Diversified Healthcare Trust Provides Monthly SHOP Performance Update

Rhea-AI Summary

Diversified Healthcare Trust (Nasdaq: DHC) provided an update on its Senior Housing Operating Portfolio (SHOP) segment. Monthly results showed a decline in occupancy, resident fees, and net operating income compared to 2019 and October 2023. Year to date results also indicated decreases in occupancy, resident fees, and net operating income. The company's SHOP segment experienced challenges in 2023, impacting its financial performance.

Positive

• The company provided detailed and transparent financial data regarding the SHOP segment's performance.
• The update allows investors and analysts to understand the specific challenges and declines in the SHOP segment.
• The company's transparency in reporting financial results demonstrates a commitment to providing accurate and comprehensive information to stakeholders.

Negative

• The SHOP segment's occupancy, resident fees, and net operating income have experienced significant declines compared to 2019 and previous months.
• Year to date results show a consistent downward trend in the SHOP segment's performance, raising concerns about its future outlook.
• The financial data indicates challenges and potential risks for the company's SHOP segment, which may affect shareholder value.

Insights

Market Research Analyst

The recent performance update from Diversified Healthcare Trust (DHC) regarding their Senior Housing Operating Portfolio (SHOP) segment reveals several critical trends that stakeholders should consider. The reported decline in occupancy and net operating income (NOI) compared to 2019 levels, despite a marginal month-over-month improvement, indicates a sustained pressure on the senior housing sector.

One must consider the macroeconomic factors such as demographic shifts, with an aging population potentially increasing demand for senior housing. However, the financial viability of such facilities is challenged by rising operational costs and possible shifts in consumer preferences towards alternative senior living arrangements. The impact is evident in the NOI margin contraction, which suggests that cost management and operational efficiency are areas requiring strategic focus.

Furthermore, the Average Monthly Rate (AMR) fluctuations and their correlation with occupancy levels could be indicative of pricing strategies in response to market demand. The data suggests a need for DHC to balance pricing power against occupancy rates to optimize revenue.

Financial Analyst

From a financial perspective, the reported year-to-date revenue decline of 8.9% and the significant 62.1% drop in NOI compared to the same period in 2019 could raise concerns about DHC's financial health and cash flow stability. The NOI margin decrease of 990 basis points is particularly alarming as it directly affects the bottom line and could signal deteriorating profitability.

Investors should assess the company's cost structure and the scalability of its operations in the face of such margin pressures. The ability of DHC to navigate these challenges will be crucial for its long-term financial sustainability and could influence its stock market performance. The detailed breakdown of operating expenses and NOI across different segments within the SHOP provides transparency but also highlights the areas where financial performance is lagging.

Healthcare Industry Analyst

On an industry level, the performance of DHC's SHOP segment could be reflective of broader trends in the healthcare real estate investment trust (REIT) sector. The senior housing market is sensitive to policy changes, healthcare regulations and reimbursement rates, which can directly impact operational revenues and expenses.

The decline in DHC's SHOP performance, especially in the context of an aging population, raises questions about the competitiveness and adaptability of their facilities. It also highlights the importance of strategic partnerships, like the management agreement with Five Star Senior Living and the potential need for restructuring to address the underlying issues affecting profitability.

The comparison with 2019 pro forma results suggests that while the industry may still be recovering from the impacts of the COVID-19 pandemic, the pace of recovery and the strategy employed by DHC will be critical in determining future success within the sector.

NEWTON, Mass.--(BUSINESS WIRE)-- Diversified Healthcare Trust (Nasdaq: DHC) today provided an update regarding the recent performance of its Senior Housing Operating Portfolio, or SHOP, segment.

Monthly Unaudited Results in DHC’s Total SHOP Comparable Properties:

• November 2023 occupancy was 80.1%, 560 basis points below November 2019, and 20 basis points above October 2023.
• November 2023 Resident Fees and Services revenue was $94.7 million, $6.4 million, or 6.4%, below November 2019, and $0.7 million, or 0.7%, below October 2023.
• November 2023 net operating income, or NOI, was $6.1 million, $10.3 million, or 63.0%, below November 2019, and $0.8 million, or 11.1%, below October 2023.
• November 2023 NOI margin was 6.4%, 980 basis points below November 2019, and 80 basis points below October 2023.

