NEWTON, Mass. — Diversified Healthcare Trust (NASDAQ: DHC), a Newton-based REIT, has announced 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. On June 23, the administrative agent notified DHC that the reappraised value of the 61 medical office and life sciences 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 percent since they were last appraised in January 2021.
DHC is currently negotiating a limited waiver with the lenders under the facility to waive the event of default through Sept. 30, 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, according to the company.
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 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.