Diversified Healthcare Trust Provides Monthly SHOP Performance Update

Rhea-AI Summary

Diversified Healthcare Trust (DHC) provided an update on its Senior Housing Operating Portfolio (SHOP) segment, reporting a decline in occupancy and revenue for December 2023 compared to December 2019. The monthly unaudited results showed an 80.0% occupancy, 580 basis points below December 2019, and a $96.0 million revenue, $6.4 million or 6.2% below December 2019. The net operating income (NOI) was $2.8 million, 77.9% below December 2019. Year to date results through December 31, 2023, also saw a decline in occupancy, revenue, and NOI compared to the same period in 2019.

Insights

Financial Analyst

The data provided by Diversified Healthcare Trust (DHC) regarding its Senior Housing Operating Portfolio (SHOP) segment indicates a notable decline in performance metrics such as occupancy rates, Resident Fees and Services revenue and net operating income (NOI) compared to the same period in 2019. This underperformance is particularly evident in the year-to-date comparison, where DHC reports a 63.1% decrease in NOI. The occupancy rate has also seen a significant drop from 86.3% in 2019 to 78.7% in 2023, which is a critical factor for revenue generation in real estate investment trusts (REITs) specializing in senior housing.

These figures suggest a challenging operational environment for DHC, which could be attributed to a variety of factors, including but not limited to increased competition, changes in consumer preferences, or broader economic conditions affecting the senior housing market. Investors and stakeholders should be aware of these trends as they may have implications for DHC's financial stability and growth prospects. The reported NOI margin decrease is a concern as it reflects reduced profitability and may impact DHC's ability to provide returns to shareholders. The long-term sustainability of DHC's business model might be called into question if these trends persist.

Market Research Analyst

Within the senior housing industry, the performance metrics reported by DHC warrant close attention. The sector is influenced by demographic shifts such as the aging population, which theoretically should lead to increased demand for senior housing facilities. However, the reported decrease in occupancy and revenue highlights a discrepancy between expected industry growth and DHC's current performance. It's essential to analyze market trends, including the supply of senior housing units, pricing strategies and the balance between independent living and assisted living offerings, to understand the root causes of DHC's performance issues.

Moreover, consumer behavior, particularly in the wake of the COVID-19 pandemic, may have shifted, with potential residents and their families possibly preferring home care over institutional living. Analyzing consumer preferences and competitive landscape is crucial for predicting future performance and potential market share recovery. The data also suggests that DHC may need to re-evaluate its operational strategies and possibly invest in marketing, facility upgrades, or service enhancements to align with market demands and improve its competitive positioning.

Real Estate Investment Analyst

The performance of DHC's SHOP segment is a critical indicator for investors interested in the healthcare real estate sector. The reported decline in occupancy and revenue, alongside a substantial decrease in NOI, could reflect broader challenges facing the industry, such as oversupply, regulatory changes, or shifts in healthcare delivery models. It is important to assess the company's portfolio in the context of location, property type and the services offered to gauge its adaptability to changing market conditions.

Investors should also consider the impact of DHC's operational performance on its ability to meet financial obligations, particularly in light of REITs' requirements to distribute the majority of taxable income to shareholders. The reported figures may affect DHC's valuation and access to capital for future investments or debt servicing. Additionally, understanding the nuances of NOI and how it is calculated by DHC compared to other REITs is essential for accurate cross-company comparisons and investment analysis.

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:

• December 2023 occupancy was 80.0%, 580 basis points below December 2019, and 10 basis points below November 2023.
• December 2023 Resident Fees and Services revenue was $96.0 million, $6.4 million, or 6.2%, below December 2019, and $1.4 million, or 1.4%, above November 2023.
• December 2023 net operating income, or NOI, was $2.8 million, $9.8 million, or 77.9%, below December 2019, and $3.3 million, or 54.4%, below November 2023.
• December 2023 NOI margin was 2.9%, 930 basis points below December 2019, and 350 basis points below November 2023.

