What changed in this filing

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Item 1A. Risk Factors

2023-07-26 compared with 2023-04-26 · 41 added, 26 removed, 101 unchanged (40% of the section changed)

10 unchanged sentences

Changes in the market price of our common shares prior to the consummation of the Merger will affect the market value of the Merger Consideration .

As of July 25, 2023, the closing price of our common shares decreased from $11.55 on April 10, 2023, the last trading day before the public announcement of the Merger, to $7.67, and the closing price of the DHC Common Shares increased from $1.24 on April 10, 2023 to $2.36, and, as a result of such changes, the implied value of the merger consideration per DHC Common Share decreased from $1.70 on April 10, 2023 to $1.13 on July 25, 2023.

The market price of our common shares and the DHC Common Shares may change as a result of a variety of factors (many of which are beyond our and DHC’s control), including the following:

• market reaction to the announcement of the Merger and the Share Issuance, approval by our shareholders of the Merger and the Share Issuance and by the DHC shareholders of the Merger and the prospects of the combined company;

• changes in our or DHC’s respective businesses, operations, assets, liabilities, financial position and prospects, or in the market’s assessments thereof;

• market reaction to the announcement of the Merger and the Share Issuance, approval by our shareholders of the Merger and the Share Issuance and approval by the DHC shareholders of the Merger;

• changes in our or DHC’s respective businesses, operations, assets, liabilities, financial position and prospects, or in the market’s assessments thereof, or of the prospects of the combined company following the Merger;

• changes in the operating performance of us or DHC, or similar companies;

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• changes or anticipated changes in interest rates, general market and economic conditions and other factors generally affecting the price of our common shares and the DHC Common Shares;

• market assessments relating to the likelihood and terms of the financing to be obtained in connection with the Merger;

• federal, state and local legislation, governmental regulation and legal developments in the businesses in which we and DHC operate;

• dissident shareholder activity;

• shareholder litigation relating to the Merger or dissident shareholder activity;

• changes that affect the real estate market generally or the sectors applicable to us or DHC;

• changes in the United States or global economy or capital, financial or securities markets generally;

• any reductions in our regular quarterly cash distribution on our common shares;

• other factors beyond our or DHC’s control, including those described and referred to above under this “Risk Factors” section.

4 unchanged sentences

• if the market price of our common shares increases between the date the Merger Agreement was signed or the date of our special meeting or the DHC special meeting and the closing of the Merger, DHC shareholders will receive common shares of ours that have a market value upon consummation of the Merger that is greater than, as applicable, the market value of such shares calculated pursuant to the Exchange Ratio on the date the Merger Agreement was signed or on the date of our special meeting or the DHC special meeting, respectively;

applicable, the market value of such shares calculated pursuant to the Exchange Ratio on the date the Merger Agreement was signed or on the date of our special meeting or the DHC special meeting, respectively.

• if the market price of our common shares declines between the date the Merger Agreement was signed or the date of our special meeting or the DHC special meeting and the closing of the Merger, DHC shareholders will receive a number of our common shares that have a market value upon consummation of the Merger that is less than, as applicable, the market value of such shares calculated pursuant to the Exchange Ratio on the date the Merger Agreement was signed or on the date of our special meeting or the DHC special meeting, respectively.

The Merger is subject to the satisfaction or waiver of conditions which may not be satisfied or completed on a timely basis, if at all.

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• the time and resources committed by our management to matters relating to the Merger could otherwise have been devoted to pursuing other opportunities;

• we may experience challenges with indebtedness, including compliance with the terms governing existing indebtedness and/or refinancing such indebtedness;

• the market price of our common shares could decline to the extent that the current market price reflects, and is positively affected by, a market assumption that the Merger will be completed.

1 unchanged sentence

If permitted by applicable law, we or DHC may determine to waive, in whole or in part, one or more of the conditions to our or DHC’s obligations to consummate the Merger.

Any determination whether to waive any condition to the Merger and whether to re-solicit shareholder approval or amend the Proxy Statement as a result of a waiver will be made by us or DHC, as applicable, at the time of such waiver based on the facts and circumstances as they exist at that time.

