Freedom Maintains “Buy” Rating on DHC With a $10 Target Price

Accelerating occupancy growth at Diversified Healthcare Trust (DHC) properties confirms the business recovery after operator changes, according to Freedom Broker analyst Zhiger Kurmet. Third-quarter results on a comparable basis generally met his expectations. The expert maintained a “Buy” rating, lowering the stock’s target price to $10 in light of updated forecasts and valuation multiples.

Diversified Healthcare Trust is a U.S. healthcare real estate investment trust. The company owns senior housing, medical offices, and life science/laboratory properties. In the senior housing segment, operators manage day-to-day property activities, so occupancy and expenses directly affect the trust’s performance.

Occupancy is rising faster

According to the Q3 2026 report, occupancy at comparable senior housing properties reached 84.4%. Over the quarter it increased by 1.3 percentage points—the largest gain since the beginning of the year.

In Freedom’s view, this dynamic confirms that the slower recovery in the first half of the year was related to the timing of operator transitions rather than weakening demand.

Revenue from comparable properties in this segment rose 5.8% year over year, while operating expenses were virtually unchanged. Cash net operating income increased by 50.4%.

At the same time, part of the occupancy growth was driven by concessions to new residents. Management expects to gradually reduce them as property operations stabilize.

Financial results met Freedom’s estimates

DHC’s consolidated revenue totaled $367.7 million, down 5.4% year over year mainly due to asset sales. The figure slightly exceeded Freedom’s forecast of $366.8 million. Net operating income from real estate rose 27.5% to $80.8 million, versus the analyst’s expected $79.5 million.

Normalized FFO per share was $0.13 versus a restated $0.02 a year earlier. This metric is used to assess REIT performance and excludes real estate depreciation and certain other items from net income.

Starting in Q3, DHC includes the management company’s incentive fee in this calculation. Without this expense, the quarterly figure would have been $0.15 per share, in line with Freedom’s estimate.

The methodology change also affected the annual forecast: the company now expects normalized FFO in the range of $0.46–0.52 per share. If the estimated incentive fee of $0.12 per share is excluded, the midpoint of the new range is about $0.02 above the prior one. Therefore, the formal reduction in guidance does not imply a comparable deterioration in the business.

New lease agreements should make income more stable

As of October 1, seven skilled nursing facilities were moved from management agreements to a 15-year lease with operating subsidiaries of The Ensign Group.

The terms provide for a triple-net lease: in addition to rent, the tenant assumes costs for property taxes, insurance, and property maintenance.

Initial annual rent is $8 million with indexation tied to inflation. For comparison, over the prior 12 months the cash net operating income from these properties was $5.1 million, and capital expenditures were $1.6 million.

Freedom views the transition positively: it should reduce volatility in results and DHC’s need for further investment in these properties. At the same time, the company is preparing to change the manager at another six facilities, which will require additional expenses.

What limits the stock’s valuation

The portfolio recovery remains uneven. In the medical office and life science/laboratory real estate segment, cash net operating income from comparable properties fell 1.6% year over year.

Financing also remains an important factor: in February 2028, $500 million of unsecured notes mature. Until then, the company has no significant debt maturities.

Previously, Freedom Broker noted improving DHC results thanks to property efficiency and cost reductions. The new report shows further progress in senior housing; however, operator changes, real estate costs, and future refinancing terms remain key risks.

This is not an individual investment recommendation.