8-K
Diversified Healthcare Trust (DHC)
UNITED STATESSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported):
January 28, 2022
DIVERSIFIED HEALTHCARE TRUST
(Exact Name of Registrant as Specified in Its Charter)
Maryland
(State or Other Jurisdiction of Incorporation)
| 001-15319 | 04-3445278 |
|---|---|
| (Commission File Number) | (IRS Employer Identification No.) |
| Two Newton Place**, 255 Washington Street** , Suite 300 , Newton , Massachusetts 02458-1634 | |
| --- | |
| (Address of Principal Executive Offices) (Zip Code) |
617-796-8350
(Registrant’s Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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Securities
registered pursuant to Section 12(b) of the Act:
| Title Of Each Class | Trading Symbol(s) | Name Of Each Exchange On Which Registered |
|---|---|---|
| Common<br> Shares of Beneficial Interest | DHC | The<br> Nasdaq Stock Market LLC |
| 5.625%<br> Senior Notes due 2042 | DHCNI | The<br> Nasdaq Stock Market LLC |
| 6.25%<br> Senior Notes due 2046 | DHCNL | The<br> Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
In this Current Report on Form 8-K, the terms “the Company”, “we”, “us” or “our” refer to Diversified Healthcare Trust and its subsidiaries, unless otherwise noted.
Item 2.01. Completion of Acquisition or Disposition of Assets.
On January 28, 2022 we entered into a joint venture for 10 of our medical office and life science properties with two unrelated third party institutional investors for total cash proceeds of approximately $653.3 million. The investors acquired a 41% and 39% equity interest in this joint venture from us for approximately $100.8 million and $95.9 million, respectively, and we retained a 20% equity interest in this joint venture. The investment amounts are based upon a property valuation of approximately $702.5 million, less approximately $456.6 million of secured debt on the properties incurred by this joint venture.
Also, as previously disclosed in our Current Report on Form 8-K filed with the Securities and Exchange Commission on December 29, 2021, on December 23, 2021, we sold a 35% equity interest from the 55% equity interest we owned in a pre-existing joint venture arrangement with an institutional investor for a life science property located in Boston, Massachusetts to another unrelated third party institutional investor for $378.0 million. Following that sale, we continue to own a 20% equity interest in this joint venture and the pre-existing joint venture partner continues to own a 45% equity interest in this joint venture.
Item 9.01. Financial Statements and Exhibits.
(b) ProForma Financial Information.
Effective as of the applicable date of the sales described in Item 2.01 of this Current Report on Form 8-K, the results of operations of these joint ventures are deconsolidated and our remaining 20% equity interest in each joint venture is accounted for using the equity method. This Current Report on Form 8-K includes unaudited pro forma condensed consolidated financial information of the Company as required by Item 9.01(b) of Current Report on Form 8-K as a result of these deemed dispositions. The unaudited pro forma condensed consolidated financial statements are not necessarily indicative of our expected financial position or results of operations for any future period. Differences could result from numerous factors, including future changes in our portfolio of investments, capital structure, property level operating expenses and revenues, including rents expected to be received from our existing leases or leases we may enter into, changes in interest rates, the performance of the joint ventures and other reasons. Actual future results are likely to be different from amounts presented in the unaudited pro forma condensed consolidated financial statements and such differences could be significant.
