Filed by Diversified Healthcare Trust
Commission File No. 001-15319
pursuant to Rule 425 under the Securities Act of
1933
and deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Company: Diversified Healthcare Trust
Commission File No. 001-15319
Date: April 11, 2023
The following press release and investor presentation were first
made available on April 11, 2023.
FOR IMMEDIATE RELEASE
Diversified Healthcare Trust and Office Properties
Income Trust Announce
Agreement to Merge in All-Share Transaction
Creates a Diversified REIT with a Broad Portfolio,
Defensive Tenant Base and Strong Growth Potential
Ensures Immediate Debt Covenant Compliance,
Enhances Access to Capital and Financial Flexibility to Execute the SHOP Recovery and Capital Plan, and Enables the Refinancing of 2024
Debt Maturities
DHC Shareholders to Receive 0.147 Shares of
OPI Common Stock for Each Share of DHC Stock;
Represents Implied Premium of 20% to DHC’s
30-Trading Day Average Closing Price
DHC Shareholders to Benefit from OPI’s
Attractive Distribution;
a 267% Increase as Compared to DHC’s Current
Distribution
Joint Conference Call Today at 8:30 a.m. Eastern
Time
Newton, MA (April 11, 2023): Diversified
Healthcare Trust (Nasdaq: DHC) today announced that it has entered into a definitive merger agreement with Office Properties Income Trust
(Nasdaq: OPI), pursuant to which OPI will acquire all of the outstanding common shares of DHC in an all-share transaction. The transaction
was unanimously recommended by special committees of the respective Board of Trustees of OPI and DHC, comprised of independent, disinterested
trustees, and unanimously approved by the respective Board of Trustees. OPI will be the surviving entity in the merger and intends to
change its name to “Diversified Properties Trust” upon closing of the transaction and is expected to trade on The Nasdaq
Stock Market LLC.
Pursuant to the terms of the merger 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
on April 10, 2023, resulting in DHC shareholders owning approximately 42% of the combined company, and OPI shareholders owning approximately
58% of the combined company.
Upon the closing of the transaction, DHC shareholders
will benefit from the combined company’s expected cash distribution of $0.25 per share per quarter, or $1.00 per year, which is
a 267% increase on a pro rata basis from DHC’s current distribution level of $0.01 per share per quarter, or $0.04 per year. The
merger is expected to be immediately accretive to DHC shareholders on a pro rata basis and is expected to result in annual general and
administrative savings of approximately $2 million to $3 million.
Jennifer Francis, DHC’s President and Chief
Executive Officer made the following statement:
“The merger with OPI greatly benefits DHC both strategically
and financially. 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 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.”
The combined company will be led by the OPI executive
management team, will be managed by The RMR Group (Nasdaq: RMR) and will be headquartered in Newton, MA. The transaction is subject to
the approval of DHC and OPI shareholders and other customary closing conditions and is expected to close during the third quarter of 2023.
RMR has agreed to waive the contractual termination fees associated with the DHC business management agreement and property management
agreement specific to the OPI acquisition.
Advisors
BofA Securities is acting as exclusive financial
advisor and Sullivan & Cromwell LLP is acting as legal advisor to the special committee of DHC’s Board of Trustees in this
transaction.
Investor Presentation and Conference Call
A presentation that outlines the details of DHC’s
merger with OPI can be found here: https://www.dhcreit.com/investors/events-and-presentations/default.aspx.
The DHC and OPI management teams
will host a joint conference call on Tuesday, April 11, 2023 at 8:30 a.m. Eastern Time. The conference call telephone number
is (877) 270-2148. Participants calling from outside the United States and Canada should dial (412) 317-6759. No pass code is necessary
to access the call from either number. Participants should dial in about 15 minutes prior to the scheduled start of the call. A replay
of the conference call will be available through 11:59 p.m. on Tuesday, April 18, 2023. To access the replay, dial (412) 317-0088.
The replay pass code is 7227001.
A live audio webcast
of the conference call will also be available in a listen-only mode on the company’s website, which is located at www.dhcreit.com.
Participants wanting to access the webcast should visit the company’s website about five minutes before the call. The archived
webcast will be available for replay on the company’s website after the call.
