DHC Q3 2026 SHOP NOI Jumps 50% as Occupancy Rises

Diversified Healthcare Trust (Nasdaq: DHC) reported a sharp year-over-year increase in third-quarter property earnings, led by higher occupancy and rates in its senior housing operating portfolio, while its GAAP net loss narrowed substantially. The healthcare REIT also updated its 2026 guidance to incorporate incentive management fees under a revised presentation and increased its outlook for same-property senior housing NOI.

For the quarter ended September 30, 2026, consolidated same-property cash-basis net operating income rose 25.6% to $77.9 million. Adjusted EBITDAre increased 28.4% to $73.4 million, while normalized funds from operations climbed to $30.7 million, or $0.13 per share, from $4.0 million, or $0.02 per share, a year earlier.

DHC recorded a GAAP net loss of $50.2 million, or $0.21 per share, compared with a loss of $164.0 million, or $0.68 per share, in the third quarter of 2025. The prior-year period included a $93.2 million impairment charge and an $11.2 million loss on debt modification or early extinguishment, compared with a $14.5 million impairment charge and no debt-extinguishment loss in the latest quarter.

Total revenue declined to $367.7 million from $388.7 million, but property operating expenses fell to $286.9 million from $325.4 million. As a result, consolidated NOI increased 27.5% to $80.8 million.

Senior housing drives property-level growth

DHC’s Senior Housing Operating Portfolio, or SHOP, accounted for most of the improvement. Same-property SHOP NOI rose 50.4% to $48.0 million, with the NOI margin expanding 470 basis points to 15.8%. Same-property occupancy increased 200 basis points to 84.4%, while the average monthly rate rose 5.2% to $5,696.

The improvement was broad across the company’s market categories. Same-property SHOP NOI increased 49.3% in primary markets, 55.2% in secondary markets and 40.6% in other markets.

Compared with the second quarter, however, same-property SHOP NOI declined 7.6%. DHC attributed the sequential decrease primarily to $2.2 million of one-time expense benefits recognized in the second quarter and seasonally higher utility costs in the third quarter. Occupancy still rose 130 basis points sequentially.

DHC continued to adjust its senior housing operating arrangements after quarter-end. On October 1, it moved seven skilled nursing facilities with 807 units from management agreements to a 15-year triple-net lease with operating subsidiaries of The Ensign Group. The lease carries initial annual rent of $8.0 million and inflation-linked annual increases. DHC expects the structure to significantly reduce its future capital expenditure requirements. The seven properties generated $5.1 million of NOI and required $1.6 million of capital expenditures during the 12 months ended September 30.

The company also notified Oaks Senior Living and Oaks-CaraVita Senior Care in September that it would terminate their management agreements. DHC expects to transfer six communities with 486 units to a new manager as early as the fourth quarter of 2026.

Medical office occupancy affected by tenant departure

In DHC’s Medical Office and Life Science portfolio, same-property cash-basis NOI declined 1.6% year over year to $22.9 million. Same-property occupancy was unchanged from a year earlier at 94.5%, but fell 120 basis points from the second quarter, primarily because of a previously disclosed tenant departure. DHC said it is evaluating strategic options for the affected property.

Leasing activity remained active during the quarter. DHC signed new and renewal leases covering approximately 130,000 square feet at weighted-average GAAP rents 25.2% above prior levels. The leases had a weighted-average term of 9.7 years. New leases accounted for about half the space and carried a 33.5% rent increase, while renewal rents increased 17.7%.

As of November 2, DHC was also under contract to sell a vacant medical office property in Durham, North Carolina, for $10.5 million before closing costs. The property produced negative NOI of $369,000 during the first nine months of 2026.

Guidance incorporates incentive fees

DHC expects full-year 2026 normalized FFO of $110.7 million to $125.7 million, or $0.46 to $0.52 per share, and Adjusted EBITDAre of $275.7 million to $290.7 million. Beginning in the third quarter, the company revised its calculations of Adjusted EBITDAre, normalized FFO and cash available for distribution to include incentive management fees recognized under GAAP. Prior periods were recast on the same basis.

The updated forecast includes an estimated full-year incentive management fee of $29.3 million, or $0.12 per share. DHC’s previous guidance excluded that fee. Third-quarter results included $5.4 million, or $0.02 per share, of incentive management fees.

The company now projects same-property NOI of $312 million to $328 million. Its SHOP same-property NOI range increased by $5 million to $190 million to $200 million, while the outlooks for the Medical Office and Life Science portfolio and All Other segment were unchanged. DHC expects SHOP occupancy to increase approximately 200 basis points for the year, with revenue growth of about 6.3% and average monthly rate growth of approximately 5.6%.

Recurring capital expenditure guidance is $90 million to $105 million. The SHOP component was reduced by $10 million to a range of $70 million to $80 million.

Liquidity and leverage

DHC ended the quarter with $260.7 million of liquidity, comprising $110.7 million of cash and cash equivalents and $150 million available under an undrawn secured revolving credit facility. Net debt totaled $2.33 billion, and net debt to annualized Adjusted EBITDAre was 8.2 times, down from 10.7 times a year earlier. Adjusted EBITDAre covered interest expense by 2.0 times, compared with 1.2 times in the prior-year quarter.

The company had $4.0 billion in unencumbered properties, representing 64.5% of its portfolio’s gross book value. Its next major scheduled maturities include a $140 million mortgage and $500 million of unsecured notes in 2028, subject to applicable extension options for the mortgage.

DHC said its outlook remains subject to operating and financial uncertainties, including senior housing operators’ ability to control costs and sustain occupancy, tenant renewals and leasing demand, labor and commodity inflation, interest rates, capital expenditure requirements, property-sale execution and the company’s ability to maintain liquidity and comply with debt covenants.