Healthscope receivers reach a rent cut deal with David Di Pilla’s HMC Capital

Healthscope’s receivers have reached a rent-cut deal with David Di Pilla’s HMC Capital which will ease pressure on the group as its facilities are sold off.

Adelaide’s Memorial Hospital is operated but not owned by Healthscope.

The receivers of Healthscope have struck a deal with a major landlord, David Di Pilla’s HMC Capital, that will give the private hospital group breathing space as its facilities are sold out of receivership.

Although HMC has retreated from its previous ambition to take control of the entire hospital operator, it is now keen to recover value for the property trusts it oversees that own 11 of Healthscope’s 37 hospital sites.

Healthscope collapsed into receivership on Monday, with McGrathNicol stepping in weeks after Canada’s Brookfield walked away from the business after incurring heavy losses and taking a hit to its reputation.

The receivers were called in at the behest of a lending syndicate in which two offshore hedge funds have an increasing sway. Local banks have partially stepped back from sparring for control of Healthscope’s future, although Commonwealth Bank has provided $100m in senior debt to help facilitate a sale.

The hedge funds, which joined the fray after picking up their debt at a discount, and other more conservative lenders have flagged that they could keep running the hospital chain for longer than expected, partly as it is relatively cashed up, delaying the prospect of an immediate carve-up. The business has $110m in the bank.

Healthscope boss Tino La Spina.

Chief executive Tino La Spina insisted this week that Healthscope’s landlords would have to accept a reduction on their rents as part of the company’s restructure. This would also make bids by the rival hospital operators stack up more easily and get the business into new hands quicker.

Healthscope says 10 bids have been received and more were expected due to the receivership.

The market had driven down shares of HMC and its satellite healthcare property fund on fears they would suffer substantial rental reductions and were exposed to potential closures.

But the deal cut by HMC on Friday was better than expected.

The HealthCo Healthcare & Wellness REIT and its stablemate unlisted healthcare fund have entered into a short-term partial rent deferral agreement with Healthscope and its receivers. The listed HealthCo’s shares lifted by 7.9 per cent to 89c in Friday trade.

Outstanding rent arrears for March and April, and 85 per cent of rent for May, will be paid immediately. The landlords will receive 85 per cent of the rent due for June to August.

The remaining 15 per cent deferred rent for this period is due in September, backing the continuity of essential services at each of the 11 private hospitals controlled by HMC.

HMC Capital managing director David Di Pilla. Picture: Jane Dempster

HMC managing director of real estate, Sid Sharma, said the company was committed to the continued provision of healthcare services and noted that the receivers wanted to keep all hospitals running as part of 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,” he said.

HMC has also started talks with Healthscope about the sale and has received formal expressions of interest from alternative Australian hospital operators to re-tenant all 11 facilities.

HMC acquired the freehold private hospital facilities leased to Healthscope from Medical Properties Trust for $1.2bn in early 2023. Healthscope is a tenant of four properties owned by HCW and seven properties owned by the unlisted trust. HCW holds 49.6 per cent of the units in that trust with the balance held by other major institutions.

The landlords have provided significant support to Healthscope through a challenging operating environment after the pandemic but they had been expected to take a further hit.

JPMorgan said the update would be well received by the market and help unwind some of the uncertainty discount hitting the stock. It said that it was important there was no “haircut” to the total amount of rent owed to HMC funds.

“We believe this is a far better outcome than market expectations, with the market pricing close to a 50 per cent writedown in HealthCo’s Healthscope assets,” the bank’s analysts said.

JPMorgan said the certainty around HealthCo’s ability to collect its rents would address market concerns around its debt covenants and the resumption of its distribution, which was put on pause in the March quarter.

“Clearly, uncertainty remains around what will occur from September onwards, when the rent deferral arrangements expire,” JPMorgan said.

Originally published as Healthscope receivers reach a rent cut deal with David Di Pilla’s HMC Capital