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 December 31,
2022, DHC’s approximately $7.1 billion portfolio included 379 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 by The RMR Group (Nasdaq: RMR), a leading U.S. alternative asset management company with more than $37 billion
in assets under management as of December 31, 2022 and more than 35 years of institutional experience in buying, selling, financing
and operating commercial real estate. To learn more about DHC, visit www.dhcreit.com.
WARNING REGARDING FORWARD-LOOKING STATEMENTS
This news release contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Also, whenever DHC uses words such
as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”,
“will”, “may” and negatives or derivatives of these or similar expressions, it is making forward-looking statements.
These forward-looking statements are based upon DHC’s present intent, beliefs or expectations, but forward-looking statements are
not guaranteed to occur and may not occur. Actual results may differ materially from those contained in or implied by DHC’s forward-looking
statements as a result of various factors. For example: (a) OPI and DHC have entered into a definitive merger agreement and the proposed
merger is expected to close in the third quarter of 2023. However, the closing of the proposed merger is subject to the satisfaction or
waiver of closing conditions, including DHC shareholder approval and the financing or any consents or approvals required or contemplated
in connection with the proposed merger, some of which are beyond DHC’s control, and DHC cannot be sure that any or all of these
conditions will be satisfied or waived. Accordingly, the proposed merger may not close on the contemplated terms or at all or it may be
delayed; (b) DHC shareholders are expected to benefit from an annual dividend of $1.00 per share of the combined company. However,
the Board of Trustees of the combined company will consider many factors when setting distribution rates, and thus future distribution
rates may be increased or decreased and DHC cannot be sure as to the rate at which future distributions will be paid; (c) the transactions
contemplated by the merger agreement and the terms thereof were evaluated, negotiated and recommended to DHC’s Board of Trustees
by a special committee of DHC’s Board of Trustees, comprised solely of DHC’s disinterested, Independent Trustees, and
were separately approved by DHC’s Independent Trustees and by DHC’s Board of Trustees, and that BofA Securities acted as exclusive
financial advisor to DHC. Despite this process, DHC could be subject to claims challenging the proposed merger or other transactions or
DHC’s entry into the merger and related agreements because of the multiple relationships among DHC, OPI and The RMR Group LLC (“RMR”)
and their related persons and entities or other reasons, and defending even meritless claims could be expensive and distracting to management;
and (d) this news release contains statements, including Ms. Francis’s statements, regarding the expectations for proposed
merger and the combined company which may imply that the combined company will achieve its expected strategic and financial goals and
the shareholders will benefit from the growth potential of the combined company. However, the combined company will be subject to various
risks, including: the risk that the combined businesses will not be integrated successfully or that the integration will be more costly
or more time-consuming and complex than anticipated; the risk that cost savings and synergies anticipated to be realized by the merger
may not be fully realized or may take longer to realize than expected; risks related to future opportunities, plans and strategy for the
combined company, including the uncertainty of expected future financial performance, expected access to cash flows and capital, timing
of accretion, distribution rates and results of the combined company following completion of the proposed merger and the challenges facing
the industries in which each company currently operates and the combined company will, following the closing of the transaction, operate;
risks related to the market value of the OPI common shares of beneficial interest to be issued in the proposed merger; risks associated
with indebtedness incurred in connection with the proposed merger, including the potential inability to access, or reduced access to,
the capital markets or other capital resources or increased cost of borrowings, including as a result of a credit rating downgrade; risks
associated with the level of capital expenditures of each company and the combined company following the proposed merger; and risks associated
with the impact of general economic, political and market factors on the combined company. As a result, the combined company may not achieve
the long-term growth and value creation for shareholder as expected.
DHC’s Annual Report on Form 10-K for
the year ended December 31, 2022, including under the caption “Risk Factors” and “Management’s Discussion
and Analysis of Financial Condition and Results of Operations”, and its other filings with the Securities and Exchange Commission
(the “SEC”) identify other important factors that could cause differences from any forward-looking statements. DHC’s
filings with the SEC are available on the SEC’s website at www.sec.gov. You should not place undue reliance upon any forward-looking
statements. Except as required by law, DHC does not intend to update or change any forward-looking statements as a result of new information,
future events or otherwise.
IMPORTANT ADDITIONAL INFORMATION ABOUT THE TRANSACTION
This communication may be deemed to be solicitation
material in respect of the proposed merger between OPI and DHC. In connection with the proposed merger, OPI intends to file a registration
statement on Form S-4 with the SEC, which will include a preliminary prospectus and related materials to register OPI common shares
of beneficial interest to be issued in the merger. DHC intends to file a joint proxy statement/prospectus with OPI and other documents
concerning the proposed merger with the SEC. This document is not a substitute for the joint proxy statement/prospectus or any other document
which DHC may file with the SEC. The proposed transaction involving DHC will be submitted to DHC’s shareholders for their consideration.
