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: May 5, 2023
The following are excerpts from the transcript of the investor conference
call of The RMR Group Inc. (“RMR”) hosted by Adam D. Portnoy, President and Chief Executive Officer of RMR, and Matthew P.
Jordan, Chief Financial Officer and Treasurer of RMR, on May 4, 2023, with respect to the proposed merger by and between Office Properties
Income Trust (“OPI”) and Diversified Healthcare Trust (“DHC”).
The RMR Group
Second Quarter of Fiscal 2023 Results
Investor Conference Call Script Excerpts
May 4, 2023 at 10:00 a.m.
[Omitted]
Adam Portnoy
Lastly, in April, two of our Perpetual Capital
clients, DHC and OPI, announced an agreement to merge and change the combined companies’ name to Diversified Properties Trust. The
merger will create a diversified REIT with a broad portfolio, defensive tenant base and strong growth potential. Financially, the merger
is expected to be accretive to both entities’ leverage and cash flow. The combined entity is expected to provide a sustainable annual
dividend of $1.00 per share, with the potential for dividend growth in the future.
As it relates to DHC, it is facing a number of
serious near-term challenges driven largely by debt covenant restrictions that prevent it from issuing or refinancing debt. This problem
is exacerbated by DHC having $700 million of debt coming due in early 2024, and DHC does not expect to be in debt covenant compliance
before this debt comes due. As a result, one of the biggest benefits of this merger for DHC is that upon its completion, the combined
company will be in debt covenant compliance and can access regular-way refinancing of its debt maturities. In addition, while the SHOP
recovery is underway and trending favorably, it is not happening fast enough and further capital is needed, in addition to debt refinancing,
to fund investments in DHC’s portfolio to help drive the on-going turn-around in its senior living properties. Finally, DHC also
benefits from the merger with OPI by immediately providing a significant increase in dividend for shareholders. Absent the merger, DHC
does not anticipate reinstating its regular dividend until 2025.
As it relates to OPI, it is facing a number of
current and longer-term challenges, as office sector headwinds are likely to negatively affect office owners for the foreseeable future.
More specifically, the financing environment for office properties is, and is expected to remain, very difficult for the foreseeable future.
One of the biggest benefits of the merger for OPI is that it provides it with greater access to capital sources, including, low-cost government
and agency debt. OPI’s office portfolio will also require increased capital investments in the coming years, and OPI was facing
an unsustainable dividend rate prior to the merger announcement. By merging with DHC, OPI gains access to an attractive, unencumbered
portfolio of medical office buildings and life science properties, and we expect OPI will benefit long term from the expected eventual
recovery in DHC’s SHOP portfolio.
[Omitted]
Bryan
Maher - B. Riley Securities, Inc., Research Division - MD
Got it. Just last for me, I don’t think I’ve seen
anywhere, and maybe you’re yet to disclose it but when OPI and DHC do merge, have you identified what the new benchmark index would
be for that combined entity?
Adam Portnoy
We have not. It’s an interesting, nuanced question, and we have
discussed it preliminarily at the board level. I will tell you that on a combined basis, the majority of the assets would be office, office
including medical office and life science. That all being said, I think that’s something that the board of the combined company
will likely take up after the completion of the merger, we’ll consider that more seriously.
Bryan Maher
Got it, thank you.
[Omitted]
Tamim
Sarwary - Morgan Stanley, Research Division - Research Associate
Great, that makes sense. And then obviously without getting into detail
on the OPI-DHC transaction, in terms of access to GSE financing, I understand that was one of the impetus for the transaction in
general, in terms of some of the underwriting standards and whatnot that will be looked at just because from my understanding the SHOP
portfolio isn’t fully stabilized, will that be looked at on a pro-forma basis, or just on trailing results, how are you thinking
about that?
Adam Portnoy
So, just to make sure I understand the question, how does in the SHOP
portfolio, let’s say the agencies look at financing those assets?
Tamim Sarwary
Yes, exactly.
Adam Portnoy
Ok. So they’ve revised their financing criteria over the last
few years, and the good news is we have a large portfolio of senior living assets, and although they are struggling but improving, obviously
with over roughly 230 senior living assets, we obviously have many assets that are performing fine, unfortunately we have more assets
not performing fine. So you don’t have to take the entire portfolio, you can take a group of assets based on historical and the
agencies have become a little bit more forgiving in the way that they do the underwriting, where they may just look at maybe the most
recent quarter and then annualize that, keeping in mind your projections, they won’t take the last 12 months. So there is an opportunity
and the agencies have been doing this largely because this is something that came out of the pandemic, because they recognize that in
the recovery for a lot of senior living assets, if you look back 12-months you are going to have a pretty low ability to underwrite. Now
they are more willing to look at just one quarter back, which might obviously if things have been improving over many quarters, the most
recent quarter hopefully is the best quarter and then they annualize that, and that’s what you use for the underwriting. We’re
optimistic that there is a portfolio of assets within the DHC portfolio that will provide for significant capital or financing to be able
to be put on those assets, that we are not able to access today at DHC. And again, I said in my prepared remarks, I’m
just repeating it is, one of the benefits of the transaction is on a combined basis you’re in debt covenant compliance, that’s
a huge thing that I think a lot of investors decide about the covenants. It’s very onerous, we’re not allowed to finance new
debt, we’re not allowed to refinance expiring debt, you just can’t issue any debt. Then by being in compliance, we can then
access that, what I think very liquid, open and cost competitive financing. Then especially if you’re in the office sector, if you
have access to that funding window, I think you’re in a competitive advantage in the marketplace.
