Diversified Healthcare Trust Announces Sale of 18 Triple Net Leased Senior Living Communities to Brookdale for $135 Million, or $154,000 per Unit

Rhea-AI Summary

Diversified Healthcare Trust (Nasdaq: DHC) has announced a $135 million sale of 18 triple net leased senior living communities to Brookdale Senior Living Inc. (NYSE: BKD). The properties, comprising 876 units across 10 states, have been leased and operated by Brookdale since 2003. The sale price equates to $154,000 per unit, reflecting a 7.3% in-place cap rate on the lease's annualized income.

DHC plans to use the proceeds to pay down its $941 million senior secured notes due January 2026. The transaction, expected to close in Q4 2024, is part of DHC's strategy to optimize its portfolio and enhance liquidity. The communities primarily serve assisted living and memory care residents, with properties located in Arizona, Colorado, Florida, Indiana, Michigan, Minnesota, North Carolina, Pennsylvania, South Carolina, and Tennessee.

Positive

• Sale price of $135 million represents a premium valuation of over $154,000 per unit
• Transaction reflects a 7.3% in-place cap rate on the lease's annualized income
• Proceeds will be used to reduce leverage by paying down senior secured notes
• Optimizes portfolio and enhances liquidity

Negative

• Reduction in DHC's property portfolio and potential loss of future rental income

Insights

Financial Analyst

The sale of 18 triple net leased senior living communities by Diversified Healthcare Trust (DHC) to Brookdale Senior Living for $135 million is a significant transaction with several key implications:

• The sale price of $154,000 per unit represents a premium valuation, indicating strong demand for senior living assets.
• The 7.3% in-place cap rate on the lease's annualized income suggests a favorable deal for DHC, as it's above average for the sector.
• DHC's intention to use the proceeds to pay down its $941 million senior secured notes due January 2026 is a prudent move to reduce leverage and improve the company's financial position.
• This transaction aligns with DHC's strategy to optimize its portfolio and enhance liquidity, which could potentially lead to improved financial flexibility and stronger balance sheet metrics.

For investors, this deal demonstrates DHC's ability to execute on its strategic initiatives and capitalize on market opportunities. The premium valuation achieved in the sale could positively impact the perceived value of DHC's remaining assets. However, the reduction in the company's property portfolio may affect future revenue streams and investors should monitor how DHC plans to reinvest or redeploy capital for growth post-debt reduction.

Real Estate Investment Specialist

This transaction highlights several important trends in the senior living real estate market:

• The $154,000 per unit valuation underscores the robust demand for quality senior living assets, particularly those with established operators like Brookdale.
• The deal structure, transitioning from a triple net lease to outright ownership by Brookdale, reflects a trend of operators seeking more control over their real estate.
• The geographic diversity of the portfolio, spanning 10 states, indicates the broad appeal of senior living investments across different markets.
• With most properties built in 1998, the age of the assets suggests potential for value-add opportunities through renovations or repositioning.

For DHC, this sale represents a strategic shift, potentially signaling a move towards a more focused portfolio. The premium valuation achieved could set a benchmark for future transactions in the sector. Investors should consider how this divestiture might impact DHC's overall portfolio composition and long-term growth strategy in the senior living space.

DHC Will Use the Proceeds to Pay Down Debt

NEWTON, Mass.--(BUSINESS WIRE)-- Diversified Healthcare Trust (Nasdaq: DHC) today announced it has entered into a purchase and sale agreement with Brookdale Senior Living Inc. (NYSE: BKD) (“Brookdale”) whereby Brookdale will acquire 18 triple net leased senior living communities that Brookdale currently leases from DHC for $135 million. Brookdale has leased and operated these 18 communities since February 2003. The 18 communities include 876 units located across 10 states serving primarily assisted living residents as well as memory care residents. DHC intends to use the proceeds from the transaction to pay down its $941 million of senior secured notes due January 2026.

Chris Bilotto, President and Chief Executive Officer of DHC, made the following statement:

“This transaction is a further implementation of our ongoing initiatives to optimize our portfolio and enhance our liquidity. The sale opportunistically monetizes this NNN portfolio at a premium valuation of over $150,000 per unit. The proceeds from the transaction reflect an in-place cap rate on the lease’s annualized income of 7.3% and will allow us to reduce our leverage.”