BEFORE MAKING ANY VOTING OR INVESTMENT DECISION, INVESTORS ARE URGED TO CAREFULLY READ THE JOINT PROXY STATEMENT/PROSPECTUS AND ANY
OTHER DOCUMENTS THAT ARE FILED OR WILL BE FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED MERGER OR INCORPORATED BY REFERENCE IN THE
JOINT PROXY STATEMENT/PROSPECTUS BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT DHC AND THE PROPOSED MERGER. When available,
the relevant portions of the joint proxy statement/prospectus will be mailed to DHC shareholders. Investors will also be able to obtain
copies of the joint proxy statement/prospectus and other relevant documents (when they become available) free of charge at the SEC’s
website (www.sec.gov). Additional copies of documents filed with the SEC by DHC may be obtained for free on DHC’s Investor Relation’s
website at www.dhcreit.com/investors or by contacting DHC’s Investor Relations department at 1-617-796-8234.
DHC files annual, quarterly and current reports
and other information with the SEC. DHC’s filings with the SEC are also available to the public from commercial document-retrieval
services and at the website maintained by the SEC at www.sec.gov.
NO OFFER OR SOLICITATION
This communication is for informational purposes
only and is not intended to and shall not constitute an offer to sell or the solicitation of an offer to subscribe for or buy any securities
or a solicitation of any vote or approval in any jurisdiction with respect to the proposed merger or otherwise, nor shall there be any
sale, issuance or transfer of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful, prior to registration
or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus
meeting the requirements of Section 10 of the U.S. Securities Act of 1933, as amended.
PARTICIPANTS IN THE SOLICITATION
DHC and certain of its trustees and executive officers,
and RMR, DHC’s manager, and its parent and certain of their directors, officers and employees may be deemed to be participants in
the solicitation of proxies from the DHC shareholders in connection with the proposed merger. Certain information regarding the persons
who may, under the rules of the SEC, be deemed participants in the solicitation of DHC shareholders in connection with the proposed
merger and a description of their direct and indirect interests will be set forth in the joint proxy statement/prospectus when filed with
the SEC. Information about the trustees and executive officers of DHC is included in the proxy statement for its 2022 annual meeting of
shareholders, which was filed with the SEC on March 29, 2022. Copies of the foregoing documents may be obtained as provided above.
Additional information regarding the interests of such participants and other persons who may be deemed participants in the transaction
will be included in the joint proxy statement/prospectus and the other relevant documents filed with the SEC when they become available.
|
Investor Contact: |
|
Melissa McCarthy, Manager, Investor Relations |
|
(617) 796-8234 |
|
|
|
Media Contacts: |
|
Andrew Siegel / Jack Kelleher |
|
Joele Frank |
|
212-355-4449 |
(end)
| Office Properties Income
Trust to Merge with
Diversified Healthcare Trust
APRIL 11, 2023
CREATING A DIVERSIFIED REIT WITH A
BROAD PORTFOLIO, DEFENSIVE TENANT
BASE AND STRONG GROWTH POTENTIAL |
| WARNING REGARDING FORWARD-LOOKING STATEMENTS
This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Also, whenever Office Properties Income Trust (“OPI”) and Diversified Healthcare
Trust (“DHC”) use words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, “will”, “may”, “should”, “seek”, “approximately” or “strategy” and negatives or derivatives of these or similar expressions, they are making
forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements are based upon OPI’s and DHC’s present intent, beliefs or expectations,
but forward-looking statements are not guaranteed to occur and may not occur. Actual results may differ materially from those contained in or implied by OPI’s and DHC’s forward-looking statements as a result of various factors. For
example: OPI and DHC have entered into a definitive merger agreement and the proposed merger is expected to close in the third quarter of 2023, but the closing of the proposed merger is subject to the satisfaction or waiver of closing
conditions, including OPI and DHC shareholder approvals, which are beyond OPI’s and DHC’s control, and OPI and DHC cannot be sure that any or all of these conditions will be satisfied or waived, and accordingly, the proposed merger
may not close on the contemplated terms prior to the outside date set forth in the merger agreement or at all or it may be delayed; OPI may not be able to recast its existing revolving credit facility on favorable terms as expected in
connection with the proposed transaction; the combined company following the merger is expected to maintain an annual dividend of $1.00 per share with a possible increase in the future, but the Board of Trustees of the combined
company will consider many factors when setting distribution rates, and thus future distribution rates may be increased or decreased and neither OPI nor DHC can be sure as to the rate at which future distributions will be paid; and the
proposed merger is subject to various additional risks, including: the risk that the combined businesses will not be integrated successfully or that the integration will be more costly or more time-consuming and complex than anticipated;
