While trying to fight off one major shareholder who thought management was selling out Diversified Healthcare Trust (DHC) shareholders with their merger into Office Properties Income Trust (OPI) at a low value, they are now dealing with a technical default on the REIT’s $450 million credit facility.
The credit facility requires the value of the collateral to be at least $1.09 billion for the 61 medical office buildings and life science properties. The reappraised value came to just $1.05 billion, a 22% plunge from the $1.34 billion value when last appraised in January 2021. A 4% drop below the value threshold, or just $40 million, should not be worth getting your knickers in a knot over in this market environment. And changing the valuation assumptions by a very small amount would take that value above the required amount.
Because they expect the merger between the two REITs to be completed by the end of the third quarter, management is seeking a limited waiver with the lenders to waive the event of default until September 30, when the credit facility is supposed to be fully refinanced as part of the merger. Because of this lack of compliance, DHC is unable to issue any new debt or refinance maturing debt. This is just one of the reasons why they claim the need to merge with OPI, especially with $700 million of other debt coming due in the first half of 2024, and also why they issued a “going concern” statement a few months ago. And they didn’t know any of this six months ago? Interesting timing. Hmmm.
