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Diversified Healthcare Trust’s senior housing operating portfolio continues to struggle in its post-pandemic recovery, according to a monthly performance update released Monday.

The update from the Newton, MA-based real estate investment trust follows the collapse last month of a planned merger with Office Properties Income Trust. The two REITs called off the merger after facing opposition from proxy advisory firms Egan-Jones, ISS and Glass Lewis as well as shareholders Flat Footed and hedge fund D.E. Shaw, all of which recommended that shareholders vote against the action.

DHC said that August monthly occupancy was 79.3%, 30 basis points above July but 720 basis points below August 2019 levels for its total senior housing operating portfolio. Year-to-date occupancy through Aug. 31 was 78.1%, which is 840 basis points below the same period in 2019.

August monthly resident fees and services revenue was 7.6% below the August 2019 level but 0.8% above the July 2023 level. Year-to-date resident fees and services revenue through Aug. 31 was 65% below the same period in 2019.

The portfolio also struggled with monthly net operating income, which for August was 66.5% below August 2019 levels, DHC said. The monthly NOI margin was 980 basis points below the August 2019 level and 70 basis points below the July 2023 level.

The year-to-date NOI though Aug. 31 was 65% below the same period in 2019. The year-to-date NOI margin through Aug. 31 was 1,070 basis points below the same period in 2019.

Merger collapse

Votes on the merger with OPI were supposed to take place Aug. 30 during special shareholder meetings for both REITs, but the companies convened and then immediately adjourned those meetings to continue discussions with shareholders. The votes were rescheduled for Sept. 6, but those meetings later were canceled.

DHC President and CEO Jennifer Frances had called the merger the best solution to address several near-term challenges faced by the REIT and had said that it would result in increased liquidity to fund the turnaround and capital improvement plan for DHC’s senior housing operating portfolio.

In May, a month after the intent to merge was announced, Francis said during the REIT’s first-quarter earnings call that current conditions raised “substantial doubt” about the firm’s ability to continue as a going concern as a stand-alone company. At the end of June, DHC announced that a “non-monetary event of default” had occurred under its $450 million credit facility.

During a second-quarter earnings call in August, Francis said that if the merger did not close as expected in the third quarter, then DHC would be forced to defer capital investment in its portfolio, significantly delaying the turnaround in its senior housing operating portfolio and forcing it to raise “expensive rescue financing.”

As of June 30, 119 of the 230 senior living communities in DHC’s senior housing operating portfolio were operated by Five Star Senior Living, a division of AlerisLife, according to an Aug. 1 presentation.

Other operators, according to the presentation, include 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.

DHC, OPI and AlerisLife all are managed by The RMR Group.


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