HealthCo Reports 5% Growth in FFO and DPU, Maintains $1.6bn Asset Base

Solid Financial Performance

HealthCo Healthcare & Wellness REIT (ASX: HCW) has reported a 5% increase in both Funds From Operations (FFO) per unit and Distribution Per Unit (DPU) for the first half of FY25, reaching 4.2 cents per unit. This growth reflects the REIT's ability to leverage contracted rent escalations and recent development completions, maintaining momentum from the previous year.

The distribution remains fully covered by FFO, underscoring the sustainability of income streams. Net Tangible Assets (NTA) per unit stood at $1.58 as at December 2024, slightly down from $1.64 in June 2024, reflecting stable asset valuations despite ongoing capital expenditure.

Portfolio Strength and Stability

HealthCo's portfolio, valued at approximately $1.6 billion, is diversified across private hospitals, primary and specialty care, aged care, and government health infrastructure. The portfolio boasts a long weighted average lease expiry (WALE) of 11.6 years and a weighted average rent review (WARR) of 3.7%, with 79% of leases CPI-linked, providing inflation protection.

Occupancy remains exceptionally high at 99%, with a 100% cash rent collection rate, highlighting the resilience of the healthcare real estate sector. The portfolio is predominantly located in Australia's major metropolitan areas, Sydney, Melbourne, Brisbane, and the Gold Coast, regions experiencing strong population growth, which supports long-term demand for healthcare services.

Development Pipeline and Capital Management

HealthCo continues to advance an accretive development pipeline exceeding $540 million, targeting yields of 6-7% plus on cost. Key projects include expansions and greenfield developments such as Camden Stages 2 and 3 in Sydney and upgrades at Mount Private Hospital. These developments are expected to enhance future earnings and portfolio quality.

On the capital management front, the REIT has maintained gearing at 32.4%, at the lower end of its 30-40% target range, supported by $47 million in asset sales during the half. The company has also completed 35% of its $50 million on-market unit buyback, reflecting confidence in the underlying value of its units.

Healthscope Lease Considerations

Market speculation around Healthscope, one of HealthCo's major tenants, remains a focal point. HealthCo has reiterated that no further rental support will be provided to Healthscope and is prepared to replace its tenancies should lease obligations not be met. The REIT has been approached by qualified parties, including a consortium led by HMC Capital’s Private Equity Division, to potentially take over the 11 hospitals currently leased to Healthscope.

Sustainability and Social Impact

HealthCo is advancing its sustainability agenda, aiming to exceed its FY25 target of solar installations across 65% of feasible sites and rolling out energy management systems to reduce consumption. The portfolio has achieved an average 5.8 Star NABERS Energy rating and 5.3 Star NABERS Water rating. Social initiatives include maintaining 50% gender diversity on its independent board and supporting youth programs aligned with national partnerships.

Outlook and Guidance

HealthCo has reaffirmed its FY25 FFO and DPU guidance of 8.4 cents per unit, reflecting confidence in the portfolio’s performance and contractual rent escalations. The REIT remains optimistic about the healthcare real estate sector, citing structural demand drivers such as population growth and the critical role of private hospitals in supporting Australia’s healthcare system.