The following unaudited pro forma financial information of the Company is filed as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference:
| Introduction to Unaudited Pro Forma Condensed Consolidated Financial Statements | F-1 |
|---|---|
| Unaudited Pro Forma Condensed Consolidated Balance Sheet at September 30, 2021 | F-2 |
| Unaudited Pro Forma Condensed Consolidated Statement of Income (Loss) for the Nine Months Ended September 30, 2021 | F-3 |
| Unaudited Pro Forma Condensed Consolidated Statement of Income (Loss) for the Year Ended December 31, 2020 | F-4 |
| Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements | F-5 |
| (d) | Exhibits. |
| --- | --- |
| 99.1 | Unaudited Pro Forma Condensed Consolidated Financial Statements of the Company. (Filed herewith.) |
| --- | --- |
| 104 | Cover Page Interactive Data File. (Embedded within the Inline XBRL document.) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| DIVERSIFIED HEALTHCARE TRUST | |
|---|---|
| By: | /s/ Richard W. Siedel, Jr. |
| Name: | Richard W. Siedel, Jr. |
| Title: | Chief Financial Officer and Treasurer |
Date: February 1, 2022
Exhibit 99.1
DIVERSIFIED HEALTHCARE TRUST
Introduction to UnauditedPro Forma Condensed Consolidated Financial Statements
On January 28, 2022 we entered into a joint venture for 10 of our medical office and life science properties with two unrelated third party institutional investors for total cash proceeds of approximately $653.3 million. The investors acquired a 41% and 39% equity interest in this joint venture from us for approximately $100.8 million and $95.9 million, respectively, and we retained a 20% equity interest in this joint venture. The investment amounts are based on a property valuation of $702.5 million, less approximately $456.6 million of secured debt on the properties incurred by this joint venture.
Also, as previously disclosed in our Current Report on Form 8-K filed with the Securities and Exchange Commission on December 29, 2021, on December 23, 2021, we sold a 35% equity interest from the 55% equity interest we owned in a pre-existing joint venture arrangement with an institutional investor for a life science property located in Boston, Massachusetts to another unrelated third party institutional investor for $378.0 million. We continue to own a 20% equity interest in this joint venture and the pre-existing joint venture partner continues to own a 45% equity interest in this joint venture.
Pursuant to the agreement governing our revolving credit facility, or our credit agreement, the net cash proceeds to us from these transactions are being held as restricted cash. Effective as of the applicable date of these transactions, the results of operations of these joint ventures are deconsolidated and our remaining 20% equity interest in each joint venture is accounted for using the equity method.
The unaudited pro forma condensed consolidated balance sheet at September 30, 2021 reflects our financial position as if the transactions described in the notes to the unaudited condensed consolidated pro forma financial statements were completed on September 30, 2021. The unaudited pro forma condensed consolidated statements of income (loss) for the nine months ended September 30, 2021 and the year ended December 31, 2020 present our results of operations as if the transactions described in the notes to the unaudited condensed consolidated pro forma financial statements were completed on January 1, 2020.
These unaudited pro forma condensed consolidated financial statements should be read in connection with our unaudited financial statements for the nine months ended September 30, 2021, included in our Quarterly Report on Form 10-Q filed on November 3, 2021 with the Securities and Exchange Commission, or the SEC, and our audited financial statements for the year ended December 31, 2020, included in our Annual Report on Form 10-K filed on February 25, 2021 with the SEC.
These unaudited pro forma condensed consolidated financial statements are provided for informational purposes only. Our financial position and results of operations may be significantly different than what is presented in these unaudited pro forma condensed consolidated financial statements. In the opinion of our management, all adjustments necessary to reflect the effects of the transactions described in the notes to the unaudited pro forma condensed consolidated financial statements have been included.
Adjustments have been made to the unaudited pro forma condensed consolidated balance sheet and the unaudited pro forma condensed consolidated statements of income (loss) to reflect factually supportable items that are directly attributable to these transactions, and with respect to the unaudited pro forma condensed consolidated statements of income (loss), are expected to have a continuing impact on our financial results.