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

• Year to date occupancy through December 31, 2023 was 78.7%, 760 basis points below the same period in 2019.
• Year to date Resident Fees and Services revenue through December 31, 2023 was $1.1 billion, $106.7 million, or 8.7%, below the same period in 2019.
• Year to date NOI through December 31, 2023 was $74.8 million, $127.7 million, or 63.1%, below the same period in 2019.
• Year to date NOI margin through December 31, 2023 was 6.7%, 980 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)
		2019 Pro Forma (4)
COMPARABLE (2)		Jan			Feb			Mar			Apr			May			Jun			Jul			Aug			Sep			Oct			Nov			Dec				YTD
ALR/Five Star Managed Communities
	Number of Properties		117			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				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	%			87.0	%			87.6	%
	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		$		4,729		$		4,777
	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		$		72,593		$		866,941
	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	)			(61,220	)			(699,037	)
	NOI (3)	$	15,593		$	17,668		$	13,458		$	15,288		$	13,854		$	15,735		$	12,290		$	13,200		$	12,575		$	13,222		$	13,648		$		11,373		$		167,904
	NOI Margin		21.4	%		24.9	%		18.4	%		21.2	%		19.1	%		21.8	%		17.0	%		18.2	%		17.7	%		18.1	%		19.1	%			15.7	%			19.4	%
Other Operator Managed Communities
	Number of Properties		106			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				7,061				7,061
	Occupancy		82.5	%		82.6	%		82.6	%		82.6	%		82.5	%		82.6	%		82.7	%		82.6	%		82.6	%		82.6	%		82.5	%			82.3	%			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		$		5,813		$		5,935
	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		$		29,815		$		359,697
	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	)			(28,664	)			(325,139	)
	NOI (3)	$	3,506		$	4,874		$	2,754		$	3,771		$	3,052		$	3,696		$	2,502		$	2,619		$	2,111		$	1,812		$	2,710		$		1,151		$		34,558
	NOI Margin		11.6	%		16.5	%		9.0	%		12.5	%		10.1	%		12.3	%		8.2	%		8.7	%		7.2	%		6.1	%		9.2	%			3.9	%			9.6	%
Total SHOP Comparable
	Number of Properties		223			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				24,012				24,012
	Occupancy		86.6	%		86.6	%		86.6	%		86.6	%		86.5	%		86.5	%		86.5	%		86.5	%		86.0	%		85.9	%		85.7	%			85.8	%			86.3	%
	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		$		5,000		$		5,067
	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		$		102,408		$		1,226,638
	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	)			(89,884	)			(1,024,176	)
	NOI (3)	$	19,099		$	22,542		$	16,212		$	19,059		$	16,906		$	19,431		$	14,792		$	15,819		$	14,686		$	15,034		$	16,358		$		12,524		$		202,462
	NOI Margin		18.5	%		22.4	%		15.7	%		18.6	%		16.4	%		19.0	%		14.4	%		15.4	%		14.7	%		14.6	%		16.2	%			12.2	%			16.5	%

		2023
COMPARABLE (2)		Jan			Feb			Mar			Apr			May			Jun			Jul			Aug			Sep			Oct			Nov			Dec			YTD
ALR/Five Star Managed Communities
	Number of Properties		117			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			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	%		80.4	%		79.4	%
	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		$	4,429		$	4,484
	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		$	62,397		$	735,364
	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	)		(58,398	)		(654,566	)
	NOI (3)	$	6,089		$	8,880		$	5,657		$	9,877		$	6,678		$	6,985		$	5,992		$	6,305		$	7,007		$	6,905		$	6,424		$	3,999		$	80,798
	NOI Margin		10.4	%		14.6	%		9.4	%		16.3	%		10.9	%		11.4	%		9.7	%		10.2	%		11.3	%		11.1	%		10.4	%		6.4	%		11.0	%
Other Operator Managed Communities
	Number of Properties		106			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			7,061			7,061
	Occupancy		74.2	%		75.9	%		76.2	%		76.6	%		76.3	%		77.2	%		77.6	%		77.8	%		77.9	%		78.5	%		78.8	%		79.1	%		77.2	%
	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		$	5,816		$	5,762
	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		$	33,631		$	384,602
	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	)		(34,868	)		(390,615	)
	NOI (3)	$	(2,237	)	$	(310	)	$	(1,086	)	$	(787	)	$	(793	)	$	192		$	(88	)	$	(1,013	)	$	1,800		$	(89	)	$	(365	)	$	(1,237	)	$	(6,013	)
	NOI Margin		(7.3	)%		(1.0	)%		(3.4	)%		(2.5	)%		(2.5	)%		0.6	%		(0.3	)%		(3.1	)%		5.3	%		(0.3	)%		(1.1	)%		(3.7	)%		(1.6	)%
Total SHOP Comparable
	Number of Properties		223			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			24,012			24,012
	Occupancy		76.9	%		77.3	%		77.8	%		78.1	%		78.1	%		78.7	%		79.0	%		79.3	%		79.4	%		79.9	%		80.1	%		80.0	%		78.7	%
	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		$	4,832		$	4,854
	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		$	96,028		$	1,119,966
	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	)		(93,266	)		(1,045,181	)
	NOI (3)	$	3,852		$	8,570		$	4,571		$	9,090		$	5,885		$	7,177		$	5,904		$	5,292		$	8,807		$	6,816		$	6,059		$	2,762		$	74,785
	NOI Margin		4.3	%		9.5	%		5.0	%		9.9	%		6.4	%		7.7	%		6.3	%		5.6	%		9.2	%		7.2	%		6.4	%		2.9	%		6.7	%

