Religare Health Trust's (RHT) latest results missed expectations but yesterday's massive decline in its unit price was surprising and, I thought, excessive.
The sale of a 51% stake in FHTL impacted RHT's income. Distributing the proceeds as a special dividend also meant that its NAV per unit declined to 83.8c.
DPU for the quarter ended 31 Dec 16 was 1.25c, a big year on year decline of almost 31% but most of it should be expected because of a reduced contribution from FHTL. Without accounting for this, however, DPU would still have reduced by a few percentage points (i.e. pretending that RHT did not sell a 51% stake in FHTL).
Trying to figure out how much is a reasonable price to pay for RHT, I referred to my long time healthcare REIT investment, First REIT. At $1.27 per unit, First REIT offered a distribution yield of about 6.7%.
RHT's gearing level is 26.6% while First REIT's gearing level is 31.1% (perpetual bonds lowered gearing ratio from 34.4% to 30.0% last year). So, First REIT should offer a higher yield since it is more highly geared.
Nonetheless, if we expect a quarterly DPU of 1.25c from RHT to be the norm from now (however unlikely), with an annual DPU of 5c, to get a 6.7% distribution yield or more, a unit price of 74.5c or lower is required.
All else being equal, the additional investment I made in RHT will offer a distribution yield of about 6.9% which is probably quite decent for a healthcare REIT now.
One reason why I decided to invest in RHT was discovering how India was not doing enough to provide healthcare for her people. I found out from watching an interview with an Indian Nobel prize winner.
My independent research since then tells me again and again that there is a lot of room for growth in India's health care sector. An example of my research:
|Source: The Hindu, 13 Sep 16.|
A child cannot throw a tantrum forever because the child will run out of energy, grow tired and stop.
Mr. Market is no different.
|Source: DBS Research, 7 Feb 17.|
First REIT's presentation: HERE.
RHT's presentation: HERE.