Diversified Healthcare Trust has more than $700 million of debt coming due next year and remains out of compliance with its debt and current covenant. But the Newton, MA-based real estate investment trust, with a portfolio containing several senior living communities, expects to regain compliance by the end of 2024, Chief Financial Officer and Treasure Matthew C. Brown said Thursday during the company’s third-quarter earnings call.
“Based on the execution of certain financing strategies being contemplated, it could lead to covenant compliance sooner,” Brown said.
The annual earnings before interest, taxes, depreciation and amortization, or EBITDA, shortfall to achieve compliance is $61 million, Brown said. The debt prevents DHC from issuing any new debt or refinancing existing debt.
“As we look forward, we believe we have several viable options available to us to address our near-term capital needs, and … we are pursuing all of these options concurrently,” Brown said. “We have a significant pool of unencumbered assets with a gross book value of approximately $5.9 billion available to pursue various strategies.”
Normalized funds from operations for the third quarter amounted to $8.3 million, or $0.03 per share. That’s an increase of $22.5 million from negative $14 million in the prior year.
“While the SHOP [senior housing operating portfolio] recovery remains uneven and pressured by higher operating expenses, our operators continue to achieve rental rate growth and occupancy gains above the industry benchmark for comparable
properties year over year,” Brown said in a press release issued in conjunction with the earnings call.
“The overall backdrop in the senior living industry continues to be supportive of a recovery,” he said on Thursday’s call.
President and CEO Jennifer Francis added that “costs for SHOP operators remain elevated due to insurance premium increases, acquiring new staff and seasonal expenses, such as the impact of heat waves across the United States this summer.”
SHOP occupancy increased 370 basis points to 78.4%, and average monthly rates increased by 7% year over year, resulting in a 13.2% increase in SHOP revenues.
Overall, the REIT’s consolidated same-property, cash-basis net operating income was $56.2 million, which represents a $22.1 million, or 64.6%, year-over-year improvement.
For additional coverage of the DHC earnings call, see McKnight’s Senior Living.
