Q2 2026 Diversified Healthcare Trust Earnings Call Transcript
Key Points
- Diversified Healthcare Trust (DHC) reported strong second quarter results, with normalized FFO of $39 million and consolidated NOI increasing 20.4% year-over-year, exceeding analyst estimates.
- SHOP segment same-property NOI surged 37.2% year-over-year, driven by a 160 basis point occupancy increase, a 6.2% rise in average monthly rate, and continued margin expansion.
- The company is renegotiating legacy operator contracts to align with a more favorable fee structure, expected to deliver immediate annual cost savings of nearly $2 million starting in January 2027.
- DHC is executing a $20 million repositioning plan to convert closed skilled nursing wings into high-demand senior housing units, projected to generate mid-teens unlevered returns and add roughly 150 units.
- Leverage improved significantly, with net debt to EBITDA down to 7.1 times from 8.7 times year-over-year, and liquidity stands at $267 million, providing financial flexibility.
- The company reaffirmed its full-year guidance, with SHOP NOI tracking towards the high end, supported by expense synergies such as new food and beverage contracts yielding $14-16 million in annualized savings.
- SHOP occupancy growth is pacing below initial 2026 projections, with average occupancy growth guidance reduced by 100 basis points to 200 basis points, reflecting a slower-than-expected ramp-up.
- Revenue growth in the SHOP segment was revised down by 140 basis points to 6.6%, indicating top-line momentum is temporarily muted due to transition-related disruptions.
- The company noted a one-time benefit of $1.5 million in Q2 SHOP NOI from expense timing that will not repeat in Q3, potentially impacting sequential performance.
- Medical office and life science segment NOI was essentially flat year-over-year, with known tenant vacates representing 4.6% of annualized revenue, including two that vacated in July.
- G&A expenses included a $10 million incentive management fee and $2.3 million in non-cash share-based compensation, with over half of the latter being a one-time accelerated vesting expense.
- The company faces ongoing challenges in fully integrating new operators, with sales teams and infrastructure still being rebuilt, which has delayed occupancy gains.
Good morning, and welcome to the Diversified Healthcare Trust Second Quarter 2026 Earnings Conference Call. (Operator Instructions) I would now like to turn the call over to Matt Murphy, Manager of Investor Relations. Please go ahead.
Good morning. Joining me on today's call are Chris Bellotto, President and Chief Executive Officer Matt Brown, Chief Financial Officer and Treasurer and Anthony Paula, Vice President. Today's call includes a presentation by management, followed by a question-and-answer session with sell-side analysts. Please note that the recording and retransmission of today's conference call is strictly prohibited without the prior written consent of the company. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1,995 and other securities laws.
These forward-looking statements are based upon DHC's beliefs and expectations as of today, Tuesday, August 4, 2026. The company undertakes no
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