Healthscope Uncertainty Keeps HealthCo Distributions on Hold, Raising Investor Questions

Strong Operational Performance Amidst Healthscope Challenges

HealthCo Healthcare & Wellness REIT (HCW) has delivered a solid operational performance in the first half of fiscal year 2026, despite the ongoing uncertainty surrounding its Healthscope portfolio. The REIT reported funds from operations (FFO) of 2.2 cents per unit, down 2 cents from the prior corresponding period, primarily due to the suspension of distributions from its 49.6% interest in the UHF joint venture. This suspension was a strategic move to preserve balance sheet flexibility amid the unresolved Healthscope situation.

HCW’s diversified healthcare real estate portfolio remains robust, valued at approximately $1.4 billion, with an impressive 99% occupancy rate and a weighted average lease expiry (WALE) of 11.3 years. These metrics underscore the portfolio’s resilience and long-term income stability, supported by a mix of private hospitals, primary care facilities, aged care, and government life sciences assets concentrated in Australia’s major metropolitan growth corridors.

Strategic Lease Agreements and Portfolio Stability

In a significant development, HCW and UHF have secured executable agreements with alternative operators for all 11 hospitals currently leased to Healthscope. These agreements, subject to final approvals, feature long-term leases with face rents maintained at current levels, albeit with rental incentives that may reduce near-term asset valuations by an estimated 10-15%. This proactive approach aims to ensure continuity of essential healthcare services, safeguard employment for hospital staff, and protect the long-term value for HCW unit holders.

Importantly, the landlords retain all legal rights under existing leases, including cross-default and termination provisions, positioning HCW to manage risks effectively while engaging constructively with the Healthscope receiver. This legal stance provides a framework for potential future negotiations or assignments, reflecting a balanced approach to safeguarding investor interests.

Capital Management and Liquidity Strength

HCW’s capital position remains strong, with gearing reduced to 28.5%, comfortably below the target range of 30-40%, and compliance with all debt covenants. The REIT holds $155 million in combined cash and undrawn debt facilities, providing ample liquidity to support ongoing operations and potential lease transitions. Asset recycling initiatives contributed $77 million in proceeds during the half, reflecting active portfolio management.

The net tangible asset (NTA) value per unit stood at $1.39, a slight decrease from $1.44 at June 2025, influenced by cap rate expansion and the suspension of distributions. HCW’s interest rate hedging remains robust, with 81% of debt hedged, mitigating exposure to interest rate volatility.

Development Pipeline on Hold Pending Resolution

HCW’s substantial development pipeline, valued at around $500 million, remains on hold until the Healthscope situation is resolved and funding partners are secured. Key projects include the Camden private hospital and health research precinct, and the Rouse Hill private hospital adjacent to a new $900 million public hospital project. These developments represent strategic growth opportunities aligned with Australia’s expanding healthcare infrastructure needs.

The REIT continues to advance its environmental, social, and governance (ESG) initiatives, including solar rollouts at feasible sites and maintaining strong gender diversity on its board. These efforts align with broader sustainability goals and responsible investment practices.

Outlook Focused on Resolution and Value Preservation

Looking ahead, HCW’s primary focus remains on resolving the Healthscope situation in a manner that ensures uninterrupted healthcare services, maintains employment, and maximises long-term value for investors. The REIT has not provided earnings guidance for FY26 due to ongoing uncertainties but expects distributions to recommence once the situation is settled.

With a strong balance sheet, high-quality portfolio, and strategic lease agreements in place, HCW is positioned to navigate the current challenges while preparing to capitalise on future growth opportunities in Australia’s healthcare real estate sector.