Dri Healthcare Trust T.DHT.UN

CIBC

[retiredcf]

Currently have a $15.50 target. GLTA

EQUITY RESEARCH
April 27, 2023 Earnings Update
DRI HEALTHCARE TRUST

Selling TZIELD Royalty For $210 Million
Our Conclusion

Less than two months after acquiring a royalty on the sales of TZIELD for
$100 million, DRI has sold its royalty entitlement to Sanofi for $210 million.
While DRI does not typically look to sell its royalties, the sale to Sanofi is a
clear positive for DRI, realizing a 110% return on its investment in quick
order. The $210 million payment aligns with our calculation of the present
value (PV) of TZIELD cash flows, but the upfront payment de-risks the
returns and gives DRI the ability to compound returns through investment in
additional royalties. Of proceeds, $20 million will be paid out as a special
distribution, with the remainder used to pay down the acquisition revolver and
to be redeployed into new royalty acquisitions. With fundraising conditions for
biotech firms still challenging, we expect DRI has a healthy pipeline of
opportunities and will seek to quickly redeploy capital into new royalty
agreements. Our net asset value (NAV) is unchanged given the $210 million
sale price closely mirrored our PV expectations for TZIELD, but we are
incrementally more positive on DRI given the additional potential return from
reinvestment of the sales proceeds.

In our view, DRI remains a preferred small-cap name against the current
market backdrop with limited downside risk given the discount to NAV, a
solid distribution yield and the flexibility to deploy capital in an attractive
valuation environment.

Key Points
Sale Price Matches Our TZIELD PV Expectations: When we added
TZIELD to our model in March, we calculated the deal was underwritten at
a mid-20s internal rate of return (IRR) given the strong growth potential of the
newly approved drug. To arrive at this IRR, we calculated the present value
of TZIELD cash flows at ~$210 million, directly in line with what the royalty
was re-sold for to Sanofi. At the time of the TZIELD announcement, we had a
favourable view on the deal given the growth potential of the drug, and the
sale has eliminated any of the risk associated with the drug’s revenue
growth. The sale also further validates DRI’s decision to issue preferred
securities with an elevated cost of capital (12%) to facilitate the TZIELD deal.

Use Of Proceeds: DRI will pay a $20 million special distribution with a
portion of the proceeds, an amount that represents a 6.7% yield prior to the
announcement of the transaction. The distribution will be paid to unitholders
of record on June 30, 2023. A further portion of the proceeds will be used to
pay down the outstanding balance on DRI’s revolving acquisition credit
facility, giving DRI the flexibility to deploy capital into additional royalty deals.
With the funding environment for biotech firms still difficult, we believe DRI’s
pipeline remains full of attractive opportunities and expect DRI to announce
additional deals in the coming months.

[retiredcf]

Added a few more this morning before the market wakes up and realizes what they have here. GLTA

[HermannHaller]

I was buying as high as $9.80 yesterday. I'll be patient, collect my dividends (incl the big one) and wait for the market to come around. It's not even economically sensitive, so no need to worry.

[raybay_98]

It's like a rough diamond. It's needs to be cut and polished many times but over time it will finally display it hidden brilliance!

[raybay_98]

'it' should read 'it's'