Any determination whether to waive any condition to the Merger and whether to re-solicit shareholder approval or amend the joint proxy statement/prospectus as a result of a waiver will be made by us or DHC, as applicable, at the time of such waiver based on the facts and circumstances as they exist at that time.

The Merger Agreement contains provisions that could discourage a potential competing acquirer of either us or DHC, or could result in any competing proposal being at a lower price than it might otherwise be.

The Merger Agreement contains provisions that, subject to certain exceptions, restrict our ability and the ability of DHC to initiate, solicit, propose, knowingly encourage or knowingly facilitate competing third-party proposals to effect, among other things, a merger, reorganization, share exchange, consolidation or the sale of 20% or more of the shares or consolidated net revenues, net income or total assets of us or DHC.

In addition, we and DHC generally each have an opportunity to offer to modify the terms of the Merger Agreement in response to any superior proposal (as defined in the Merger Agreement) that may be made to the other party before our or DHC’s board of trustees, in each case acting on the recommendation of the special committee of the respective board, as the case may be, may withdraw or modify its recommendation in response to such superior proposal or terminate the Merger Agreement to enter into a definitive agreement with respect to such superior proposal.

In addition, we and DHC generally each have an opportunity to offer to modify the terms of the Merger Agreement in response to any superior proposal (as defined in the Merger Agreement) that may be made to the other party, and our or DHC’s board of trustees, in each case acting on the recommendation of the special committee of the respective board, or our or DHC’s special committee as the case may be, may withdraw or modify its recommendation in response to such superior proposal or terminate the Merger Agreement to enter into a definitive agreement with respect to such superior proposal.

Upon termination of the Merger Agreement under certain circumstances relating to an acquisition proposal, we may be required to pay to DHC a termination fee of $11.2 million, or DHC may be required to pay to us a termination fee of $5.9 million, in each case plus reasonable fees and expenses.

These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of us or DHC from considering or proposing such an acquisition, even if it were prepared to pay consideration with a higher per share value or implied premium to our shareholders than the value proposed to be received or realized in the Merger, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed

to pay because of the added expense of the termination fee and expense reimbursement that may become payable in certain circumstances under the Merger Agreement.

These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of us or DHC from considering or proposing such an acquisition, even if it were prepared to pay consideration with a higher per share value or implied premium to our shareholders than the value proposed to be received or expected to be realized in the Merger, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances under the Merger Agreement.

If the Merger Agreement is terminated and we determine to seek another business combination, we may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Merger contemplated by the Merger Agreement.

Our and DHC’s business and property management agreements with RMR contain provisions that could discourage a potential competing acquirer of either us or DHC, or could result in any competing proposal being at a significantly lower price than it might otherwise be.

The termination of our or DHC’s management agreements with RMR may require us or DHC, as applicable, to pay a substantial termination fee to RMR.

RMR has agreed to waive its right to receive payment of the termination fee under its business and property management agreements with DHC upon the termination of those agreements when the Merger is consummated.

The termination of our or DHC’s business and property management agreements with RMR may require us or DHC, as applicable, to pay a substantial termination fee to RMR.

RMR has agreed to waive its right to receive payment of the termination fees under its business and property management agreements with DHC upon the termination of those agreements when the Merger is consummated.

This waiver by RMR applies only in respect of the Merger and does not apply in respect of any competing proposal, superior proposal or other transaction or arrangement.

2 unchanged sentences

During the pendency of the Merger, due to operating covenants in the Merger Agreement, we and DHC may each be unable to undertake or pursue certain strategic transactions or significant capital projects, financing transactions or other actions that are not in the ordinary course of business, even if such actions may be beneficial to us or DHC.

In addition, some tenants or vendors may delay or defer decisions related to their business dealings with us and DHC during the pendency of the Merger, which could negatively impact the revenues, earnings, cash flows or expenses of us and/or DHC, regardless of whether the Merger is completed.

Our and DHC’s shareholders will be diluted by the consummation of the Merger .