F-1
DIVERSIFIED HEALTHCARE TRUST
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCESHEET
September 30, 2021
(dollars in thousands, except share data)
| Sale<br> of Interest in Boston JV | Deconsolidation<br> of Boston JV | Sale<br> of Interest in 10 Property<br><br> JV | Deconsolidation<br> of 10 Property JV | Pro<br> Forma | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (A) | (B) | (C) | (D) | ||||||||||||
| Assets | |||||||||||||||
| Real estate properties: | |||||||||||||||
| Land | 793,555 | $ | — | $ | (52,644 | ) | $ | — | $ | (89,393 | ) | $ | 651,518 | ||
| Buildings and<br> improvements | 6,760,990 | — | (783,572 | ) | — | (360,315 | ) | 5,617,103 | |||||||
| Total real estate properties, gross | 7,554,545 | — | (836,216 | ) | — | (449,708 | ) | 6,268,621 | |||||||
| Accumulated<br> depreciation | (1,841,172 | ) | — | 145,833 | — | 93,159 | (1,602,180 | ) | |||||||
| Total real estate properties, net | 5,713,373 | — | (690,383 | ) | — | (356,549 | ) | 4,666,441 | |||||||
| Cash and cash equivalents | 794,739 | — | 252 | — | — | 794,991 | |||||||||
| Restricted cash | 16,698 | 373,832 | (13,800 | ) | 649,237 | — | 1,025,967 | ||||||||
| Investment in unconsolidated joint venture | — | 216,540 | — | 49,095 | — | 265,635 | |||||||||
| Acquired real estate leases and other intangible assets,<br> net | 252,629 | — | (199,913 | ) | — | (5,671 | ) | 47,045 | |||||||
| Other assets, net | 288,609 | — | (27,597 | ) | — | (24,140 | ) | 236,872 | |||||||
| Total assets | 7,066,048 | $ | 590,372 | $ | (931,441 | ) | $ | 698,332 | $ | (386,360 | ) | $ | 7,036,951 | ||
| Liabilities and Equity | |||||||||||||||
| Revolving credit facility | 800,000 | $ | — | $ | — | $ | — | $ | — | $ | 800,000 | ||||
| Senior unsecured notes, net | 2,805,154 | — | — | — | — | 2,805,154 | |||||||||
| Secured debt and finance leases, net | 689,044 | — | (618,377 | ) | — | — | 70,667 | ||||||||
| Accrued interest | 47,234 | — | (1,520 | ) | — | — | 45,714 | ||||||||
| Assumed real estate lease obligations, net | 61,335 | — | (58,645 | ) | — | (1,106 | ) | 1,584 | |||||||
| Other liabilities | 253,624 | — | (12,001 | ) | — | (6,894 | ) | 234,729 | |||||||
| Total liabilities | 4,656,391 | — | (690,543 | ) | — | (8,000 | ) | 3,957,848 | |||||||
| Commitments and contingencies | |||||||||||||||
| Equity: | |||||||||||||||
| Equity attributable to common shareholders: | |||||||||||||||
| Common shares of beneficial interest, .01 par value | 2,390 | — | — | — | — | 2,390 | |||||||||
| Additional paid in capital | 4,615,162 | 130,123 | (130,123 | ) | 378,360 | (378,360 | ) | 4,615,162 | |||||||
| Cumulative net income | 1,722,039 | 460,249 | — | 319,972 | — | 2,502,260 | |||||||||
| Cumulative distributions | (4,040,709 | ) | — | — | — | — | (4,040,709 | ) | |||||||
| Total equity attributable to common<br> shareholders | 2,298,882 | 590,372 | (130,123 | ) | 698,332 | (378,360 | ) | 3,079,103 | |||||||
| Noncontrolling interest: | |||||||||||||||
| Total equity<br> attributable to noncontrolling interest | 110,775 | — | (110,775 | ) | — | — | — | ||||||||
| Total equity | 2,409,657 | 590,372 | (240,898 | ) | 698,332 | (378,360 | ) | 3,079,103 | |||||||
| Total liabilities and equity | 7,066,048 | $ | 590,372 | $ | (931,441 | ) | $ | 698,332 | $ | (386,360 | ) | $ | 7,036,951 |
All values are in US Dollars.
