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

Part I Financial Information Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Diversified Healthcare Trust as of June 30, 2025, and for the three and six-month periods then ended, including balance sheets, statements of comprehensive income (loss), statements of shareholders' equity, and statements of cash flows, along with accompanying notes Condensed Consolidated Balance Sheets As of June 30, 2025, total assets were $4.76 billion, a decrease from $5.14 billion at year-end 2024, primarily due to dispositions of real estate properties, while total liabilities decreased to $2.90 billion from $3.18 billion, driven by the redemption of senior notes, consequently, total equity declined to $1.85 billion from $1.96 billion Condensed Consolidated Balance Sheets Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total real estate properties, net | $4,153,639 | $4,340,475 | | Assets of properties held for sale | $96,919 | $276,270 | | Cash and cash equivalents | $141,769 | $144,584 | | Total assets | $4,756,441 | $5,137,005 | | Senior unsecured notes, net | $1,579,327 | $1,957,319 | | Total liabilities | $2,901,468 | $3,178,162 | | Total equity | $1,854,973 | $1,958,843 | Condensed Consolidated Statements of Comprehensive Income (Loss) For the second quarter of 2025, the company reported a net loss of $91.6 million, or ($0.38) per share, an improvement from a net loss of $97.9 million, or ($0.41) per share, in the same period of 2024, driven by lower interest expense and a smaller loss on property sales, despite higher impairment charges, with total revenues increasing to $382.7 million from $371.4 million year-over-year, led by growth in residents fees and services Q2 and H1 2025 vs 2024 Income Statement Highlights (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $382,712 | $371,392 | $769,576 | $742,168 | | Total expenses | $421,091 | $387,055 | $851,238 | $784,588 | | Impairment of assets | $30,993 | $6,545 | $69,465 | $18,687 | | Interest expense | ($50,926) | ($58,702) | ($108,757) | ($116,278) | | Net loss | ($91,639) | ($97,861) | ($100,625) | ($184,120) | | Net loss per share | ($0.38) | ($0.41) | ($0.42) | ($0.77) | Condensed Consolidated Statements of Shareholders' Equity Total shareholders' equity decreased from $1.96 billion at December 31, 2024, to $1.85 billion at June 30, 2025, primarily attributable to the net loss of $100.6 million for the six-month period and distributions to shareholders totaling $4.8 million - Total equity decreased by approximately $104 million in the first six months of 2025, driven by a net loss of $91.6 million in Q2 and $8.9 million in Q1, plus distributions of $4.8 million[12] Condensed Consolidated Statements of Cash Flows For the first six months of 2025, net cash from operating activities was $49.8 million, a decrease from $72.9 million in the prior year, mainly due to a $34.7 million payment of accreted interest on senior secured notes, while net cash provided by investing activities was $270.0 million, a significant shift from a $95.7 million use of cash in the prior year, driven by $334.1 million in proceeds from property sales, and financing activities used $321.1 million, primarily for the redemption of senior notes Six Months Ended June 30 Cash Flow Summary (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $49,777 | $72,894 | | Net cash provided by (used in) investing activities | $270,038 | ($95,691) | | Net cash (used in) provided by financing activities | ($321,088) | $45,921 | | (Decrease) increase in cash | ($1,273) | $23,124 | Notes to Condensed Consolidated Financial Statements The notes provide detailed information supporting the financial statements, including disclosures on property dispositions and impairments, debt structure, segment performance, management agreements with related parties, and fair value measurements - During the first six months of 2025, the company sold 26 properties for gross proceeds of $337.2 million, resulting in a net gain of $102.7 million. The proceeds were primarily used to redeem senior secured notes[27][28] - Impairment charges of $69.5 million were recorded in the first six months of 2025, primarily related to 10 medical office properties ($52.3 million) and 10 senior living communities ($17.2 million) that were revalued to their estimated fair values[31][32] - The company fully redeemed its $380 million 9.75% senior unsecured notes due June 2025 using proceeds from new mortgage financings and cash on hand. It also partially redeemed $299.2 million of its senior secured notes due 2026 using proceeds from property sales[56][59] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results of operations, highlighting positive trends in the Senior Housing Operating Portfolio (SHOP) segment, including rising rates and occupancy, and its focus on optimizing the portfolio through dispositions and debt management Portfolio Overview As of June 30, 2025, the portfolio consisted of 341 properties, with the SHOP segment representing the largest portion by gross book value (68.2%) and Q2 2025 revenues (85.6%), and occupancy in the SHOP segment improved to 80.6% from 79.0% year-over-year Portfolio Summary as of June 30, 2025 | Segment | Properties | Gross Book Value | % of Total | Q2 2025 Revenues | % of Total | Q2 2025 NOI | % of Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | SHOP | 230 | $4,619,413 | 68.2% | $327,545 | 85.6% | $36,615 | 52.2% | | Medical Office and Life Science | 92 | $1,811,962 | 26.7% | $48,056 | 12.6% | $26,487 | 37.8% | | Triple net leased senior living | 9 | $135,640 | 2.0% | $3,213 | 0.8% | $3,210 | 4.6% | | Wellness centers | 10 | $208,110 | 3.1% | $3,898 | 1.0% | $3,820 | 5.4% | | Total | 341 | $6,775,125 | 100.0% | $382,712 | 100.0% | $70,132 | 100.0% | Results of Operations For Q2 2025, total NOI increased 4.2% year-over-year to $70.1 million, driven by a 26.3% increase in SHOP NOI to $36.6 million, partially offset by a 12.5% decrease in Medical Office and Life Science Portfolio NOI, with total NOI for the six-month period growing 9.3% to $142.7 million Q2 2025 vs Q2 2024 NOI by Segment (in thousands) | Segment | Q2 2025 NOI | Q2 2024 NOI | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | SHOP | $36,615 | $28,984 | $7,631 | 26.3% | | Medical Office and Life Science Portfolio | $26,487 | $30,273 | ($3,786) | (12.5)% | | All Other | $7,030 | $8,070 | ($1,040) | (12.9)% | | Total NOI | $70,132 | $67,327 | $2,805 | 4.2% | - Comparable properties in the SHOP segment saw an 18.5% increase in NOI for Q2 2025, driven by a 5.9% rise in residents fees and services from higher occupancy and rates, which outpaced a 4.3% increase in operating expenses[132] Non-GAAP Financial Measures The company uses non-GAAP measures such as FFO, Normalized FFO, and NOI to evaluate performance, with Normalized FFO for Q2 2025 at $18.6 million, or $0.08 per share, and for the first six months of 2025 at $32.9 million, or $0.14 per share FFO and Normalized FFO Reconciliation (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Net loss | ($91,639) | ($97,861) | ($100,625) | ($184,120) | | FFO | $13,577 | $14,563 | $3,571 | $17,151 | | Normalized FFO | $18,572 | $6,830 | $32,877 | $10,353 | | FFO per share | $0.06 | $0.06 | $0.01 | $0.07 | | Normalized FFO per share | $0.08 | $0.03 | $0.14 | $0.04 | Liquidity and Capital Resources The company's primary liquidity sources are operating cash flows and property dispositions, with $141.8 million in cash and full availability of $150.0 million under its new revolving credit facility, and recent financing activities including $343.2 million in new mortgage financings used to redeem $380 million senior unsecured notes, with $641.4 million of senior secured notes due January 2026 as the next significant debt maturity - In June 2025, the company obtained a new $150 million secured revolving credit facility maturing in June 2029. As of August 1, 2025, there were no borrowings outstanding[204][205] - During H1 2025, the company sold 26 properties for $337.2 million. As of August 1, 2025, 49 additional properties were under agreements to be sold for an aggregate price of $279.9 million[201] - The company received a $17.0 million cash dividend from its equity investment in AlerisLife on February 14, 2025, and a further $3.4 million on July 15, 2025[195][202] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is to interest rate fluctuations on its $140 million floating-rate debt, which is managed through an interest rate cap agreement, while the majority of its debt, $2.57 billion, is fixed-rate, mitigating the impact of rising interest rates - As of June 30, 2025, the company had $140 million of floating-rate mortgage debt with an interest rate of SOFR + 2.50%. An interest rate cap is in place with a SOFR strike rate of 4.50%[232][233] - A one percentage point increase in interest rates would have a minimal impact on the existing floating rate debt due to the interest rate cap, increasing annual interest expense by only about $255,000[236][238] - The company's fixed-rate debt totaled approximately $2.57 billion as of June 30, 2025, insulating a significant portion of its capital structure from interest rate volatility[244] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting during the quarter - The President and Chief Executive Officer and the Chief Financial Officer and Treasurer concluded that the company's disclosure controls and procedures are effective[248] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, internal controls[249] Part II Other Information Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - There have been no material changes to risk factors from those previously disclosed in the company's Annual Report[258] Unregistered Sales of Equity Securities and Use of Proceeds During the second quarter of 2025, the company purchased 38,908 of its common shares at a weighted average price of $2.64 per share to satisfy tax withholding obligations for former officers and employees of RMR in connection with the vesting of share awards Issuer Purchases of Equity Securities (Q2 2025) | Calendar Month | Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | 7,965 | $2.47 | | May 2025 | 30,943 | $2.68 | | Total / weighted average | 38,908 | $2.64 | Exhibits This section provides a list of all exhibits filed with the Form 10-Q, including corporate governance documents, debt indentures, compensation plans, and required certifications