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Diversified Healthcare Trust Announces It May Not Continue as Going Concern Following $450MM Default of Credit Facility

Diversified Healthcare Trust, Office Properties Income Trust, default merger acquisition
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Appraised Value of Collateral Properties Declined by 22; Working with Lenders to Obtain Waiver Through September 30th; Merger with OPI is Best Alternative Available to DHC

NEWTON, Mass. – Diversified Healthcare Trust (Nasdaq: DHC) announced in late June that a non-monetary event of default has occurred under its $450 million credit facility. The facility requires DHC to maintain collateral properties with an aggregate appraised value of at least $1.09 billion. The facility allows the facility’s administrative agent to periodically reappraise the collateral properties and, on June 23, 2023, the administrative agent notified DHC that the reappraised value of the 61 medical office and life science properties securing the facility had declined from $1.34 billion to $1.05 billion, below the $1.09 billion threshold required under the facility. The appraised values of the collateral properties securing the facility declined 22% since they were last appraised in January 2021.

DHC is currently negotiating a limited waiver with the requisite lenders under the facility to waive the event of default through September 30, 2023, the outside closing date for DHC’s pending merger with Office Properties Income Trust (Nasdaq: OPI), at which time DHC’s $450 million credit facility will be fully refinanced.

Because DHC is not currently in compliance, and it has not been in compliance for over two years, with its debt incurrence covenants, DHC cannot issue any new debt or refinance expiring debt. DHC has previously advised that it believes that the earliest it may be in compliance with its debt incurrence covenants is mid-year 2024, which is after $700 million of indebtedness comes due in the first half of 2024. For this reason, management has previously concluded that there is substantial doubt regarding DHC’s ability to continue as a going concern. DHC’s financial constraints are among the primary reasons that DHC’s Board of Trustees has unanimously recommended that DHC shareholders vote in favor of the pending merger with OPI.

About Diversified Healthcare Trust

DHC is a real estate investment trust, or REIT, 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 byThe RMR Group (Nasdaq: RMR), a leading U.S. alternative asset management company with over $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. DHC is headquartered in Newton, MA.