The consummation of the Merger will dilute the ownership position of our existing shareholders and result in DHC shareholders having an ownership stake in us that is smaller than their current stake in DHC.

Upon consummation of the Merger, based upon the number of our common shares and DHC Common Shares outstanding as of the date of the Merger Agreement, we estimate that our shareholders immediately prior to the Merger (in their capacities as such) will own approximately 58% of the combined company as a result of the Merger and DHC shareholders immediately prior to the Merger (in their capacities as such) will own approximately 42% of the combined company as a result of the Merger, in each case without taking into account whether any of our or DHC’s shareholders were also shareholders of DHC or us, respectively, at that time.

Consequently, our shareholders may have less influence over the management and policies of the combined company after the Effective Time than they currently exercise over our management and policies.

Our Trustees and executive officers, DHC’s trustees and executive officers and RMR may have interests in the Merger that are different from, or in addition to, the interests of our and DHC’s shareholders, generally.

This may create potential conflicts of interest or the appearance thereof, which may lead to increased dissident shareholder activity, including litigation.

The interests of our and DHC’s respective trustees and executive officers and of RMR include, among other things, the continued service as a trustee or executive officer of the combined company following the Merger, as applicable, certain rights to continuing indemnification and directors’ and officers’ liability insurance for DHC’s trustees and executive officers, continuation of our business and property management agreements with RMR following the Merger and the potential for increased fees payable to RMR in connection with the Merger.

In addition, some tenants, vendors or other contractual counterparties may delay or defer decisions related to their business dealings with us and DHC, or exercise consent, termination or other contractual rights, during the pendency, or as a result, of the Merger, which could negatively impact the revenues, earnings, cash flows or expenses of us, DHC and/or the combined company, regardless of whether the Merger is completed.

Our Trustees and executive officers, DHC’s trustees and executive officers and RMR and RMR Inc.

may each have interests in the Merger that are different from, or in addition to, the interests of our and DHC’s shareholders, generally.

This may create a potential divergence of interest or the appearance thereof.

The interests of our and DHC’s respective trustees and executive officers and of RMR and RMR Inc.

include, among other things, the continued service as a trustee or executive officer of the combined company following the Merger, as applicable, certain rights to continuing indemnification and directors’ and officers’ liability insurance for DHC’s trustees and executive officers, continuation of our business and property management agreements with RMR following the Merger, from which RMR earns significant fees, and the potential for increased fees payable to RMR in connection with the Merger.

There is a risk that these interests may influence our and DHC’s respective trustees and executive officers and RMR to support the Merger.

These interests of our and DHC’s respective trustees and executive officers and of RMR in the Merger may increase the risk of litigation intended to enjoin or prevent the Merger and the risk of other dissident shareholder activity related thereto.

Although there is no change in the formulas used to determine fees payable by the combined company to RMR compared to our or DHC’s existing management agreements with RMR, improved performance by the combined company compared to the applicable benchmarks could result in the combined company paying an incentive fee (or an increased incentive fee, as applicable) given that the performance of the combined company may be different than our or DHC’s performance on a stand-alone basis.

In addition, certain members of our and DHC’s boards of trustees and special committees serve or have served as members of the boards of trustees or directors of companies managed by RMR.

There is a risk that these interests may influence our and DHC’s respective trustees and executive officers and RMR and RMR Inc.

to support the Merger.

These interests of our and DHC’s respective trustees and executive officers and of RMR and RMR Inc.

in the Merger may increase the risk of litigation intended to enjoin or prevent the Merger and the risk of other dissident shareholder activity related thereto.

In the past, and in particular following the announcement of a significant transaction, periods of volatility in the overall market or declines in the market price of a company’s securities, shareholder litigation and dissident shareholder proposals have often been instituted against companies alleging conflicts of interest in business dealings with affiliated or related persons and entities.

4 unchanged sentences

We are aware that several law firms have indicated that they are investigating the Merger and related matters, including actions taken by our board of trustees, to determine whether they may seek to assert claims.