Year to Date Unaudited Results in DHC’s Total SHOP Comparable Properties:

• Year to date occupancy through November 30, 2023, was 78.6%, 780 basis points below the same period in 2019.
• Year to date Resident Fees and Services revenue through November 30, 2023, was $1.0 billion, $100.3 million, or 8.9%, below the same period in 2019.
• Year to date NOI through November 30, 2023, was $72.0 million, $117.9 million, or 62.1%, below the same period in 2019.
• Year to date NOI margin through November 30, 2023, was 7.0%, 990 basis points below the same period in 2019.

Diversified Healthcare Trust (1)
SHOP - ALR/Five Star Managed and Other Operator Managed Results of Operations
(dollars in thousands, except average monthly rate)
		2023
COMPARABLE (2)		Jan		Feb		Mar		Apr		May		Jun		Jul		Aug		Sep			Oct		Nov		YTD
ALR/Five Star Managed Communities
	Number of Properties		117		117		117		117		117		117		117		117		117			117		117		117
	Number of Units		16,995		16,995		16,995		16,995		16,995		16,995		16,995		16,995		16,951			16,951		16,951		16,951
	Occupancy		78.0%		77.9%		78.5%		78.7%		78.8%		79.3%		79.5%		79.9%		80.0%			80.5%		80.6%		79.3%
	Average Monthly Rate	$	4,278	$	4,907	$	4,384	$	4,541	$	4,417	$	4,549	$	4,405	$	4,411	$	4,582		$	4,423	$	4,538	$	4,489
	Residents Fees and Services	$	58,695	$	60,666	$	60,434	$	60,769	$	61,178	$	61,309	$	61,524	$	61,831	$	62,160		$	62,375	$	62,026	$	672,967
	Property Operating Expenses		(52,606)		(51,786)		(54,777)		(50,892)		(54,500)		(54,324)		(55,532)		(55,526)		(55,153)			(55,470)		(55,602)		(596,168)
	NOI (3)	$	6,089	$	8,880	$	5,657	$	9,877	$	6,678	$	6,985	$	5,992	$	6,305	$	7,007		$	6,905	$	6,424	$	76,799
	NOI Margin		10.4%		14.6%		9.4%		16.3%		10.9%		11.4%		9.7%		10.2%		11.3%			11.1%		10.4%		11.4%
Other Operator Managed Communities
	Number of Properties		106		106		106		106		106		106		106		106		106			106		106		106
	Number of Units		7,130		7,130		7,130		7,130		7,130		7,130		7,130		7,130		7,154			7,154		7,154		7,154
	Occupancy		74.2%		75.9%		76.2%		76.6%		76.3%		77.2%		77.6%		77.8%		77.9%			78.5%		78.8%		77.0%
	Average Monthly Rate	$	5,665	$	5,944	$	5,662	$	5,668	$	5,566	$	5,749	$	5,675	$	5,723	$	6,095		$	5,740	$	5,853	$	5,756
	Residents Fees and Services	$	30,788	$	29,808	$	31,504	$	30,938	$	31,303	$	31,664	$	32,461	$	32,933	$	33,981		$	32,953	$	32,638	$	350,971
	Property Operating Expenses		(33,025)		(30,118)		(32,590)		(31,725)		(32,096)		(31,472)		(32,549)		(33,946)		(32,181)			(33,042)		(33,003)		(355,747)
	NOI (3)	$	(2,237)	$	(310)	$	(1,086)	$	(787)	$	(793)	$	192	$	(88)	$	(1,013)	$	1,800		$	(89)	$	(365)	$	(4,776)
	NOI Margin		(7.3)%		(1.0)%		(3.4)%		(2.5)%		(2.5)%		0.6%		(0.3)%		(3.1)%		5.3%			(0.3)%		(1.1)%		(1.4)%
Total SHOP Comparable
	Number of Properties		223		223		223		223		223		223		223		223		223			223		223		223
	Number of Units		24,125		24,125		24,125		24,125		24,125		24,125		24,125		24,125		24,105			24,105		24,105		24,105
	Occupancy		76.9%		77.3%		77.8%		78.1%		78.1%		78.7%		79.0%		79.3%		79.4%			79.9%		80.1%		78.6%
	Average Monthly Rate	$	4,671	$	5,206	$	4,751	$	4,868	$	4,749	$	4,897	$	4,774	$	4,793	$	5,023		$	4,804	$	4,919	$	4,856
	Residents Fees and Services	$	89,483	$	90,474	$	91,938	$	91,707	$	92,481	$	92,973	$	93,985	$	94,764	$	96,141		$	95,328	$	94,664	$	1,023,938
	Property Operating Expenses		(85,631)		(81,904)		(87,367)		(82,617)		(86,596)		(85,796)		(88,081)		(89,472)		(87,334)			(88,512)		(88,605)		(951,915)
	NOI (3)	$	3,852	$	8,570	$	4,571	$	9,090	$	5,885	$	7,177	$	5,904	$	5,292	$	8,807		$	6,816	$	6,059	$	72,023
	NOI Margin		4.3%		9.5%		5.0%		9.9%		6.4%		7.7%		6.3%		5.6%		9.2%			7.2%		6.4%		7.0%

