HealthCo REIT Faces $89M Loss, Suspends Distributions Amid Healthscope Turmoil

Financial Performance and Portfolio Changes

HealthCo Healthcare and Wellness REIT (ASX – HCW) has reported a significant net loss of $89.3 million for the year ended 30 June 2025, a sharp reversal from the prior year's $7.3 million profit. This downturn was primarily driven by a 17% decline in revenues to $61.5 million and a 70% drop in income from equity-accounted investees, reflecting challenges within key joint ventures and investments.

The group actively pursued an asset recycling program, reducing its property portfolio from 25 to 19 assets over the year. This strategic downsizing, alongside net unrealised fair value losses on investment properties, contributed materially to the financial results. The weighted average capitalisation rate rose to 5.82%, indicating a more cautious valuation environment.

Tenant Issues and Distribution Suspension

A critical factor impacting HealthCo’s performance was the financial distress of its major tenant, Healthscope. In March 2025, breach notices were issued due to unpaid rent, and by May, two Healthscope entities entered receivership and administration. Despite this, Healthscope remains compliant with lease obligations under a short-term partial rent deferral agreement, paying 85% of rent due with the remainder deferred.

In response to these pressures, HealthCo suspended distributions for the final two quarters of FY25 to preserve balance sheet liquidity, a significant move given the REIT’s prior steady payout history. Interim distributions of 2.1 cents per unit were paid for the first half of the year, but no further distributions were declared.

Capital Management and Debt Facility Extension

HealthCo maintained a gearing ratio of approximately 33%, with $446.8 million drawn on a $550 million senior secured debt facility. In July 2025, this facility was extended by six months to November 2026 but reduced in size to $475 million, reflecting a cautious approach to capital management amid market uncertainties.

The group also completed an on-market unit buy-back program, purchasing 11.5 million units during the year to enhance capital efficiency. Post-reporting period, HealthCo entered unconditional contracts to sell three GenesisCare assets, expected to settle in October 2025, further supporting liquidity and portfolio optimisation.

Outlook and Strategic Focus

Despite the material loss and the going concern uncertainty flagged by auditors, HealthCo’s board remains confident in the REIT’s ability to continue operations. Management is actively engaging with alternative private hospital operators to replace Healthscope’s tenancies, a move critical to stabilising future cash flows.

The REIT continues to focus on healthcare sector megatrends, emphasizing sustainability and environmental, social, and governance (ESG) principles as part of its long-term strategy. Upcoming regulatory requirements for sustainability reporting are expected to shape future disclosures and investor communications.