Diversified Healthcare Trust CEO: Transitioning 116 Communities to New Operators ‘Accelerates Move to Offense’
Real estate investment trust Diversified Healthcare Trust (Nasdaq: DHC) is transitioning 116 senior living communities formerly managed by AlerisLife to seven other operators, with the lion’s share of the former Five Star-branded communities going to Discovery Senior Living, Sinceri Senior Living and Tutera Senior Living.
In an interview with Senior Housing News on Wednesday, Diversified Healthcare Trust President and CEO Chris Bilotto confirmed that five of the seven operators represent new relationships for the Newton, Massachusetts-based real estate investment trust (REIT).
Under the transition plan detailed Oct. 8, Discovery Senior Living is taking on 44 properties representing 5,338 units, Sinceri Senior Living will take on 38 properties totaling 7,299 units and Tutera Senior Living will take on 19 communities made up of 2,051 units. Stellar Senior Living is taking on six communities including 1,032 units, WellQuest Living assuming management of five communities totaling 796 units, Phoenix Senior Living is taking on three communities totaling 366 units and Ciel Senior Living will assume management of one 308-unit property.
Bilotto cited regional density, track record with operating performance, technology and financial reporting capabilities and quality operational performance in the selection of the seven operators. All agreements except for one of the properties are structured in a REIT Investment Diversification and Empowerment Act (RIDEA) format that better aligns performance incentives with the seven operators, and all of the communities belong to the REIT’s senior housing operating portfolio (SHOP).
“There was outreach through AlerisLife to a meaningful number of operators and other investment groups for consideration of buying and engaging in these contracts,” Bilotto said. “We had an opportunity to have discussions with different operators with varying strategies.”
The benefit of the new agreements comes from the performance incentives being “more aligned” with a “win-win” opportunity on rate growth and occupancy gains, given operators’ investments in the agreements.
“With the operator transitions underway and capital already invested in these communities, we have a clear runway to focus on performance,” Bilotto said. “We’re also aligning on additional growth avenues and initiatives that could benefit shareholders.”
DHC transitions ‘Accelerates Move to Offense’
Going forward, DHC anticipates $25 million to $40 million in proceeds from the REIT’s 34% ownership stake in AlerisLife will be “additional liquidity” for DHC, and “accelerates [the] move to offense” in seeking new growth through acquisitions, or potentially even “revisit opportunities with our dividend.”
In 2026, Bilotto forecasted future capital recycling to include strategic dispositions and consideration of acquisitions ahead for next year. He cited a long runway of limited debt maturities until 2028 that could pave the way for future opportunities to further grow or benefit shareholders.
“When you look at this portfolio, before the transition, we’ve done a lot of work over the past several years investing in communities,” Bilotto said. “We’ve done a lot of work that has grown performance.”
He cited “low teens” margins today as being “behind where the benchmarks would necessitate” and the change with multiple operators supports a strategy to “distill down into” driving margin and occupancy growth.
“I think our selection narrowed down into the operators that we felt best can effectuate that change,” Bilotto added.
Bilotto said some of the communities are “well-clustered”, with some as “outlier communities,” and by breaking them up from one operator to multiple operators, DHC can “establish an opportunity to gain operational synergies with densification from new operators.”
Targeting improved occupancy, moving on from AlerisLife
AlerisLife, formerly Five Star Living, had an opportunity to sell and wind down its senior living management business, prompting the divvying up of the 116 properties.
In the last two years, Bilotto said DHC has been transitioning communities to new operators, selling properties and is prepared for this current moment following a strategic effort to reinvest in CapEx improvements in its SHOP assets as development remains difficult at scale.
“These strengths we’ve outlined better position us to cater to our business model and investors,” Bilotto said. “We’re looking at things such as regional density and historical performance of operating communities.”
With development conditions still tough, DHC has looked internally to grow organically within its existing communities, Bilotto said, noting that operators and ownership groups alike have had strong pricing power in setting higher-than-typical annual rental rate increases. But “high single digits and teens” increases “are not as sustainable,” he added.
In the future, Bilotto said it’s “not unreasonable” to expect the benchmark to hit occupancy of “90% or greater” with DHC well-positioned to close the gap with its existing senior living portfolio.
