DRI Healthcare Trust
Q2/23 Results - Revenue, adj. EBITDA and cash royalties ahead of estimates
TSX: DHT-U | CAD 12.65 | Outperform | Price Target CAD 18.00
Sentiment: Positive
Our view: Overall, we view DRI's Q2/23 results as positive for the shares. Q2/23 revenue, cash receipts and adj. EBITDA were ahead of estimates. Total revenue of $28.1MM was above RBCe ($23.6MM) and consensus ($26.3MM). Cash royalty receipts (ex-interest receipts) of $27.1MM were slightly ahead of our estimate ($26.5MM). Adj. EBITDA of $25.1MM was also ahead of RBCe ($23.9MM) and consensus ($24.0MM). DRI declared a cash dividend of $0.0750/unit for Q2/23 to be paid on 20-Oct. Post the quarter, the company acquired an additional royalty stream on Vonjo for $66.0MM (here) and an additional royalty stream on Orserdu for $130MM announced this morning (here). DRI also completed a public offering of 9,223,000 units at $8.03 (USD) per unit for gross proceeds of $74.1MM. On the earnings call, we would look for updates on the existing portfolio of royalties, the company's deal pipeline, management's return expectations for future royalty acquisitions and any change in the competitive landscape.
Royalty revenues above RBC and consensus estimates; Cash royalties slightly ahead of RBCe. DRI reported total revenue of $28.1MM ahead of RBCe ($23.6MM) and consensus ($26.3MM). The strength in revenues vs. RBCe was led by higher interest income on loans and other receivable (+$3.1MM, aided by prepayment premiums) and higher royalty revenues (+$1.2MM). DRI reported cash royalty receipts of $27.1MM also ahead of RBCe ($26.5MM). Total cash receipts including interest receipts were $28.7MM. Total cash receipts in the quarter including the expected proceeds from the Tzield royalty sale ($210MM) and CTI loan receivable ($50MM principal payment, $1MM exit fees receivable, $2.14MM premiums for prepayment) were $291.8MM.
Q2/23 adj. EBITDA of $25.1MM was ahead of RBCe ($23.9MM) and consensus ($24.0MM). The adj. EBITDA margin of 87% improved q/q (86% in Q1/23).
Balance sheet and dividend update. DRI ended Q2/23 with cash on hand of $121.3MM and had drawn $163.1MM under its credit facility. After Q2, DRI acquired an additional royalty stream on Vonjo for $66.0MM and another royalty stream on Orserdu for $130MM. The Trust also completed a public offering of 9,223,000 units at $8.03 (USD) per unit for gross proceeds of $74.1MM. DRI paid its previously announced regular dividend of $0.075/unit and special cash dividend of $0.5334/unit (associated with the Tzield sale) on 20-July to unitholders of record as of 30-June-2023. Today, it declared a cash dividend of $0.075/unit for Q3/23 payable on 20-October. As a result of the Tzield royalty sale ($210MM vs. upfront payment of $100MM, here), the conditions for performance fee payments were met. The Trust recorded performance fees payable of $18.6MM during Q2/23. The performance fee will be paid in Q3/23.
Tomorrow's conference call. We would look for updates on the existing portfolio of royalties. Additionally, we expect the focus to be on the company's deal pipeline, management's return expectations for future royalty acquisitions and any change in the competitive landscape. We will look for additional colour on the recent royalty transactions whereby the Trust has increased its exposure to existing royalty assets in Vonjo and Orserdu. After the second Orserdu royalty transaction, management now expects mid-teens total income CAGR through 2025 and low single digit total income CAGR through 2030. We also wish to correct an error in our Quick Take from this morning on the new Orserdu royalty. The company will actually also receive milestone payments in addition to royalties if certain hurdles are met.
Call details: Tomorrow (15-August) at 8:00AM ET. Dial-in: 1-888-664-6392 or 416-764-8659. Webcast link here.