Healthscope Receivership Puts HealthCo’s Rental Income and Hospital Operations at Risk
HealthCo Healthcare & Wellness REIT and its partners have arranged a short-term partial rent deferral with Healthscope’s receivers to maintain hospital operations during a critical transition period.
- Partial rent deferral agreement covering March to August 2025
- Immediate payment of most outstanding arrears and 85% of May rent
- Deferred 15% rent payable in September 2025
- Ongoing discussions about Healthscope’s sale and potential new tenants
- Significant prior rent support and facility upgrades by landlords
Context of the Agreement
HealthCo Healthcare & Wellness REIT (ASX: HCW), alongside the Unlisted Healthcare Fund, has reached a short-term partial rent deferral agreement with Healthscope and its receivers. This move comes amid Healthscope’s receivership, aiming to ensure the continued operation of 11 private hospitals leased from the landlords. The agreement stipulates that all outstanding rent arrears for March and April 2025, plus 85% of May’s rent, will be paid immediately, while 85% of rent for June through August 2025 will also be paid on time. The remaining 15% of deferred rent for May to August will be due in September 2025.
Supporting Healthcare Continuity
Sid Sharma, Managing Director of Real Estate at HMC Capital, emphasised the landlords’ commitment to maintaining essential healthcare services during this period. He highlighted the importance of keeping the hospitals operational to prioritise patients and staff, while also anticipating an orderly transition as Healthscope’s receivers manage the sale process. This agreement is a critical step in balancing financial realities with the social imperative of uninterrupted healthcare delivery.
Background and Prior Support
The 11 hospital facilities were acquired in 2023 for $1.2 billion from Medical Properties Trust, with Healthscope as the tenant. Since acquisition, the landlords have provided substantial support to Healthscope through a challenging post-pandemic environment. This included a permanent rent reduction of approximately 6%, a $66 million incentive offering two years of 50% discounted rent, and $85 million invested in upgrading hospital facilities to ensure they remain fit for purpose.
Looking Ahead: Sale Process and Re-Tenanting
HealthCo and its partners have initiated discussions with Healthscope’s receivers regarding the ongoing sale process. Additionally, they have received formal expressions of interest from alternative Australian hospital operators to potentially re-tenant all 11 facilities. This signals a proactive approach to managing the portfolio amid uncertainty, aiming to secure stable tenancy and safeguard long-term asset value.
Implications for Investors
While the rent deferral arrangement helps maintain cash flow continuity, the deferred portion introduces some uncertainty regarding timing and realization of payments. The situation underscores the risks inherent in leasing to tenants undergoing financial distress, even in essential sectors like healthcare. Investors will be watching closely for updates on the sale process and any changes in tenancy that could impact distributions and portfolio stability.
Bottom Line?
HealthCo’s rent deferral deal with Healthscope’s receivers buys time but leaves key questions about the portfolio’s future tenancy and income intact.
Questions in the middle?
- What are the prospects and timelines for the Healthscope sale process?
- Which alternative hospital operators are interested in re-tenanting the facilities?
- How will the deferred rent payments affect HealthCo’s near-term distributions?