the risk that cost savings and synergies anticipated to be realized by the merger may not be fully realized or may take longer to realize than expected; risks associated with the impact, timing or terms of the proposed merger; the
occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement relating to the proposed merger; the risk of shareholder litigation in connection with the proposed transaction,
including resulting expense or delay; risks related to future opportunities, plans and strategy for the combined company, including the uncertainty of expected future financial performance, including expected net operating income
(“NOI”), DHC’s estimated cash on hand, expected access to capital, timing of accretion, distribution rates and results of the combined company following completion of the proposed merger and the challenges facing the industries in
which each company currently operates and the combined company will, following the closing of the transaction, operate; risks related to the market value of the OPI common shares of beneficial interest to be issued in the proposed
merger; the expected qualification of the proposed merger as a tax-free “reorganization” for U.S. federal income tax purposes; the risk that the financing or any consents or approvals required or contemplated in connection with the
proposed merger will not be received or obtained within the expected timeframe, on the expected terms or at all; risks associated with expected financing transactions undertaken in connection with the proposed merger and risks
associated with indebtedness incurred in connection with the proposed merger, including the potential inability to access, or reduced access to, the capital markets or increased cost of borrowings, including as a result of a credit rating
downgrade; risks associated with the level of capital expenditures of OPI, DHC and the combined company following the proposed merger, including possible changes in the amount or timing of capital expenditures; risks associated with
the impact of general economic, political and market factors on OPI and DHC or the proposed merger; and other matters. These risks, as well as other risks associated with the proposed merger, will be more fully discussed in the joint
proxy statement/prospectus that will be filed with the Securities and Exchange Commission (the “SEC”) in connection with the proposed merger.
Each of OPI’s and DHC’s respective Annual Reports on Form 10-K for the year ended December 31, 2022, including under the caption “Risk Factors”, and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations”, and OPI’s and DHC’s other filings with the SEC identify other important factors that could cause differences from any forward-looking statements. OPI’s and DHC’s filings with the SEC are available on the SEC’s website at
www.sec.gov. You should not place undue reliance upon any forward-looking statements. Forward-looking statements speak only as of the date made, and OPI and DHC each disclaim any obligation to update or change any forward-looking statements as a result of new information, future events or otherwise except as required by applicable law.
IMPORTANT ADDITIONAL INFORMATION ABOUT THE TRANSACTION
This communication may be deemed to be solicitation material in respect of the proposed merger between OPI and DHC. In connection with the proposed merger, OPI intends to file a registration statement on Form S-4 with the SEC,
which will include a preliminary prospectus and related materials to register OPI common shares of beneficial interest to be issued in the merger. OPI and DHC intend to file a joint proxy statement/prospectus and other documents
concerning the proposed merger with the SEC. This document is not a substitute for the joint proxy statement/prospectus, Form S-4 or any other document which OPI or DHC may file with the SEC. The proposed transaction involving
OPI and DHC will be submitted to OPI’s shareholders and to DHC’s shareholders for their consideration. BEFORE MAKING ANY VOTING OR INVESTMENT DECISION, INVESTORS ARE URGED TO CAREFULLY READ THE REGISTRATION
STATEMENT, THE JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER DOCUMENTS THAT ARE FILED OR WILL BE FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED MERGER OR INCORPORATED BY REFERENCE
IN THE REGISTRATION STATEMENT AND JOINT PROXY STATEMENT/PROSPECTUS BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT OPI, DHC AND THE PROPOSED MERGER. When available, the
relevant portions of the joint proxy statement/prospectus will be mailed to shareholders of OPI and DHC. Investors will also be able to obtain copies of the registration statement and the joint proxy statement/prospectus and other
relevant documents (when they become available) free of charge at the SEC’s website (www.sec.gov). Additional copies of documents filed with the SEC by OPI may be obtained for free on OPI’s Investor Relation’s website at
https://www.opireit.com/investors/ or by contacting OPI’s Investor Relations department at 1-617-219-1410. Additional copies of documents filed with the SEC by DHC may be obtained for free on DHC’s Investor Relation’s website at
https://www.dhcreit.com/investors/ or by contacting DHC’s Investor Relations Department at1-617-796-8234.
