Liquidity Concerns Mount as HealthCo Suspends Distribution and Faces Hospital Asset Scrutiny
HealthCo Healthcare & Wellness REIT reports a $1.483 billion portfolio valuation, down 4.3% due to cap rate shifts, while suspending its Q2 distribution to safeguard liquidity amid ongoing hospital asset due diligence.
- Portfolio valuation declined 4.3% to $1.483 billion in June 2025
- Cap rate expansion of 36 basis points primarily drove valuation decrease
- Alternative operators conducting due diligence on 11 private hospitals
- No quarterly distribution declared for April–June 2025 to preserve liquidity
- Healthscope has settled most outstanding rent following deferral agreement
Portfolio Valuation Update
HealthCo Healthcare & Wellness REIT (ASX – HCW) has released its preliminary unaudited portfolio valuation as of June 2025, revealing a decrease to $1.483 billion. This represents a 4.3% gross decline compared to the pro forma valuation at the end of 2024. The primary factor behind this drop is a 36 basis point expansion in capitalization rates, which typically signals increased perceived risk or changes in market yield expectations for healthcare real estate assets.
The valuation covers 27 properties, with 14 independently appraised, including all 11 private hospitals owned by HCW and its Unlisted Healthcare Fund (UHF) partner. After accounting for $22 million in capital expenditure during the period, the net valuation decline deepens to 5.8% over six months, underscoring the challenging market conditions for healthcare property investors.
Hospital Asset Due Diligence and Rent Recovery
In a notable development, alternative hospital operators are actively conducting due diligence on all 11 private hospitals within HCW’s portfolio. This suggests potential interest in acquiring or partnering on these assets, which could reshape the REIT’s holdings and strategy in the near term.
Meanwhile, Healthscope, a key tenant, has fulfilled its rent obligations following a recent deferral agreement. It has paid all outstanding arrears and 85% of rent due for May and June 2025, providing some relief to HCW’s cash flow position.
Distribution Suspension to Preserve Liquidity
Reflecting the cautious stance amid these market dynamics, HCW has elected not to declare a quarterly distribution for the April to June 2025 period. This decision aligns with the earlier withdrawal of full-year guidance on funds from operations and distributions per unit, highlighting the REIT’s focus on preserving balance sheet liquidity during a period of uncertainty.
Investors should note that the distributions for the fiscal year ending June 2025 are expected to remain non-assessable, with tax statements to be provided by September 2025.
Looking Ahead
HealthCo’s position as Australia’s leading diversified healthcare REIT, with a portfolio underpinned by megatrends in healthcare demand, remains intact. However, the current valuation pressures and operational developments signal a period of transition. The outcome of the hospital asset due diligence and any resulting transactions will be critical to watch, as will the REIT’s approach to distributions and capital management in the coming months.
Bottom Line?
HealthCo’s next moves on hospital assets and liquidity management will be pivotal for investors navigating this evolving healthcare real estate landscape.
Questions in the middle?
- Will alternative operators proceed with acquisitions of HCW’s private hospitals?
- How will ongoing cap rate pressures affect HCW’s long-term valuation and returns?
- When might HCW resume distributions, and under what conditions?
