Diversified Healthcare Announces ‘Event of Default’ On $450M Credit Facility

Diversified Healthcare Trust (Nasdaq: DHC) has announced an “event of default” on its $450 million credit facility.

The credit facility in question required Diversified to maintain collateral properties at an appraised aggregate value of $1.09 billion. But the value of the REIT’s properties declined from $1.34 billion to $1.05 million following a reappraisal of 61 medical office and life science properties.

That represents a 22% decline compared with the last time the assets were appraised in January 2021.

As a result, leaders with Newton, Mass.-based DHC said the company will be unable to issue any debt or refinance expiring debt for the time being.

Leaders with Diversified do not expect to be in compliance with the credit facility covenants at least until mid-year 2024. But the company has a $700 million worth of debt that will come due before then.

“For this reason, management has previously concluded that there is substantial doubt regarding DHC’s ability to continue as a going concern,” a news release about the default event reads.

DHC has a portfolio of $7.2 billion in assets, including 376 properties in 36 states and Washington D.C.

DHC reported a net debt to gross asset ratio of 32.4% in 1Q23, and on March 31, DHC’s ratio of consolidated income available for debt service was below the requirement under the existing credit facility and public debt covenants, its first quarter supplemental states.

Next year, $250 million in senior unsecured notes come due on May 1, 2024, with three preceding years of $500 million coming due through 2025, 2028 and 2031, according to the company’s debt summary published in March. That was part of the calculus behind the company’s decision to merge with another REIT, Office Properties Income Trust (Nasdaq: OPI).

As of April, Diversified senior housing operating portfolio consisted of 237 communities, nearly half of which are Five Star Senior Living communities managed by AlerisLife, which went private earlier this spring following an acquisition by ABP Acquisition LLC. Diversified is currently managed by the RMR Group (Nasdaq: RMR).

AlerisLife — once known as Five Star — has undergone several changes over the years that have substantially changed the makeup of the company and its leadership.

Other operators within DHC’s orbit include, Cedarhurst Senior Living, Charter Senior Living, IntegraCare, Life Care Services, Navion Senior Solutions, Northstar Senior Living, Oaks Senior Living, Omega Senior Living, Phoenix Senior Living, Stellar Senior Living and more, according to the company’s most recent supplemental.