The properties that Brookdale will acquire as part of the transaction include:

Address	City	State	Year Built	Living Units
14001 W. Meeker Boulevard	Sun City West	AZ	1998	46
8271 South Continental Divide Road	Littleton	CO	1998	50
1416 Country Club Blvd.	Cape Coral	FL	1998	42
17441 State Road 23	South Bend	IN	1998	42
4004 & 4012 Waldo Road	Midland	MI	1998	37
1605 & 1615 Fredericks Drive	Monroe	MI	1998	38
3150 & 3100 Old Centre Road	Portage	MI	1998	93
720 & 734 N. Pine Road	Bay City	MI	1998	38
2445 & 2485 Mc Carty Road	Saginaw	MI	1998	38
1365 Crestridge Lane	Eagan	MN	1998	46
305 & 315 Thompson Avenue	West St. Paul	MN	1998	38
2220 & 2230 Farmington Drive	Chapel Hill	NC	1996	92
5300 Old William Penn Highway	Murrysville	PA	1998	34
7151 Saltsburg Road	Penn Hills	PA	1997	24
1920 Ebenezer Road	Rock Hill	SC	1998	41
251 Springtree Drive	Columbia	SC	1998	41
511 Pearson Springs Road	Maryville	TN	1998	92
2025 Caldwell Drive	Goodlettsville	TN	1998	44

The transaction is expected to close in the fourth quarter of 2024, subject to customary closing conditions.

About Diversified Healthcare Trust

DHC is a real estate investment trust 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 June 30, 2024, DHC’s approximately $7.2 billion portfolio included 370 properties in 36 states and Washington, D.C., occupied by approximately 500 tenants, and totaling approximately 8.4 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 over $41 billion in assets under management as of June 30, 2024 and more than 35 years of institutional experience in buying, selling, financing and operating commercial real estate. DHC is headquartered in Newton, MA. For more information, visit www.dhcreit.com.

WARNING CONCERNING FORWARD LOOKING STATEMENTS

This press release 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 DHC uses words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, “will”, “may” and negatives or derivatives of these or similar expressions, DHC 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. For example, this press release states that the transaction is expected to close in the fourth quarter of 2024, and that DHC intends to use the proceeds to pay down debt under its senior secured notes due January 2026. This press release also states that t that the transaction is a further implementation of DHC’s ongoing initiatives to optimize its portfolio and enhance its liquidity and the proceeds will allow DHC to reduce its leverage. However, the transaction is subject to closing conditions, and it may not close on the contemplated terms or at all or it may be delayed. DHC may not achieve the results it expects from the transaction or may incur losses on the transaction. Further, DHC may not be able to successfully use the proceeds as it currently intends. As a result, DHC may be unable to sustain or improve its liquidity or reduce its leverage.

Actual results may differ materially from those contained in or implied by DHC’s forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond DHC’s control.

The information contained in DHC’s filings with the Securities and Exchange Commission (“SEC”), including under the caption “Risk Factors” in DHC’s periodic reports, or incorporated therein, identifies other important factors that could cause differences from DHC’s 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 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.‎

A Maryland Real Estate Investment Trust with transferable shares of beneficial interest listed on the Nasdaq.
No shareholder, Trustee or officer is personally liable for any act or obligation of the Trust.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240929035474/en/

Timothy Bonang, Senior Vice President

(617) 796-8234

www.dhcreit.com

Source: Diversified Healthcare Trust

FAQ

What is the value of the sale between DHC and Brookdale for the 18 senior living communities?

Diversified Healthcare Trust (DHC) is selling 18 senior living communities to Brookdale Senior Living Inc. for $135 million, which equates to approximately $154,000 per unit.

How many units are included in the DHC-Brookdale transaction?

The transaction includes 876 units across 18 senior living communities located in 10 different states.

What is the cap rate for the DHC-Brookdale senior living communities sale?

The sale reflects an in-place cap rate of 7.3% on the lease's annualized income.

How does DHC plan to use the proceeds from the Brookdale transaction?

DHC intends to use the proceeds from the $135 million sale to pay down its $941 million of senior secured notes due January 2026.

When is the DHC-Brookdale senior living communities sale expected to close?

The transaction between DHC and Brookdale is expected to close in the fourth quarter of 2024, subject to customary closing conditions.