Diversified Healthcare Trust(DHC) - 2025 Q2 - Quarterly Results

Financial Results Q2 2025 Financial Results Announcement DHC reported solid Q2 2025 results with significant SHOP same-property NOI growth, strong Medical Office and Life Science leasing, and progress on debt maturities - SHOP segment same property NOI increased 18.5% year-over-year to $37.4 million[5] - In the Medical Office and Life Science segment, new and renewed leases achieved weighted average rents 11.5% higher than prior rents, with an average lease term of approximately 7 years[5] - The company has addressed its June 2025 debt maturity by completing over $343 million in mortgage financings since March 2025 and closing a new $150 million secured revolving credit facility[6] - DHC declared a quarterly common share distribution of $0.01 per share[8] Second Quarter 2025 Highlights DHC reported a Q2 2025 net loss of $91.6 million, with Normalized FFO of $18.6 million, driven by strong SHOP NOI growth and improved liquidity Q2 2025 Key Financial Results | Metric | Value | Per Share | | :--- | :--- | :--- | | Net Loss | $(91.6) million | $(0.38) | | Normalized FFO | $18.6 million | $0.08 | Same Property Cash Basis NOI Growth (YoY) | Segment | Q2 2025 ($ in thousands) | % Change YoY | | :--- | :--- | :--- | | SHOP | $37,372 | 18.5% | | Medical Office and Life Science | $27,057 | 0.7% | | All Other | $6,757 | 19.8% | | Consolidated | $71,186 | 11.2% | - SHOP occupancy increased 160 basis points year-over-year to 80.6%, and average monthly rates increased by 5.4%[12] - Since April 1, 2025, DHC sold five properties for $25.2 million and has an additional 49 properties under agreement or letter of intent to sell for a total of $279.9 million[12] Second Quarter 2025 Results (Detailed) DHC's Q2 2025 results show improved profitability with Normalized FFO surging to $18.6 million and Adjusted EBITDAre growing to $73.6 million, alongside improved SHOP occupancy Q2 2025 Financial Performance vs. Prior Periods | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Net loss | $(91.6) million | $(9.0) million | $(97.9) million | | Normalized FFO | $18.6 million | $14.3 million | $6.8 million | | Normalized FFO per share | $0.08 | $0.06 | $0.03 | | Adjusted EBITDAre | $73.6 million | $75.1 million | $68.9 million | Portfolio Occupancy Rates | Portfolio | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | SHOP | 80.6% | 80.2% | 79.0% | | Medical Office & Life Science | 82.9% | 80.6% | 81.5% | | Same Property | | | | | SHOP (Same Property) | 81.0% | 80.8% | 80.0% | | Medical Office & Life Science (Same Property) | 89.9% | 90.0% | 92.0% | Financial Statements Key Financial Data DHC's key financial data shows declining assets and equity due to dispositions, stable revenues, and improving operating metrics despite consistent net losses Quarterly Financial Trends (in thousands) | Metric | 6/30/2025 | 3/31/2025 | 12/31/2024 | 9/30/2024 | 6/30/2024 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total assets | $4,756,441 | $4,995,843 | $5,137,005 | $5,285,196 | $5,333,447 | | Total revenues | $382,712 | $386,864 | $379,619 | $373,640 | $371,392 | | Net loss | $(91,639) | $(8,986) | $(87,446) | $(98,689) | $(97,861) | | Adjusted EBITDAre | $73,613 | $75,109 | $67,049 | $66,817 | $68,895 | | Normalized FFO | $18,572 | $14,305 | $5,290 | $4,026 | $6,830 | Condensed Consolidated Balance Sheets DHC's balance sheet as of June 30, 2025, shows total assets of $4.76 billion and total liabilities of $2.90 billion, reflecting property dispositions Balance Sheet Summary (in thousands) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total real estate properties, net | $4,153,639 | $4,340,475 | | Assets of properties held for sale | $96,919 | $276,270 | | Total assets | $4,756,441 | $5,137,005 | | Senior unsecured notes, net | $1,579,327 | $1,957,319 | | Secured debt and finance leases, net | $456,948 | $126,611 | | Total liabilities | $2,901,468 | $3,178,162 | | Total equity | $1,854,973 | $1,958,843 | Condensed Consolidated Statements of Income (Loss) DHC reported Q2 2025 total revenues of $382.7 million and a net loss of $91.6 million, an improvement from the prior year, despite asset impairments Income Statement Summary (Three Months Ended June 30) | (in thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Total revenues | $382,712 | $371,392 | | Property operating expenses | $312,580 | $304,065 | | Impairment of assets | $30,993 | $6,545 | | Interest expense | $50,926 | $58,702 | | Net loss | $(91,639) | $(97,861) | - General and administrative expenses increased to $11.2 million from $6.3 million YoY, which included $4.1 million in incentive management fees in Q2 2025[22] Debt and Leverage Debt Summary As of June 30, 2025, DHC's total debt was approximately $2.71 billion, with a weighted average interest rate of 4.175% and 7.0 years maturity Debt Composition as of June 30, 2025 | Debt Type | Principal Balance ($ in thousands) | Weighted Avg. Interest Rate | | :--- | :--- | :--- | | Secured Floating Rate | $140,000 | 6.822% | | Unsecured Fixed Rate | $1,600,000 | 5.126% | | Secured Fixed Rate | $972,676 | 2.229% | | Total Debt | $2,712,676 | 4.175% | - The largest near-term maturity is the $641.4 million in zero-coupon senior secured notes due January 15, 2026[26] Debt Maturity Schedule DHC's debt maturity schedule shows significant maturities in 2026 ($643.3 million) and 2028 ($500.0 million), with an option to extend 2026 notes - The company faces a major debt maturity of $643.3 million in 2026, followed by $500.0 million in 2028 and another $500.0 million in 2031[29] - DHC has an option to extend the maturity of its senior secured notes due 2026 by one year, subject to certain conditions[30] Leverage Ratios, Coverage Ratios and Bond Covenants DHC's Q2 2025 leverage ratios show Net Debt to Adjusted EBITDAre at 8.7x and interest coverage at 1.4x, with the company remaining compliant with bond covenants Key Ratios as of June 30, 2025 | Ratio | Value | Requirement/Trend | | :--- | :--- | :--- | | Net debt / annualized Adjusted EBITDAre | 8.7x | Improved from 8.8x QoQ | | Adjusted EBITDAre / interest expense | 1.4x | Improved from 1.2x QoQ | | Total unencumbered assets / unsecured debt | 238.6% | Minimum 150.0% | | Total debt / adjusted total assets | 38.9% | Maximum 60.0% | Investments Summary of Capital Expenditures In Q2 2025, DHC invested $34.0 million in capital expenditures, primarily recurring expenses and SHOP development activities Capital Expenditures for Q2 2025 (in thousands) | Category | SHOP | Medical Office & Life Science | Total | | :--- | :--- | :--- | :--- | | Recurring Capital Expenditures | $24,283 | $5,046 | $29,329 | | Development & Redevelopment | $4,660 | $0 | $4,660 | | Total Capital Expenditures | $28,943 | $5,046 | $33,989 | Redevelopment Information DHC has three active SHOP redevelopment projects with estimated costs of $44.1 million, expected to be completed by Q1 2026 - Total estimated project costs for ongoing SHOP redevelopments are $44.1 million, with $24.0 million incurred as of June 30, 2025[38] - The largest projects are Pueblo Norte Senior Living in Scottsdale, AZ, and Residences of Chevy Chase in Chevy Chase, MD, both expected to be completed in Q1 2026[38] Property Dispositions Information Since January 1, 2025, DHC has sold 29 properties for $346.0 million and has 49 more under agreement for $279.9 million - Completed dispositions since January 1, 2025 total 29 properties for $346.0 million[42] - As of August 1, 2025, 49 properties are under agreement or letter