DRI Healthcare Trust
Announced special distributions including cash distribution of US$0.2662 per unit
TSX: DHT-U | CAD 12.40 | Outperform | Price Target CAD 18.00
Sentiment: Positive
Our view: DRI declared a special cash distribution of US$0.2662 per unit (~2.9% yield). The special cash distribution will be paid along with the previously disclosed quarterly dividend of US$0.075 per unit for Q4/23 on January 19, 2024, to unitholders of record at the close of business on December 31, 2023. Separately, DRI also declared a special unit distribution of US$0.7640 per unit, payable to unitholders of record at close on December 31, 2023. Each unitholder will be entitled to add the amount of the special unit distribution to their adjusted cost base of units as at December 31, 2023. We reiterate our Outperform rating and expect the shares to outperform in 2024. While the discount to NAV has narrowed in 2023, we expect the units to trade at a premium to NAV in 2024, similar to other public royalty companies, as the company continues to successfully execute.
Announced special cash dividend of US$0.2662 per unit. DRI announced a special cash distribution of US$0.2662 per trust unit (~2.9% yield based on last close). The special cash distribution will be paid along with the quarterly dividend (US$0.075 for Q4/23) to unitholders of record at close of December 31, 2023 on January 19, 2024. DRI has announced aggregate cash distributions of US$1.10 per unit this year (~11.8% yield based on last close), including the special cash dividend of US$0.5334/unit associated with the Tzield sale.
Special unit distribution of US$0.7640 per unit. DRI also declared a special unit distribution of US$0.7640 per unit in accordance with the requirement for the company to distribute all of its taxable income for the year. The unit distribution will be made payable to unitholders of record at close of December 31, 2023. The special units will be immediately consolidated after the distribution resulting in no change to the number of outstanding units or the units held by an individual holder. Each unitholder will be entitled to add the amount of the special unit distribution to their adjusted cost base of the units as at December 31, 2023.
Reiterate Outperform rating. We see an attractive investment opportunity in DRI Healthcare Trust units and expect the shares to outperform in 2024. In our view, DRI continues to enjoy a favorable deal environment for royalty transactions with expected IRRs on the higher side of the historical range (HSD to mid-high teens) and uncapped deal structures which provide upside potential, if drug royalty assets perform better than expected. DRI’s deal pipeline stands at $3.0B with $1.4B of this amount classified as nearer term. As such, we expect at least two new royalty transactions to be completed in Q1/Q2 which will likely serve as catalysts for the shares. We note these deals have been pre-funded ($300MM+ of liquidity available) and there should be no need for incremental dilution. While the discount to NAV has narrowed in 2023, we expect the units to trade at a premium to NAV in 2024, similar to other public royalty companies, as the company continues to successfully execute. Our P/NAV multiple for DRI (1.25x), applied to the estimated value of the company’s existing portfolio, reflects the optionality inherent in DRI’s business model, which was underscored with the sale of the Tzield royalty to Sanofi earlier this year.