“So that’s just going to create a consistent path for operational improvement and then ultimately, revenue growth and NOI,” Bilotto said, noting DHC has spent “meaningful capital” in its existing communities.
This all leads up to a scenario where DHC has “a clean slate to really drive occupancy” with opportunities to drive rate and census given the company’s internal focus on CapEx improvements in the last five years. Approximately 30 dispositions of communities are underway for DHC, after the company completed a “top down analysis” of the portfolio.
“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 said. “Beyond acquisitions, we’ll prioritize these organic opportunities.”
These efforts appear to be paying off, with the company’s stock price currently up over 80% year-to-date, having added $1.98 in value. On Wednesday, DHC stock fell to $4.25 per share, down 1.85% at market close.
‘Natural and strategic addition’
Transitions of communities to the cohort of seven operators is expected to be completed by the end of this year, Bilotto confirmed, with the properties currently having an average occupancy of 81.4% having generated $29.5 million in net operating income over the second quarter of this year, according to a DHC investor presentation.
Post-transition, Sinceri will lead DHC’s SHOP segment with 7,299 units followed by Discovery Senior Living with 5,338 units, the presentation notes. In total, DHC has 229 SHOP assets spanning 24,872 units, according to company data.
On Wednesday, Sinceri CEO Chris Belford declined to comment on the recent transition citing the timing of the announcement being at a “sensitive stage of the transaction.”
In response to questions from SHN, Discovery Senior Living confirmed the company is forming a new relationship with DHC following the announcement, with CEO Richard Hutchinson noting the pairing “fits perfectly” with the company’s horizontal growth strategy to take on “large, complex, multi-state, multi-product management contracts.”
“This combination gives us the ability to scale responsibly and deliver strong performance after transition,” Hutchinson said.
In integrating new communities, Hutchinson noted that the Bonita Springs, Florida-based operator conducts a “rigorous, internal stress test” to “confirm we can add capacity” without disrupting existing operations paired with the company’s specialized “Business Assimilation Team,” something Hutchinson described as “internal special forces” to execute on a “proven playbook” to integrate communities at-scale.
Cultural alignment and frontline team engagement are often overlooked in community transitions, Hutchinson said.He said that the company’s myriad management companies allows for needed local leaders and resources to get to communities quickly. Getting communities off the ground and transitioned into a portfolio also requires “technology enablement” to ensure continuity in operating performance reporting and general operations, he added.
“This portfolio fits seamlessly into our existing geographic footprint creating operational synergies and strengthening density and expertise,” Hutchinson said. “…That hyper-local depth, combined with our centralized expertise and shared services, makes this a natural and strategic addition.”
Communities set to transition to Discovery include locations in Georgia, Maryland, Missouri, North Carolina, Pennsylvania, South Carolina, and Texas, Hutchinson confirmed, where the company already has existing properties, leadership teams, infrastructure and market intelligence to ease in the transition phase.
Kansas City, Missouri-based Tutera Senior Living is slated to take on eight owned acquisitions and 18 new management agreements from DHC in the transition, further strengthening the company’s presence in the Midwest, according to a news release shared with SHN, with Tutera having a previous relationship established with DHC.
“We grow in areas where we know we can be most successful,” said Randy Bloom, COO and President of Tutera Senior Living and Health Care, in the news release. “Our partnership with Diversified Healthcare Trust is built on shared philosophies – particularly our mutual commitment to residents and families. This is not just growth for growth’s sake.”
Phoenix Senior Living has had a longstanding relationship with DHC through the company’s presence in the Southeast.
“This most recent transition builds on that relationship and aligns with our broader strategy of partnering with ownership groups that share our commitment to quality, culture and operational integrity,” CEO Jesse Marinko told SHN.
To integrate the new communities, Marinko said the company’s focus is “always on people first,” aiming for stability for residents and staff while aligning systems, policies and culture.”
“Transitions of this size require detailed attention to communication, clinical continuity, and associate engagement—aspects that can easily be overlooked but are absolutely vital,” Marinko said. “We work closely with local and regional teams to ensure a seamless experience for residents and families from day one.”