Tamim Sarwary
Right, and maybe just to follow up, the underwriting is based on quarterly
results, I guess the logical thing to do would be to wait until maybe the second half of 2024 before you actually access the GSE
financing just to show stabilized results, is that kind of the right way to think about it?
Adam Portnoy
I think we have to wait. This is getting a little ahead of ourselves.
It’s planning a little too far out. I think we could be in a position to put financing in place if we chose to in early 2024 we
could be in a position to do so. The question you’re asking is would you do so? And the answer is I don’t know, but I do know
that we could by early 2024 in my belief do so and do so in a sizable way if we had to. So, it’s there for us, whether we choose
to do it is a different question that you’re asking, but we can.
Tamim Sarwary
Thanks for all the help guys.
Operator: The next question is a follow up from Bryan Maher
of B. Riley Securities. Please go ahead.
Bryan Maher
Great thanks. So, Adam you opened up that door
for me on the SHOP financing question, which I think we understand here pretty well. When we look at roughly $4 billion in unencumbered
SHOP assets within DHC, we were thinking something along the lines of you cherry pick out $1.4-1.5 billion of the better performing NOI
accelerated from renovations last year properties to do a tranche in early 2024 to take out the 2024 debts for OPI and DHC and then maybe
you do another one a year later after other SHOP NOI assets have moved northward in support of that debt. Is that unrealistic to be thinking
in that way?
Adam Portnoy
You’re directionally in the right thinking about things correctly Bryan, those are all things we can
do. I will just put some markers out there for you to be thinking about. Obviously, we want to be very careful if we access that market,
picking the most mature properties, that we aren’t financing them too early in their recovery. We want properties that are largely
recovered and we’re not leaving some financing on the table. $1.4-1.5 billion in 2024 sounds a little heavy to me, to be honest.
If we did something that large, I think we would be taking some assets that were not fully recovered and leaving financing on the table.
The other benchmark to keep in mind is there are limits to how much secured debt we can put on the portfolio because remember every time
we put secured debt on, we’re removing those assets from the unencumbered asset pool. We still have unsecured bonds that have unsecured
debt covenants. So yes, we have significant room to add secured financing well past a billion dollars, but there’s a limit to how
much we can put on, think about that, I’m not sure you could say something like $1.5 billion and then there’s another $1.5
billion, I think you start really stressing covenants for the unencumbered bonds that will still be in place. Those are some reactions
and markers for you to think about.
Bryan Maher
Right, but I got to believe that if you just did in the first half of 2024 a pledge of
– and when I say $1.4-1.5 billion, I mean pledge $1.4-1.5 billion to take out, a billion cash. Your other debt will trade more
favorably, and one would have to believe that the bank groups associated with OPI and DHC combined company would have a sigh of relief
and be much more agreeable to simply just refinance debt that comes to you on a go-forward basis after you maybe tapped the first half a billion or billion of agency debt, is that correct thinking?
Adam Portnoy
Bryan that is correct thinking, yes. I think in
the near term we have a bias towards thinking about putting agency debt on some time in 2024. The timing is a little open, it’s
a little ways away so we’re not quite sure exactly when, but some time in 2024, and that’s right. Our hope is that we would
then have a more regular way of access to the unsecured market going forward after that. That would be sort of the base business plan,
but that has a lot of assumptions in that base business plan that we need to see come true.
Bryan Maher
Perfect. Thank you, that’s
helpful.
[Omitted]
Warning Concerning Forward-Looking Statements
This transcript contains statements that constitute
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws.
Also, whenever Diversified Healthcare Trust (Nasdaq: DHC), or DHC, and Office Properties Income Trust (Nasdaq: OPI), or OPI, use words
such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”,
“will”, “may” and negatives or derivatives of these or similar expressions, they are making forward-looking statements.
These forward-looking statements are based upon DHC’s and OPI’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
and OPI’s forward-looking statements as a result of various factors, which include those that are detailed in each of DHC’s
and OPI’s periodic reports and subsequent filings with the Securities and Exchange Commission, or the SEC.
You should not place undue reliance upon any forward-looking
statements. Except as required by law, DHC and OPI do 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
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’s common shares of beneficial interest, $.01 par value per share, to be issued in the merger. DHC and OPI intend to file a joint
proxy statement/prospectus and other documents concerning the merger with the SEC. The proposed transaction involving DHC and OPI will
be submitted to DHC’s and OPI’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 MERGER OR INCORPORATED BY REFERENCE IN THE REGISTRATION STATEMENT AND JOINT PROXY STATEMENT/PROSPECTUS
BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT DHC, OPI AND THE MERGER. When available, the relevant portions of the
joint proxy statement/prospectus will be mailed to DHC’s and OPI’s shareholders. 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 by DHC with the SEC may be obtained for free
on DHC’s Investor Relations website at www.dhcreit.com/investors or by contacting the DHC Investor Relations department at 1-617-796-8234.
In addition to the registration statement and joint
proxy statement/prospectus expected to be filed, 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 transcript 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 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,
OPI and certain of its trustees and executive officers, and The RMR Group LLC, the manager of DHC and OPI, and its parent and certain
of their respective directors, officers and employees may be deemed to be participants in the solicitation of proxies from DHC’s
and OPI’s shareholders in connection with the merger. Certain information regarding the persons who may, under the rules of the
SEC, be deemed participants in the solicitation of DHC’s and OPI’s shareholders in connection with the 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 DHC’s trustees and executive officers is included in the proxy statement for DHC’s 2023 annual
meeting of shareholders, which was filed with the SEC on April 20, 2023. Information about OPI’s trustees and executive officers
is included in the proxy statement for OPI’s 2023 annual meeting of shareholders, which was filed with the SEC on April 6, 2023.
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.
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