In addition to the registration statement, each of DHC and OPI files annual, quarterly and current reports and other information with the SEC. OPI’s and DHC’s filings with the SEC are also available to the public from commercial
document-retrieval services and at the website maintained by the SEC at www.sec.gov.
NO OFFER OR SOLICITATION
This communication is for informational purposes only and is not intended to and shall not constitute an offer to sell or the solicitation of an offer to subscribe for or buy any securities or a solicitation of any vote or approval in any
jurisdiction with respect to the proposed merger or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful, prior to registration or qualification
under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the U.S. Securities Act of 1933, as amended.
PARTICIPANTS IN THE SOLICITATION
OPI, DHC and certain of their respective trustees and executive officers, and The RMR Group LLC (“RMR”), the manager of OPI and DHC, and its parent and certain of their directors, officers and employees may be deemed to be
participants in the solicitation of proxies from the shareholders of OPI and DHC in connection with the proposed merger. Certain information regarding the persons who may, under the rules of the SEC, be deemed participants in the
solicitation of OPI or DHC shareholders in connection with the proposed merger and a description of their direct and indirect interests will be set forth in the registration statement and the joint proxy statement/prospectus when filed with
the SEC. Information about the trustees and executive officers of OPI is included in the proxy statement for its 2023 annual meeting of shareholders, which was filed with the SEC on April 6, 2023. Information about the trustees and
executive officers of DHC is included in the proxy statement for its 2022 annual meeting of shareholders, which was filed with the SEC on March 29, 2022. Copies of the foregoing documents may be obtained as provided above.
Additional information regarding the interests of such participants and other persons who may be deemed participants in the transaction will be included in the joint proxy statement/prospectus and the other relevant documents filed with
the SEC when they become available.
THIRD PARTY INFORMATION
This presentation may contain or refer to third party reports and other information relating to OPI, DHC, RMR or other persons. The author and source of any third party information and the date of its publication are clearly and
prominently identified. None of OPI, DHC or RMR has communicated with the providers of this information in this presentation. None of OPI, DHC or RMR has assisted in the preparation of the third party information, guarantee the
accuracy, completeness or availability of the third party information or explicitly or implicitly endorse or approve such information.
DISCLAIMERS
2 |
| 3
TRANSACTION OVERVIEW
1. Based on OPI’s closing share price of $11.55 on April 10, 2023.
2. Based on total gross assets (total assets plus accumulated depreciation) of each company at December 31, 2022.
• Strategic merger between Office Properties Income Trust (OPI) and Diversified Healthcare Trust (DHC), with OPI
as the surviving entity.
• OPI will change its name to Diversified Properties Trust at closing, referred to herein as the “Combined
Company.”
• DHC shareholders will receive 0.147 common shares of OPI for each DHC common share, implying stock
consideration of $1.70 per share.1
• 20% premium to the average closing price of DHC common shares for the 30 trading days ended April 10, 2023.
• Post transaction ownership: approximately 58% OPI shareholders / 42% DHC shareholders.
Transaction Details
Dividend
Management
• OPI will reset its annual dividend to a sustainable $1.00 per share ($0.25 per quarter) beginning in Q2 2023
(declared in April and paid in May).
• New dividend level will increase financial flexibility for OPI through the closing of the transaction and for the
Combined Company post closing.
• Combined Company will be led by OPI executive management team.
• The RMR Group (RMR) has agreed to waive the contractual termination fee associated with the DHC business
management agreement and property management agreement specific to this transaction.
Expected Timing • Expected closing Q3 2023, subject to customary conditions and approval by OPI and DHC shareholders.
Financing • OPI secured a commitment for one-year financing (with a one-year extension) from lenders for up to $368
million to fund transaction expenses and for general corporate purposes.