		2019 Pro Forma (4)
COMPARABLE (2)		Jan		Feb		Mar		Apr		May		Jun		Jul		Aug		Sep		Oct		Nov		YTD
ALR/Five Star Managed Communities
	Number of Properties		117		117		117		117		117		117		117		117		117		117		117		117
	Number of Units		16,995		16,995		16,995		16,995		16,995		16,995		16,995		16,995		16,951		16,951		16,951		16,951
	Occupancy		88.0%		88.0%		88.0%		88.0%		87.9%		88.0%		87.9%		87.9%		87.3%		87.1%		86.9%		87.7%
	Average Monthly Rate	$	4,709	$	5,099	$	4,723	$	4,833	$	4,703	$	4,834	$	4,695	$	4,695	$	4,756	$	4,755	$	4,824	$	4,781
	Residents Fees and Services	$	72,761	$	71,079	$	72,954	$	72,277	$	72,562	$	72,250	$	72,451	$	72,447	$	70,879	$	73,102	$	71,586	$	794,348
	Property Operating Expenses		(57,168)		(53,411)		(59,496)		(56,989)		(58,708)		(56,515)		(60,161)		(59,247)		(58,304)		(59,880)		(57,938)		(637,817)
	NOI (3)	$	15,593	$	17,668	$	13,458	$	15,288	$	13,854	$	15,735	$	12,290	$	13,200	$	12,575	$	13,222	$	13,648	$	156,531
	NOI Margin		21.4%		24.9%		18.4%		21.2%		19.1%		21.8%		17.0%		18.2%		17.7%		18.1%		19.1%		19.7%
Other Operator Managed Communities
	Number of Properties		106		106		106		106		106		106		106		106		106		106		106		106
	Number of Units		7,130		7,130		7,130		7,130		7,130		7,130		7,130		7,130		7,154		7,154		7,154		7,154
	Occupancy		82.5%		82.6%		82.6%		82.6%		82.5%		82.6%		82.7%		82.6%		82.6%		82.6%		82.5%		82.6%
	Average Monthly Rate	$	5,889	$	6,344	$	5,929	$	6,041	$	5,896	$	6,011	$	5,889	$	5,855	$	5,872	$	5,799	$	5,926	$	5,946
	Residents Fees and Services	$	30,304	$	29,501	$	30,539	$	30,100	$	30,336	$	29,956	$	30,355	$	30,158	$	29,256	$	29,865	$	29,512	$	329,882
	Property Operating Expenses		(26,798)		(24,627)		(27,785)		(26,329)		(27,284)		(26,260)		(27,853)		(27,539)		(27,145)		(28,053)		(26,802)		(296,475)
	NOI (3)	$	3,506	$	4,874	$	2,754	$	3,771	$	3,052	$	3,696	$	2,502	$	2,619	$	2,111	$	1,812	$	2,710	$	33,407
	NOI Margin		11.6%		16.5%		9.0%		12.5%		10.1%		12.3%		8.2%		8.7%		7.2%		6.1%		9.2%		10.1%
Total SHOP Comparable
	Number of Properties		223		223		223		223		223		223		223		223		223		223		223		223
	Number of Units		24,125		24,125		24,125		24,125		24,125		24,125		24,125		24,125		24,105		24,105		24,105		24,105
	Occupancy		86.6%		86.6%		86.6%		86.6%		86.5%		86.5%		86.5%		86.5%		86.0%		85.9%		85.7%		86.4%
	Average Monthly Rate	$	5,004	$	5,410	$	5,024	$	5,135	$	5,001	$	5,128	$	4,994	$	4,985	$	5,035	$	5,017	$	5,101	$	5,073
	Residents Fees and Services	$	103,065	$	100,580	$	103,493	$	102,377	$	102,898	$	102,206	$	102,806	$	102,605	$	100,135	$	102,967	$	101,098	$	1,124,230
	Property Operating Expenses		(83,966)		(78,038)		(87,281)		(83,318)		(85,992)		(82,775)		(88,014)		(86,786)		(85,449)		(87,933)		(84,740)		(934,292)
	NOI (3)	$	19,099	$	22,542	$	16,212	$	19,059	$	16,906	$	19,431	$	14,792	$	15,819	$	14,686	$	15,034	$	16,358	$	189,938
	NOI Margin		18.5%		22.4%		15.7%		18.6%		16.4%		19.0%		14.4%		15.4%		14.7%		14.6%		16.2%		16.9%

