Shares of Office Properties Income Trust (NASDAQ:OPI) fell by over 12% on Tuesday, following the announcement that the company had terminated its contentious merger with Diversified Healthcare Trust (NASDAQ:NASDAQ:DHC). The proposed all-stock merger, announced in April, aimed to create a diversified REIT with office and healthcare properties.
The termination comes after criticism from a proxy advisory firm, which described the industry logic behind the deal as "deeply flawed" and recommended investors vote against the transaction. The merger would have combined two struggling REITs with significant weaknesses. Office Properties is grappling with upcoming lease maturities, a challenging financing environment, and the need for substantial investments to upgrade its properties to attract tenants. On the other hand, Diversified Healthcare Trust is dealing with imminent debt maturities, high leverage, limited liquidity, and a slow recovery for its operated senior housing portfolio.
The opposition was so intense that it was unlikely the companies would have garnered enough shareholder support for the deal, leading to its termination. The decision to abandon the merger has been widely regarded as a positive move as it would have merged two troubled entities, potentially weakening the combined company further.
Following the termination of the merger, Office Properties Trust can now concentrate on addressing its challenges. This includes managing lease expirations in a tough office market to continue generating cash flow for deleveraging its balance sheet and funding redevelopment projects. Despite this strategic shift and a hefty dividend yield, uncertainty about its recovery makes Office Properties still an unattractive investment option.
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