Diversified Healthcare Trust (DHC) June 2, 2026 Capital Markets Day Transcript

Good afternoon, and welcome to the 2026 REIT Week presentation for Diversified Healthcare Trust. I'm John Masoka, a senior research analyst at B. Riley Securities and one of the analysts covering DHC, and I will be moderating the presentation and introducing the company. To my right, I have CEO and President Chris Bellotto and CFO Matthew Brown. As a quick overview, DHC owns a $6.2 billion portfolio of 285 healthcare properties, including a senior housing operating portfolio with over 22,000 units and 5.6 million square feet of medical outpatient and life science properties. And with that, oh, and importantly, maybe for the people in this room, on a trailing 12-month basis, the stock has achieved a total return of over 165%. And with that, I'll hand the floor over to Chris.

All right. Thank you. So thanks, everybody, for joining us today. I think just to recap, in addition to what John mentioned with respect to kind of just what the portfolio is for everyone's benefit, the last couple of years for DHC has been heavily weighted towards work around kind of improving the overall balance sheet and just basic fundamentals around the portfolio. So, you know, we've done, you know, I think close to a billion and a half in capital markets activity, you know, through last year and year to date, you know, really focused on deleveraging, you know, cleaning up kind of the maturity ladder for the business and putting ourselves in a position to kind of focus on the real story for the company, which is just the embedded growth within our shop portfolio uh you know by way of you know kind of noy close to 62 percent of the portfolio uh is shop driven uh at least that's the projection for this year and i think kind of given where we are more broadly speaking we expect that those fundamentals to kind of have an outsized position of growth for the organization on a go forward basis and so So I think, you know, what differentiates us more specifically as an organization is we're a story about embedded growth within the portfolio. We haven't been acquisitive, really just kind of given what we have and the levers we can pull. There's a lot of opportunity to grow occupancy and margin through the shop portfolio, in addition to kind of outsize levers through ROI capital with investment across the portfolio. And that's exactly what we expect to do for 2026. and as we go into 2027 but nonetheless, you know, our next maturity on our balance sheet is 2028. So we have plenty of runway to kind of execute on our business plan and as John mentioned, I think we've seen kind of a favorable appreciation on the stock price and kind of the view with the narrative with where we sit today.

I'm going to open it up for questions. If anyone has any questions at any time, please feel free to raise your hand. You can either talk to the mic or I can kind of repeat it back so it's mentioned on the webcast maybe to kind of start things off as an overview you you briefly kind of mentioned it but can you walk us through what the dhc portfolio looks like today versus 24 to 36 months ago how is the kind of portfolio evolved um and maybe what was kind of the catalyst behind that evolution yeah i mean the balance sheet was you know as i mentioned we did a lot work around the balance sheet through different financings and asset sales you know we've sold a lot of properties in 2025 and even going into 2026 which included both properties on the mob

and life science side and it gets in addition to shop and that was really kind of a broader strategy of just going through a top to bottom analysis of the portfolio and trying to right size kind of our properties and position them to be kind of on the trajectory of growth which is exactly what we've done uh and you know as i think kind of more you know broadly speaking you know the the real growth catalyst is going to come again from you know the shop side of the business and i think by way of you know stats for everybody's benefit we ended you know the quarter at 82 occupancy and if you look at kind of the nick benchmark with respect to where our shop community should trend it's close to 89 so kind of one of those catalysts is bridging the gap of you know occupancy by 800 basis points in addition to even the growth and margin flow through and some of the changes we've made to support that is last year we had one operator who managed a lion's share of our communities that business was sold and we reallocated that business to seven new operators two new to five new to our system to existing relationships and so So, you know, on the heels of kind of having transitioned all those relationships to new operators, we're seeing a lot of benefits initially out of the gate, and that was actually completed on 1231 of last year. So in the first five months of this year, we've seen a lot of benefits from that initiative through just overall expense reductions, opportunities, you know, with kind of the sales programs and different ways that we can kind of curate opportunities to drive revenue and occupancy across the portfolio. And a lot of that, you know, given some of that work that was done as of yesterday, we actually raised our guidance for the year, just kind of given some of the flow-through we're seeing from those new operators.

