Newton, MA-based Diversified Healthcare Trust, with a senior living operating portfolio that includes 237 communities with 25,346 living units, has entered into an agreement to merge with Office Properties Income Trust, the real estate investment trusts announced this morning.
The transaction is expected to close during the third quarter.
“The merger with OPI greatly benefits DHC both strategically and financially,” DHC President and CEO Jennifer Francis said in a statement. “Strategically, the combined company will be in immediate compliance with debt covenants, have immediate access to multiple capital sources through its greater scale and diversity to address upcoming debt maturities and increase liquidity to continue funding the ongoing SHOP [seniors housing operating portfolio] recovery and capital improvement plan. Financially, the transaction immediately reduces DHC’s leverage and is immediately accretive to DHC’s normalized funds from operations and cash available for distribution, and the expected pro rata annual distribution represents a 267% immediate increase for DHC shareholders.”
DHC’s seniors housing operating portfolio includes 237 communities with 25,346 living units, according to a presentation posted online Tuesday in conjunction with the merger news. As of the fourth quarter of 2022, more than 100 of those communities were Five Star Senior Living communities managed by AlerisLife, according to a March presentation posted online. Additional operators with a presence in DHC’s SHOP, according to the March presentation, include Cedarhurst Senior Living, Charter Senior Living, IntegraCare Senior Living, Life Care Services, Navion Senior Solutions, Northstar Senior Living, Oaks-Caravita Senior Care, Omega Senior Living, Oaks Senior Living, Phoenix Senior Living, Stellar Senior Living and The RMR Group. DHC’s senior living portfolio also includes 27 leased communities with a combined 2,062 units and tenants such as Brookdale Senior Living.
But DHC’s portfolio also includes medical office buildings and life science properties. In fact, medical office buildings accounted for 43% of the REIT’s net operating income in the fourth quarter of 2022. Independent living and assisted living properties accounted for 37% of NOI, and skilled nursing accounted for 1%.
In the deal, OPI will acquire all of the outstanding common shares of DHC in an all-share transaction, which was unanimously recommended by special committees of the respective boards of OPI and DHC and then unanimously approved by the respective full boards. It is subject to the approval of DHC and OPI shareholders and other customary closing conditions.
OPI will be the surviving entity and will change its name to Diversified Properties Trust upon closing of the transaction. The combined company will be led by members of the OPI executive management team, among them President and Chief Operating Officer Christopher Bilotto and Chief Financial Officer and Treasurer Matthew Brown.
At 40%, senior living will represent the largest property type in the combined portfolio, with office properties representing 35%. Medical office buildings will represent 12%, and life science properties will represent 9%.
Under the terms of the agreement, DHC shareholders will receive 0.147 shares of OPI for each common share of DHC based on a fixed exchange ratio, which represents an implied value of $1.70 per DHC common share and a 20% premium to the average closing price of DHC common shares for the 30 trading days ended April 10. DHC shareholders will own approximately 42% of the combined company, and OPI shareholders will own approximately 58% of the combined company.
The company is expected to trade on The Nasdaq Stock Market LLC.
The combined company will be managed by The RMR Group and will be headquartered in Newton, MA. DHC and OPI both already are managed by The RMR Group, a US alternative asset management company with more than $37 billion in assets under management as of Dec. 31.
Just last month, DHC and RMR were in the news as RMR President and CEO Adam Portnoy, a managing director of AlerisLife, took AlerisLife private through ABP Trust, where he is sole trustee and controlling shareholder as well as an officer. DHC owned approximately 31.9% of the outstanding shares of AlerisLife at the time and tendered those shares into the offer.
April 12, 2023: Read the follow-up article: Merger is ‘best solution’ to Diversified Healthcare Trust’s financial challenges, CEO says.
