RHT Health Trust’s Latest Earnings: What Investors Should Know

RHT Health Trust (SGX: RF1U) released its third-quarter earnings for its fiscal year ending 31 March 2017 (FY2017) on 6 February. The reporting period was for the three months ended 31 December 2016.

As a quick background, RHT Health Trust is a business trust that owns a portfolio of healthcare assets that are located in India. Its portfolio comprises 12 RHT Clinical Establishments, four Greenfield Clinical Establishments, and two Operating Hospitals. These assets are collectively valued at S$861.8 million as of 31 March 2016.

With that, let’s take a look at the trust’s latest quarterly results.

Financial highlights

  1. Total revenue is up by 1% from the S$22.8 million seen a year ago to S$23.1 million.
  2. Distributable income is down 30.3% from S$15.3 million in the third quarter of FY2016 to S$10.6 million in the reporting quarter. RHT Health Trust diluted its interest in Fortis Hospotel Limited (FHTL) by 51% in late 2016; this is the main reason why the trust’s distributable income had declined. If the dilution was adjusted for, RHT Health Trust’s distributable income would have declined by ‘only’ 8%.
  3. Consequently, the distribution per unit (DPU) for the reporting quarter had declined by 30.9% from 1.91 cents a year ago to 1.25 cents. Assuming the dilution of interest in FHTL had occurred as well in the comparative period, the DPU for the third quarter of FY2016 would be 1.45 cents instead of 1.91 cents.
  4. The gain on the partial sale of FHTL is S$96 million. As RHT Health Trust retains 49% ownership of FHTL, the results of FHTL will be accounted under “Share of results of an associate” in the future. The disposal of the FHTL stake also resulted in RHT Health Trust declaring a special distribution of 24.8 cents per unit.
  5. Total debt is up from S$167.7 million at 31 December 2015 to S$261.5 million at end-2016. But over that period, the company’s cash balance had increased only slightly from S$8.8 million to S$11.9 million.
  6. The trust ended the reporting quarter with a net asset value per unit of S$0.838, down by 7.4% from a year ago. It was again the fault the of the dilution of the trust’s interest in FTHL.

Business highlights

Total revenue for the third quarter of FY2017 in Indian rupee terms actually increased by 3.1% from the previous year mainly due to  a contractual increase in base fees and a higher variable fee as a result of growth in operating revenue recorded by Fortis.

An increase in the number of high value operations in medical programmes such as Cardiology and Orthopaedics drove growth in Fortis’ ARPOB (average revenue per operating bed), which ultimately led to higher operating revenue.

The occupancy rate of RHT Health Trust’s portfolio came in at 75% in the reporting quarter, unchanged from the same quarter a year ago.

In the earnings release, Gurpeet Dhillon, the chief executive of RHT Health Trust’s manager, shared the following updates on the trust’s business:

“As with most other businesses in India, there has been a small impact on hospital business as a result of the demonetization, which has meant that the many people in India who rely heavily on cash have been unable to utilize their monies.

Notwithstanding that, the Total Revenue of RHT remained fairly stable, as the Base Fee, which is subject to an annual 3% increase, makes up a substantial portion of our revenue model.

The management is also reviewing a number of efficiencies that will help to reduce operational cost, such as changes in vendors and increased use of cheaper natural energy and we will continue to identify opportunities to enhance the revenue of RHT for unitholders.”

Dhillon also had some thoughts to share on RHT Health Trust’s short term outlook:

“In the near-term we will continue to focus on organic growth through new greenfield developments and the expansion and upgrading of existing facilities.

Competition in India to acquire new healthcare assets remains high which means organic growth offers the opportunity to obtain higher returns from our investments and to better customize our assets to meet the changing needs of our operators and patients.”

Units of RHT Health Trust closed at S$0.89 each yesterday. At that price, the trust’s units carry an annualised distribution yield of 6.7% and a price-to-book ratio of 1.1.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.