Have an $18.00 target. GLTA
DRI HEALTHCARE TRUST
Upsizing Credit Facility To US$500MM
Our Conclusion
DRI announced an amendment to its existing credit facility, upsizing the total
size of the facility from $339MM to $500MM and extending the maturity from
March 30, 2026 to October 31, 2026. We believe that the timing of the
announcement, in combination with the September equity raise, highlights
the potential for additional royalty acquisitions in the near-term. With the
announcement, management referenced a healthy pipeline of $3B in
acquisition opportunities. Following the recent equity raise, net debt
(excluding the preferred securities) sits at ~1.2x TTM EBITDA and after the
acquisitions made over the course of 2023, management believes it can
comfortably operate at the top-end of the previously stated 2.0x-3.0x
leverage target. Overall, we view this update as positive for DRI: the upsized
facility in close succession to the two recent equity raises continues to
indicate a healthy market for royalties that DRI is willing to take advantage of.
Key Highlights
Facility Details: The new facility increases the total amount of available
credit from $339MM to $500MM. The previous facility was made up of was
$225MM under a revolving acquisition credit facility, $88.75MM under a
delayed draw term loan and $25MM under a working capital credit facility.
The size of the working capital facility remains unchanged while both the
acquisition revolver and the term facility have been increased to reach the
$500MM total. The maturity date on the facility was pushed from March 30,
2026 to October 31, 2026 while the interest rate remains unchanged at
SOFR + 2% to 2.75%, depending on the Trust’s leverage ratio. A total of
$161MM was drawn on the facility as of June 30, and after the acquisitions of
VONJO II and Orserdu II and repayments with proceeds from the equity
raises, we forecast that DRI currently has $206MM in outstanding debt.
New Facility Allows DRI To Operate With More Leverage: Despite the
higher interest rate environment, management reiterated its comfort
operating at the upper end of its 2.0x-3.0x leverage range, noting that the
pharmaceutical sector has been relatively rational in response to elevated
interest rates, with underlying deal returns expanding in response to rising
rates. We view 3.0x leverage on TTM EBITDA as a level DRI can support, as
TTM EBITDA does not include full contribution from acquisitions completed
in the last 12 months. The size of the previous credit facility would have only
allowed DRI to reach ~2.5x of leverage, and the new facility provides more
than enough headroom to reach 3x. While DRI expects to operate at ~3.0x
leverage, management did indicate a willingness to go above 3.0x if a
particularly compelling deal presents itself. Based on our Q3 LTM EBITDA
forecast of $95.6MM, DRI could add an additional ~$180MM in debt before
hitting the 3x leverage level, a level of spending it couldn’t have reached with
the previous credit facility.