Healthscope Lease Risks Loom as HealthCo Maintains Growth and Buyback
HealthCo Healthcare & Wellness REIT reports solid 5% growth in FFO and DPU for 1H FY25, maintaining strong occupancy and gearing levels despite ongoing Healthscope lease speculation.
- 5% growth in FFO and DPU for 1H FY25
- 99% portfolio occupancy with 11.6-year WALE
- Stable asset valuations with 0.8% increase since June 2024
- $50 million on-market unit buyback 35% complete
- Healthscope lease uncertainty persists; HCW prepared for tenant replacement
Robust Financial Performance
HealthCo Healthcare & Wellness REIT (ASX: HCW) delivered a strong half-year performance for the six months ended 31 December 2024, reporting a 5% increase in Funds From Operations (FFO) per unit to 4.2 cents, equating to $23.5 million. Distributions per unit (DPU) also rose by 5% to 4.2 cents, underscoring the REIT's ability to generate steady income growth for unitholders.
Gearing remains conservatively positioned at 32.4%, comfortably within the targeted 30-40% range, supported by approximately $115 million in available liquidity. This financial discipline provides HealthCo with flexibility to navigate market uncertainties and pursue growth opportunities.
Operational Stability Amid Market Speculation
The portfolio continues to demonstrate resilience, with occupancy holding firm at 99% and a weighted average lease expiry (WALE) of 11.6 years, reflecting long-term lease commitments. Notably, 82% of leases are set to expire in FY30 or later, providing a stable income foundation.
Asset valuations remained stable with a modest 0.8% uplift since June 2024, reflecting confidence in the underlying property quality. The development project at Mount Private Hospital is progressing on schedule, expected to complete in the second half of FY25, potentially enhancing future income streams.
Healthscope Lease Uncertainty and Strategic Preparedness
Market speculation around Healthscope's lease obligations has intensified, with HCW clarifying that no further rental support will be extended. Healthscope remains compliant with current lease terms, but the REIT is proactively preparing for potential scenarios, including tenant replacement if necessary.
HCW and its partner UHF have attracted interest from qualified parties, including a consortium led by HMC Capital's Private Equity Division, to potentially take over leases for 11 hospitals currently operated by Healthscope. This strategic openness signals HCW's commitment to ensuring continuity of essential healthcare services while safeguarding portfolio income.
Shareholder Returns and Future Outlook
The REIT is actively executing a $50 million on-market unit buyback, with 35% completed, reflecting confidence in the underlying asset value and a commitment to enhancing unitholder returns. HealthCo reaffirmed its full-year FFO and DPU guidance of 8.4 cents per unit, contingent on continued portfolio performance and Healthscope's lease compliance.
Management emphasized the strength of the healthcare real estate sector and their conviction in the asset class, highlighting a robust balance sheet and high-quality portfolio as key pillars for long-term value preservation and growth.
Bottom Line?
HealthCo’s steady growth and strategic readiness position it well, but Healthscope’s lease outcome remains the key watchpoint.
Questions in the middle?
- How will Healthscope’s lease situation evolve and impact HCW’s income?
- What are the prospects and timelines for replacing Healthscope tenants if needed?
- How might the Mount Private Hospital development influence future earnings and valuations?
