Flat Footed LLC Sends Letter to Diversified Healthcare Trust’s Board of Trustees Regarding Its Opposition to the Merger with Office Properties Income Trust
Summary
Today, FFL issued the below letter sent to the Company’s Board of Trustees regarding DHC’s recently announced definitive merger agreement with Office Properties Income Trust (Nasdaq: OPI). There are many superior alternatives available to address DHC’s upcoming debt maturities, such as curtailing RMR’s fee-driven spending to preserve cash or a targeted sale of a small percentage of its assets, that we urge the Company to consider. OPI gains access to DHC’s valuable, unencumbered assets from which it will seek to raise $1 billion of new debt, offset its declining cash flows, and stave off an otherwise likely bankruptcy filing.13 If this is allowed to occur, RMR will continue to collect massive fees as the external manager for the post-merger entity, without incurring any capital risk and regardless of the economic performance of the combined company. RMR’s compensation is primarily driven by the enterprise value of OPI and DHC, as opposed to the equity performance of either company, in addition to fees derived from rent collected and construction costs incurred. Since a substantial part of these fees are calculated on enterprise value and construction costs – not profitability or equity value – RMR is perversely incentivized to maximize debt and spending: the primary reasons why DHC faces near-term challenges today.