Diversified Healthcare Trust Closes $120M Mortgage Loan

June 3, 2024

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Secured by part of the REIT’s MOB and life science portfolio, the funds will be used to redeem certain senior notes.

Diversified Healthcare Trust, of Newton, Mass., has closed a $120 million mortgage loan secured by eight properties within DHC’s medical office and life science portfolio.

Two Newton Place in Newton, Mass., Diversified Healthcare Trust’s corporate headquarters. *Image courtesy of CommercialEdge*

The properties are located in seven states and total about 725,000 square feet. As of the end of March, the weighted average remaining lease term for these properties was 5.4 years and the overall occupancy was 93 percent.

The non-recourse loan has an implied capitalization rate of 7.2 percent based on the aggregate appraised value for the collateral properties and a loan-to-value ratio of approximately 50 percent.

The loan is an interest-only 10-year mortgage with a 6.864 percent all-in fixed interest rate. DHC intends to use about half of the loan proceeds to redeem a portion of its outstanding 9.750 percent senior notes due in 2025. The REIT will use the remainder of the loan proceeds to fund capital investments and improve liquidity.

The lenders were Wells Fargo Bank N.A., Bank of Montreal and UBS AG.

DHC did not reply to Commercial Property Executive’s request for additional information.

Debt issues

In April 2023, Office Properties Income Trust entered into a definitive merger agreement with Diversified Healthcare Trust, in an all-share transaction valuing the combined company at $12.4 billion. Both REITs are managed by The RMR Group, an alternative asset management firm.

As the shareholder vote neared, DHC sent several letters to its shareholders highlighting the merger’s upside for DHC, including solving “a series of severe and time-sensitive challenges for DHC related to the Company’s debt covenants….”

At the end of August 2023, however, DHC announced that the two REITs had mutually agreed to terminate the merger agreement. Later that month, DHC stated that, as it had previously reported, it “is not and has not been for the past two years in compliance with the debt incurrence covenants in its bond indentures. As a result, DHC cannot incur new debt or refinance existing indebtedness. DHC has $700 million in indebtedness maturing in the first half of 2024 and has previously disclosed that it does not expect to be in covenant compliance until late 2024 at the earliest.”