The accompanying notes are an integral partof these unaudited pro forma condensed consolidated financial statements.
F-2
DIVERSIFIED HEALTHCARE TRUST
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTOF INCOME (LOSS)
For the Nine Months Ended September 30, 2021
(amounts in thousands, except per share data)
| Historical | Sale<br> of Interest in Boston JV | Deconsolidation<br> of Boston JV | Sale<br> of Interest in 10 Property <br><br>JV | Deconsolidation<br> of 10 Property JV | Pro<br> Forma | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (E) | (F) | (G) | (H) | |||||||||||||
| Revenues: | ||||||||||||||||
| Rental income | $ | 306,555 | $ | — | $ | (81,581 | ) | $ | — | $ | (42,203 | ) | $ | 182,771 | ||
| Residents fees and services | 739,926 | — | — | — | — | 739,926 | ||||||||||
| Total revenues | 1,046,481 | — | (81,581 | ) | — | (42,203 | ) | 922,697 | ||||||||
| Expenses: | ||||||||||||||||
| Property operating expenses | 818,096 | — | (20,995 | ) | — | (13,729 | ) | 783,372 | ||||||||
| Depreciation and amortization | 202,743 | — | (35,159 | ) | — | (9,775 | ) | 157,809 | ||||||||
| General and administrative | 25,538 | — | (2,211 | ) | — | — | 23,327 | |||||||||
| Acquisition and certain other transaction related costs | 15,179 | — | — | — | — | 15,179 | ||||||||||
| Impairment of assets | (174 | ) | — | — | — | — | (174 | ) | ||||||||
| Total expenses | 1,061,382 | — | (58,365 | ) | — | (23,504 | ) | 979,513 | ||||||||
| Gain on sale of properties | 30,838 | — | — | — | — | 30,838 | ||||||||||
| Gains and losses on equity securities, net | (26,943 | ) | — | — | — | — | (26,943 | ) | ||||||||
| Interest and other income | 19,849 | — | — | — | — | 19,849 | ||||||||||
| Interest expense | (192,241 | ) | — | 16,848 | — | — | (175,393 | ) | ||||||||
| Loss on early extinguishment of debt | (2,410 | ) | — | — | — | — | (2,410 | ) | ||||||||
| Loss from continuing operations before income tax expense<br> and equity in earnings of an investee | (185,808 | ) | — | (6,368 | ) | — | (18,699 | ) | (210,875 | ) | ||||||
| Income tax expense | (1,024 | ) | — | — | — | — | (1,024 | ) | ||||||||
| Equity in earnings of an investee | — | 1,142 | — | 1,850 | — | 2,992 | ||||||||||
| Net (loss) income | (186,832 | ) | 1,142 | (6,368 | ) | 1,850 | (18,699 | ) | (208,907 | ) | ||||||
| Net income attributable to noncontrolling<br> interest | (4,238 | ) | — | 4,238 | — | — | ||||||||||
| Net (loss) income attributable to<br> common shareholders | $ | (191,070 | ) | $ | 1,142 | $ | (2,130 | ) | $ | 1,850 | $ | (18,699 | ) | $ | (208,907 | ) |
| Weighted average common<br> shares outstanding (basic and diluted) | 237,905 | 237,905 | ||||||||||||||
| Per common<br> share amounts (basic and diluted): | ||||||||||||||||
| Net loss attributable to common<br> shareholders | $ | (0.80 | ) | $ | (0.88 | ) |
The accompanying notes are an integralpart of these unaudited pro forma condensed consolidated financial statements.
