David Di Pilla’s HealthCo Healthcare & Wellness REIT threatens to evict Healthscope

The private hospital operator has failed to pay rent on 11 facilities owned by David Di Pilla’s healthcare property trust, leading to threats of replacing the group.

HMC Capital boss David Di Pilla. Picture: Jane Dempster/The Australian

David Di Pilla’s healthcare property trust is threatening to replace Healthscope as operator of 11 private hospitals across Australia, following a rental breach that could trigger a formal move by the dealmaker for Australia’s second-largest private hospital operator.

The ASX-listed HealthCo Healthcare & Wellness REIT (HCW) told investors on Tuesday that it had issued breach notices to debt-ridden Healthscope for failing to pay all rent due for March, noting that only part payments had been received.

Brookfield-owned Healthscope is a tenant of four hospitals owned by HCW and a further seven owned by the Unlisted Healthcare Fund, which is jointly owned by HCW and other institutional investors.

“HCW and UHF will enforce their legal rights and seek to replace Healthscope’s tenancies with other hospital operators in the event the breaches are not remedied,” HCW said.

“As foreshadowed at the release of HCW’s 1H FY25 result on February 14, HCW and UHF are now in active discussions with alternative hospital operators.”

HCW told shareholders at its interim results that further rental support would not be provided to Healthscope, and that it would look to replace it with alternative operators in the event of a rental breach.

It added that it had been approached by several “capable and qualified parties” to potentially run the 11 hospitals, including a consortium led by the private ­equity division of Mr Di Pilla’s HMC Capital.

David Di Pilla’s healthcare property trust is threatening to replace Healthscope as operator of 11 private hospitals across Australia

HMC Capital has been in talks with various groups about playing a role in a potential recapitalisation of Healthscope, including health insurer Bupa, while other groups approached to take on the management of some Healthscope facilities include St John of God Healthcare and St Vincent’s Healthcare.

K Capital’s David Kingston said there were “four or five” private hospital groups that could be involved in a potential carve-up of HCW’s Healthscope network.

“It’s a pretty serious situation but David Di Pilla is a very capable guy and he’s not sitting on his hands,” Mr Kingston said. “He’s looking for alternative operators, and quite a lot of their hospitals are good hospitals – it’s just that Healthscope has too much debt and too much rent to pay.

“I think it’s commonly accepted that Healthscope has no equity value left. It’s all gone. The debt is certainly not worth dollar for dollar, so at some stage it is likely there will be some form of debt for equity swap, and David Di Pilla may well be involved in that,” Mr Kingston added.

“They’ll either change operators – Ramsay might take a few, Healthe might take a few – there’s five or so decent-sized ­operators in Australia. Or alternatively, they might recapitalise – acquire the debt, convert it to equity, put Healthscope on a much more solid footing, because the majority of the hospitals are pretty good hospitals.”

The threat to replace Healthscope comes amid uncertainty over its ability to service a $1.6bn debt load. The next interest payment is due on March 12, when the company is expected to breach its debt covenant, triggering a clause that enables its syndicate of about 25 financiers to trade their debt.

The Geelong Clinic is one of the 11 that could get a new operator.

DataRoom this week reported that Healthscope’s lenders had rebuffed a proposition for HMC Capital to pay 15c-20c in the dollar for the loans, but an offer between 20c and 40c may be better received.

Brookfield acquired Healthscope for $4.4bn in 2019, before selling the associated hospital sites to Medical Properties and Northwest Healthcare Properties for about $2bn.

Medical Properties on-sold its 11 hospitals to the HMC-managed HCW and UHF vehicles in a $1.2bn deal announced in March 2023.

NorthWest, which remains the other major Healthscope landlord, declined to respond to questions about its leasing arrangements with the hospital operator.

HCW floated on the ASX at $2 a share in September 2021, but investors sent the trust to an all-time low of 89c on Tuesday, closing down 7.8 per cent.

HCW told shareholders on Tuesday that it had withdrawn its funds from operations/unit and distribution per unit guidance of 8.4c, pending resolution of the Healthscope tenancies.

It added that HCW had cash and undrawn debt facilities of about $100m, and would receive additional support from HMC Capital as required.

Healthscope declined to comment on the rental breach on Tuesday.

It followed confirmation late on Monday that Healthscope had reached an in-principle deal with the Australian Health Service Alliance, ensuring patients who are members of the alliance’s not-for-profit insurance funds can continue to access care at Healthscope’s 38 hospitals without additional out-of-pocket expenses.

Healthscope had earlier flagged plans to charge members of several health funds a “hospital facility fee” of $50 for same-day services and $100 for overnight services.

“This in-principle agreement means we can continue to care for AHSA members at all our hospitals without the need for additional fees,” Healthscope chief executive Greg Horan said.

Originally published as David Di Pilla’s HealthCo Healthcare & Wellness REIT threatens to evict Healthscope