Creating A Diversified REIT With a Broad Portfolio, Defensive Tenant Base and Strong Growth Potential
Scale & Synergies
• Combined Company will have approximately $12.4 billion of total gross assets with 539 properties in 40 states
and Washington D.C.2
• Approximately $2 million to $3 million of identified cost savings / synergies annually.
• Limited integration risk given common management by RMR. |
| 4
OPI STRATEGIC RATIONALE
• Structural office sector headwinds are likely to
negatively affect office owners in the future.
• Difficult financing environment for office properties.
• OPI office portfolio will require increased capital
investment in the future.
• Unsustainable current dividend rate.
Strategic Benefits
• Greater scale and diversity with more access to
capital sources, including low cost Government-Sponsored Enterprise (GSE) and agency debt.
• Gain access to attractive unencumbered portfolio of
Medical Office Buildings (MOBs) and Life Science
(LS) properties.
• Benefit from expected recovery in Senior Housing
Operating Portfolio (SHOP).
• Improving SHOP cash flows are expected to more
than offset potential declines in office cash flows in
the future.
• Provides increased liquidity to fuel capital
improvements at OPI office properties.
Financial Benefits
• Expected to be accretive to OPI leverage in 2H
2024.
• Expected to be accretive to OPI Normalized Funds
from Operations (NFFO) and Cash Available for
Distribution (CAD) in 2H 2024.
• Expected to enable stabilized and sustainable
annual dividend of $1.00 per share, with potential
for growth in the future.
Current Challenges Benefits of Merger with DHC |
| 5
DHC STRATEGIC RATIONALE
• Restricted from issuing or refinancing debt because
of debt covenants and not expected to be in
compliance until mid-2024.
• $700 million of debt coming due by mid-2024.
• High leverage levels and limited liquidity.
• SHOP recovery is underway, but additional
investment is needed to fund turn-around of
business and capital improvement plan.
• Current annual dividend of $0.04 per share unlikely
to increase until 2025.
Strategic Benefits
• Combined Company will be in compliance with
debt covenants following closing.
• Greater scale and diversity with immediate access to
multiple capital sources to address upcoming DHC
debt maturities.
• Provides increased liquidity to fund SHOP turn-around of business and capital improvement plan.
Financial Benefits
• Immediately accretive to DHC leverage.
• Immediately accretive to NFFO and CAD for DHC
shareholders.
• Pro rata annual dividend of $0.147 per share
represents 267% immediate increase for DHC
shareholders.
Current Challenges Benefits of Merger with OPI |
| 6
ESTABLISHES A LEADING DIVERSIFIED REIT
Properties 160 105 265
Square Feet (MSF) 21.0 8.8 29.8
WALT1 6.6 5.8 6.4
% Investment Grade Tenants2 62.7% 44.8% 57.5%
Expiring Leases 2023-20261 40.8% 37.7% 39.9%
Occupancy (based on SF) 90.6% 84.7% 88.9%
% Annualized Rental Income from Top 20 Tenants 58.3% 45.4% 42.9%
SHOP Property Count 237 237
SHOP Community Units 25,346 25,346
% SHOP Occupancy (Q4 2022 Average) 76.3% 76.3%
Triple Net Senior Living Property Count 27 27
Triple Net Senior Living Community Units 2,062 2,062
Wellness Center Property Count 10 10
Wellness Center Square Footage (MSF) 0.8 0.8
Combined
Company
MOB, LS and OFFICE PORTFOLIO
SENIOR LIVING OPERATING PORTFOLIO (SHOP)
1. Based on annualized rental income.
2. Includes: a) investment grade rated tenants; b) tenants with an investment grade rated parent entity that guarantee the tenant’s lease obligations; and/or c) tenants with an
investment grade rated parent entity that do not guarantee the tenant’s lease obligations.
TRIPLE NET PORTFOLIO |
| 7
Office
GREATER SCALE & GEOGRAPHIC DIVERSIFICATION
Life Science Medical Office Senior Living
1. Based on total gross assets (total assets plus accumulated depreciation) of each company at December 31, 2022.
2. Based on property count.
San Diego, CA San Antonio, TX Fort Myers, FL Atlanta, GA
539
Number of Properties
40
States Plus
Washington, D.C.
