“Current conditions raise substantial doubt about our company’s ability to continue as a going concern as a stand-alone company,” Diversified Healthcare Trust President and CEO Jennifer Francis said Tuesday on the Newton, MA-based real estate investment trust’s first-quarter earnings call.
Those conditions provide one reason that a merger with Office Properties Income Trust, announced last month, makes sense, she said.
“While we’ve been encouraged to see the turnaround in our senior housing operating portfolio begin to materialize, the recovery has not occurred fast enough to address several concerns,” Francis said. One of the concerns that the merger addresses, she added, is having sufficient liquidity to be able to fund “critical capital” needed to “ensure the successful turnaround of the communities in our [senior housing operating portfolio] segment and to realize its long-term value potential.”
The merger is expected to close in the third quarter. Until then, Francis said, the REIT is “continuing to take steps to increase operating efficiencies in the communities in our SHOP segment and improve our bottom line so that we enter the combination from a position of operational strength.”
Chief Financial Officer and Treasurer Rick Siedel said that if the merger does not close, DHC will have to defer capital investments in the portfolio, and doing so would “substantially delay” the turnaround of the SHOP segment.
If the merger does not close, Seidel said, “We will look to raise additional capital, but we are limited in the financings we may seek, as we cannot incur any debt. Due to capital market conditions, as of today, we do not believe it is probable that we will raise sufficient capital to alleviate the substantial doubt about our ability to continue as a going concern.”
Capital expenditures in the SHOP are expected to be $200 million a year in 2023 and 2024, Seidel said.
Operators in the 230-property SHOP as of March 31, according to supplemental information filed Monday with the Securities and Exchange Commission, include Five Star Senior Living/AlerisLife, Cedarhurst Senior Living, Charter Senior Living, IntegraCare Senior Living, Life Care Services, Navion Senior Solutions, Northstar Senior Living, Oaks-Caravita Senior Care, Omega Senior Living, Oaks Senior Living, Phoenix Senior Living, Stellar Senior Living and The RMR Group.
Read more about DHC’s performance via the McKnight’s Business Daily as well as via a press release and presentation on the DHC website.