of intent to be sold for an estimated $279.9 million[43] - Net proceeds from the sale of 11 of the properties under agreement, totaling $90.6 million, are required to be used to partially redeem the senior secured notes due 2026[43][44] Investments in Unconsolidated Joint Ventures DHC holds $139.2 million in two unconsolidated joint ventures, primarily in life science and medical office properties, with a proportionate debt share of $153.3 million Joint Venture Summary | Joint Venture | Property Type | DHC Ownership | DHC Carrying Value ($ in thousands) | | :--- | :--- | :--- | :--- | | Seaport Innovation LLC | Life Science | 10% | $94,415 | | The LSMD Fund REIT LLC | Medical Office/Life Science | 20% | $44,736 | - DHC's proportionate share of the total $1.08 billion in debt held by these joint ventures is $153.3 million[46] - Vertex Pharmaceuticals Inc. is the largest tenant in the joint venture portfolio, representing 66.7% of the JVs' annualized rental income[54] Portfolio Information Portfolio Summary As of June 30, 2025, DHC's portfolio comprises 341 properties with a gross book value of $6.8 billion, diversified geographically and by property type Portfolio Breakdown by Segment (Q2 2025) | Segment | Number of Properties | Gross Book Value ($ in thousands) | % of Total NOI | | :--- | :--- | :--- | :--- | | SHOP | 230 | $4,619,413 | 52.2% | | Medical Office and Life Science | 92 | $1,811,962 | 37.8% | | Triple net leased senior living | 4 | $135,640 | 4.6% | | Wellness centers | 10 | $208,110 | 5.4% | | Total | 341 | $6,775,125 | 100.0% | - Geographic concentration is led by Florida (11%), Texas (9%), Georgia (7%), and California (7%) based on gross book value[57] SHOP Portfolio DHC's SHOP portfolio demonstrated strong Q2 2025 performance with consolidated NOI growth of 26.3% to $36.6 million, driven by increased occupancy and average monthly rates SHOP Units by Operator DHC's SHOP portfolio, comprising 229 communities and 24,872 units, is primarily managed by Five Star Senior Living, which operates 70% of the units - Five Star Senior Living manages 118 properties, representing 17,287 units or about 70% of the total SHOP portfolio units[62] SHOP Segment and Same Property - Results of Operations In Q2 2025, consolidated SHOP NOI increased 26.3% to $36.6 million, with same-property NOI up 18.5% to $37.4 million, driven by occupancy and rate gains SHOP Performance (Q2 2025 vs Q2 2024) | Metric | Consolidated | Same Property | | :--- | :--- | :--- | | YoY NOI % Change | +26.3% | +18.5% | | Occupancy | 80.6% (+160 bps) | 81.0% (+100 bps) | | Avg. Monthly Rate | $5,440 (+5.4%) | $5,364 (+5.2%) | - On a consolidated basis, communities managed by operators other than Five Star had a year-over-year NOI increase of 43.1%, while Five Star managed communities' NOI increased by 22.6%[69] Senior Living NOI by Manager and Location In Q2 2025, Five Star Senior Living contributed 72.8% of senior living NOI, with primary markets showing the strongest year-over-year NOI growth at 44.1% - Five Star Senior Living contributed $29.0 million, or 72.8%, of the total Q2 2025 senior living NOI[72] - Primary markets accounted for 53.7% of SHOP NOI and demonstrated the strongest year-over-year NOI growth of 44.1%[74] Medical Office and Life Science Portfolio The Medical Office and Life Science portfolio generated $26.5 million in Q2 2025 NOI, with same-property Cash Basis NOI up 0.7% despite an occupancy drop, and positive leasing activity Medical Office and Life Science - Results of Operations Q2 2025 consolidated Medical Office and Life Science NOI was $26.5 million, down 12.5% YoY, while same-property Cash Basis NOI increased 0.7% to $27.1 million Same Property Performance (Q2 2025 vs Q2 2024) | Metric | Value | YoY Change | | :--- | :--- | :--- | | Occupancy | 89.9% | (210) bps | | NOI | $26.7 million | (1.9)% | | Cash Basis NOI | $27.1 million | +0.7% | - Within the same-property portfolio, the Medical Office segment's Cash Basis NOI grew 2.2% YoY, while the Life Science segment's Cash Basis NOI declined 2.2% YoY[82] Portfolio Leasing Summary In Q2 2025, DHC leased 106,274 square feet in its Medical Office and Life Science portfolio, achieving an 11.5% weighted average increase in GAAP rent Q2 2025 Leasing Activity | Leasing Metric | New Leases | Renewals | Total | | :--- | :--- | :--- | :--- | | Square Feet | 4,000 | 102,274 | 106,274 | | % Change in GAAP Rent | (1.9)% | 12.0% | 11.5% | | Weighted Avg. Lease Term (Yrs) | 6.2 | 7.1 | 7.0 | Major Tenants and Lease Expirations DHC's Medical Office and Life Science portfolio has a diversified tenant base, with Advocate Aurora Health as the largest tenant and staggered lease expirations - The top tenant, Advocate Aurora Health, represents 7.6% of total annualized rental income[85] Medical Office & Life Science Lease Expiration Schedule (% of Annualized Rental Income) | Year | % Expiring | Cumulative % | | :--- | :--- | :--- | | 2025 | 4.0% | 4.0% | | 2026 | 11.1% | 15.1% | | 2027 | 10.1% | 25.2% | | 2028 | 18.5% | 43.7% | | 2029+ | 56.3% | 100.0% | All Other Lease Expiration Schedule The 'All Other' segment features a long-dated lease expiration profile, with no expirations until 2027 and a weighted average remaining lease term of 10.2 years - There are no lease expirations in the 'All Other' segment until 2027, when 15.9% of the segment's annualized rental income expires[89] - The weighted average remaining lease term for this segment is 10.2 years, weighted by annualized rental income[89] Appendix Company Profile and Governance DHC is a REIT with a $6.8 billion portfolio of 341 healthcare properties, externally managed by The RMR Group - DHC is a REIT focused on high-quality healthcare properties, with a portfolio valued at approximately $6.8 billion as of June 30, 2025[93] - The company is managed by The RMR Group, an alternative asset management company with approximately $40 billion in assets under management[94] Calculation and Reconciliation of Non-GAAP Measures This section provides detailed calculations and reconciliations for DHC's non-GAAP financial measures, including NOI, EBITDAre, FFO, Normalized FFO, and CAD - Provides the reconciliation of GAAP Net Loss to non-GAAP metrics including NOI and Cash Basis NOI[100][101] - Details the calculation of EBITDA, EBITDAre, and Adjusted EBITDAre, starting from GAAP Net Loss[102] - Shows the reconciliation of GAAP Net Loss to FFO, Normalized FFO, and Cash Available for Distribution (CAD)[104][106] Non-GAAP Financial Measures and Certain Definitions This section defines non-GAAP financial measures like NOI, EBITDAre, FFO, and CAD, along with key operational and financial terms used in the report - Defines key non-GAAP measures like NOI, EBITDAre, FFO, and CAD, explaining their calculation and utility for investors[107][108][109][110] - Provides definitions for important operational terms such as 'Same Property', 'SHOP' (Senior Housing Operating Portfolio), and 'Medical Office and Life Science Portfolio'[135][136][131] Warning Concerning Forward-Looking Statements This section warns that the report contains forward-looking statements subject to risks and uncertainties, advising readers to consult SEC filings for detailed risk factors - The report contains forward-looking statements regarding DHC's plans, expectations, and future performance, which are not guarantees of future results[143] - Readers are advised not to place undue reliance on these statements and are referred to the 'Risk Factors' section of DHC's SEC filings for a detailed list of potential risks[144]