HealthCo’s Funds From Operations Halve to $12.3M as Portfolio Shrinks

Half-Year Financial Performance

HealthCo Healthcare and Wellness REIT (ASX – HCW) has reported a net loss of $26.8 million for the six months ended 31 December 2025, a significant increase from the $15.3 million loss recorded in the prior corresponding period. The loss was influenced by a combination of asset recycling, fair value adjustments on investment properties, and losses from equity-accounted joint ventures.

Funds from operations (FFO), a key measure of underlying earnings, declined sharply to $12.3 million from $23.5 million a year earlier, reflecting the impact of portfolio changes and tenant challenges.

Portfolio Reshaping and Asset Sales

The REIT’s property portfolio shrank from 19 to 13 properties during the half-year, following the sale of six assets for a total of $76.8 million. This asset recycling program is part of a strategic effort to optimise the portfolio amid a challenging healthcare real estate market.

The weighted average capitalisation rate for the portfolio increased slightly to 5.9%, indicating a modest rise in the yield demanded by investors, which contributed to a $22.3 million net unrealised fair value loss on investment properties.

Tenant Risks and Lease Obligations

Healthscope, the REIT’s largest tenant accounting for approximately one-third of rental income, remains compliant with its lease obligations despite two entities within its group entering receivership earlier in 2025. The REIT and its joint venture partner HMC Wholesale Healthcare Fund issued breach notices to Healthscope in March 2025 over unpaid rent but have since secured full payment through partial rent deferral agreements.

Importantly, the REIT has entered into conditional agreements with alternative tenants for all 11 hospitals currently leased to Healthscope, providing a potential pathway to mitigate tenant concentration risk should Healthscope’s situation deteriorate.

Capital Management and Liquidity Preservation

To preserve liquidity, HealthCo did not declare interim distributions for the quarters ended 30 September and 31 December 2025, consistent with prior ASX announcements. The REIT’s senior secured debt facility was extended from May 2026 to November 2026 but reduced in size from $550 million to $475 million, with drawn debt standing at $372.3 million.

Cash and undrawn debt totalled $155.2 million at the half-year mark, providing a buffer as the REIT navigates refinancing and tenant uncertainties. The group remains compliant with all debt covenants and expects to extend its debt facility beyond November 2026.

Outlook and Going Concern

The directors maintain a going concern basis for the REIT’s financial statements but acknowledge material uncertainty due to tenant risks and the pending resolution of debt refinancing. The auditor’s review report was unqualified but highlighted this uncertainty as a significant factor.

Management’s cash flow forecasts assume continued tenancy and compliance with lease obligations. The REIT’s ability to secure alternative tenants and extend its debt facility will be critical to its financial stability in the coming months.