(1)	The information regarding DHC’s SHOP segment results for October and November 2023 and year to date 2023, and on a pro forma basis for the 2019 periods indicated, reflects preliminary estimates with respect to certain results of DHC for such periods, based on currently available information. Because the quarterly financial close process and review for those periods is not yet complete, DHC’s final results upon completion of its quarterly close process and review may vary from these preliminary estimates.
(2)	Comparable properties consist of properties owned and in service continuously since January 1, 2019; excludes properties classified as held for sale, closed or out of service and communities previously leased to operators that did not provide monthly financial results.
(3)	The calculation of NOI shown excludes certain components of net income (loss) in order to provide results that are more closely related to DHC's property level results of operations. DHC defines NOI as income from its real estate less its property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that DHC records as depreciation and amortization. DHC calculates comparable property NOI in the same manner that it calculates the corresponding NOI amount, except that it only includes comparable properties in calculating comparable property NOI. DHC uses NOI and comparable property NOI to evaluate individual and company wide property level performance. Other real estate companies and real estate investment trusts, or REITs, may calculate NOI and comparable property NOI differently than DHC does.
(4)	Many of the senior living communities currently operated on DHC’s behalf in its SHOP segment were leased in 2019. DHC believes pro forma operating results are a meaningful supplemental performance measure as they present historical community level operating results regardless of the form of contractual arrangements. The table presents pro forma residents fees and services revenue, pro forma property operating expenses and pro forma NOI as if the communities had been managed for DHC’s account throughout all periods presented to assist in understanding community level operating results.

Calculation and Reconciliation of NOI and Comparable Property NOI for SHOP Segment
(dollars in thousands)
	For the Eleven Months Ended
	11/30/2019									11/30/2023
Calculation of NOI:	SHOP			Restructuring Transaction			Pro Forma			SHOP
Rental income	$	127,082		$	(127,082)		$	-		$	-
Residents fees and services		397,529			769,599			1,167,128			1,053,088
Property operating expenses		(324,749)			(645,232)			(969,981)			(978,912)
NOI		199,862			(2,715)			197,147			74,176
Reconciliation of NOI to Comparable Property NOI:
NOI	$	199,862		$	(2,715)		$	197,147		$	74,176
NOI of properties not included in comparable results		(1,147)			(6,062)			(7,209)			(2,153)
Comparable property NOI	$	198,715		$	(8,777)		$	189,938		$	72,023

