TSX:DHT.UN - Post by User
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retiredcfon Nov 09, 2022 9:30am
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Post# 35084864
RBC 2
RBC 2Their upside scenario target is a whopping $20.00. GLTA
November 8, 2022
DRI Healthcare Trust
Mixed Q3 results; deal pipeline remains robust
Our view: While Q3/22 revenue was ahead of consensus estimates (+26%), adj. EBITDA missed consensus by 5% (in-line with RBCe). Cash royalty receipts (ex-interest receipts) of $17.5MM were marginally below our estimate ($18.0MM). Adj. EBITDA of $15.8MM was broadly in-line with RBCe ($15.9MM) but below consensus ($16.7MM). DRI's near term deal pipeline is close to $1B with two deals currently under exclusivity and management expects additional 3-4 deals under exclusivity by year-end.
Key points:
Royalty revenues were above RBC and consensus estimates; EBITDA in line with RBCe but below consensus. DRI reported royalty income of $25.0MM in Q3/22, above our forecast of $21.5MM and the $20.0MM reported in Q2/22. Total revenue (including interest income) of $26.5MM was ahead of RBCe ($22.7MM) and consensus estimates ($21.0MM). Cash royalty receipts (ex-interest receipts) of $17.5MM were marginally below our estimate ($18.0MM) but this variation, both positive and negative from quarter to quarter, is normal. Total cash receipts including interest receipts were $18.8MM. Q3/22 adj. EBITDA of $15.8MM was broadly in-line with RBCe ($15.9MM) but below consensus ($16.7MM).
Updates on the deal pipeline. Management noted the deal pipeline has continued to strengthen over the quarter. DRI has 2 deals under exclusivity and management expects to have up to an additional 3-4 deals under exclusivity by year-end. The near-term deal pipeline consists of opportunities with potential deployment of ~$1B. Management expects the private market for royalty acquisitions to catch up to the rise in the interest rates. As such and in our view, the IRR on future acquisitions could be closer to or above ~12% target IRR. Additionally, since the Trust has now turned around the declining trend in cash royalty receipts through to 2025, management could potentially focus on higher IRRs in future deals.
Balance sheet, dividend and NCIB update. DRI ended Q3/22 with cash on hand of $20.5MM and had an outstanding balance of $216.9MM drawn under its credit facility ($350MM). After quarter-end, the company paid its previously declared dividend of $0.075/unit on 20-Oct and declared a cash dividend of $0.075/unit for Q4/22 payable on 20-Jan. DRI announced the renewal of its NCIB of 10% of outstanding units (~2.49MM units) beginning 14-Nov-2022 and ending 13-Nov-2023. Under the prior NCIB that ended on 04-Oct-22, the Trust obtained approval from the TSX to purchase 2.50MM units of which it purchased ~1.52MM units at a weighted average price of C$6.60 per unit (US$5.25).
Revising estimates, maintaining C$14 price target. We update our estimated NAV for DRI's royalty portfolio as of Q3/22A. Our C$14 price target is based on a 1.25x operating NAV at 9%, reflecting the optionality inherent in DRI’s business model and our expectation that cash flow will be redeployed into accretive acquisitions.