264 / 27K+
Senior Living
Communities / Units
42%
Percentage of Properties
in Sun Belt2
~$12.4 Billion
Investment Portfolio1
Combined Company |
| 8
DIVERSIFIED AND STABLE TENANT BASE
Top Tenants
Combined Portfolio Diversification1 MOB, LS and Office Diversified Tenants2
1. Based on gross asset value at December 31, 2022.
2. Based on annualized rental income. Excludes SHOP segment.
Senior
Living
40%
Office
35%
MOB
12%
LS
9%
Other
4%
Top 20
Tenants
43%
Tenants 21-50
19%
Other Tenants
38%
Reduces U.S.
government
exposure to
14%
Approximately
700
Unique Tenants |
| 9
MOB, LS AND OFFICE SEGMENT: SECURE AND STABLE INCOME
Tenant Industry Diversification
Combined Portfolio Positioned to Deliver Secure and Stable Cash Flow That Is Supported By a
Diversified Tenant Base and Well Laddered Lease Expiration Schedule
Well Laddered Lease Expiration Schedule
10.4% 13.5%
7.7% 8.3% 9.6%
50.5%
2023 2024 2025 2026 2027 2028+
Manageable near-term
expiration exposure.
(Based on Annualized Rental Income)
Tenant Credit Profile
Life Sciences &
Medical
25%
Real Estate &
Financial
15%
U.S.
Government
14%
Technology &
Communications
11%
Legal & Other
Professional
Services
8%
Manufacturing &
Transportation
8%
Other Government
6%
Government
Contractor
5%
Other
4%
Food
2%
Hospitality
1%
Energy Services
1%
Investment
Grade
58%
Non-Investment
Grade
6%
Not
Rated
36%
58%
Investment Grade
Tenant Base |
| 10
SHOP SEGMENT: SUBSTANTIAL GROWTH POTENTIAL
San Diego, CA
Multi-tenant Life Science
Square feet: 185,979
1. Represents comparative pro forma actual results for the wholly owned portfolio as of December 31, 2022.
Geographically diversified portfolio of
well-located assets across the United
States.
Institutional quality portfolio diversified
across the healthcare spectrum.
Predominantly private pay assets with
limited exposure to government
reimbursement programs.
Significant upside potential from
structural healthcare sector tailwinds.
Best-in-class operators.
Highly Attractive Portfolio Positioned For Meaningful Growth
$210
$8
$210+
2019 Pro
forma NOI
2022
NOI
Occupancy RevPOR
growth
Margin
Pre-pandemic
baseline
85%+
8%+
15%+
Expected to
surpass 2019
NOI by 2H 2024 Occupancy
Uplift
Annual
RevPOR
Growth
Margin
Expansion
237
Communities
25,346
Units
76%
Occupancy • 2021: DHC transitioned 107 communities to 10 new operators.
• 2022: AlerisLife began implementing turn-around.
— Developed turn-around plan with Alvarez & Marsal.
— Hired new CEO, COO and CFO.
— Replaced / filled other key positions.
• 4Q 2022: Occupancy improved to 76.3% vs. 69.5% as of 1Q 2021.
~$380M of Implemented or In Process
Capital Improvements Across the DHC Portfolio
Illustrative Stabilized NOI Bridge Components
NOI Drivers
Strategic Turn-around Progress
1
Estimated
NOI
$210M
$210M+
$9M |
| 11
SENIOR LIVING SECTOR RECOVERY IS UNDERWAY
Age 80+ Population Growth1
0
5
10
15
20
25
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023E
2025E
2027E
2029E
Millions
1. Source: Population estimates from the Organization for Economic Co-Operation and Development (OECD) as of February 2023.
2. Source: National Investment Center for Seniors Housing & Care (NIC), as of December 2022.
3. Source: NIC Map © Data Service, as of Q4 2022. For more information on the NIC MAP © Data Service, please visit www.nic.org/NIC-map
Senior living demographic of 80+ population is projected to grow over 30% in the next five years.1
Average asking rents for senior living grew during 2022 at the largest increase since NIC began
reporting the data in 2006.2
Primary and secondary market senior living unit construction remains muted.