F-3
DIVERSIFIED HEALTHCARE TRUST
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTOF INCOME (LOSS)
For the Year Ended December 31, 2020
(amounts in thousands, except per share data)
| Historical | Sale of Interest in Boston JV | Deconsolidation of Boston JV | Sale of Interest in 10 Property JV | Deconsolidation of 10 Property JV | Pro Forma | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (I) | (J) | (K) | (L) | |||||||||||||
| Revenues: | ||||||||||||||||
| Rental income | $ | 427,215 | $ | — | $ | (107,644 | ) | $ | — | $ | (54,898 | ) | $ | 264,673 | ||
| Residents fees and services | 1,204,811 | — | — | — | — | 1,204,811 | ||||||||||
| Total revenues | 1,632,026 | — | (107,644 | ) | — | (54,898 | ) | 1,469,484 | ||||||||
| Expenses: | ||||||||||||||||
| Property operating expenses | 1,236,357 | — | (27,703 | ) | — | (18,159 | ) | 1,190,495 | ||||||||
| Depreciation and amortization | 270,147 | — | (46,887 | ) | — | (13,051 | ) | 210,209 | ||||||||
| General and administrative | 30,593 | — | (2,944 | ) | — | — | 27,649 | |||||||||
| Acquisition and certain other transaction related costs | 814 | — | — | — | — | 814 | ||||||||||
| Impairment of assets | 106,972 | — | — | — | — | 106,972 | ||||||||||
| Total expenses | 1,644,883 | — | (77,534 | ) | — | (31,210 | ) | 1,536,139 | ||||||||
| Gain on sale of properties | 6,487 | — | — | — | — | 6,487 | ||||||||||
| Gains and losses on equity securities, net | 34,106 | — | — | — | — | 34,106 | ||||||||||
| Interest and other income | 18,221 | — | (20 | ) | — | — | 18,201 | |||||||||
| Interest expense | (201,483 | ) | — | 22,586 | — | — | (178,897 | ) | ||||||||
| Gain on lease termination | 22,896 | — | — | — | — | 22,896 | ||||||||||
| Loss on early extinguishment of debt | (427 | ) | — | — | — | — | (427 | ) | ||||||||
| Loss from continuing operations before income tax expense and equity in earnings of an investee | (133,057 | ) | — | (7,544 | ) | — | (23,688 | ) | (164,289 | ) | ||||||
| Income tax expense | (1,250 | ) | — | — | — | — | (1,250 | ) | ||||||||
| Equity in earnings of an investee | — | 1,334 | — | 2,218 | — | 3,552 | ||||||||||
| Net (loss) income | (134,307 | ) | 1,334 | (7,544 | ) | 2,218 | (23,688 | ) | (161,987 | ) | ||||||
| Net income attributable to noncontrolling interest | (5,146 | ) | — | 5,146 | — | — | — | |||||||||
| Net (loss) income attributable to common shareholders | $ | (139,453 | ) | $ | 1,334 | $ | (2,398 | ) | $ | 2,218 | $ | (23,688 | ) | $ | (161,987 | ) |
| Weighted average common shares outstanding (basic and diluted) | 237,739 | 237,739 | ||||||||||||||
| Per common share amounts (basic and diluted): | ||||||||||||||||
| Net loss attributable to common shareholders | $ | (0.59 | ) | $ | (0.68 | ) |
The accompanyingnotes are an integral part of these unaudited pro forma condensed consolidated financial statements.
