• Total Revenue: $379.6 million for Q4, a 5% year-over-year increase.
• Normalized FFO: $5.3 million or $0.02 per share, exceeding consensus estimates.
• Shop Occupancy: Reached 80% for the first time since Q1 2020.
• Shop NOI Improvement: 56% year-over-year increase.
• Shop Revenue Increase: 7.3% year-over-year increase.
• Average Monthly Rate Increase: 6.7% year-over-year increase.
• Shop Expense Increase: 3.9%, driven by salary, wages, and maintenance.
• Medical Office and Life Science Leasing: 112,000 square feet of new and renewal leasing activity with rents 6.9% higher than prior.
• Same Store Occupancy: Flat at 90.2%.
• Proceeds from Property Sales: $6.6 million in Q4 and $179 million in Q1 2025.
• Cash Dividend from Alaris: $17 million from a 34% ownership stake.
• Unrestricted Cash: Approximately $145 million at quarter-end.
• CapEx Spend: $73 million in Q4, $191 million for full year 2024.
• 2025 CapEx Guidance: $150 million to $170 million.
• 2025 NOI Guidance: $120 million to $135 million for shop segment, $104 million to $112 million for medical office and life science segment.

• Warning! GuruFocus has detected 3 Warning Signs with DHC.

Release Date: February 26, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Diversified Healthcare Trust (NASDAQ:DHC) reported a 5% year-over-year increase in total revenues for the fourth quarter, reaching $379.6 million.
• The company achieved 80% shop occupancy for the first time since the first quarter of 2020, indicating a positive trend in their shop sector performance.
• DHC completed approximately 112,000 square feet of new and renewal leasing activity with weighted average rents 6.9% higher than prior rents for the same space.
• The company successfully sold properties, including the Muse Life Science campus in San Diego for $159 million, contributing to their strategic disposition efforts.
• DHC has made significant progress on its financing strategy, with three executed term sheets and one in final negotiation stages for $340 million in anticipated loan proceeds.

Negative Points

• DHC experienced a sequential quarter decline in same property cash basis NOI by 1.4%, mainly due to additional insurance and remediation costs from hurricanes.
• The company faces a significant upcoming debt maturity of $380 million due in June 2025, requiring careful financial management.
• DHC's same store occupancy remained flat at 90.2%, indicating challenges in improving occupancy rates.
• The company is dealing with known vacates, including a major tenant in St. Louis, Missouri, which could impact future revenue.
• DHC's refinancing strategy is contingent on the completion of diligence and certain structuring requirements, which introduces uncertainty in the timing of loan closings.

Q & A Highlights

Q: Can you provide more color on why shop guidance was exceeded this quarter and whether insurance-related costs didn't materialize in Q4 2024? A: We had occupancy growth in the fourth quarter, reaching 80% for the first time in a few years. The insurance impact was estimated at $4.4 million, which came in line with expectations. Overall, positive trends continue, and our shop NOI for 2024 was $106 million, towards the high end of our revised guidance.

Q: How confident are you in the existing operators to help drive recovery in 2025? A: We are very comfortable with our operators. We've been making changes, including transitions and asset sales, which will impact the number of assets managed by different operators. We have a dedicated in-house asset management team working closely with these groups to ensure targets are met.

Q: What's the plan for the zero-coupon bond, and can you pay it down over the next year? A: We are not planning to extend it to 2027. We've made progress with $301 million of asset sales completed or near completion. The net proceeds will go towards paying it down, leaving about $640 million. We are looking at additional property sales and financing to repay it before the January 2026 maturity.

Q: What is the interest rate on the $340 million of term sheets for secured financing? A: Based on current rates, we expect a weighted average rate of about 6.5%. This is favorable compared to the 9.75% debt being paid off, making it extremely accretive for us.

Q: Are you baking in assumptions for adverse weather events in the 2025 guidance? A: It's hard to predict weather events, so we generally don't include them in our forecasts. However, if such events occur, we will notify the market and update guidance accordingly.

Q: Who are the buyers for the assets currently being marketed, and how interest rate sensitive are they? A: The buyers are a mix, including operators with various sources of capital, such as cash, private equity, or financing. Financing can be challenging for assets with lower occupancy, but buyers typically come with financing partners.

Q: Are there opportunities for additional agency financing beyond what is expected to close in the next 60 days? A: Yes, we expect there to be opportunities. We aim to complete the first round of financing before introducing other communities to the agencies.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.