Diversified Healthcare Trust (DHCNL) is a real estate investment trust (REIT) that owns a diverse portfolio of medical office and life science properties, senior living communities, and other healthcare-related assets across the United States. With a focus on capitalizing on the growing demand for healthcare services and accommodations, Diversified Healthcare Trust has strategically positioned itself to navigate the evolving industry landscape and deliver value for its shareholders.
Business Overview Diversified Healthcare Trust was organized as a real estate investment trust (REIT) under Maryland law in 1998, focusing on building a diversified portfolio of healthcare real estate assets. In its early years, the company rapidly expanded its portfolio, acquiring properties across 36 states and Washington D.C. by the early 2000s. DHC successfully navigated the challenges posed by the 2008-2009 financial crisis, which significantly impacted the senior housing and commercial real estate markets. During this period, the company worked diligently to maintain occupancy and cash flows across its portfolio.
Strategic Shift and Acquisitions In the 2010s, DHC strategically shifted its focus towards medical office and life science properties, as well as senior living communities operated by third-party managers. This strategic pivot led to several notable acquisitions, including the Seaport Innovation life science property in Boston in 2015 and the LSMD medical office portfolio in 2022. However, the company faced significant headwinds during the COVID-19 pandemic in 2020-2021, particularly impacting its senior housing operations.
Portfolio Review and Restructuring To address these challenges, DHC undertook a comprehensive review of its portfolio in the early 2020s. This strategic evaluation resulted in the sale of underperforming assets, the transition of certain senior living communities to new operators, and a focused approach to capital investments on properties with the highest return on investment potential. Additionally, the company worked to strengthen its balance sheet by refinancing debt and raising new capital through property sales.
Current Portfolio Composition As of December 31, 2024, Diversified Healthcare Trust's portfolio consists of 367 properties located across 36 states and Washington, D.C., providing geographical diversification and exposure to various regional healthcare markets. The portfolio includes 98 medical office and life science properties, 232 senior living communities, and 37 other properties such as wellness centers.
Operational Segments The company's operations are divided into three reportable segments: Medical Office and Life Science Portfolio, Senior Housing Operating Portfolio (SHOP), and All Other.
The Medical Office and Life Science Portfolio segment consists of 98 properties with approximately 7.95 million rentable square feet. These properties are primarily leased to medical providers, other medical-related businesses, and biotech laboratories. During 2024, DHC entered into new and renewal leases totaling 397,000 square feet in this segment. The weighted average rental rate change by rentable square feet was 8.9%, and the weighted average lease term was 5.7 years. As of December 31, 2024, this segment's properties were 82.2% occupied, and the top tenants included Advocate Aurora Health, Alamar Biosciences, Inc., and KSQ Therapeutics, Inc.
The SHOP segment includes 232 managed senior living communities with approximately 24,980 living units. These communities provide short-term and long-term residential living and, in some instances, care and other services for residents. Diversified Healthcare Trust engages third-party managers to operate these communities on its behalf.
The All Other segment includes 27 triple net leased senior living communities and 10 wellness centers. As of December 31, 2024, the triple net leased senior living communities had a weighted average occupancy of 100.0%, and the wellness centers had a weighted average occupancy of 100.0%.
Financials and Liquidity Diversified Healthcare Trust reported total revenues of $1.50 billion for the fiscal year ended December 31, 2024, a 6.4% increase from the previous year. However, the company recorded a net loss of $370.25 million, primarily due to impairment charges, losses on the sale of properties, and other non-recurring expenses.
For the fourth quarter of 2024, DHC reported revenue of $379.62 million and a net loss of $87.45 million. The company's SHOP segment was the primary contributor to its financial performance, accounting for 83.2% of total revenues in 2024, while the Medical Office and Life Science Portfolio segment contributed 14.3%, and the All Other segment accounted for 2.5%.
Despite the net loss, Diversified Healthcare Trust's financial position remains strong, with a diverse and well-capitalized balance sheet. As of December 31, 2024, the company had $144.58 million in cash and cash equivalents and $1.96 billion in senior unsecured notes, along with $826.97 million in senior secured notes and other secured debt. The company's debt profile is well-laddered, with no significant maturities until 2028.
Navigating the Pandemic and Industry Challenges Diversified Healthcare Trust, like many other healthcare-focused REITs, faced significant challenges during the COVID-19 pandemic. The senior living industry, in particular, experienced significant disruptions and occupancy declines. However, the company has demonstrated its resilience and ability to adapt to the changing market conditions.
In 2024, Diversified Healthcare Trust's SHOP segment achieved a 56% improvement in NOI and a 7.3% increase in revenues, driven by a 6.7% increase in average monthly rates and a 100 basis point improvement in occupancy to 80.9%. This turnaround is the result of the company's focused asset management efforts, strategic operator transitions, and the implementation of initiatives to drive performance and occupancy growth.
The SHOP segment's occupancy increased from 78.1% at the end of 2023 to 79.3% as of December 31, 2024, demonstrating steady improvement in the company's senior living operations. For the full year 2024, DHCNL's SHOP NOI was $106 million, which was towards the high end of their revised guidance provided in Q3 2024.
Looking Ahead As Diversified Healthcare Trust navigates the evolving healthcare real estate landscape, the company has outlined several key strategic initiatives to position itself for long-term success. These include the strategic disposition of underperforming assets, refinancing of debt to improve its capital structure, and a targeted capital investment program to enhance the competitiveness and profitability of its portfolio.
For the fiscal year 2025, Diversified Healthcare Trust expects its SHOP segment to generate NOI in the range of $120 million to $135 million, and its Medical Office and Life Science Portfolio to generate NOI between $104 million and $112 million. The company has also provided guidance for its 2025 capital expenditure program, which is expected to range from $150 million to $170 million, representing a 16% reduction from 2024 levels. Of this amount, $105 million to $120 million will be invested in their senior living communities.
It's worth noting that the Muse property, which was sold in January 2025, generated $5 million in NOI in 2024. Additionally, the Brookdale portfolio that is expected to be sold generated $10 million in NOI in 2024, including $2.2 million of percentage rent recognized in Q4 2024. These dispositions will impact the company's NOI in 2025, but are part of Diversified Healthcare Trust's strategy to optimize its portfolio and focus on higher-performing assets.
Conclusion Diversified Healthcare Trust's diverse portfolio, strategic initiatives, and financial strength position the company to navigate the evolving healthcare real estate landscape effectively. While the company has faced recent challenges, its proactive measures, including asset dispositions, debt refinancing, and targeted capital investments, are expected to enhance its operational and financial performance in the years ahead. As the healthcare industry continues to evolve, Diversified Healthcare Trust remains well-positioned to capitalize on the growing demand for quality healthcare real estate assets and deliver long-term value for its shareholders.