DRI Healthcare Trust T.DHT.UN

RBC

[retiredcf]

March 7, 2022

Outperform

TSX: DHT-U; CAD 6.80

Price Target CAD 14.00

DRI Healthcare Trust

Q4/21 Cash receipts and adj. EBITDA above estimates; revenue below estimates

Our view: Overall, we view DRI's Q4/21 results as positive for the shares. While Q4/21 royalty income was below RBC and consensus ex- RBC estimates, adj. EBITDA and cash royalty receipts were above. Total cash royalty receipts (ex-interest receipts) of $34.5MM were ~6% above our estimate. Adj. EBITDA was ~9% above our estimate and 22% above consensus ex-RBC estimates. DRI declared a cash dividend of $0.075/unit for Q1/22 to be paid on 20-Apr. DRI is amending its NCIB program to buy back 2.5MM units from 1.5MM units previously.

First impression

Royalty revenues below RBC and consensus estimates while cash royalties higher than estimates. DRI reported royalty income of $20.9MM in Q4/21, below our forecast of $23.4MM and $22.9MM reported in Q3/21. The miss in revenues vs. RBCe was largely led by Eylea revenues ($3.4MM vs. RBCe $5.0MM) and FluMist ($1.3MM vs. RBCe $2.0MM). Total revenue including interest income for Q4/21 was $22.2MM ($23.4MM in Q3/21) missing RBCe ($24.6MM) and consensus ex-RBC ($27.2MM). DRI reported cash royalty receipts of $34.5MM for Q4/21 above RBCe ($32.6MM). The beat in cash royalty receipts was largely due to higher than expected royalties for Zytiga ($9.0MM vs. RBCe $6.7MM) partially offset by lower receipts for FluMist ($0.9MM vs. RBCe $1.9MM). Total cash receipts including interest receipts were $36.3MM.

Q4/21 adj. EBITDA of $32.0MM was above RBCe ($29.3MM) and consensus ex-RBC ($26.2MM). Adj. EBITDA margin at 88% improved q/q (85% in Q3/21).
Balance sheet, dividend and NCIB update: DRI ended Q4/21 with cash on hand of $61.7MM and had an outstanding balance of $45.5MM under its credit facility. On 27-Jan, DRI made a repayment of $30.5MM and on 7-Mar, DRI drew US$60.0MM to fund the royalty purchase on pacritinib following its FDA approval (here), resulting in a current outstanding balance of $75.0MM under the credit facility. During the quarter, DRI acquired 1.04MM units under its NCIB for $5.5MM. DRI purchased an additional 400k units during the first two months of 2022 for $2.1MM. DRI is extending its NCIB to buy back 2.5MM units, up from 1.5MM units previously. After quarter-end, the company paid its previously declared dividend of $0.075/unit and a 2021 special dividend of $0.22/unit on 20- Jan. Today, it declared a cash dividend of $0.075/unit for Q1/22. Tomorrow's conference call. We would look for updates on the existing portfolio of royalties, pacritinib's ramp-up following the FDA approval and any updates on the deal pipeline. We note that IQVIA data shows that Oracea revenues declined ~25% q/q in Q4/21 and Jan-22 monthly revenues show a further ~15% decline vs. the Q4 monthly run-rate. In our view, some of this decline could be attributed to the Omicron spread and seasonality, but we would look for any additional commentary on Oracea.

Call details: Tomorrow (8-Mar) at 8:30AM ET. Dial-in: 1-888-664-6392 or 416-764-8659. Webcast link here.