On July 12, 2023, we and our board of trustees were sued in a lawsuit filed in the United States District Court for the Southern District of New York in which the plaintiff alleges that we and our board of trustees violated federal securities laws by omitting or misstating material information in the Form S-4.

In addition, DHC has received several demand letters alleging omissions of material information from the joint proxy statement/prospectus.

Any such lawsuit could seek, among other things, injunctive or other equitable relief including a request to rescind parts of the Merger Agreement and to otherwise enjoin the parties from consummating the Merger, as well as require payment of fees and other costs by the defendants.

We, DHC and any other defendant may incur substantial costs defending any such lawsuit, including the distraction of management’s attention, even if such lawsuits are without merit or unsuccessful.

We, DHC and any other defendant may incur substantial costs defending any such lawsuit, as well as the distraction of management’s attention, even if such lawsuits are without merit or unsuccessful.

No assurance can be made as to the outcome of any such lawsuits.

2 unchanged sentences

Such increase in our indebtedness may increase the risks we face.

We expect to assume certain of DHC’s existing indebtedness upon consummation of the Merger.

As of March 31, 2023, we had indebtedness of approximately $2.5 billion in principal amount and DHC had indebtedness of approximately $2.8 billion in principal amount.

We expect to assume DHC’s indebtedness upon consummation of the Merger.

As of June 30, 2023, we had approximately $2.6 billion in principal amount of indebtedness and DHC had approximately $2.8 billion in principal amount of indebtedness.

Our increased indebtedness could have important consequences to holders of our common shares, including:

8 unchanged sentences

• exposing us to potential events of default (if not cured or waived) under covenants contained in debt instruments that could have a material adverse effect on our business, financial condition and operating results;

• exposing us to operating difficulties due to an increased amount of secured debt;

• limiting our ability to react to changing market conditions in the real estate industry.

In addition, the agreements governing our future indebtedness may contain covenants and terms that are more restrictive than the covenants and terms governing our existing indebtedness, including restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us or the combined company, among other things, to obtain additional capital, pursue business opportunities and pay distributions.

The impact of any of these potential adverse consequences could have a material adverse effect on our results of operations, financial condition and liquidity.

20 unchanged sentences

The market price of our common shares may decline as a result of the Merger or the Share Issuance.

The market price of our common shares may decline as a result of the Merger or the Share Issuance if we do not achieve the perceived benefits of the Merger or the Share Issuance or the effect thereof on our financial results is not consistent with the expectations of financial or industry analysts.

In addition, upon consummation of the Merger, our shareholders and DHC shareholders will own our common shares, and we will operate an expanded business with a different mix of assets, risks and liabilities.

Our and DHC’s respective current shareholders may not wish to continue to invest in us as the combined company, or for other reasons may wish to dispose of some or all of our common shares that they own.

The market price of our common shares may decline as a result of the Merger if we do not achieve the perceived benefits of the Merger or the effect of the Merger on our financial results is not consistent with the expectations of financial or industry analysts.

Our and DHC’s respective current shareholders may not wish to continue to invest in the combined company, or for other reasons may wish to dispose of some or all of our common shares that they own.

If, following the Effective Time, large amounts of our common shares are sold, the market price of our common shares could decline.

6 unchanged sentences

The timing, amount and form of any future combined company distributions will be determined at the discretion of the combined company’s board of trustees, and the combined company’s shareholders will have no contractual or other legal right to distributions that have not been declared by the combined company’s board of trustees.

The market price and trading volume of our common shares may be volatile following the Merger.

Our common shares may experience significant price and volume fluctuations, and investors in our common shares may experience a decrease in the value of their shares, including decreases unrelated to our operating performance or prospects.

We cannot assure that the market price of our common shares will not fluctuate or decline significantly in the future.

In the past, securities class action litigation has often been instituted against companies following periods of volatility in the price of their common shares.

This type of litigation could result in substantial costs and divert the combined company’s management’s attention and resources, which could have a material adverse effect on its cash flows, its ability to execute its business strategy and/or its ability to make distributions to its shareholders.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors