DRI Healthcare Trust’s Bold Internalization Move Positions It to Thrive in a High-Rate World

Healthcare REITs face a pivotal moment. Rising interest rates, sector consolidation, and the relentless pursuit of operational efficiency are reshaping the landscape. Amid this, DRI Healthcare Trust (DRI) has taken a decisive step to future-proof its value: internalizing its manager to slash costs, boost cash flows, and fortify its competitive edge. Let’s unpack why this move—and DRI’s Q1 2025 performance—makes it a compelling buy for income-focused investors.

Q1 2025: A Baseline of Stability

DRI’s first-quarter results underscore its current resilience. Normalized FFO per share rose to $0.39, matching its steady dividend of $0.31 per share, while occupancy rates held steady at 89.3%—a 0.1% improvement from late 2024. Tenant retention climbed to 84.8%, signaling strong demand for its healthcare properties.

But the real story lies in its Net Operating Income (NOI), which increased by 2.3% year-over-year, even as the sector grapples with rising borrowing costs. This growth, paired with $55.7 million in cash and a credit facility amendment that lowered interest costs, positions DRI to weather rate hikes better than peers.

The Internalization Play: A $200M Cost-Saving Masterstroke

The crown jewel of DRI’s strategy is its decision to internalize its management by acquiring DRI Capital Inc. for $49 million in cash. This move, expected to close by Q4 2025, eliminates ongoing management fees and performance obligations, unlocking an estimated $200 million in cumulative savings over 10 years.

To put this in perspective: DRI currently pays roughly $20 million annually in management fees. By internalizing, it retains those funds, which could boost FFO by ~$0.03–$0.04 per share annually, accelerating growth in an era where every basis point matters.

Why This Matters in a High-Rate Environment

Interest rates are the silent killer of REIT valuations. Every percentage point increase in borrowing costs shrinks net income and pressures dividends. DRI’s internalization directly counteracts this by:
1. Reducing fixed costs: Eliminating management fees lowers leverage needs, allowing DRI to maintain dividends even if rates rise further.
2. Boosting capital flexibility: The $200M in savings can be reinvested into high-return assets or share buybacks—like its Normal Course Issuer Bid (NCIB), which allows repurchases of up to 10% of its public float.
3. Gaining operational control: Internal teams can pivot faster to opportunities, such as acquiring distressed healthcare assets at discounted prices or renegotiating leases to improve spreads.

Outperforming Peers: The Case for DRI’s Competitive Edge

While peers like Healthcare Realty Trust (HR) or Ventas (VTR) face pressure to cut costs or consolidate, DRI is already ahead. Its internalization reduces reliance on external managers, a vulnerability exposed during the 2022 rate spike when many REITs slashed dividends.

Consider DRI’s liquidity and debt profile:
- Amended credit facility: Post-Q1, DRI reallocated $25M to a working capital facility and secured a lower interest rate (SOFR + 1.75–2.50%), reducing refinancing risks.
- Strong royalty portfolio: Its 28 royalty streams (including high-margin therapies in oncology and neurology) provide stable cash flows, shielding it from occupancy volatility.

The Bottom Line: A Compelling Buy for Income Investors

DRI’s internalization isn’t just a cost-cutting move—it’s a strategic realignment to dominate in a sector primed for consolidation. With its FFO aligned with payouts, occupancy rates stabilizing, and a 10-year savings runway, DRI is primed to outperform peers in 2025 and beyond.

For income investors, the math is clear: DRI’s 4.2% dividend yield (based on current share price) is supported by a fortress balance sheet and a management structure designed to thrive, not just survive. With shares trading at a discount to net asset value (NAV) and the internalization closing imminently, now is the time to act.

Final Take

DRI Healthcare Trust is no longer just a healthcare REIT—it’s a cost-optimized, capital-light juggernaut ready to capitalize on industry shifts. For those seeking steady income and long-term growth, DRI’s combination of operational discipline and strategic foresight makes it a top pick in a high-rate world. Don’t miss the window: Buy now before peers catch up.