(1)		The information regarding DHC’s SHOP segment results for October, November and December 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 Twelve Months Ended
	12/31/2019												12/31/2023
Calculation of NOI:	SHOP				Restructuring Transaction				Pro Forma				SHOP
Rental income	$	137,898			$	(137,898	)		$	-			$	-
Residents fees and services		433,597				840,045				1,273,642				1,151,908
Property operating expenses		(356,722	)			(706,779	)			(1,063,501	)			(1,075,091	)
NOI		214,773				(4,632	)			210,141				76,817
Reconciliation of NOI to Comparable Property NOI:
NOI	$	214,773			$	(4,632	)		$	210,141			$	76,817
NOI of properties not included in comparable results		(1,247	)			(6,432	)			(7,679	)			(2,032	)
Comparable property NOI	$	213,526			$	(11,064	)		$	202,462			$	74,785

	For the Twelve Months Ended
	12/31/2019												12/31/2023
	SHOP				Restructuring Transaction				Pro Forma				SHOP
Revenues:
Rental income	$	137,898			$	(137,898	)		$	-			$	-
Residents fees and services		433,597				840,045				1,273,642				1,151,908
Total revenues		571,495				702,147				1,273,642				1,151,908
Expenses:
Property operating expenses		356,722				706,779				1,063,501				1,075,091
Depreciation and amortization		132,637				-				132,637				175,926
Impairment of assets		65,822				-				65,822				4,346
Total expenses		555,181				706,779				1,261,960				1,255,363
Gain on sale of properties		15,207				-				15,207				2,802
Interest and other income		-				-				-				1,581
Interest expense		(3,058	)			-				(3,058	)			(551	)
Loss on early extinguishment of debt		(17	)			-				(17	)			-
Net income (loss)		28,446				(4,632	)			23,814				(99,623	)
Add (less): Interest expense										3,058				551
Interest and other income										-				(1,581	)
Depreciation and amortization										132,637				175,926
Impairment of assets										65,822				4,346
Gain on sale of properties										(15,207	)			(2,802	)
Loss on early extinguishment of debt										17				-
NOI										210,141				76,817
NOI of properties not included in comparable results										(7,679	)			(2,032	)
Comparable property NOI									$	202,462			$	74,785

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.

A Maryland Real Estate Investment Trust with transferable shares of beneficial interest listed on the Nasdaq.
No shareholder, Trustee or officer is personally liable for any act or obligation of the Trust.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240130289780/en/

Melissa McCarthy, Manager, Investor Relations

(617) 796-8234

Source: Diversified Healthcare Trust

FAQ

What is the ticker symbol for Diversified Healthcare Trust?

The ticker symbol for Diversified Healthcare Trust is DHC.

What is the occupancy rate for DHC's Senior Housing Operating Portfolio in December 2023?

The occupancy rate for DHC's Senior Housing Operating Portfolio in December 2023 was 80.0%.

How does the December 2023 revenue of $96.0 million compare to December 2019 for DHC?

The December 2023 revenue of $96.0 million was $6.4 million, or 6.2%, below December 2019 for DHC.

What was the net operating income (NOI) for DHC in December 2023?

The net operating income (NOI) for DHC in December 2023 was $2.8 million, 77.9% below December 2019.

What were the year to date results for DHC's Senior Housing Operating Portfolio through December 31, 2023?

The year to date results for DHC's Senior Housing Operating Portfolio through December 31, 2023, showed a decline in occupancy, revenue, and NOI compared to the same period in 2019.