22Q2 GAAP loss was $0.46 per share and normalized FFO -$0.04 per share, below my forecast of -$0.42 and +$0.01, respectively. The Office Portfolio disappointed again, raising concerns about declining occupancy. Senior Housing Operating Portfolio (SHOP) results met expectations.
DHC redeemed $500 million of the 9.75% Senior Notes on June 15, below my estimate of $700 million. In June, it sold a 10% interest in its Boston life sciences joint venture for $109 million. In July, it acquired a life sciences property in the San Francisco Bay area for $82 million at a 6.50% cap rate.
Based upon the lower-than anticipated redemption of the 9.75s and earnings from joint ventures that are running below my expectations (and now set to go lower with the sale of the 10% interest), I have reduced my normalized FFO projections to -$0.10 for 2022 and $0.25 for 2023. Yet, with the significant earnings leverage in SHOP, which is now running a little above breakeven, there is upside to my earnings estimates, even though the Trust still faces the tough tasks of building back occupancy in SHOP and maintaining occupancy in the Office Portfolio.
DHC’s stock has fallen 36% year-to-date vs. the 1% advance in the S&P Small Cap 600. Despite the mediocre 22Q2 results, the stock has rebounded 14% since reporting earnings on August 4. This perhaps is a sign that a bottom is in. With the cut in earnings estimates, I am reducing my price target on DHC’s stock to $3.00 (from $5.00 previously). The new price target equates to a one-year forward multiple of 12 applied to projected 2023 FFO per share of $0.25. At the current share price, the new PT represents a potential total return of 52%, including the 2.0% dividend yield. Consequently, I am maintaining my performance rating of “1”, strong outperformance.
This is a summary of my recent report on Diversified Healthcare Trust (DHC). To obtain a copy of the full report, please reach out to me using the contact information provided below.
August 15, 2022
Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250
admin@larkresearch.com
© 2015-2024 by Stephen P. Percoco, Lark Research. All rights reserved.
This blog post (as with all posts on this website) represents the opinion of Lark Research based upon its own independent research and supporting information obtained from various sources. Although Lark Research believes these sources to be reliable, it has not independently confirmed their accuracy. Consequently, this blog post may contain errors and omissions. Furthermore, this blog post is a summary of a recent report published on this subject and that report provides a more complete discussion and assessment of the risks and opportunities of any investment securities discussed herein. No representation or warranty is expressed or implied by the publication of this blog post. This blog post is for informational purposes only and shall not be construed as investment advice that meets the specific needs of any investor. Investors should, in consultation with their financial advisers, determine the suitability of the post’s recommendations, if any, to their own specific circumstances. Lark Research is not registered as an investment adviser with the Securities and Exchange Commission, pursuant to exemptions provided in the Investment Company Act of 1940. This blog post remains the property of Lark Research and may not be reproduced, copied or similarly disseminated, in whole or in part, without its prior written consent.