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Diversified Healthcare (DHC) Continues to See Weak SHOP Recovery
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Diversified Healthcare Trust (DHC - Free Report) recently provided an update on its senior housing operating portfolio’s (SHOP) performance for October.
The company noted that occupancy in this segment rose 50 basis points (bps) from the prior month. However, when compared with October 2019 levels, occupancy was down 600 bps.
The resident fees and services revenues of $95.4 million declined 0.8% sequentially in October 2023 and 7.4% from the 2019 same period level. Property operating expenses of $88.6 million rose from $87.3 million in September and $87.9 million in October 2019.
Consequently, the net operating income (NOI) came in at $6.8 million, plunging 22.7% from September and 54.7% from October 2019 levels.
The NOI margin for October was 7.1%, down 210 bps from the prior month and 750 bps from October 2019.
Speaking of DHC’s SHOP’s performance from the beginning of 2023 through Oct 31, occupancy of 78.5% declined 790 bps from the same period in 2019.
Resident fees and services revenues fell 9.2% to $929.3 million. Property operating expenses rose 1.6% to $863.4 million. As a result, NOI of $66.0 million slumped 62% during this period.
The NOI margin from the beginning of this year through Sep 30 was 7.1%, down 990 bps from October 2019.
Although the senior living industry is showing signs of recovery and increased demand compared with the lows witnessed during the pandemic, DHC believes that the recovery has been slower than anticipated and uneven.
Also, with present macroeconomic conditions and a high interest rate environment, the senior living operators are facing increased operating costs resulting from difficult labor market conditions, wage and commodity price inflation and insurance costs, among other things. DHC expects the SHOP segment’s costs to continue increasing.
On the other hand, senior living operators have resorted to raising rental rates to attain higher rental rate growth. But, the increase is gradual and does not match the pace at which costs are rising. As a result, the company’s margin growth continues to be under pressure.
Overall, with these conditions in place, it is likely that the SHOP segment will remain in distress in the upcoming period.
DHC currently carries a Zacks Rank #4 (Sell).
Shares of the company have lost 17.5% in the past three months compared with the industry’s decline of 0.9%.
The Zacks Consensus Estimate for EastGroup Properties’ 2023 FFO per share has moved marginally upward in the past month to $7.71.
The Zacks Consensus Estimate for Stag Industrial’s ongoing year’s FFO per share has been raised 1.3% over the past month to $2.28.
The Zacks Consensus Estimate for Park Hotels & Resorts’ current-year FFO per share has moved 3.1% northward over the past month to $1.98.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Diversified Healthcare (DHC) Continues to See Weak SHOP Recovery
Diversified Healthcare Trust (DHC - Free Report) recently provided an update on its senior housing operating portfolio’s (SHOP) performance for October.
The company noted that occupancy in this segment rose 50 basis points (bps) from the prior month. However, when compared with October 2019 levels, occupancy was down 600 bps.
The resident fees and services revenues of $95.4 million declined 0.8% sequentially in October 2023 and 7.4% from the 2019 same period level. Property operating expenses of $88.6 million rose from $87.3 million in September and $87.9 million in October 2019.
Consequently, the net operating income (NOI) came in at $6.8 million, plunging 22.7% from September and 54.7% from October 2019 levels.
The NOI margin for October was 7.1%, down 210 bps from the prior month and 750 bps from October 2019.
Speaking of DHC’s SHOP’s performance from the beginning of 2023 through Oct 31, occupancy of 78.5% declined 790 bps from the same period in 2019.
Resident fees and services revenues fell 9.2% to $929.3 million. Property operating expenses rose 1.6% to $863.4 million. As a result, NOI of $66.0 million slumped 62% during this period.
The NOI margin from the beginning of this year through Sep 30 was 7.1%, down 990 bps from October 2019.
Although the senior living industry is showing signs of recovery and increased demand compared with the lows witnessed during the pandemic, DHC believes that the recovery has been slower than anticipated and uneven.
Also, with present macroeconomic conditions and a high interest rate environment, the senior living operators are facing increased operating costs resulting from difficult labor market conditions, wage and commodity price inflation and insurance costs, among other things. DHC expects the SHOP segment’s costs to continue increasing.
On the other hand, senior living operators have resorted to raising rental rates to attain higher rental rate growth. But, the increase is gradual and does not match the pace at which costs are rising. As a result, the company’s margin growth continues to be under pressure.
Overall, with these conditions in place, it is likely that the SHOP segment will remain in distress in the upcoming period.
DHC currently carries a Zacks Rank #4 (Sell).
Shares of the company have lost 17.5% in the past three months compared with the industry’s decline of 0.9%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the REIT sector are EastGroup Properties (EGP - Free Report) , Stag Industrial (STAG - Free Report) and Park Hotels & Resorts (PK - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for EastGroup Properties’ 2023 FFO per share has moved marginally upward in the past month to $7.71.
The Zacks Consensus Estimate for Stag Industrial’s ongoing year’s FFO per share has been raised 1.3% over the past month to $2.28.
The Zacks Consensus Estimate for Park Hotels & Resorts’ current-year FFO per share has moved 3.1% northward over the past month to $1.98.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.