NEWTON, Mass. — Diversified Healthcare Trust (Nasdaq: DHC) today announced the filing of definitive proxy materials with the U.S. Securities and Exchange Commission (the “SEC”) in connection with DHC’s pending merger with Office Properties Income Trust (Nasdaq: OPI). The DHC Board of Trustees unanimously recommends that shareholders vote “FOR” the proposal to approve the merger agreement with OPI.
The DHC Board believes that the merger is the best available opportunity for long term value for common shareholders. A Special Meeting of Shareholders is scheduled on Wednesday, August 30, 2023, at 11:00 a.m. Eastern Time. DHC shareholders of record as of the close of business on June 16, 2023, are eligible to vote. Subject to shareholder approval and satisfaction of all other closing conditions, the merger is expected to close during the third quarter of 2023.
A Compelling Combination That Delivers Significant Value for DHC Shareholders
Under the terms of the merger agreement, DHC shareholders of record will receive 0.147 shares of OPI for each common share of DHC held immediately prior to closing. This all-stock transaction represents significant financial and value-creation benefits to DHC shareholders:
Transaction results in DHC shareholders owning approximately 42% of the combined company, and OPI shareholders owning approximately 58% of the combined company.
DHC shareholders retain the upside potential in the combined entity, which will have lower leverage and wider access to capital.
DHC shareholders will benefit from the combined company’s expected cash distribution of $0.25 per share per quarter, or $1.00 per year, which is a 267% increase on a pro rata basis from DHC’s current distribution level of $0.01 per share per quarter, or $0.04 per year.
The merger is expected to be immediately accretive to DHC shareholders on a pro rata basis and result in annual general and administrative savings of approximately $2 million to $3 million.
Creating a Diversified REIT with a Quality Portfolio, Credit Tenant Base and Strong Growth Potential
In addition to providing significant value to DHC shareholders, DHC expects that the merger with OPI will provide important benefits for all DHC stakeholders. The transaction is expected to address the near-term challenges of DHC and the long-term challenges of OPI with enhanced scale, diversification and access to capital. In addition, the combined company will benefit over time from the anticipated recovery in NOI growth in DHC’s Senior Housing Operating Portfolio (“SHOP”) segment. Following the close of the transaction the combined company will also benefit from:
Greater scale and diversification with a resilient portfolio of 265 medical office buildings, life science and office properties totaling nearly 30 million square feet and occupancy close to 90%.
A tenant base that includes a mix of investment-grade tenants representing close to 58% of the portfolio, comprising some of the country’s largest and most dynamic companies, including Bank of America, Google, Lifetime Fitness, Sonoma Biotherapeutics and Advocate Aurora Health, as well as the U.S. government.
A diversified portfolio of properties located in many of the country’s prominent submarkets throughout 40 states and in the District of Columbia along with 42% of the portfolio located within the highly desired Sunbelt region, including several major metros throughout Florida, Texas, Arizona and California.
Enhances Access to Capital and Financial Flexibility for DHC
Immediate Debt Covenant Compliance: DHC is currently restricted from issuing or refinancing any debt because DHC is currently not in compliance, and has not been in compliance for over two years, with its debt incurrence covenants. Importantly, DHC has $700 million in debt maturing over the next twelve months before it expects to be in compliance with its debt incurrence covenants. The combined company is expected to be immediately in compliance with its debt incurrence covenants and have greater scale and diversity with more access to capital sources to address upcoming debt maturities, including low-cost GSE and agency debt. In connection with the merger, $450 million of DHC debt maturing in January 2024 will be also refinanced.
Increased Liquidity to Execute SHOP Recovery: The merger is expected to provide increased liquidity to fund the SHOP turnaround and capital improvement plan, which is already underway. The combined company will be also less vulnerable to the inconsistent and hard to predict recovery in the SHOP performance.
The transaction was evaluated and negotiated by a special committee of the DHC board comprised of independent, disinterested trustees. Lisa Harris Jones, Lead Independent Trustee and Chair of the Special Committee of the DHC Board, made the following statement:
“The Special Committee of the DHC Board, with support from our financial and legal advisors, unanimously determined that the pending merger is the best opportunity to address the challenges confronting DHC. Having carefully considered a wide range of alternatives to enhance shareholder value, we are confident that the combination with OPI is the best path forward and presents shareholders with the best available opportunity for long term value creation. Following the close of the transaction, DHC shareholders will benefit from the upside of owning a leading diversified REIT with significantly enhanced scale that immediately pays an attractive and sustainable dividend.”
Adam Portnoy, Managing Trustee and Chair of the DHC Board of Trustees, made the following statement:
“I have significantly increased my ownership interest in DHC since the merger was announced to further align my interests with other DHC shareholders and because I believe the combined company represents an attractive long term investment. I plan to vote FOR the merger and look forward to having a significant stake in the combined company.”
The DHC Board believes that the meaningful benefits outlined above, including the immediate ability to refinance 2024 debt maturities and achieve covenant compliance, and enhanced access to capital and financial flexibility to execute the SHOP recovery, would not be available to DHC on a standalone basis and that the merger is the best alternative available to DHC. Accordingly, the Board recommends DHC shareholders to vote “FOR” the proposals related to the OPI merger on the WHITE proxy card by phone, internet or by signing, dating and returning the WHITE proxy card in the postage-paid envelope provided.
Advisors
BofA Securities is acting as exclusive financial advisor to the DHC special committee and Sullivan & Cromwell LLP is acting as legal advisor to the DHC special committee in this transaction.
Vote “FOR” The OPI Merger on the WHITE Proxy Card Today
About Diversified Healthcare Trust
DHC is a real estate investment trust focused on owning high-quality healthcare properties located throughout the United States. DHC seeks diversification across the health services spectrum by care delivery and practice type, by scientific research disciplines and by property type and location. As of March 31, 2023, DHC’s approximately $7.1 billion portfolio included 376 properties in 36 states and Washington, D.C., occupied by approximately 500 tenants, and totaling approximately 9 million square feet of life science and medical office properties and more than 27,000 senior living units. DHC is managed by The RMR Group (Nasdaq: RMR), a leading U.S. alternative asset management company with more than $37 billion in assets under management as of March 31, 2023 and more than 35 years of institutional experience in buying, selling, financing and operating commercial real estate.