F-4
DIVERSIFIED HEALTHCARE TRUST
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS
(dollars in thousands)
Unaudited Pro Forma Condensed Consolidated Balance Sheet at September30, 2021 Adjustments
| (A) | As of September 30, 2021, we owned a 55% equity interest in a joint venture with a third party institutional investor for a property<br>located in Boston, Massachusetts, or the Boston JV. The adjustments represent the effect of our sale on December 23, 2021 of a 35% equity<br>interest in the Boston JV from the 55% equity interest we owned for approximately $373,832, net of closing costs, to another unrelated<br>third party institutional investor, and the proceeds of this transaction being held by us as restricted cash pursuant to our credit agreement,<br>as if this transaction occurred on September 30, 2021. We have adjusted retained earnings to recognize an estimated gain of $460,249.<br>We continue to own a 20% equity interest in the Boston JV. |
|---|---|
| (B) | The adjustments represent the elimination of the assets, liabilities and noncontrolling interest related to the deconsolidation of<br>the Boston JV. |
| --- | --- |
| (C) | The adjustments represent the acquisition on January 28, 2022 by two institutional investors of a 41% and 39% equity interest in<br> a joint venture from us for 10 of our medical office and life science properties for approximately $100,800 and $95,900,<br> respectively, or the 10 Property JV. The investment amounts are based on a property valuation of $702,500, before closing costs and<br> less approximately $456,600 of secured debt on the properties incurred by the 10 Property JV. The approximately $653,300 of total<br> cash proceeds from this transaction, before closing costs or other adjustments, will be held by us as restricted cash, pursuant to<br> our credit agreement, as if this transaction occurred on September 30, 2021. We have adjusted retained earnings to recognize an<br> estimated gain of $319,972. We continue to own a 20% equity interest in the 10 Property JV. |
| --- | --- |
| (D) | The adjustments represent the elimination of the assets and liabilities related to the deconsolidation of the 10 Property JV. |
| --- | --- |
Unaudited Pro Forma Condensed Consolidated Statement of Income (Loss)for the nine months ended September 30, 2021 Adjustments
| (E) | The adjustments represent pro forma equity in earnings of an investee representing our pro forma 20% equity interest in the Boston<br>JV for the nine months ended September 30, 2021. |
|---|---|
| (F) | The adjustments represent the historical income and expenses relating to the Boston JV as of and for the nine months ended September<br>30, 2021, which are being removed as a result of the deconsolidation of the Boston JV. The decrease in general and administrative expenses<br>primarily represents the removal of the historical asset management fee paid by a subsidiary of the Boston JV to The RMR Group LLC, or<br>RMR LLC, as a result of the deconsolidation of the Boston JV. The asset management agreement between the subsidiary of the Boston JV and<br>RMR LLC will continue to remain in effect, but the asset management fees paid under that agreement will not be included in our consolidated<br>results. |
| --- | --- |
| (G) | The adjustments represent pro forma equity in earnings of an investee representing our pro forma 20% equity interest in the 10 Property<br>JV for the nine months ended September 30, 2021. |
| --- | --- |
| (H) | The adjustments represent the historical income and expenses relating to the medical office and life science properties we contributed<br>to the 10 Property JV as of and for the nine months ended September 30, 2021, which are being removed as a result of the deconsolidation<br>of the 10 Property JV. |
| --- | --- |
Unaudited Pro Forma Condensed Consolidated Statement of Income (Loss)for the year ended December 31, 2020 Adjustments
| (I) | The adjustments represent pro forma equity in earnings of an investee representing our pro forma 20% equity interest in the Boston<br>JV for the year ended December 31, 2020. |
|---|
F-5
| (J) | The adjustments represent the historical income and expenses relating to the Boston JV as of and for the year ended December 31, 2020,<br>which are being removed as a result of the deconsolidation of the Boston JV. The decrease in general and administrative expenses primarily<br>represents the removal of the historical asset management fee paid by a subsidiary of the Boston JV to RMR LLC as a result of the deconsolidation<br>of the Boston JV. The asset management agreement between the subsidiary of the Boston JV and RMR LLC will continue to remain in effect,<br>but the asset management fees paid under that agreement will not be included in our consolidated results. |
|---|---|
| (K) | The adjustments represent pro forma equity in earnings of an investee representing our pro forma 20% equity interest in the 10 Property<br>JV for the year ended December 31, 2020. |
| --- | --- |
| (L) | The adjustments represent the historical income and expenses relating to the medical office and life science properties we contributed<br>to the 10 Property JV as of and for the year ended December 31, 2020, which are being removed as a result of the deconsolidation of the<br>10 Property JV. |
| --- | --- |
F-6