Office Properties Income Trust Agrees to Acquire Diversified Healthcare Trust in All-Share Transaction

by Jeff Shaw

NEWTON, Mass. — Office Properties Income Trust (NASDAQ: OPI) has entered into a definitive merger agreement whereby the office REIT will acquire all the outstanding common shares of Diversified Healthcare Trust (NASDAQ: DHC), a REIT that owns properties in the medical office, life sciences and seniors housing sectors.

The combined company will have approximately $12.4 billion of total gross assets under management, representing 539 properties across 40 states and Washington, D.C. The portfolio comprises about 264 seniors housing communities, 10 triple-net-leased wellness centers and 265 medical office, traditional office and life sciences buildings. About 42 percent of the portfolio is located in the Sun Belt.

The RMR Group (NASDAQ: RMR), an alternative asset management firm based in Newton, manages both REITs and acquires properties on behalf of the entities. RMR also makes acquisitions on behalf of Service Properties Trust and Industrial Logistics Properties Trust.

RMR Group will continue to manage the new company, which will be rebranded as Diversified Properties Trust and trade publicly on the Nasdaq Stock Market exchange. OPI’s executive team will lead the new company and will keep the firm’s corporate headquarters in Newton.

The boards of trustees for both REITs unanimously approved the merger, which is subject to approval by OPI and DHC shareholders. The companies expect the merger to close by the third quarter of this year.

Pursuant to the merger agreement, DHC shareholders will receive 0.147 shares of OPI for each common share of DHC, which is a 20 percent premium to the average closing price of DHC common shares for the 30 trading days that ended April 10, 2023. (The transaction is based on OPI’s closing share price of $11.55 per share on April 10.)

Upon closing, OPI shareholders will own approximately 58 percent of the combined company and DHC shareholders will own approximately 42 percent.

The sales price was not disclosed, but OPI has secured a commitment from JPMorgan Chase Bank for a $368 million bridge loan facility to help finance the closing of the transaction. The financing arrangement has a one-year extension option.

Additionally, RMR has agreed to waive the contractual termination fees associated with the DHC business management agreement and property management agreement with respect to the transaction.

DHC currently has $700 million of debt coming due by mid-2024 and wasn’t in compliance with its debt covenants, according to OPI’s investor presentation. Post-closing, OPI says the new company’s debt will be in compliance immediately. Additionally, the diversity of DHC’s property portfolio and existing capital sources was attractive to OPI, which has concerns about financing and owning office assets because of “structural office sector headwinds.”

“The merger establishes the combined company as a larger, more diversified REIT, better positioned for long-term growth and value creation for OPI shareholders,” says Christopher Bilotto, president and chief operating officer of OPI. “DHC has an attractive portfolio of healthcare real estate assets, including a portfolio of medical office and life sciences properties, with a work-from-home-resistant tenant base, as well as private-pay senior living communities that are expected to benefit from a strategic turnaround, a continued post-pandemic recovery and favorable long-term demographics.”

J.P. Morgan Securities LLC is acting as exclusive financial advisor to the special committee of OPI’s board of trustees in this transaction, and Wachtell, Lipton, Rosen & Katz is acting as its legal advisor. BofA Securities is acting as exclusive financial advisor to the special committee of DHC’s board of trustees, and Sullivan & Cromwell LLP is acting as its legal advisor.

Office Properties Income Trust was founded in 2009 as Government Properties Income Trust. The REIT was rebranded to OPI following its merger with Select Income REIT, another REIT managed by RMR Group, in fall 2018. OPI owned and leased 160 properties in 30 states and Washington, D.C., as of year-end 2022. The occupancy rate of the 21 million-square-foot portfolio was roughly 90.6 percent.

OPI’s closing stock price of $11.55 per share on April 10 represents a 52.2 percent decline from $24.18 a year ago.

Founded in 1998, Diversified Healthcare Trust owns 379 properties in 36 states and Washington, D.C., occupied by approximately 500 tenants. As of year-end 2022, the REIT’s portfolio comprised approximately 9 million square feet of life sciences and medical office properties and more than 27,000 senior living units. DHC’s stock price closed at $1.24 on April 10, a 55.4 percent decrease from $2.78 a year ago.

Founded in 1986, RMR Group has about 30 offices supporting 600 employees. The firm has approximately $37 billion in assets under management as of year-end 2022. RMR’s stock price closed at $25.96 on April 10, an 11.5 percent decrease from $29.32 last year.

— John Nelson

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