Dri Healthcare Trust T.DHT.UN

RBC

[retiredcf]

December 21, 2022

DRI Healthcare Trust

Correction: Announced special unit distribution and provided updates on its NCIB

TSX: DHT-U | CAD 8.07 | Outperform | Price Target CAD 14.00

Sentiment: Neutral

[This note replaces our note published previously on December 21, 2022 to correct referenced yield based on total units outstanding vs. public float previously.]

Our view: DRI declared a special unit distribution of US$0.1655 per unit. The special unit distribution will be paid along with the previously disclosed quarterly cash dividend of US$0.075 for Q4/22 payable on 20-Jan-2023. Under the current NCIB, between 07-Nov-22 till 21-Dec-22, DRI has acquired 910,460 trust units for an aggregate purchase price of ~US$4.8MM (~US$5.27 per unit). The stock is currently trading at a ~17% discount to our NAV estimate, which we find attractive and as such we reiterate our Outperform rating.

Special unit distribution of US$0.1655 per unit. DRI declared a special unit distribution of US$0.1655 per unit, which will be made payable to unitholders of record at close of 31-Dec-22. The unit distribution will occur on 20-Jan along with the regular quarterly cash dividend of US$0.075 for Q4/22. 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.

Buyback of US$4.8MM completed under the current NCIB. As of 21-Dec, DRI has acquired a total of 910,460 trust units, for an aggregate ~US$4.8MM since the current NCIB was announced on 07-Nov. Under the current NCIB, DRI can acquire up to ~2.5MM units until 13-Nov-2023. Management has noted the quarterly distributions and NCIB totalled ~US$18.8MM in 2022, which equates to ~8% yield (dividends+buyback) based on last close of ~US$5.98 and current outstanding units (~38MM).

Reiterate Outperform rating. The stock is currently trading at a ~17% discount to our NAV estimate, which we find attractive and as such, we reiterate our Outperform rating. In our view, as the company continues to execute, the discount to NAV should close and the stock could eventually trade at a premium to NAV to reflect the optionality inherent in DRI’s business model. Cash flow generated by existing assets may be redeployed into acquisitions of new royalty assets on an accretive basis, with potential for long-term organic upside from expansion into new therapeutic areas or geographies vs. DRI’s expectation at the time of acquisition.

[mjh9413]

As others remarked, the unit distribution was more than disappointing as it takes away any advantage for holdings in regstered accounts and we re left to wonder what happens in 12 months time. It strikes me it also goes against stated teaget distribution of 30% of cash receipts. HR did same thing. It's worse than a nothing event for registered account holdings. Bah! Humbug!