By Svea Herbst-Bayliss
NEW YORK (Reuters) - One of Diversified Healthcare Trust's (NASDAQ:DHC) largest shareholders is opposing the real estate investment trust's merger with Office Properties Income Trust (NASDAQ:OPI), saying the deal undervalues the REIT by 90% and there are better alternatives to an all-share deal.
Flat Footed LLC, which holds a 7.4% stake, said in a letter to DHC's board of trustees and seen by Reuters that the proposed deal represents a "take-under" for DHC shareholders who would be receiving a portfolio of office properties at a time many employees continue to work from home. DHC owns medical office buildings, life science properties and facilities in the rapidly growing senior living market.
Flat Footed urged the board to consider various strategic alternatives, including a sale of some assets. Flat Footed said it will vote against the proposed merger at a special meeting, which has not yet been set.
Office Properties Income Trust (OPI) and Diversified Healthcare Trust announced the merger in April, saying it will create a more resilient company that will be better positioned for growth.
DHC shareholders will receive 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.
In the letter, Flat Footed LLC said DHC's portfolio should be valued at $5 billion and its stock price should be trading between $9 and $10 a share. It closed trading at $1.05 on Monday.
The stock price has lost 15% since the merger was announced.
Flat Footed in its letter also said, "DHC is well-positioned for growth in the coming years, while OPI is a distressed REIT comprised of rapidly declining single-tenant commercial office properties."
A representative for DHC did not immediately respond to a request for comment.
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.