Diversified Healthcare Trust Announces $703 Million Joint Venture for 10 Properties in Its Office Portfolio Segment

Rhea-AI Summary

DHC has announced a joint venture worth $703 million involving 10 properties in its Office Portfolio, acquiring around $653 million in cash proceeds while maintaining a 20% equity stake. The properties, with a total area of 1.1 million square feet, were sold at $657 per square foot, resulting in an expected gain on sale of about $320 million. The funding will be used for capital expenditures and debt reduction. This venture is managed by The RMR Group, reinforcing DHC's operational liquidity.

Positive

• DHC retains a 20% equity interest in the profitable joint venture.
• Expected gain on sale of approximately $320 million enhances financial position.
• The transaction improves balance sheet liquidity, providing flexibility for investments.

Negative

• DHC's remaining Office Portfolio assets may not achieve similar valuations.
• Potential risks from COVID-19 could impact liquidity and operational performance.
• Future capital raising efforts may not yield expected value for shareholders.

DHC to Receive Cash Proceeds of Approximately $653 Million and Retain a 20% Equity Interest in the Joint Venture

Selling 80% Joint Venture Equity Interest at a 4.98% Capitalization Rate and Expected Gain on Sale of Approximately $320 Million

NEWTON, Mass.--(BUSINESS WIRE)-- Diversified Healthcare Trust (Nasdaq: DHC) today announced that it has entered into a $703 million joint venture for 10 properties in DHC’s Office Portfolio segment with two global institutional investors. The investors acquired a 41% and 39% equity interest in the joint venture for an investment of approximately $100.7 million and $95.8 million, respectively, and DHC retained a 20% equity interest in the joint venture. The joint venture incurred approximately $456.3 million of secured debt on the properties. The results of operations of the joint venture will be deconsolidated and DHC’s remaining 20% equity interest will be accounted for using the equity method.

DHC expects to use the cash proceeds from this transaction to fund capital expenditures, to reduce outstanding indebtedness and for other general business purposes.

These Office Portfolio segment properties contain an aggregate of approximately 1.1 million square feet and are located in five states. The 10 property portfolio is being sold at approximately $657 per square foot, or a 4.98% capitalization rate based on full year 2021 actual cash NOI. As of September 30, 2021, these properties were 97% occupied for a weighted average remaining lease term of 6.6 years (by annualized rental income). This transaction is expected to result in a gain on sale of approximately $320 million.

Jennifer Francis, President and Chief Executive Officer of DHC, made the following statement about today’s announcement:

“The closing of this joint venture transaction demonstrates the value of our Office Portfolio segment assets, highlighted by the attractive valuation and cap rate achieved, and provides increased balance sheet liquidity for DHC. This enhanced liquidity provides flexibility as we continue to invest in our portfolio to drive operational performance and optimize returns. We are excited to expand our joint venture platform with well-funded institutional investors that offer additional capital raising and deployment opportunities to DHC that will deliver future value to DHC’s shareholders.”

The list of properties included in the venture portfolio is as follows:

Address		City		State		Square Footage		Net Book Value (in millions, as of 9/30/21)
8631 & 8635 West 3rd Street		Los Angeles		CA		330,892		$210
1111 W. 34th Street		Austin		TX		70,505		$17
330 Baker Avenue		Concord		MA		49,250		$22
30 New Crossing Road		Reading		MA		33,600		$14
15 North Broadway		White Plains		NY		50,097		$23
6300 Eighth Avenue		Brooklyn		NY		71,500		$12
21717 & 21823 30th Drive SE		Bothell		WA		144,900		$27
2904 Orchard Parkway		San Jose		CA		78,979		$24
4770 Regent Boulevard		Irving		TX		116,948		$17
47900 Bayside Parkway		Fremont		CA		122,092		$16

The joint venture is managed by The RMR Group (Nasdaq: RMR), a leading U.S. alternative asset management company that is headquartered in Newton, MA and the manager of DHC. RMR is responsible for providing all aspects of business and property management services for more than 1,300 properties with over 93 million square feet of commercial office, industrial, medical office, life science and retail space.

Diversified Healthcare Trust (Nasdaq: DHC) is a real estate investment trust (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. DHC’s more than $7 billion portfolio includes 390 properties in 36 states and Washington, D.C., occupied by nearly 600 tenants, and totaling approximately 10 million square feet of life science and medical office properties and approximately 28,000 senior living units. DHC is managed by The RMR Group (Nasdaq: RMR), a leading U.S. alternative asset management company with more than $32 billion in assets under management and more than 35 years of institutional experience in buying, selling, financing and operating commercial real estate. DHC is headquartered in Newton, MA. To learn more about DHC, visit www.dhcreit.com.

WARNING REGARDING 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. Actual results may differ materially from those contained in or implied by DHC’s forward-looking statements as a result of various factors. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond DHC's control. For example:

• Ms. Francis states that the joint venture transaction announced today demonstrates the value of DHC’s Office Portfolio segment assets. This statement may imply that DHC’s remaining Office Portfolio segment assets may be valued in a similar manner or that DHC could finance those assets in similar joint venture or other transactions in a similar manner. However, capitalization rates and valuations of DHC’s other Office Portfolio segment assets may not be similar to those of the 10 properties that are included in the joint venture announced today. Further, property values change for various reasons, many of which are beyond DHC’s control, and property values may decline. In addition, institutional investors or other financing sources may not agree to finance additional Office Portfolio segment assets.
• Ms. Francis states that the joint venture transaction announced today provides increased balance sheet liquidity for DHC, and this press release states that DHC expects to use the cash proceeds from this transaction to reduce outstanding indebtedness. These statements may imply that DHC will be able to sustain sufficient liquidity and reduce its overall leverage. However, if the duration and severity of the COVID-19 pandemic and its impacts on DHC and its managers and tenants significantly worsen for a sustained period, DHC may be required to utilize all or a significant portion of its cash and cash equivalents to fund its business and operations, which may reduce or eliminate any balance sheet liquidity achieved by this transaction. Further, DHC may be unable to drive operational performance and optimize asset returns as expected or at all, and DHC may be unable to reduce its leverage.
• Ms. Francis states that DHC is excited to expand its joint venture platform with well-funded institutional investors that offer additional capital raising and deployment opportunities to DHC that will deliver future value to DHC’s shareholders. However, DHC may be unable to raise or deploy additional capital or its existing capital partners may fail to fund their required capital contributions. Further, any additional capital DHC may raise and deploy may not result in the increased value to DHC’s shareholders that DHC currently expects.

The information contained in DHC’s filings with the Securities and Exchange Commission, or SEC, including under “Risk Factors” in DHC’s periodic reports, or incorporated therein, identifies other important factors that could cause DHC’s actual results to differ materially from those stated in or implied by 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/20220129005016/en/

Michael Kodesch, Director, Investor Relations

(617) 796-8234

www.dhcreit.com

Source: Diversified Healthcare Trust

FAQ

What is the cash proceeds amount DHC expects from the joint venture?

DHC expects approximately $653 million in cash proceeds from the joint venture.

What percentage of equity interest will DHC retain in the joint venture?

DHC will retain a 20% equity interest in the joint venture.

What is the expected gain on the sale of the properties involved in the joint venture?

The expected gain on the sale of the properties is approximately $320 million.

What was the capitalization rate for the properties sold in the joint venture?

The properties were sold at a capitalization rate of 4.98%.

Who manages the joint venture for DHC?

The joint venture is managed by The RMR Group.