Maybe can you touch a little bit on kind of the demographic trends that are getting you as excited about senior housing as it sounds like you are? What are we kind of seeing today? And maybe also what are we kind of seeing on the supply-demand dynamic side?

Yeah, I mean, demographics, I think, as we've all heard, remain very strong I mean there's it's been years in the making of the silver tsunami and it's cast upon us and I don't think there's any reason to believe that that's going to change I think kind of generally speaking there continues to be more of a tilt towards you know that being a catalyst for growth and you know depending on what stat you look at it's probably a five percent CAGR over the next five plus years and so I think from a demand standpoint there's a lot of demand supporting that you know I think the other ways we look at the businesses with respect to the affordability for senior housing and and over the last 10 plus years you've seen a lot of wealth accumulated given home values and kind of overall opportunities to grow portfolios and that in itself has created a another catalyst for seniors to be able to afford you know senior housing versus aging in place and other options for them and so I think from a demand standpoint you know there's a lot of fundamentals that support that growth and that's not inconsistent with what we're seeing across our portfolio from a supply standpoint I think it's kind of more of the same as far as what we've been talking about and other prints out there I mean it's really expensive to build today I mean certainly as you've seen rates grow in certain pockets there are opportunities you know to develop but I think Nonetheless, I think the ability to construct new product just is pretty restrained, and it's going to be very market-specific. And so I think sitting here today, we don't necessarily see that there's going to be kind of an outsized push for more supply hitting the market over the next couple of years.

Maybe with that in mind, what limitations exist, do you think, over the long term in terms of shop occupancy and rate growth, especially given some of these positive economic and demographic trends?

Yeah, I mean, on occupancy, you know, I think, you know, barring any new supply, I think there's going to continue to be a push just more broadly speaking on the industry for occupancy. And so, you know, we'll be a direct beneficiary of that in addition to other owners. I think rate in itself, I mean, we saw outsized growth in rate over the last couple of years and it's moderated somewhat. And again, depending on the portfolio, that's going to dictate how much you can push rate. But, you know, there does become an equilibrium. And I think the pace of rate growth will moderate over time, again, depending on the portfolios. And so I see that being one area where, you know, the outsized rate growth that we've seen will kind of normalize.

And then what, if anything, is unique about your shop portfolio versus some of the other larger publicly traded peers?

Yeah, I mean, as I mentioned in the intro, like we're a story of embedded growth, right? I think if you look at a lot of the peers or other kind of larger companies, that growth comes through acquisitions. And I think, you know, more specifically, as you look at some of the catalysts, I referenced occupancy being a big catalyst for us. If you look at kind of where our margin profile is, you know, we're at about mid-teens margins. And when you benchmark to where we think we should be, it's probably the mid-20s. And so you've got an outsized opportunity to grow margin across the portfolio. And I think it's important for everyone to kind of know some of the delay and kind of that growth is, one, finding the right operators to kind of manage our communities, which, again, as I referenced, we've allocated most of our communities to more than half our portfolio to new operators at the end of last year. And then we've been spending a material amount of capital across our portfolio to improve each of the communities both from a deferred maintenance standpoint and from kind of an ROI, you know, forward-facing experience initiative. And so throughout that journey, which, you know, took kind of the first half of last year, there was a lot of impairment across the assets just given the level of construction. and so now that we have that behind us alongside these new relationships and kind of a much cleaner narrative this is where we expect to see kind of the real growth trajectory and closing the gap in some of those numbers.

You've talked to the management transitions a little bit thus far but how have they gone versus your expectations and maybe what are some of the NOI growing things that they've been able to bring to the table once they've come to run some of these communities?

I mean, I think it's fair to say they've been going better than projected. You know, we put out initial guidance earlier this year and raised the midpoint $10 million last night. That raise is largely on the heels of finding outsized benefits for managing our expenses in some of kind of the larger buckets, and that is largely due to these new operators. And so, So, you know, the narrative that we've articulated around, you know, having kind of the densification with operators and given markets and where we see the real benefit of that happening is coming to fruition, and it's coming to fruition at a more rapid pace. And, again, I would expect that we're going to continue to unlock more of that as time progresses. But, you know, currently we're five months into that endeavor, and, you know, we should have more to share on that front as the year progresses.

Can you talk about potential investments around putting ROI additive CapEx into existing properties? Maybe kind of remind us what you have in the pipeline, your term, and what kind of maybe long-term potential there is for additional projects?

