Traders Cooperative

[Joe Stocks]

DHC - Bought at $1.86. Already own some of there exchange traded debt - DHCNL.

The more I look at DHC the more I am intrigued with the common shares that just hit a all time lows. I love find a value trap that appears to have a catalyst for breaking to the upside. I already own the exchange traded senior unsub debt - DHCNL. DHCNL yields 9% here.
A couple things in the last conference call;
Q:
And then as it relates to the $1.5 billion in cash and the $1 billion callable this June, can you elaborate on the thought process there, whether it pay it all down, pay down half and refinance half, where is management thinking about taking that?"
A:
We definitely expect to prepay some portion of the nine and three quarter notes, but as you said we do need to be thoughtful and we need to continue to assess our investments and liquidity. The key thing for us is to make sure that we're investing in the portfolio and positioning ourselves to grow earnings so we can get a more normal dividend in place."

So the have $1.5 bil in cash (just sold another 10% piece of a building for another $108mil) They have 9.75% notes that can now be called in as of June. Paying any of this down will save interest expense.

Q:
I think last year, maybe it was in the first quarter, I forget, you issued some debt and I think that interest rate was maybe in the 4s, given what's going on with interest rates now, if you had to refinance some of that debt, how much higher do you think the interest rate might be?"
A:
You're right; we were below 4.5 on that last issuance. Interest rates have come up a bit, but to be honest, I haven't been as focused on where we would issue debt. We're really – we're sitting on $1.5 billion of cash. When we look at our total debt, net debt to gross assets is just 25%. So we're not really looking to issue more debt right now. The key is again focusing on the performance of the portfolio and getting EBITDA back up to where it should be."

So, not even thinking of borrowing more money here. I have to think that they pay down a big chuck of the 9.75%. That will have more cash falling to the bottomline. I looked at institutional ownership. No outright run for the exits. https://fintel.io/so/us/dhc

I think the industry they are in has growth potential. Senior living looks to be bottoming out. Not sure how much inflation/recession weighs on that. But overall, I think DHC is a worth a speculative trade with a 2 year time horizon. Positive debt reduction in this next report may be catalyst for better performance. I don't see a whole lot of downside risk here. They appear to be well capitalized. No near term debt risk. $250 mil dues in 2024. The $billion 9.75% due in 2025. Then no senior notes due to 2028.
Investor presentation:
https://s24.q4cdn.com/823398264/files/doc_presentations/2022/05/DHC-Q1'22-Investor-Presentation.pdf

https://www.sec.gov/ix?doc=/Archives/edgar/data/1075415/000107541522000018/dhc-20220331.htm