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Increased investment in Religare Health Trust (RHT) by more than 150%.

Thursday, February 16, 2017

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.

Although surprised by the speed and depth of the plunge in unit price, as I already had an idea of what was probably a pretty reasonable price to pay, I simply acted and more than doubled my investment in RHT.
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.
I believe that RHT's income would improve in the next couple of years not only because of increasing fees but also because almost 600 beds will be added by development projects to be completed as well as asset enhancement initiatives (AEI) in existing assets.

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.
Read the companion blog on investor psychology: HERE. 
First REIT's presentation: HERE.
RHT's presentation: HERE.


K said...

Hi AK,

You are a winner... you can sell now and collect your "dividend" now. :)

AK71 said...

Hi K,

You are a bad influence. Bad K! Bad K! ;p

I am holding on to my investment because I think RHT will do much better in the next 2 years. Crossing fingers. :)

redponza said...

Hi AK,
I already have quite a bit of exposure to RHT (around 5% of my portfolio).
For me to add more, I will demand a 8% yield.
8%? =.=

Ok, I will at least demand a 7% yield at the very least.
Which the plunge yesterday cannot fulfil...

On the other hand, when I was alerted of the fall yesterday, the price was at around 0.82-0.83. I pondered a bit and ignore the SLIGHT fall and went back to work.
I was alerted of a GREATER fall when the stock plunged to 0.71 then rose back to around 0.8...At that moment, I was like "Geez, if I know it will fall that know, I may just buy some for speculation/dividend"
This is really unfortunate...

AK71 said...

Hi redponza,

RHT as a percentage of my portfolio is much lesser than 5%.

71c would have given you a 7% yield based on a DPU of 5c but it was really a touch and go.

Unintelligent Nerd said...

Alamak! I missed it >.<

AK71 said...

Hi UN,

I don't know when but the boat will come back. ;)

Student Always said...

Hi AK-
May be I am missing something; doesn't SGX website show that RHT paid more than 5c dividend in 2016?

Ex-Date Pay Date Type Price

15/Nov/2016 09/Dec/2016 Cash S$ 0.036
19/Oct/2016 28/Oct/2016 Cash S$ 0.248
02/Jun/2016 15/Jun/2016 Cash S$ 0.038

AK71 said...

Hi SA,

Those numbers are history.

Do you expect RHT to have similar DPU in 2017?

Arthur Wang said...

One word, "Remarkable".

AK71 said...

Hi Arthur,

I believe I was lucky. :)

foolish chameleon said...

amazing, did you set a price alert or something? its like you were waiting to pounce , entry almost at bottom !

AK71 said...

Hi FC,

I was at the right place at the right time. Lucky. :)

redponza said...

Believe that price alerts are needed for shares that you are monitoring.
Anyhow AK is really lucky!

wanchai30 said...

Dear AK71,

I chanced upon your blog by chance a couple of weeks ago and have been looking for you to talk to yourself. Have learnt a lot in the area of investing as a newbie despite passing my half life a couple of years ago.

Just a question, how did you get notification for a drop in price of a particular stock, i supposed your purchase is done online.


AK71 said...

Hi Pat,

Welcome to my blog. :)

I didn't set any alerts. I just happen to see it. Lucky.

If I am home which is almost always, I am at my PC most of the time. ;)

AhJohn said...

Wah! At PC most of the time!
AK, can share what websites you normally reading?

AK71 said...

Hi Ah John,

The 2 websites I spend the most time at these days?

Don't say you don't believe me, OK? ;)

AhJohn said...

haha, AK, I think you will see tons of comment soon. Jaw dropped :)

AK71 said...

Hi Ah John,

I don't know why so many don't believe that I spend a lot of time watching K-drama and anime these days. I am just enjoying my retirement. -.-"

Alcus Trader said...

Hi AK,

Don't worry, I believe you! Although not as "lucky" as you, I got it at $0.73.

AK71 said...

Hi AT,

Congratulations! :)

keng said...

Hi AK,

You should watch K-drama 'Goblin' if you haven't watched yet ;)

AK71 said...

Hi keng,

I watched Goblin and also the specials in the last 4 days. ;p

JH said...

RHT price going down for past few months... is there any reason for it?

AK71 said...

Hi Charles,

Your guess is as good as mine. ;)

JH said...

i cant find any good reason for the's just the market i guess...

so i bought a little more... hahahha

Nick said...

Perhaps something is brewing...investors reacted to the change of 2Q results announcement from 7 November to 14 November 2017???

AK71 said...

Hi Charles,

As long as we have an idea of what is a fair price to pay, we should pounce when opportunity knocks. That was what I did in February this year. ;)

AK71 said...

Hi Nick,

I believe that something is always brewing.

Just have to hope it tastes good. ;p

csky said...

Hi AK, so you bought at 72cents, ran up to 90 cents.

Did you sell? If you didn't sell, how do you not feel regretful that you didn't sell at or around 90 cents to capture the capital gain?

Please enlighten me. Thank you!

AK71 said...

Hi csky,

It depends on our motivation for investing in RHT.

I invest in RHT for income and didn't think of possible capital gain.

Any capital gain for me is a bonus.

The same went for my investments in Saizen REIT and Croesus Retail Trust, for examples.

Unknown said...

What's your take on RHT non payment of 2H dividends due and going into exclusive negotiation with substantial share holder Fortiis to dispose of its assets entirely for 60 days.? Their Reply and reasons posted on Sgxnet seems fishy. RHT and Fortis are 2 separate entity. Even though Fortis is their sponsor.

AK71 said...

Hi Benjy,

As an investor for income, I am unhappy that my income is being held back, of course.

However, since I cannot do anything about this, I try not to think about it.

Benji said...

Congrats! Another REIT delisting!

AK71 said...

Hi Benji,

I am happy to book a capital gain but sad to lose a passive income generator.

AK71 said...

Reader says...
so the estimated final net proceeds of S$0.86 per unit?
my avg price is near to the estimated 0.86 pay out.
It's quite a significant portion in my portfolio so I'm thinking if I should average down further.
What should I consider?

AK says...
I am sure you have been following all the news and analyses available.

There are so many different estimates on how much will be paid out but only the manager of RHT knows exactly how much will be paid out.

Till now, we only know for sure that proceeds will be "substantially" paid out.

If you are buying because you think the pay out is 86c a share, bear in mind that you could be disappointed.

However, if you are buying because you think current unit price is undervalued, then, it is less speculative. :)

AK71 said...

Reader says...
Got news IHH may be acquiring Fortis, the sponsor for RHT. So RHT assets is probably going to be sold.

AK says...
I believe that there will always be buyers for good assets.

Reader says...
actually hoping for more drama.. maybe aggressive buying of RHT shares by some unknown buyer, maybe ASSI AK Pte Ltd or something πŸ˜‚. US/ CHINA have trade war, we have PRICE WAR! 😝

AK says...
Healthcare business is always in demand and it is a good fit for IHH, definitely.
However, I don't want too much drama in my life. So disturbing. πŸ˜›

AK71 said...

"We are concerned about the current situation as we would like the transaction to conclude in a timely fashion," said a key RHT executive when contacted by The Business Times.

"We are supportive of any white knight stepping in to assist Fortis fulfill its obligations under the operating agreements to buy back RHT's assets."

The long-stop date for the proposed deal, that was first announced last November and would need unitholders' nod is by end-September.

AK71 said...

ζŽδΌŸθƒœ says...
I understand current liabilities > current assets and bonds due soon. What’s your take on this.

AK says...
If we feel that RHT will not be able to refinance successfully, then, we should run for the hills. :p

AK71 said...

The auditors of RHT Health Trust from Ernst & Young have flagged a material uncertainty related to the trust’s ability to continue as a going concern.

The EY auditors noted that RHT’s current liabilities exceeded its current assets by S$129.4 million as at March 31, 2018. Included in these current liabilities is S$120 million of bonds due in January 2019.

“The ability of the group to continue as a going concern is dependent on the group’s ability to obtain refinancing to repay the bonds … and generating cashflows from its operations,” they said.

RHT has said in a note to its financial statements that it is currently in discussion with banks to extend and/or refinance the S$120 million notes.

JH said...

Price plunge because of the news

good time to buy or run?

AK71 said...

Hi Charles,

Up to you.

I am not running.

I lazy. ;p

AK71 said...

After repayment of external borrowings, estimated net consideration per unit: 82.5c

To distribute about 76.6c per unit.

AK71 said...

Disposal of entire asset portfolio.

JB said...

Hi AK,
Given the distribution as 76.6c per unit (bottom line), the 1cents dpu and subsequent dpu per quarter continue as long as before assets are sold and not affecting the 76.6c? Did I understand the situation correctly?
Await your sharing.


AK71 said...

Hi JB,

Before the assets are sold, I expect distributions to continue.

Once the assets are sold, distributions will stop.

The agreed consideration for the disposal should not affect distributions.

Of course, you might want to check with RHT directly to be sure.

Roaming fighter said...

Hi Ak,
CEO mentioned in last AGM, there will be one more distribution.

AK71 said...

Hi RF,

Thanks for sharing this info. :D

blazingruby60 said...

Hello AK

it seems like i have missed out a huge portion of whats happening with RHT. I understand at last read in newspaper RHT is going to be bought over by Fortis which is bought over by a malaysian health care company. And now I read there is gg to be one more distribution of dividends left. What is going to happen to shares we are holding?

I missed buying some Centurion when you did, would you talk to yourself whether you would continue to pick up some at the price you pay last (i was v attentive to your talking to yourself ;)

APTV at current price I wonder would AK buy into it again since the share price has dropped to slightly below what you bought last... thanks... have a great day

AK71 said...

Hi Ruby,

For the benefit of all readers, I think I will do a blog in response to your question on RHT.

As for Centurion, I am in the process of crafting two blogs on it but the short answer is, yes, I have been buying more.

As for APTT, I looked at it after its price plunged and, honestly, I am tempted even though I expect a dividend cut.

But it is a riskier investment because of its very high debt and deficit.

If I have nothing else to invest my money in, I might add to my legacy position in APTT but it is not the case now.

Invest Sg said...

hi AK - what to do with the RHT shares har? Thanks

AK71 said...

Hi Invest Sg,

They are free of cost to me and not worth much.

I will just wait and see. ;)

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