Diversified Healthcare Trust (DHC) 2025 Conference Transcript

Summary of Diversified Healthcare Trust (DHC) Conference Call Company Overview - Company: Diversified Healthcare Trust (DHC) - Industry: Healthcare Real Estate Investment Trust (REIT) - Portfolio: Owns 343 healthcare-related properties, including over 25,000 senior living units and 7.6 million square feet of medical office and life science space [2][3] Key Points and Arguments Portfolio Performance - Growth Metrics: DHC reported a 42% year-over-year increase in Net Operating Income (NOI) and a 110 basis points increase in occupancy in Q1 2025 [5] - SHOP Segment: The Senior Housing Operating Portfolio (SHOP) is a significant growth driver, with 230 properties in this segment [6][3] - Disposition Strategy: DHC is selling over 60 properties, evenly split between SHOP and Medical Office Buildings (MOB), to focus on higher-performing assets [6][4] Financial Strategy - Balance Sheet Management: DHC aims to tidy up its balance sheet by addressing near-term maturities, with a focus on 2026 maturities [4] - Debt Refinancing: Successfully refinanced $340 million of unsecured debt at a lower interest rate of 6.55% [35] - **Leverage Improvement**: Reduced leverage from 11.2 times to 8.8 times, with a target of 6.5 to 7.5 times [35] Market Dynamics - **Aging Population**: The healthcare industry benefits from a 4% to 5% compound annual growth rate (CAGR) over the next five years due to an aging population [14] - **Supply Constraints**: New construction is limited, with less than 1% of new supply delivered quarterly, creating a favorable supply-demand dynamic for existing properties [14][15] - **Replacement Costs**: Replacement costs have increased by over 20%, making new construction less feasible [16] Operational Efficiency - **Expense Management**: DHC has reduced contract labor expenses to under 1% and achieved a 25% to 30% reduction in insurance premiums [11][12] - **NOI Margin Improvement**: NOI margins in the senior housing portfolio improved due to controlled expenses and increased occupancy [9][8] Future Outlook - **Acquisition Plans**: DHC does not plan to return to the acquisition market until at least next year, focusing on current operational improvements [32] - **CapEx Guidance**: Estimated total CapEx for 2025 is between$ 150 million to $170 million, with a focus on maintenance and ROI capital [44] - **Targeted Dispositions**: DHC aims for net proceeds of$ 330 million to $350 million from asset sales, focusing on underperforming properties [27] Additional Important Insights - Tenant Base Impact: Changes in government policy regarding Medicaid may impact hospitals and skilled nursing facilities, but DHC's exposure is minimal [18][19] - Life Science Portfolio: DHC's life science segment is under pressure, but the portfolio is primarily located in top markets with a long weighted average lease term [25][26] - Market Positioning: DHC is focusing on improving existing communities rather than competing with new supply, which is limited due to high costs [47][49]