Yeah, so for us, again, outside of just operational improvement and growth, one of the things we have in the portfolio is back in 2021, we kind of got out of the skilled nursing business. and with that endeavor it left us with kind of different pockets within our communities where we had wings that were vacant so we have you know give or take 25 vacant wings across the portfolio and we've identified more than half those as opportunities to add new acuity to the portfolio so right now we're working on a program where at about 16 of our communities we're going to transition those closed-skilled nursing wings into IL, AL, and memory care, depending on the portfolio. It's an endeavor, you know, at a cost of about $80 million, producing mid-teens returns. And so that'll be one catalyst for us to kind of get outsized ROI growth for the portfolio in addition to the embedded growth I referenced earlier.

And I guess maybe kind of how do you feel you can kind of optimize the portfolio around levels of care? I mean, how additive is that potentially? and kind of where do you see your portfolio on that front today?

Yeah, from the levels of care, we're about 42% IL, same AL, and the balance is mostly memory care with some skilled nursing. You know, I think, you know, we're seeing opportunities, different markets primarily around AL, so I see a scenario where to the extent we can expand upon that through some of the initiatives just talked about, I think that would be the ideal preference. But I think more broadly, the mix that we have today, we feel really good about, I think more generally speaking, as we add new levels of care across the portfolio, specifically with some of these initiatives, it's kind of a rising tide lifts all boats scenario where if you can add memory care into a community that offers IL and AL, you're providing a better continuum of care. and I think the prospecting for new residents becomes much greater just given the fact that they can kind of stay in the same community for a much longer period of time.

Shifting gears a little bit you touched on a tad in your prepared remarks but can you remind the crowd where the DHC balance sheet was say 18 months ago versus today and some of the actions you've taken to kind of put it in you know a more stable position sure so at the end of 2024 our leverage was about 11.2 times we had just over three billion dollars of debt on the balance sheet and some of that debt was quite expensive we had three hundred eighty million dollars of nine point seven five percent unsecured bonds which were coming due in June of 2025 we also had about nine hundred and 40 million dollars of zero coupon bonds that were set to expire in January of 2026 so in 2025 we did some creative refinancings about 340 million dollars of financings on shop communities all those had rates in the 66% area that saved us about 15 million dollars or so of annual interest expense because we use those proceeds to pay off that 9.75% debt. We also sold about $600 million of properties during 2025. We used those proceeds to continue paying down those euro coupon bonds. So a lot of effort put into 2025 with refinancings and dispositions. And at the end of Q1 of 2026 our leverage has improved from that 11.2 mark down to 7.8 times with additional upside in overall leverage throughout 2026 based largely on the shop and why growth that we're projecting and already starting to play out our total debt load has gone down to about 2.4 billion so much more manageable load no maturities until 2028 so we have a lot of runway as Chris had noted just to continue focusing on the operations of these communities.

And I think that number gets down closer to seven times as we get through the end of the year. That's right.

You recently got a rating upgrade from Moody's. Do you see potential for more upward movement in your debt rating and ultimately a return to an investment grade rating?

And what do you think the agencies maybe need to see from you to move your rating up further sure yeah so we got a one-notch upgrade from Moody's back in April they also put our outlook to positive which provides an ability for them to go back to committee within the next 12 months in you know with SMP we've had good dialogue with them and we're hoping that we'll see some upward movement with with both the agencies I think their focus areas right now are We're just continuing to see the shop NOI growth play out, and as a result of that, leverage coming down to around seven times by the end of this year, and then continuing to just generate free cash flow, which we're expected to do in 2026. We have a strong liquidity position, about $270 million of liquidity when you take into the cash on the balance sheet, plus an undrawn $150 million revolving credit facility. So I think it's just going to take time and continuing to see the results play out and the leverage decline. Our overall goal is to get back to investment grade rating. And, you know, I think we have to probably be six and a half times leverage at the high end. And I think as we look into 2027, we'll probably be refining our overall leverage targets. They were six and a half to seven and a half. We should be inside that by the end of the year. and then we'll probably bring that down further as we look into 2027.

