Healthscope hospital landlord agrees to partial rent deferral deal, receives expressions of interest

The landlord that owns 11 of Healthscope's 37 private hospitals has reached an agreement with the embattled group that entered receivership earlier this week, securing payment for recent rent arrears in March and April while allowing for a partial rent deferral for the months that follow so that hospitals can keep running.

HealthCo Healthcare & Wellness REIT (ASX: HCW) and its Unlisted Healthcare Fund (UHF) have made a deal with Healthscope and its receivers so that rent arrears - and 85 per cent of rent due for May - would be paid immediately.

The 85 per cent level will remain through August, with the 15 per cent shortfall coming due in September.

"We are committed to the continued provision of healthcare services in the areas in which our assets are located," says HMC Capital managing director of real estate, Sid Sharma.

"We are pleased that Healthscope and its receivers have acknowledged the intent to keep all hospitals operating and that they are committed to ensuring that patients and hospital staff are prioritised through what we expect will now be an orderly transition.

"We look forward to discussing the Healthscope sale process with its receivers and working on an appropriate transition of services to new operators or owners in a timely manner."

Healthscope, acquired by US private equity group Brookfield for $4.4 billion in 2019, has been grappling with financial difficulties for the past six months.

Earlier this year the group, Australia's second-largest hospital owner, shut down its maternity wards in Hobart and Darwin hospitals, having also been at loggerheads with insurer Bupa and the Australian Health Services Alliance over hospital fees.

Today's news comes after Healthscope, which is understood to have debts of $1.4 billion, received a $100 million lifeline from lender Commonwealth Bank (ASX: CBA) to keep the business running while receivers seek a new owner.

Healthscope's operating business is not in receivership, but its lenders have appointed receivers and managers from McGrath Nichol to two holding companies - ANZ Hospitals Pty Ltd and Healthscope Newco Pty Ltd. 

Meanwhile, the group's board has appointed administrators from KordaMentha to assist in an orderly sale of the business.

HCW also revealed today that landlords had commenced discussions with Healthscope and its receivers regarding the sale process, and have received formal expressions of interest from alternative Australian hospital operators to re-tenant all 11 of its facilities.

HCW and UHF acquired the properties leased to Healthscope Medical Properties Trust (NYSE: MPW) for an aggregate consideration of $1.2 billion. The landlords note that at the time of the acquisition, they permanently reduced portfolio rents by 6 per cent due to the challenging post-pandemic operating environment.

The landlords also provided a $66 million incentive to Healthscope in the form of two years of 50 per cent discounted rent, and have invested $85 million towards upgrading facilities to ensure they remain fit for purpose for patients, medical officers and nurses.

Data released today from the Australian Prudential Regulation Authority show insurance pay-outs for private hospital treatment were up 7.7 per cent in the year to March, reflecting n increasing number of hospital services and rising payments to hospitals to cover their costs including staff wages.

Private Healthcare Australia CEO Dr Rachel David said the data showed private hospitals were lowly recovering from a difficult period due to the pandemic and other complex changes affecting demand for services including workforce shortages and high fees to see specialist doctors.

"A 7.7 per cent increase year on year is a good result for private hospitals that have had a hard time due to the pandemic and inflation. It shows Australians continue to value rapid medical treatment in a private hospital with a doctor of their choice, particularly when the public hospital system is so stretched," says David.

"Several trends have been dampening demand for private hospital care, including the high cost to see a specialist doctor in the community. Surveys show up to 20 pe rcent of people are not going to specialist doctors when they have a GP referral due to cost.

"Health insurers can’t cover consultations with specialist doctors, so we’re concerned a lot of people are not getting access to private hospital care because they can’t afford to pay for the first step in the process."

David added that more than 81,000 people signed up for hospital cover in the first three months of this year, joining 15 million other Australians with health insurance. Most of these new health fund members were people aged in their 40s.

Over the past 10 years to the end of 2024, federal government data shows 143 private hospital licenses have been revoked when private hospitals closed, and 165 hospital licenses have been granted.

HWC shares have risen 14.55 per cent to 94.5 cents per share (cps) in early trading this morning.