Diversified Healthcare Trust Agrees to Amend Management Agreements with Five Star Senior Living Inc.

Diversified Healthcare Trust (Nasdaq: DHC) today announced that it has agreed to amend its management arrangements with Five Star Senior Living Inc. (Nasdaq: FVE), or Five Star, for DHC’s senior housing operating portfolio, or SHOP, communities. The principal changes to the management arrangements include:

• Five Star will cooperate with DHC in transitioning 108 senior living communities with approximately 7,500 living units to other operators without payment of any termination fee by DHC. DHC will no longer have the right to sell up to $682 million worth of senior living communities and terminate Five Star’s management of those communities without the payment of a fee.
• Five Star will continue to manage 120 senior living communities with approximately 18,000 living units for DHC. The skilled nursing units in all continuing care retirement communities (CCRCs) that Five Star will continue to manage for DHC, which currently includes approximately 1,500 living units, will be closed and repositioned.
• DHC’s performance termination rights will be changed for the 120 retained senior living communities so that beginning in 2025 up to 10% of the senior living communities managed by Five Star, based on total revenues, can be terminated by DHC without payment of any termination fee by DHC for failure to meet 80% of a targeted EBITDA in prior years.
• Five Star’s incentive fee calculation will be changed so there will no longer be a cap placed on any incentive fee earned by Five Star in any calendar year and to exclude senior living communities from the calculation that are undergoing a major renovation or repositioning.
• DHC, utilizing the deep real estate expertise of its manager, The RMR Group (Nasdaq: RMR), will assume control of major renovation and repositioning activities at all Five Star managed senior living communities.
• The term of the management agreements between DHC and Five Star will be extended by two years to December 31, 2036.

DHC expects that the 108 senior living communities to be transitioned to other operators will be divided into smaller portfolios with new managers that have a combination of experience operating in certain regions of the United States, servicing higher acuity residents and managing smaller communities. Following the transition of management of these 108 senior living communities to other operators, Five Star will continue to manage 120 senior living communities, or approximately 66%, of DHC’s SHOP communities. The transition of management to other operators is expected to be completed before year end 2021.