If there are any questions from the audience, please feel free to raise your hand. I'm happy to keep going, but I just want to pause maybe to see if there's anyone. How are you thinking about, you know, given that cash balance but kind of offset by maybe where you want leverage to go, how are you thinking about further acquisitions or investments today?

Yeah, I think from the acquisition front, we're not necessarily focused on, you know being acquisitive I think for purposes of where we want to put our cash to work it's going to be within the portfolio with some of the initiatives that I just referenced I mean look I think that the market generally speaking has gotten a little frothy there's still pockets of opportunity you know that that I think would could be intriguing but I think for us we're going to continue to work through the year on growth internal growth with what we have in our portfolio along with some of these skilled nursing conversions and then revisit that as we work ourselves through the year.

Even though you're maybe not in the market today, what would kind of be the ideal property if you were going to go out and buy something?

I think for us specifically, we'd like to do something that has a little opportunity to kind of grow occupancy or improve margins and so focus on something with some near-term growth in year, you know, kind of one or two. versus buying something a little bit more stabilized at, I guess, a more aggressive cap rate. And I think doing so, we have plenty of runway through kind of the 14 or so operators that we have across the portfolio. And so there's a lot of expertise embedded there to kind of execute on a plan.

And then maybe the other side of the coin, particularly given the leverage, is how do you see near-term dispositions trending? And also, you sold 13 communities in 1Q26 that were kind of negative NOI generators. Is there any opportunity to sell additional assets that are kind of dragging on in-place results?

I mean, we're going to always have a capital recycling program just to continue to refresh the portfolio, albeit at a much smaller pace than we saw over the last year and a half. I think for the most part, given the fact that we transitioned 115 communities at the end of last year, any communities that are I think less off performers we want to give the new operator an opportunity to turn around and and to the extent they can do that great if we feel like there's a scenario where that performance is impaired or there's an inability to do that I think there's a scenario we would bring those to market but I think for this year I wouldn't expect a material change in our disposition program switching years again away from kind of the shop assets What's your long-term outlook for kind of non-senior housing properties, specifically kind of your outpatient medical, your life science space assets, and maybe the triple net portion of the portfolio? Yeah, I think, you know, so our view is on the medical office specifically, and I think even more distilled down into the outpatient portfolio, which is the lion's share of what we have non-shop related. I think it's a sector we like. I think there's a lot of shared synergies with respect to a lot of the tailwinds and the demographic trends that we're seeing. And so I think on that front, you know, there's no real-term movement to, you know, want to transact outside of those, and they're all performing well. I think where we would spend some more time is we have a portfolio of life science assets that represents about 10% of NOI. I can see a scenario where we pair back on that portfolio. We're not trying to time the market. I think it's much more around if we're focused on leasing or renewals and then in scenarios where we're able to achieve kind of retaining that tenant, we'd bring it to market. So I do see a larger push towards the outpatient medical, less life science over the next couple of years.

Would you look to acquire in the medical outpatient space? or do you think most of your acquisitions or invest in the medical outpatient space or would most investment in the future be in senior housing still?

Senior housing.

You know, with kind of life science in mind, understanding it's maybe not as core to the overall strategy, but what are you seeing in terms of leasing dynamics in this space? Has that changed at all in recent quarters? I'm just kind of curious your thoughts there.

I mean, it's a small portion of our portfolio. We don't have a lot of movement. I think more broadly speaking, you know, leasing is heavily weighted towards a handful of core markets around the country. There's still an abundance of supply out there that needs to be absorbed. And so that's posed, you know, challenges and kind of deceleration and overall asking rents. And so I do think there's some pressures there. But on the flip side, look, I think some of that's normalizing, you know, more specifically across the industry. and maybe there's an opportunity to kind of see some growth in the near term. But, you know, for our portfolio, you know, there's not a lot of movement. We just don't have a lot of vacancy. And, again, it's a very small portion of what we own.

Once again, if anyone has any questions, please feel free to kind of raise your hands. You know, thinking with the other portion, kind of small portion of the portfolio, you have some net lease kind of senior housing assets in the portfolio. Is there opportunities to convert those to be more actively managed? What's your kind of outlook for those assets, you know, today?

