 1.2x.

• New management agreements across 76 SHOP communities are expected to generate approximately $2 million of annual cost savings starting January 1, 2027, while better aligning operator incentives with shareholder interests.

Negative Points

• Diversified Healthcare Trust ( NASDAQ:DHC ) normalized FFO guidance was reduced to $0.46-$0.52 per share from $0.56-$0.62, largely due to the inclusion of $29.3 million ($0.12 per share) of estimated incentive management fees under the SEC's new interpretation.

• Same-property SHOP NOI decreased 7.6% sequentially, driven by $2.2 million of onetime expense benefits in Q2 that did not recur, plus $1 million of nonrecurring expenses and $2 million of higher seasonal utility costs in Q3.

• Medical office and life science same-property cash basis NOI declined 1.6% year over year, and total occupancy fell to 88.4% from 92.2% in the prior quarter due to two tenants representing approximately 213,000 square feet vacating on July 1.

• A life science tenant in Fremont, California, representing $2.2 million of annualized rental income, is expected to vacate at the end of November, and Diversified Healthcare Trust ( NASDAQ:DHC ) is actively marketing the space for lease.

• Diversified Healthcare Trust ( NASDAQ:DHC ) used targeted move-in incentives in Q3 to accelerate occupancy, which kept average monthly rate flat sequentially and may pressure rate growth until concessions normalize.

• Diversified Healthcare Trust ( NASDAQ:DHC ) has $500 million of senior unsecured notes maturing in February 2028, and its leverage of 8.2x including incentive fees remains above its 6.5x-7.5x target range.

Q & A Highlights

Q: With the updated CapEx outlook, should investors expect this level to be a run rate into 2027 and 2028, or could recurring CapEx decrease further? A: CFO Matt Brown indicated that recurring CapEx could decrease a little into 2027 and 2028, noting the company has been targeting closer to $3,000 per unit going forward and expects that figure to continue coming down as it has over the last few years.

Q: How is DHC viewing its different sources of capital, and is the current leverage profile a concern? Will CapEx or acquisitions be financed with dispositions or other sources? A: CEO Christopher Bilotto said most planned investment is within the existing portfolio, prioritizing conversions of closed skilled nursing wings given their returns. Asset sales are not expected to be overly material but will provide optionality to delever or reinvest, with acquisitions a lower priority. CFO Matt Brown added that leverage has declined as SHOP performance improved and should fall further beyond 2026, and that liquidity is adequate, including the undrawn $150 million credit facility.

Q: Does full year 2026 guidance include the positive NOI impact expected from the Ensign transaction, and is that driving the raised SHOP NOI outlook? A: CFO Matt Brown confirmed the guidance includes about $2 million of Ensign rent in the fourth quarter, but said the $5 million SHOP NOI increase is unrelated to the Ensign restructuring. The raise reflects added conviction from SHOP results trending toward the high end of guidance, with same-property SHOP NOI at just under $145 million year-to-date through nine months. CEO Christopher Bilotto added that fourth quarter Ensign lease proceeds are roughly equivalent to what DHC would have received under the RIDEA structure, so the upside is performance-based.

Q: What were the one-time items in the third quarter, and should they be expected seasonally in future third quarters? A: CFO Matt Brown said the items were largely one-time, totaling about $1 million, including sales and use tax true-ups and somewhat elevated bad debt. He does not expect them to recur in the fourth quarter or beyond.

Q: Should investors expect the strategy of using concessions to promote occupancy before pushing rate to continue over the next couple of quarters? A: CEO Christopher Bilotto described concessions as targeted, asset-by-asset actions to drive strategy and said he does not envision them continuing long term. He expects continued rate lift across the portfolio, generally at least the same lift as in 2026, along with expense reduction and levels-of-care revenue initiatives that should become more pronounced in 2027.

Q: Has spending begun on the redevelopment potential within the portfolio, and would that show up in the recurring CapEx guide? A: CEO Christopher Bilotto said the projects are all 2027 starts. Any spending this year is limited to soft costs for design and consultants, with construction beginning next year and deliveries expected toward the back half of 2027.

Q: What drove the sequential decline in SHOP same-property NOI in the third quarter? A: CFO Matt Brown attributed the $4 million, or 7.6%, sequential decrease to approximately $2.2 million of one-time expense benefits in the second quarter that did not recur, about $1 million of nonrecurring expenses, and $2 million of higher utility costs due to typical seasonality. Excluding these items, third quarter same-property NOI would have been 2.5% higher sequentially, and same-property occupancy rose 130 basis points sequentially, the largest quarterly gain this year.

Q: How did the change in accounting for incentive management fees affect reported results and guidance? A: CFO Matt Brown explained that normalized FFO, adjusted EBITDAre, and CAD now include estimated incentive management fees accrued under GAAP, following SEC interpretation, with prior periods recast. The change is presentation-only and does not affect GAAP results or cash flows. Third quarter results included $5.4 million, or $0.02 per share, of accrued fees, and year-to-date accruals were $22 million, or $0.09 per share. Full year guidance includes $29.3 million, or $0.12 per share, of estimated fees.

Q: What is the outlook for the medical office and life science portfolio given recent tenant vacates? A: CEO Christopher Bilotto said leasing remained healthy, with about 130,000 square feet completed at rents 25% above prior rents and a weighted average lease term of 9.7 years. Two tenants totaling approximately 213,000 square feet vacated on July 1, lowering occupancy to 88.4% from 92.2%. Near-term expirations are limited, with $3.3 million of annualized rent, or 2.1% of the total, scheduled to expire through year-end, including $2.2 million from a Fremont, California life science tenant expected to vacate at the end of November.

Q: What are the key drivers of earnings growth heading into 2027? A: CEO Christopher Bilotto cited a full year of rent from the Ensign lease, approximately $2 million of annual savings from new SHOP legacy management agreements effective January 1, 2027, skilled nursing conversion projects adding approximately 350 units, sales of nonearning medical office properties, and continued SHOP occupancy and rate improvement as concessions normalize.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .