Diversified Healthcare Trust Ups Senior Housing Guidance With Shop Leading The Way

Leaders with Diversified Healthcare Trust (NASDAQ: DHC) are raising the company’s outlook for its senior housing operating portfolio (SHOP) as its operating partners continue to improve performance.

Average occupancy of the company’s SHOP segment was 84.4% in the third quarter of 2026, representing an increase of 130 basis points versus the second quarter of this year and an increase of 200 basis points compared with the third quarter of 2025.

DHC Chief Financial Officer Matt Brown said the company’s sequential occupancy increase was the largest occupancy gain reported in 2026, following a second quarter in which leaders described operational “noise” from transitions of communities formerly managed by former operator AlerisLife.

Same-store SHOP net operating income fell $4 million, or roughly 7.6%, from the second quarter of 2026. Brown said the decline was attributable to $2.2 million in second quarter expense benefits that are non-recurring, $1 million in third quarter non-recurring expenses and $2 million due to seasonally higher utility costs.

“We had some sales and use tax true-ups and a little bit of elevated bad debt, but we don’t expect those to recur into Q4 or beyond,” Brown said during the Q&A.

Excluding those items, third-quarter NOI would have increased 2.5% sequentially, Brown said.

Same-property SHOP net operating income (NOI) increased 50.4% compared with the third quarter of 2025, reaching $48 million. The segment’s NOI margin increased 470 basis points year over year to 15.8%.

But leaders with DHC believe there is more room to improve.

“With same-property occupancy at 84.4%, we estimate 500 to 600 basis points of occupancy upside as our operators close the occupancy gaps between our communities and the respective markets,” President and CEO Chris Bilotto said during the company’s third-quarter earnings call Tuesday.

Operators working with the Newton, Massachusetts-based real estate investment trust (REIT) used targeted move-in incentives to accelerate occupancy growth during the quarter. Average monthly rates increased 5.2% year over year but remained flat compared to the second quarter.

Bilotto described concessions as “hand-to-hand combat on certain assets,” rather than a long-term portfolio strategy. As communities stabilize, the company expects to reduce those incentives and capture more rate growth.

“I don’t envision this being something that continues long term. I think this is kind of incremental, and we will continue to see rate lift across the portfolio,” Bilotto said.

DHC operating partners are attempting to cut expenses and add revenue through rebasing resident clinical care levels. Dietary procurement efforts led to roughly $1.3 million in expense reductions compared to the third quarter last year.

In 2027, new management agreements spanning 76 SHOP communities managed by legacy operators will take effect, and the agreements include things like revised base management fees and incentive options. This effort is expected to save $2 million annually.

In September, DHC announced the transition of six Georgia communities spanning 486 units to a new management company, a move that consolidates the communities under an operator with knowledge of the region and market, Bilotto said.

DHC has approved projects at 13 communities to convert underused or closed skilled nursing segments into 356 independent living, assisted living and memory care units. Construction on the conversions is expected to start next year, with some projects being completed in the second half of 2027 and this year focusing on design and consulting costs, Bilotto said.

“The swinging of hammers will commence next year, and then we’ll start to see delivery of some of those towards the back half of the year,” Bilotto said.

In the meantime, Bilotto sees reinvestment as a priority ahead of acquisitions.

“Right now, it’s really focused on the existing portfolio and kind of the embedded upside opportunities that we see,” Bilotto said.

DHC also entered into a 15-year triple-net lease agreement with the Ensign Group for seven Colorado skilled nursing facilities, an agreement that will provide $8 million in first-year rent. The lease shifts reimbursement, labor and capital exposure to the tenant while concentrating SHOP more heavily on private-pay senior housing.

In the third quarter, DHC invested $22.6 million in SHOP communities and $6.3 million in medical office and life science properties. DHC also raised its 2026 same-property SHOP NOI guidance to between $190 million and $200 million, a $5 million midpoint increase driven by strong operating performance.

“We’ve been trending towards the higher end of our SHOP NOI guidance for the first several quarters, and we’re just shy of $145 million year-to-date through nine months, so we really have added conviction in our SHOP results,” Brown said.

The company reduced its full-year recurring capital expenditure guidance by $10 million at the midpoint to between $90 million and $105 million. Asked whether spending could decline further in 2027 and 2028, Brown said the company is targeting recurring SHOP capital expenditures closer to $3,000 per unit.

“We do expect that to continue to kind of come down as it has been over the last few years,” Brown said.

On Tuesday, DHC stock fell 2.45% compared to the previous day’s trading to rest at $7.55 per share.

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