Private hospitals group Healthscope wants a co-investor after it confirmed that wants to sell most of its $1 billion hospital assets and lease them back.
The company has been looking at the idea of a sale and leaseback deal to free up cash to lower debt, fund new projects and possibly return money to investors in the wake of the unwanted approaches two buyout groups in May.
Healthscope said it wants a cornerstone investor to hold a minority stake of an unlisted property trust that would hold the majority of its freehold hospital property assets.
Analysts reckon one possible candidate for a deal could be Healthscope’s biggest investor, Australian Super, which was also part of one of the groups that approached the company in May.
News of the confirmation of the spin off deal came as it also revealed a 50% drop in full-year net profit to $75.8 million for the year ended June 30. That was flagged in a May trading update where impairments were revealed.
Revenue rose 3.7% to $2.34 billion.
Healthscope wants to keep majority control of the trust and the new co-investor would hold up to 49%. The company said yesterday the hunt for a co-investor had started and would be finalised next year.
The assets that are being transferred into the trust generated about 65% of Healthscope’s 2018 financial year earnings before interest, tax, depreciation and amortisation (EBITDA) of $334 million.
The planned property trust will receive rental payments of between $80 million and $90 million in its first year and the capital used from the sale will be returned to shareholders and set aside for growing the business.
Chairman Paula Dwyer said Healthscope had considered the risks and benefits of an unlisted property trust.
“The board has concluded that implementing the proposed approach will generate attractive value for Healthscope shareholders,” she said in yesterday’s statement.
“Importantly it will preserve Healthscope’s control and management rights over our hospitals, as well as our operating flexibility to continue to deliver on their growth potential.”
More importantly, it is a move the two private equity groups would have made and the benefits will flow to current shareholders, not investors in the buyout groups, which would be a big selling point for shareholders.
In that May statement Healthscope cut its profit forecast, announced the closure of two hospitals and a review of its property portfolio as it revealed it would not open its books for either the BGH Capital Fund-led consortium or the Canadian infrastructure group, Brookfield Asset Management.
The operating EBITDA of $344.7 million was in line with the revised guidance from may of between $340 million and $345 million but down 4.1% from 2016-17’s $359.4 million,
Profit was hit by an onerous lease provision for a private hospital in Victoria, as well as an impairment charge and hospital closure costs.
The company declared a final dividend to 3.5 cents a share, steady on a year ago. That made 6.7 cents a share for the year, down from 7 cents in 216017 with the cut to the interim dividend earlier this year,
The company is confident the weaker result is a one off and is targeting hospital operating EBITDA growth of at least 10% this financial year.
Healthscope chief executive Gordon Ballantyne said in a statement that 2018 was a year of transition.
“We are just over two months away from operating our flagship Northern Beaches Hospital in October,” he said. "We have also reset our cost base to better respond to the operating environment."
