Forum Topics HCW HCW Investment Idea

Pinned straw:

Added a month ago

With a dividend yield of ~7% and trading at a near all time low this could be a worthwhile addition to my p/f as I don't currently hold any REIT's.

So why the fall from grace even though the company reaffirmed FY24 guidance back in late March and continues to remain as a consensus buy or strong buy?

I initially thought it may have been because HSO (HealthScope) along with other private hospital operators are looking at a financial re-structure as a result of huge insurance premium increases and have been in discussion with both government and the private health insurers however from what I can see the slide in s/p only really started a few weeks after the trading update and guidance reaffirmation.

Appreciated if anyone can shed some light on what is actually causing the concern.

" Update meetings between HMC Capital (ASX: HMC), HCW and HSO parties last week have provided more background around the situation.

HCW and UHF (Unlisted Healthcare Fund) remain in a strong financial position in relation to the 11 hospital asset portfolio leased to HSO.

HSO has met all lease payments and obligations under the lease terms, with no payments currently outstanding.

HCW and UHF own the 11 freehold hospital properties.

HSO and its financial creditors have no interest in these properties beyond rights under the leases.

In addition, HCW and UHF have the benefit of cross default rights across the Tranche 1 hospital portfolio and separately the Tranche 2/3 hospital portfolio.

If there is a default under one lease in the portfolio, there is a default under all leases in the portfolio and HCW/UHF is able to exercise its rights as lessor of such leased properties accordingly.

As part of the portfolio acquisition in 2023, HCW and UHF agreed to provide a 24 month period of rental support for HSO.

Based on the CY2023 actual financial results, the HCW and UHF owned assets reported strong financial cash flow coverage to meet lease payments."

"FY24 Guidance reaffirmed:

HCW reaffirms FY24 FFO and DPU guidance of 8.0cpu, representing 16% and 5% growth over FY23, respectively."

My two thoughts are that the REIT doth protest too much, and the next round of lease negotiations is likely to go one way. It must be grim if trumpeting an absence of defaults passes for good news. I’d also be interested in the weighted average lease term to get a sense of how soon renegotiations might eat your lunch.