Inventory growth is now just 0.7% year-over-year, and new starts as a percentage of inventory are at
their lowest levels in nearly 10 years.2
DHC SHOP Indexed Occupancy Since
March 20212
Primary & Secondary Market Senior
Living Units: Inventory Growth,
Absorption, Occupany3
106.3
108.5
98
100
102
104
106
108
110
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
NIC Primary/Secondary Mkts DHC SHOP 3
68%
70%
72%
74%
76%
78%
80%
82%
84%
86%
88%
-20
-15
-10
-5
0
5
10
15
20
25
1Q2018
3Q2018
1Q2019
3Q2019
1Q2020
3Q2020
1Q2021
3Q2021
1Q2022
3Q2022
MSF
Inventory Growth Absorption Occupancy |
| 12
REVENUE ENHANCING CAPEX
A Track Record of Successful Development & Redevelopment Projects Demonstrates Manager’s
Ability to Deliver Meaningful Value Creation
MOB, LS & Office Project Cost Project Spend to Date Stabilized Yield1
Completed projects (last 3 years) $142 $130 10.4%
In-process projects $429 $200 9.6%
Total $567 $338 9.8%
SHOP Project Cost Project Spend to Date Stabilized Yield1
Completed projects (last 3 years) $45 $45 31.5%
In-process projects $204 $30 23.7%
Total $249 $75 25.1%
4 Maguire Road, Lexington, MA 20 Massachusetts Avenue, Washington, D.C. The Remington Club, San Diego, CA
1. Stabilized Yield is cash NOI for a pro forma stabilized year divided by project costs.
($ in millions) |
| 13
• Expected to be accretive to OPI’s NFFO and CAD in 2H 2024 and immediately accretive to DHC shareholders.
• Limited integration risk given common management by RMR, with expected annual G&A synergies of $2 million to
$3 million.
Cash Sources
Total Sources
Cash Uses
$525 Total Uses $525
Bridge loan facility $368
Balance sheet cash (estimate) 157
Repayment of DHC credit facility $450
Acquisition related costs (estimate) 75
Accretion & Synergies
• OPI has secured commitments for one-year financing (with a one-year extension) for up to $368 million.
— Plan to pursue multiple capital alternatives to avoid use of bridge loan at closing.
• In connection with the transaction, OPI intends to recast its existing $750 million revolving credit facility.
— Significant lender overlap and improved scale is expected to allow for recast revolver.
• Increased liquidity from dividend reset.
— Approximately $60 million in retained capital annually due to dividend reset.
Financing Strategy
($ in millions)
VALUE CREATION AND SOURCES & USES FOR CLOSING |
| 14
PRO FORMA CAPITALIZATION
Pro Forma Debt Structure / Debt Composition1
($ in millions)
OPI
12/31/2022
DHC
12/31/2022 Adj.
Combined
Company
OPI revolving credit facility $195 $0 $0 $195
DHC credit facility 0 450 (450) 0
Bridge loan 0 0 368 368
Mortgage debt 50 25 0 75
Unsecured notes 2,212 2,350 0 4,562
Total debt $2,457 $2,825 ($82) $5,200
Cash (12) (408) 157 (263)
Net debt $2,445 $2,417 $75 $4,937
% of Debt Fixed or Hedged 96%
• Expected to be accretive to OPI leverage beginning in 2H 2024 and immediately accretive to DHC leverage.
• Combined Company expected to progressively reduce leverage starting in late 2024 from higher SHOP cash flows.
• 2024 maturities and plan:
— $600 million senior notes maturing (OPI: $350 million; DHC: $250 million).
— Multiple alternatives available to refinance upcoming maturities, including accessing low cost GSE and agency debt
as well as securing large unencumbered asset pool of Combined Company.
1. Based on actual balances of OPI and DHC at December 31, 2022, unless otherwise noted.
2. Pro forma for DHC’s $250 million credit facility pay downs in Q1 2023 using cash on hand.
3. Pro forma for the bridge loan commitment. Plan to use alternative capital to avoid use of bridge loan at closing.
2
2
3 |
| 15
STRATEGIC AND FINANCIAL OBJECTIVES
Combined Company Business Plan Through 2025
• Continued focus on increasing cash flows from SHOP with goal of surpassing
2019 NOI by 2H 2024.
• Maintain stable cash flows from MOB, LS and office properties.
• Continue high return capex investments in properties to maintain market
appeal and maximize cash flows.
• Target leverage (Net Debt/EBITDA) of approximately 7.0x by year-end 2025.
• Position business for possible dividend increase in 2025. |
| CREATING A DIVERSIFIED REIT WITH A
BROAD PORTFOLIO, DEFENSIVE TENANT
BASE AND STRONG GROWTH POTENTIAL
Office Properties Income
Trust to Merge with
Diversified Healthcare Trust
APRIL 11, 2023 |
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