Yeah, so this is a scenario where we have, you know, long-term net leases. I mean, it's something we think about as part of kind of the broader strategy, and we retain active dialogue, you know, with kind of these lessees. You know, look, if we can, we will. I think there will be some outsized benefit as another catalyst to kind of help drive NOI performance for the company is converting these. And, you know, I think the flip side is as long as we have that lease in place, it becomes much more of a scenario around kind of what are the needs. And if we can help solve the needs in a scenario to convert those, we will. So, you know, the short answer is yes, we would like to consider that. And again, it's more of just kind of working through the nuances of having a lease in place and finding kind of common footing to be able to achieve that. But those are active conversations that we're having.

In terms of kind of where you sit today with regards to cash flow, with regards to cash on the balance sheet, but paying effectively kind of a de minimis dividend, how are you thinking about dividend policy going forward? Is that something that could be looked at in your term, or do you want to kind of see some of the shop NOI growth that you're looking for kind of come to fruition first?

Yeah, it's something that we're talking about a lot more regularly at the board level. But, you know, as Chris talked about, we're just five months into this massive transformation in our senior living business. And while we're pleased with what we've seen thus far and been able to increase shop NOI guidance by $10 million, we want to see the prints continue to play out. and not really rush into an increase of the dividend but i do think it's in the cards uh it's more timing than you know a when rather than if we will um given you're an externally managed vehicle i mean are there any examples you can provide of kind of alignment of interest between you and the manager or the or dhc and the manager i should say yeah i mean from an alignment standpoint I think that you know kind of the manager kind of more indirectly owns you know

a pretty large portion of our shares just under 10 percent so you know certainly from that that aspect I think there's alignment just given you know any appreciation of the stock value kind of there's a direct benefit there and I think more broadly speaking the way that the contract is set up you know the fees paid to the manager are based on appreciation and share price including the asset management fee and then an incentive fee and so i think kind of we're all rolling in the same direction with respect to kind of how the external manager is paid based on performance and then last chance for anyone from the floor if you have any questions final one here um you know is there any no you just get was trying to repeat the question

the question was kind of given the externally managed nature of the company and the fact that that can tend to create a discount? Is there a world where this could either be sold or some other way to address that discount?

Yeah, the short answer is no. I mean, that's not a focus for us today. I mean, look, I think that scenarios around the external manager is dialogue we've had. I think there's more recent events that show that externally managed companies, you know, there's some kind of new entrance into the market. And so I don't know that we're sitting alone with respect to being externally advised and more specifically in the senior housing space but you know I think our goal is to focus on performance and growth and I think you know everything that we've talked about and communicated over the last year are things that we've done and executed on and I would expect the same thing to continue as we move forward and then kind of maybe finally are there any if you could stand here today, you know, any kind of misconceptions about maybe the DHC story that you would kind of correct or kind of things you would want to highlight that maybe you think the market either doesn't understand today about what you're trying to do. Not necessarily from what we're trying to do. I mean, I think kind of the biggest piece is just, you know, look, we're we were telling it at face value with respect to where the opportunities are and we recognize, you know, where we've been lagging specifically around the shop portfolio, but you know, we've spent the last couple years really kind of working towards just, you know, investing where we need to invest, calling the portfolio and getting out of properties, whether they're shop or MOB to right size the portfolio, pulling in and moderating kind of our capital spend with kind of projections and a trajectory to further reduce that outlay. And so all the pieces we put into place. And I think as we entered, you know, kind of 2026, there's just been a material shift in kind of the holistic pieces that make up the portfolio, making it for a much cleaner story in addition to just the improvement and the runway and the overall balance sheet. And so I think sitting here today, the narrative is much clearer, I think, as we spend time with the investor community. And I think that the story itself resonates well with respect to kind of where overall demand is in the market.

Maybe kind of a continuation of that last question. If someone were to sit here and say stock is up 165% over the last year, why am I buying something? Am I too late to the story essentially? Why would you say they're not too late to the story?

I would say they're not too late to the story. One, because I think given where we see overall valuation for the portfolio, I would suggest that there's still a discount, an embedded discount to NAV. I think when you look at the upside embedded within the portfolio whether it's occupancy or EBITDA there's you know meaningful opportunity to kind of grow that and narrow the gap and so you know we're just now kind of entering kind of the fifth inning of the journey and so I think you know it's a good opportunity for someone to kind of participate in the balance of that outlook.

Well thank you very much and thanks everyone for sending.