Pacific Equity Partners’ Healthe Care makes strategic package offer to Healthscope receivers

Knox Private Hospital in Wantirna is among the hospitals operated by Healthscope. Picture: Steve Tanner.

The owner of the country’s third-largest private hospital operator, Pacific Equity Partners, is understood to have bid for 11 Healthscope hospitals, say sources.

The hospital sites that were bid for by PEP, which owns Healthe Care, were those that all pay rent to landlord Northwest Healthcare Properties REIT.

The Canadian landlord that owns healthcare real estate assets globally and is run by former Dexus executive Craig Mitchell counts Healthscope as its second largest tenant.

It owns the sites of the Brisbane Hospital, Darwin Private Hospital, Griffin Rehabilitation Hospital in Adelaide, Hunter Valley Private Hospital, Hurstville Private Hospital in Sydney, John Fawkner Private Hospital in Melbourne, the Lady Davidson Private Hospital in Sydney, Newcastle Private Hospital, Northwest Private Hospital, Peninsula Private Hospital and The Hills Private Hospital.

All the hospitals are operated by Healthscope.

Healthe Care, the country’s third largest private hospital operator, is also a tenant of North West Healthcare REIT so the two parties have a relationship.

First round offers for Healthscope have been received ahead of final bids landing by October.

DataRoom understands that bidders have been told that they can receive rent cuts by 25 per cent.

However, other sources say that landlords are offering cuts of between 10 per cent and 20 per cent on the assets for two years during the turnaround phase of the business.

No doubt, bidders would want to argue that the rent cuts need to be more substantial to make an investment case stack up.

Should PEP be successful in gaining the North West sites, it leaves not-for-profit operators to battle for the 11 hospitals within the portfolio that are leased to the interests of the David Di Pilla-run HMC Capital.

Overall, Healthscope operates about 37 hospitals.

However, sources suggest that Healthe Care itself is facing financial headwinds at a time that the industry is lobbying for more government pressure on health insurers to meet their costs for services.

Ramsay Health Care, Healthscope’s larger rival, is known to be interested in Healthscope’s hospitals on the Gold Coast, the National Capital Private Hospital in Canberra, the Knox Private Hospital in Victoria, Prince of Wales Hospital in Sydney and perhaps Northwest Private in Sydney.

Although Ramsay may have offered a high price for one or two of the hospitals leased to North West Healthcare, an overall deal with PEP to take a platform of assets could work out to be a better transaction financially, particularly if Ramsay was to need clearance from the Australian Competition and Consumer Commission for an acquisition.

Private equity has not been the preferred choice to sell to by Healthscope, but Catholic not-for-profit operators like St Vincents, St John of God and Calvary are reluctant to join forces to form a consortium, which may be to their disadvantage.

Also, they are more about purpose and mission than being commercially motivated, which could put them behind of other suitors in terms of offering the highest price.

As earlier reported by DataRoom, at least nine parties are expected to be ushered through to round two of the Healthscope competition by receiver McGrathNicol.

Healthe Care and St John of God have been carrying out site visits.

Healthscope will also be a bidder itself and has proposed owning a business that would be transformed into a not-for-profit structure.

Brookfield purchased Healthscope in 2019 for $4.4bn, then sold its real estate for $2bn to help fund the transaction.

The company then became loss-making following the Covid-19 pandemic, when it was hit by higher staff costs and reimbursement payments from health insurers that the industry claims were not enough to cover rising costs.

Its syndicate of at least 20 lenders placed the business into receivership in May with $1.6bn owing, as revealed by DataRoom at the time, just days after Brookfield handed them the keys.