Proxy advisory firm Egan-Jones on Monday joined ISS and Glass Lewis in recommending that Diversified Healthcare Trust shareholders vote against a proposed merger with Office Properties Income Trust, or OPI, which was announced in April. The merger will be voted on Aug. 30 at a special meeting of shareholders.
Shareholders Flat Footed and hedge fund D.E. Shaw also have promised to vote against the merger and have encouraged other shareholders to follow suit. If approved, the merger will result in a real estate investment trust named Diversified Properties Trust.
Newton, MA-based DHC has more than $700 million of debt coming due next year and remains out of compliance with its debt and current covenants. The REIT’s president and CEO, Jennifer Francis, has consistently called the proposed merger the “best path” forward to resolve the debt.
Egan Jones, however, stated that it believes that the merger “is not the best available strategic alternative to maximize shareholder value and address its debt” and that, given DHC’s senior housing operating portfolio assets, “the company is poised for a sizable rebound in the next two years” and that “the potential of DHC’s SHOP assets was completely overlooked in determining the true value of its stock price.”
The REIT’s complete portfolio of senior living communities includes 261 communities with more than 27,000 units, according to an investor presentation posted online and filed with the Securities and Exchange Commission earlier this month. As of June 30, 119 of the 230 senior living communities in the senior housing operating portfolio were operated by Five Star Senior Living, a division of AlerisLife, according to an Aug. 1 presentation. DHC, OPI and AlerisLife all are managed by The RMR Group.
“If the merger does not close, we will be forced to defer capital investment in our portfolio, significantly delaying the turnaround of our SHOP segment, and we will be forced to raise expensive rescue financing, which would be dilutive to DHC shareholders,” DHC Chief Financial Officer Rick Siedel said on the REIT’s second-quarter earnings call earlier this month. “We are confident that the merger with OPI will provide the necessary liquidity and financial flexibility to address all near-term debt maturities, and better position our shareholders to benefit from the combined company’s long-term growth.”
