Diversified Healthcare Trust (DHC) and Office Properties Income Trust (OPI) announced a merger in April, which would create a more resilient company. However, Flat Footed LLC, one of DHC’s largest shareholders, is opposing the deal, saying it undervalues the REIT by 90%. Flat Footed LLC holds a 7.4% stake and has urged the board to consider various strategic alternatives, including a sale of some assets.
The proposed deal would give DHC shareholders 0.147 share of OPI common stock for each DHC share, which represented an implied value of $1.70 per common share on the day the deal was announced. Flat Footed LLC believes DHC’s portfolio should be valued at $5 billion and its stock price should be trading between $9 and $10 a share. The stock price has lost 15% since the merger was announced.
The new company would be called Diversified Properties Trust and would continue to have its assets managed by the RMR Group Inc. Flat Footed wrote in its letter that RMR Group stands to gain outsized benefits from the merger by being able to increase its fees.
Flat Footed LLC has said it will vote against the proposed merger at a special meeting, which has not yet been set.