Healthscope Ltd (ASX: HSO) shares were down almost 1% in early morning trade after the company released its FY 2018 results and announced the outcome of a strategic review of its property assets. Here are the key highlights from the announcement.
A new unlisted hotel property trust
Healthscope has decided to create an unlisted hospital REIT in a effort to realise more value from their portfolio of hospitals. The REIT will hold the majority of Healthscope's freehold hospital property assets and lease them back to Healthscope.
A new co-investor will be sourced to own up to 49% of the trust with Healthscope owning the rest. The company estimates the book value of the land and buildings being transferred to the REIT to be worth $1 billion and the REIT is expected to receive rental payments from Healthscope in the range of $80 million to $90 million in the first year.
Healthscope believe that given the elevated current property valuations, now is a good time to sell the properties at a good price and return the excess capital back to shareholders whilst also strengthening their balance sheet and searching for new growth opportunities.
The process to select the preferred co-investor is expected to be finalised in FY 2019.
A year of transition
Despite FY 2018 revenue being up almost 4% to $2.3 billion, Healthscope profit after tax was down 50% to $76 million due to a $62.5 million onerous lease provision for the Frankston Private Hospital and a $5.8 million impairment charge for the same hospital.
Total dividends for the year were 6.7 cents per share.
Management described it as a year of transition given the strategic review of the property assets and the divestment of the underperforming Medical Centres and the Asian pathology businesses.
Looking ahead
Going forward, management are targeting FY 19 hospital operating EBITDA growth of 10%, which perhaps is coming off a lower base given that group operating EBITDA was down 4.4% in FY 18.
Overall, I think the company is making the right decisions to reset and restructure the business. The decisions have come at a cost though with Healthscope shares down by double digits from recent highs.
Other operators such as Primary Health Care Limited (ASX: PRY) and Ramsay Health Care Limited (ASX: RHC) have also struggled recently but the long-term prospects for the industry (including an ageing and growing population) remain positive.
