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A Newton-based owner of senior housing, medical office and life science properties canceled a proposed merger after an activist shareholder claimed conflicts of interest with its management company.
In April, Diversified Healthcare Trust agreed to merge with Office Properties Income Trust in a transaction that had been scheduled to close by Sept. 30, pending shareholder approval.
But a major DHC shareholder urged a negative vote, criticizing the terms and rationale for the merger. Flat Footed LLC, a Wyoming investment firm, owns nearly 10 percent of DHC shares.
Special shareholders meetings scheduled for Wednesday to vote on the deal were canceled.
“FFL looks forward to putting this campaign behind us and working with DHC leadership to expeditiously pursue superior paths. We continue to believe that a standalone DHC can address its near-term debt maturities and realize the full potential of the Company’s senior housing portfolio to ultimately maximize shareholder value,” FFL Managing Member Marc Andersen said in a statement.
DHC owns a real estate portfolio valued at $7.1 billion at 376 properties nationwide, including 27,000 senior living units and 9 million square feet of life science and medical office properties.
In June, DHC announced the default of a $450 million credit facility because of its failure to maintain properties appraised at $1.09 billion as collateral. The default applies to a portfolio of 61 medical office and life science properties, once valued at $1.34 billion.
DHC said it was negotiating a limited waiver with lenders to stave off a default through Sept. 30, which had been the closing date for the merger with Office Properties Income Trust.
The default prevents DHC from issuing or refinancing debt, and creates “substantial doubt regarding DHC’s ability to continue as a going concern,” DHC disclosed at the time.
Flat Footed LLC said the $1.15 per share price offered to DHC shareholders was “woefully inadequate” and claimed the merger raises conflict of interest concerns because both companies are managed by RMR, a Newton-based real estate company.
“The merger seems to have been designed to protect RMR’s rich management fees at DHC shareholders’ expense,” Flat Footed LLC said in an announcement opposing the merger.
The firm characterized DHC’s debt restrictions as a manufactured crisis intended to drum up support for the merger, and suggested that DHC sell off non-core assets instead. It questioned the value of Office Properties Income Trust’s 20 million-square-foot portfolio, describing it as consisting largely of single-tenant class B and C office buildings in “challenged markets.”
On Aug. 24, DHC announced that higher expenses are weighing on the performance of its senior housing operating portfolio, and the outlook for the second half of the year is “highly uncertain and unpredictable.”
In July, resident fee and service revenues totaled $94 million, a decline of 8.6 percent from July 2019. Net operating income totaled $5.9 million, down 60 percent from July 2019.
The company, previously known as Senior Housing Properties Trust until 2020, acquired the 1.1 million-square-foot Vertex Pharmaceuticals headquarters on Boston’s Fan Pier in 2014 for $1.1 billion. In February, it sold a 10-percent equity interest in the 11 Fan Pier/50 Northern Ave. property for $108 million, leaving it with a 10-percent equity interest.
DHT’s Massachusetts portfolio also includes properties leased to Boston Children’s Hospital, Perkin Elmer and Harvard Pilgrim and suburban medical office and retirement communities.
