TSX:DHT.UN - Post by User
Post by
retiredcfon Mar 03, 2023 9:43am
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Post# 35317202
RBC
RBCTheir upside scenario target also remains at $18.00. GLTA
Outperform
TSX: DHT-U; CAD 7.55
Price Target CAD 14.00
DRI Healthcare Trust
Mixed Q4 results; robust deal pipeline with expected IRRs to exceed 14%
Our view: While Q4/22 revenue was light vs. estimates (6% below RBCe; 10% below consensus), adj. EBITDA was ahead of estimates (+9% ahead of RBCe; +12% ahead of consensus). Cash royalty receipts (ex-interest receipts) of $29.6MM were +5% ahead of our estimate ($28.1MM). Management noted expected IRRs on future deals in the pipeline to be in excess of 14%, which we view positively after the recent private placement. DRI’s near-term deal pipeline is close to ~$2.5B (up from ~$1B) and consists of ~18 transactions.
Key points:
Royalty revenues below estimates while adj. EBITDA ahead of estimates.
DRI reported total revenue (including interest income) of $22.6MM was below RBCe ($24.1MM) and consensus ($25.1MM). Cash royalty receipts (ex-interest receipts) of $29.6MM were +5% ahead of our estimate ($28.1MM). Total cash receipts including interest receipts were $31.2MM. Q4/22 adj. EBITDA of $27.4MM was stronger than RBCe ($25.2MM) and consensus ($24.4MM).
Updates on the deal pipeline. The near-term deal pipeline consists of ~18 opportunities with potential aggregate deployment of ~$2.5B (vs. ~1B in H2/22). Of the ~18 potential deals, two are under exclusivity (expected to close in the next 60 days) and ~3–4 are in advanced diligence (expected to close in 90–180 days), while the remaining are at the preliminary diligence stage. Management noted that the gap between private market valuations and public market has closed, and deals under consideration have IRRs in excess of 14% (vs. ~10–12% in 2022) and more favorable structures for DRI (fewer caps on upside optionality). We view the expected IRRs of 14+ % positively given that the recent private placement implied ~12% cost of capital. Recently, DRI also announced an increase in the target deployment from $650–750MM to $850–900MM over a five-year period (here).
Balance sheet, dividend, and NCIB update. DRI ended Q4/22 with cash on hand of $36.7MM and has drawn $246.9MM under its credit facility. After quarter-end, the company paid its previously declared dividend of $0.075/ unit on 20-Jan. DRI declared a cash dividend of $0.075/unit for Q1/23 payable on 20-Apr. During Q4/22, DRI acquired a total of 910,460 units for an aggregate purchase price of $4.8MM under its NCIB. On 08-Feb-2023, DRI completed a private placement for gross proceeds of $95MM to DRI through the sale of preferred securities (~$115MM face value).
Revising estimates, maintaining C$14 price target. We update our estimated NAV for DRI’s royalty portfolio as of Q4/22A. 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.