ISS Says DHC Merger With Office Properties Income Is A 'Take-Under'

A rendering of the redevelopment planned for 20 Massachusetts Ave. NW.
A Rendering Of Office Properties Income Trust's Redevelopment Plans For 20 Massachusetts Ave. Nw In Washington, D.c.

Proxy advisory firm Institutional Shareholder Services recommended Diversified Healthcare Trust shareholders vote against a merger with Office Properties Income Trust at a coming shareholder meeting.

ISS questioned the rationale for the deal, as well as the price offered to DHC, calling it "a take-under at a meaningful 53.7% discount to DHC's closing price," according to a statement released Wednesday by Flat Footed LLC, which owns about 9.8% of DHC's outstanding common shares.

ISS also noted the “lack of a competitive process” in setting up the deal and says shareholders have other options that could offer better returns, including another buyer.

“There appears to be little industrial logic in the combination of DHC and OPI, with little overlap in the tenants between the companies and minimal expected cost savings,” the advisory firm said.

In April, OPI inked a deal to acquire Diversified Healthcare Trust in an all-stock merger transaction that would create a new entity called Diversified Properties Trust. The deal would reduce OPI's exposure to the weak office sector.

In late June, DHC defaulted on a $450M credit facility soon after the company said that there is “substantial doubt regarding DHC’s ability to continue as a going concern” because of debt. The default wasn't an issue of payments, the company said, but rather a drop in the appraised value of collateral properties.

As for the debt, ISS said that DHC's management team characterized it as “manageable and temporary” before the merger was approved.

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