DHC to Receive Cash Proceeds of Approximately $653 Million and Retain a 20% Equity Interest in the Joint VentureSelling 80% Joint Venture Equity Interest at a 4.98% Capitalization Rate and Expected Gain on Sale of Approximately $320 Million
NEWTON, Mass.–Diversified Healthcare Trust today announced that it has entered into a $703 million joint venture for 10 properties in DHC’s Office Portfolio segment with two global institutional investors. The investors acquired a 41% and 39% equity interest in the joint venture for an investment of approximately $100.7 million and $95.8 million, respectively, and DHC retained a 20% equity interest in the joint venture. The joint venture incurred approximately $456.3 million of secured debt on the properties. The results of operations of the joint venture will be deconsolidated and DHC’s remaining 20% equity interest will be accounted for using the equity method.
DHC expects to use the cash proceeds from this transaction to fund capital expenditures, to reduce outstanding indebtedness and for other general business purposes.
These Office Portfolio segment properties contain an aggregate of approximately 1.1 million square feet and are located in five states. The 10 property portfolio is being sold at approximately $657 per square foot, or a 4.98% capitalization rate based on full year 2021 actual cash NOI. As of September 30, 2021, these properties were 97% occupied for a weighted average remaining lease term of 6.6 years (by annualized rental income). This transaction is expected to result in a gain on sale of approximately $320 million.
Jennifer Francis, President and Chief Executive Officer of DHC, made the following statement about today’s announcement:
“The closing of this joint venture transaction demonstrates the value of our Office Portfolio segment assets, highlighted by the attractive valuation and cap rate achieved, and provides increased balance sheet liquidity for DHC. This enhanced liquidity provides flexibility as we continue to invest in our portfolio to drive operational performance and optimize returns. We are excited to expand our joint venture platform with well-funded institutional investors that offer additional capital raising and deployment opportunities to DHC that will deliver future value to DHC’s shareholders.”
The list of properties included in the venture portfolio is as follows:
|Address||City||State||Square Footage||Net Book Value |
(in millions, as of 9/30/21)
|8631 & 8635 West 3rd Street||Los Angeles||CA||330,892||$210|
|1111 W. 34th Street||Austin||TX||70,505||$17|
|330 Baker Avenue||Concord||MA||49,250||$22|
|30 New Crossing Road||Reading||MA||33,600||$14|
|15 North Broadway||White Plains||NY||50,097||$23|
|6300 Eighth Avenue||Brooklyn||NY||71,500||$12|
|21717 & 21823 30th Drive SE||Bothell||WA||144,900||$27|
|2904 Orchard Parkway||San Jose||CA||78,979||$24|
|4770 Regent Boulevard||Irving||TX||116,948||$17|
|47900 Bayside Parkway||Fremont||CA||122,092||$16|
The joint venture is managed by The RMR Group (Nasdaq: RMR), a leading U.S. alternative asset management company that is headquartered in Newton, MA and the manager of DHC. RMR is responsible for providing all aspects of business and property management services for more than 1,300 properties with over 93 million square feet of commercial office, industrial, medical office, life science and retail space.
Diversified Healthcare Trust (Nasdaq: DHC) is a real estate investment trust (REIT) focused on owning high-quality healthcare properties located throughout the United States. DHC seeks diversification across the health services spectrum: by care delivery and practice type, by scientific research disciplines, and by property type and location. DHC’s more than $7 billion portfolio includes 390 properties in 36 states and Washington, D.C., occupied by nearly 600 tenants, and totaling approximately 10 million square feet of life science and medical office properties and approximately 28,000 senior living units. DHC is managed by The RMR Group (Nasdaq: RMR), a leading U.S. alternative asset management company with more than $32 billion in assets under management and more than 35 years of institutional experience in buying, selling, financing and operating commercial real estate. DHC is headquartered in Newton, MA.