Diversified Healthcare Trust Turns To Shop Improvements, Operating Partners Making Progress

Diversified Healthcare Trust (NYSE: DHC) is building on its portfolio transformation and pivoting to value creation in 2026, according to CEO Chris Bilotto.

In 2026, DHC is deploying capital into senior living communities to reposition skilled nursing units for independent living, assisted living and memory care services.

DHC has completed 116 community transitions stemming from the winding down of the AlerisLife operating platform. In an interview with SHN last month, Bilotto said the Newton, Massachusetts-based real estate investment trust (REIT) was focused on “narrowing the gap” on occupancy and margins.

Bilotto said operators of the company’s former AlerisLife properties were “revisiting” communities’ overall employment structure and retooling sales teams to fit “their outlook.”

Diversified’s leaders reported first-quarter 2026 net operating income for the company’s senior housing operating portfolio (SHOP) of $44.3 million, representing a 13.5% increase versus the same period in 2025. The company’s operating partners grew occupancy for the quarter by 110 basis points, pushing the average for those communities to 82.4%. Diversified’s operating partners this year grew monthly resident rates by about 5.9%.

DHC works with 14 senior living operators for its SHOP segment spanning approximately 24,000 units. Operators that oversee a majority of DHC properties include Discovery Senior Living, Sinceri Senior Living, Stellar Senior Living, Tutera Senior Living, Phoenix Senior Living and Charter Senior Living. The “early success” of these operating partners controlling expenses and improving margins has given the REIT’s leadership confidence that they are making meaningful progress on their goals.

Diversified in 1Q26 invested $17.2 million into the company’s SHOP segment and another $4.6 million into medical office and life science properties.

The company’s leaders expect it will invest in capital expenditures (CapEx) totaling between $100 million to $115 million in 2026. Of that, the REIT is allocating $90 million for SHOP recurring projects and maintenance.

“We believe that one of the best uses of our capital today is reinvesting in our own assets,” Bilotto said Tuesday during the company’s first-quarter 2026 earnings call. 

This year, the operators of the transitioned communities can “hit the ground running” and improve occupancy after making changes to community staffing and operations, Bilotto noted.  

“Given the fact that we can hold occupancy while we’re going through a major transition across our portfolio, I think it is a real win, and I think it kind of reflects well for setting the pace,” Bilotto said. 

Diversified is working with its operating partners to leverage regional density to reduce labor costs and improve efficiency in operations.

The REIT has identified 16 communities managed by operators that are set for repositioning projects, with the first six projects expected to cost $20 million, and adding 150 units in 2026.

“We’ve got a lot of opportunity within the portfolio from a capital deployment [perspective], putting that money toward improving these communities, and expanding acuity within the communities before we consider acquisitions,” Bilotto said.

Bilotto said the “typical” stabilization period following a renovation at a community spans roughly 18 to 20 months. Between 2023 and 2024, DHC completed 70 renovations that today are “starting to produce real meaningful results.”

For example, past projects include $10 million for improvements to common areas, dining and corridors at The Remington Club community near San Diego; and a $6.3 million project for similar improvements at The Pines of Dayton Place near Denver.

Spending now will allow DHC to “see some modest pullback” on capital deployment before pivoting to acquisitions or new development.

In March, DHC sold 13 SHOP communities for $23 million, along with purchasing land lease options for two properties for $14.5 million last month.

Also in the quarter, Moody’s Ratings upgraded DHC’s corporate family rating to B3 from Caa1 and revised its outlook to positive, a long-term rating that reflects the probability of default on a group of companies’ debt.

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