Diversified Healthcare Trust (Nasdaq: DHC) is making progress on its plans to transition 116 AlerisLife communities to new operators and expects to complete those transitions by year-end.
In September, Diversified Healthcare Trust revealed it is winding down its AlerisLife management platform, with seven operators including Discovery Senior Living, Sinceri Senior Living, Stellar Senior Living and Tutera Senior Living taking on the communities previously managed under the Five Star Senior Living banner.
As of Tuesday’s third-quarter earnings call with investors and analysts, DHC had transitioned 85 of the communities and the company’s leaders expect to wrap up that process by the end of 2025, according to CEO Chris Bilotto.
“Strategically it positions us to be a better partner with the new operators, and to grow our overall performance as we head into 2026 and future years,” he said during the call Tuesday.
Bilotto previously told Senior Housing News that transitioning the communities and winding down AlerisLife will help the REIT “go on the offense” and improve its standing in markets across the country.
“There’s significant untapped potential in our communities — improving margins and occupancy, and repurposing former skilled nursing wings for different acuity levels with targeted capital,” Bilotto told SHN previously. “Beyond acquisitions, we’ll prioritize these organic opportunities.”
While the company transitions the communities from AlerisLife’s Five Star brand to other operators, it also expects potential cash flow dips related to those changes. In the third quarter of 2025, the company posted a net loss of $164 million as NOI declined and labor costs increased with the transitions, according to company management.
“These elevated labor costs are primarily driven by required investments and operational support, including payroll allocations for property, tours, community reviews, training and onboarding to support incoming operators,” Bilotto said during the company’s call Tuesday. “Additionally, temporary employee overlap necessary to meet required notice periods prior to terminations has contributed to the increase.”
Diversified Healthcare Trust’s normalized funds from operations (FFO) per share landed at four cents in the quarter. As of Sept. 30, the Newton Massachusetts-based real estate investment trust’s (REIT’s) $6.7 billion portfolio included 335 properties, including more than 26,000 senior living units, in 34 states and Washington, D.C.
Diversified Healthcare Trust’s share price ended the trading day at $4.20, representing a loss of just under 4.9%.
SHOP performance improves amid transitions
While the transitions from winding-down AlerisLife to other operators is causing short-term noise in operational results, Diversified’s leaders said they are encouraged by the performance of the operator’s 228-property senior housing operating portfolio (SHOP).
The segment’s average occupancy rose to 81.5% in the third quarter of 2025, an increase of 210 basis points over the same period last year. All told, the segment represents almost 47% of the REIT’s annual net operating income (NOI).
During the third quarter of 2025, Diversified Healthcare sold six properties for about $16.5 million not including closing costs. Since October, DHC has sold an additional 12 properties for about $31.4 million and one encumbered property for $42.1 million, excluding closing costs.
The REIT is also as of Nov. 3 under agreements or letters of intent to sell another 38 properties for about $237.2 million, excluding closing costs.
Those asset sales, coupled with other recent financing activities, will allow the REIT to pay its 2026 debt maturity as early as the end of 2025 and enter the coming year with no debt maturities due until 2028.
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