Expanding organically and through acquisitions
RHT’s organic growth is led by built-in service fee escalations and the ramping up of Gurgaon’s operations. Its near-term acquisition pipeline is visible, with Mohali at the top of the list. Forward yield remains high among S-REITs/business trusts, as forex concern lingers.
We fine-tune our FY13-15 DPS and maintain our DDM-based target price of S$0.93 (based on 11.7% discount rate). Under the new rating structure, our rating changes from Outperform to Add, with catalysts from yield-accretive acquisitions and surprise on earnings delivery.
Ramp-up in progress
The ramping up of Gurgaon‟s operations has been progressing well since its soft launch in Nov 2012. As at 30 Sep 2013, it has a 47% occupancy rate and one of the highest average revenue per operating bed (ARPOB) among RHT‟s portfolio. This is a positive as Gurgaon will be contributing a variable fee of 7.5% of its revenue for the first time in FY15, along with a higher base fee of Rs1,116m.
RHT is in discussions to acquire the Mohali Clinical Establishment, Fortis‟s second largest hospital by revenue with 355 beds. RHT‟s hospital revenue posted a 17.8% CAGR from FY09 to FY13. The group‟s existing portfolio has a near even split between young ( < 3 years) and matured ( > 3 years) assets. The potential addition of Mohali, which has more than 10 years of operating experience, should provide greater stability to RHT‟s performance and cash flow. Given the group‟s low gearing of c.10%, we believe the potential acquisition will be fully funded by debt. Assuming a 60% operating margin, 15% withholding tax and 5.5% financing cost, the deal will need an 11% revenue yield to be yield accretive. We have yet to factor this acquisition into our model.
Rupee concern lingers
As all RHT‟s assets and earnings are based in India, forex remains a forefront concern. Although RHT currently hedges 12 months‟ distribution on a rolling basis, the impact of Rs/S$ movements will still be felt over time, albeit on a lagged basis.
Publish date: 29/11/13