The Healthco Healthcare and Wellness REIT (ASX: HCW) flew out of the gates on Friday, soaring 16.87% to 97 cents per unit shortly after the market open.
The real estate investment trust (REIT) has since retraced to 90 cents per share, up 8.5%.
The HCW REIT's share price surge follows a statement regarding private healthcare provider, Healthscope.
Healthscope leases four hospitals directly owned by the HealthCo Healthcare REIT and another seven owned by an associated entity.
The parent companies of Healthscope, which runs 37 hospitals in Australia, went into receivership earlier this week.
One of those 37 hospitals is Northern Beaches Hospital in Sydney, where Joe Massa died last year after "unacceptable failings" with the toddler's treatment.
His death has prompted the NSW Government to introduce new legislation called 'Joe's Law' to ban public-private hospital operations.
Healthscope's lenders have appointed McGrathNicol Restructuring to work with Healthscope management to sell the business.
One of Healthscope's lenders, the Commonwealth Bank of Australia (ASX: CBA), has provided $100 million of new funding to keep the hospitals operating while the financial mess is sorted out.
Healthscope's operational business, which runs the 37 Healthscope hospitals in Australia, is not in receivership.
What's going on with Healthscope?
Among a myriad of financial problems is Healthscope's inability to pay rent to its landlords, one of which is HealthCo Healthcare.
In 2023, the HCW REIT and the Unlisted Healthcare Fund (UHF) bought 11 freehold private hospitals from Medical Properties Trust (NYSE: MPW) for $1.2 billion. All 11 of them were leased to Healthscope.
The HCW REIT owns four properties directly and holds a 49.6% stake in UHF.
Today, the HCW REIT announced it had entered into a short-term partial rent deferral agreement, alongside UHF, with Healthscope.
HealthCo Healthcare & Wellness REIT said the agreement would support the continuity of services to the 11 communities the hospitals service.
HCW REIT also said it had received formal expressions of interest from alternative Australian hospital operators to re-tenant all 11 hospitals.
What's the deal between HCW REIT and Healthscope?
Under the agreement, Healthscope will pay outstanding rental arrears for March and April 2025 immediately.
Healthscope will also pay 85% of the rent for May to August to HCW REIT and UHF immediately.
The remaining 15% of deferred rent for the May to August period will be payable in September.
HMC Capital Managing Director of Real Estate, Sid Sharma, said:
We are committed to the continued provision of healthcare services in the areas in which our assets are located.
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.
The HCW REIT and UHF have provided significant support to Healthscope during a tough operating environment post-COVID.
HCW REIT and UHF gave Healthscope a 6% rent reduction after the acquisition, plus two years at 50% rent, which cost $66 million in lost rental income.
The landlords have also spent $85 million upgrading several of the 11 hospitals they own.
What will happen to the 37 hospitals?
McGrathNicol intends to sell all 37 hospitals to new owners. This will likely occur across several transactions with different players.
Healthscope says there are no plans for hospital closures or redundancies.
In a statement, McGrathNicol partner, Keith Crawford, said:
We want to make it clear that the subsidiaries that own and operate Healthscope's network of hospitals are not affected by our appointment to the shareholding companies.
Our immediate focus is to engage constructively with all key stakeholders to ensure uninterrupted operation of Healthscope hospitals and continuity of best practice standards of patient care.