	For the Eleven Months Ended
	11/30/2019									11/30/2023
	SHOP			Restructuring Transaction			Pro Forma			SHOP
Revenues:
Rental income	$	127,082		$	(127,082)		$	-		$	-
Residents fees and services		397,529			769,599			1,167,128			1,053,088
Total revenues		524,611			642,517			1,167,128			1,053,088
Expenses:
Property operating expenses		324,749			645,232			969,981			978,912
Depreciation and amortization		123,365			-			123,365			159,974
Impairment of assets		9,041			-			9,041			4,346
Total expenses		457,155			645,232			1,102,387			1,143,232
Gain on sale of properties		15,207			-			15,207			2,805
Interest and other income		-			-			-			1,581
Interest expense		(2,698)			-			(2,698)			(527)
Loss on early extinguishment of debt		(17)			-			(17)			-
Net income (loss)		79,948			(2,715)			77,233			(86,285)
Add (less): Interest expense								2,698			527
Interest and other income								-			(1,581)
Depreciation and amortization								123,365			159,974
Impairment of assets								9,041			4,346
Gain on sale of properties								(15,207)			(2,805)
Loss on early extinguishment of debt								17			-
NOI								197,147			74,176
NOI of properties not included in comparable results								(7,209)			(2,153)
Comparable property NOI							$	189,938		$	72,023

About Diversified Healthcare Trust:

DHC is a real estate investment trust focused on owning high-quality healthcare properties located throughout the United States. DHC seeks diversification across the health services spectrum by care delivery and practice type, by scientific research disciplines and by property type and location. As of September 30, 2023, DHC’s approximately $7.2 billion portfolio included 376 properties in 36 states and Washington, D.C., occupied by approximately 500 tenants, and totaling approximately 9 million square feet of life science and medical office properties and more than 27,000 senior living units. DHC is managed by The RMR Group (Nasdaq: RMR), a leading U.S. alternative asset management company with approximately $36 billion in assets under management as of September 30, 2023 and more than 35 years of institutional experience in buying, selling, financing and operating commercial real estate. To learn more about DHC, visit www.dhcreit.com.

Warning Concerning Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Also, whenever DHC uses words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, “will”, “may” and negatives or derivatives of these or similar expressions, it is making forward-looking statements. These forward-looking statements are based upon DHC’s present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur. Actual results may differ materially from those contained in or implied by DHC’s forward-looking statements as a result of various factors. For example, the information regarding DHC’s SHOP segment results provided in this press release reflects certain preliminary estimates based on currently available information, and DHC’s final results upon completion of its quarterly financial close process and review may vary from these preliminary estimates, and as a result, the information provided herein may not provide a meaningful measure of DHC’s SHOP segment results as expected.

The information contained in DHC's periodic reports filed with the Securities and Exchange Commission, or the SEC, including under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” or incorporated therein, also identifies important factors that could cause DHC's actual results to differ materially from those stated in or implied by DHC's forward-looking statements. DHC's filings with the SEC are available on the SEC's website at www.sec.gov.

You should not place undue reliance upon any forward-looking statements. Except as required by law, DHC does not intend to update or change any forward-looking statements as a result of new information, future events or otherwise.

View source version on businesswire.com: https://www.businesswire.com/news/home/20231227600187/en/

Melissa McCarthy, Manager, Investor Relations

(617) 796-8234

Source: Diversified Healthcare Trust

FAQ

What update did Diversified Healthcare Trust provide?

Diversified Healthcare Trust provided an update on its Senior Housing Operating Portfolio (SHOP) segment's recent performance.

What were the November 2023 occupancy and revenue figures for the SHOP segment?

November 2023 occupancy was 80.1%, 560 basis points below November 2019, and revenue was $94.7 million, $6.4 million below November 2019.

How did the SHOP segment's year to date results compare to the same period in 2019?

Year to date occupancy through November 30, 2023, was 78.6%, 780 basis points below the same period in 2019, and revenue was $1.0 billion, $100.3 million below the same period in 2019.

What are the positive aspects of the update on the SHOP segment?

The company provided detailed and transparent financial data regarding the SHOP segment's performance.

What are the negative aspects of the update on the SHOP segment?

The SHOP segment's occupancy, resident fees, and net operating income have experienced significant declines compared to 2019 and previous months.