Good morning, everyone, and thank you for attending today's conference call. Before we commence today's presentation, we want to acknowledge the traditional custodians of country throughout Australia. We celebrate their diverse culture and connections to land, sea, and community. We pay our respects to elders past, present, and emerging, and we extend that respect to all Aboriginal and Torres Strait Islander people. Let us begin on slide five. When we listed HealthCo in 2021, we set out to create Australia's leading diversified healthcare REIT. It is a unique strategy, especially one in listed markets. As the sector continues to institutionalize, we have clearly encountered challenges in the last few years that are well documented. We recognize and appreciate the unit price impacts to investors.
As manager and the largest shareholder of HealthCo , HMC continues to focus on creating long-term value for investors through proactive management of the long-term infrastructure like real estate that HealthCo owns. I understand today that everyone will be eager to have an update on the Healthscope process, and I will turn to that shortly, but let's discuss the FY 2025 results. FY 2025 was clearly impacted by the receivership of Healthscope at its parent level, which is the largest tenant in the HCW portfolio. Healthscope today represents 53% of HealthCo' s earnings on a look-through basis, having regard to the balance sheet assets and those in the unlisted healthcare fund.
Funds from operations per unit of $0.066 were impacted by the unlisted healthcare fund pausing distributions, just as HealthCo announced a few months ago. Despite this, we have collected 98% of all rent due and payable, having receded through the course of the financial year, and all rent owed by Healthscope has been paid in cash. The valuations of the properties declined by 4% on a gross basis, reflecting a 37 basis points expansion in cap rates. All Healthscope facilities were independently valued, and 72% of the portfolio was independently valued throughout the half. During the period, we have strengthened the balance sheet and now have 31% pro forma gearing, and importantly, $104 million in cash and undrawn debt. HealthCo is well positioned to navigate through this next period.
Preserving cash and pausing on distributions will allow HealthCo to ensure long-term value preservation and enhancement in our portfolio. Notably, the like-for-like net income growth from our portfolio was 5.2%, driven by market rent reviews, annual reviews, and strong leasing spreads. Turning to the Healthscope portfolio overview on page seven. HealthCo and the unlisted healthcare fund in total own 11 Healthscope hospitals. These are purpose-built facilities, with many of them having been recently refurbished and upgraded. Our facilities treat over 366,000 patient episodes annually, with 86 operating theatres supported by 4,000 nurses and staff. Almost all of our assets are focused on medium and high-acuity critical services. Many of you that have followed our journey over the last year or two know that as an Australian-listed company, we are focused and passionate about the important role that these facilities play in the Australian healthcare landscape.
Our focus remains to ensure that all facilities continue to operate and support their local communities. On this page, we have also provided a reminder of the valuation gains since acquisition of this portfolio and the quarterly cash collection since acquisition. We still have high conviction in this asset class, given its long-term value fundamentals. Turning to page eight. As many of you know, in May this year, two non-operating Healthscope entities entered into receivership. Our tenant counterparties, for clarification, are not in receivership and continue to operate and serve their communities. Our legal rights that we have articulated before remain in place, including our cross-default and termination rights. We expect the short-term deferral support we have provided will be repaid by the end of September, as agreed. Since the appointment of receivers in May, the receivers and advisors have been working through a process of sale.
We have had constructive and productive discussions with the receivers and Healthscope management as they work through an orderly sale process. We look forward to working with them constructively moving forward, as we have done so in the last few months. In the event that the sale process is concluded, the receivers have a right to seek our consent to assign leases. We are open-minded to such a request. In the event that the receiver-led sale process does not result in one or more proposed assignees and leases that HealthCo and the unlisted fund are willing to consent to, we will look to enter into final lease arrangements with alternative tenants. To that end, we have reached conditional agreements with alternative operators as we stand here today. We understand that investors are eager to see a resolution to this situation, as we are.
Given, however, the nature of the stakeholders and negotiations with the parties are ongoing, it is imprudent for us to make any further comments beyond what are provided today. Our priorities are clear. Number one, continuity of services at all hospitals. Number two, ensuring the portfolio is tenanted by well-capitalized operators with strong operational track record. Number three, maintaining jobs for nurses and hospital staff. Number four, maintaining long-term value for our unitholders and investors. We do thank our investors for their ongoing support as we work through this situation. I'll now pass over to Christian , who will take you through the results in more detail.
Thank you, Sid, and good morning, everyone. Let's turn to page 10 for an update on the HCW asset portfolio. I will start with the key metrics for HCW's well-diversified portfolio of private hospitals and other health infrastructure assets. While the Healthscope portfolio has attracted a lot of media coverage, the broader portfolio has continued to perform well. Contracted rent collection was 98%. Like-for-like NOI growth for the year was +5.2%, and the portfolio has a long lease expiry of 11.5 years. Let's turn to page 11 for an overview of our subsectors. Our portfolio includes private hospitals, cancer care centers, aged care facilities, health hubs, and a nursing college. Government and national tenants account for over 80% of our income.
These include Mater, one of Queensland's largest healthcare providers, and GenesisCare, Australia's largest cancer care operator. On the next page, we highlight the attractive metro locations of our assets. 96% of our portfolio is located in metro areas in Sydney, Melbourne, Brisbane, and Perth. Our assets are located in areas with strong population growth and therefore benefit from continuing strong demand for healthcare services. Turning now to an ESG update on page 13. Our sustainability strategy is built around creating healthy communities. In FY 2025, we delivered solar to 70% of feasible sites and reduced scope 1 and 2 emissions by 32% from our FY 2022 baseline. This was driven by our energy management system and solar rollout. Moving on to developments, starting on page 15. We completed developments at Proxima and The Mount in the second half.
These projects have delivered great facilities for our tenant partners and accretive returns for our unitholders, with cash yield on cost of up to 7.5%. Now turning to page 16, where I'll provide an update on our development pipeline. The New South Wales Government is moving ahead with its plans to build a $900 million public hospital at Rouse Hill. The planned hospital is adjacent to our existing health hub and provides a strategic opportunity to build a co-located private healthcare facility. We clearly have some attractive development opportunities lined up. In terms of prudent capital management, we are focused first on resolving the Healthscope situation and then on securing funding partners for our pipeline. Moving now to the financial results, starting with the earnings summary on page 18. FY 2025 FFO was $0.066 per unit.
The result was consistent with previous guidance when adjusted for the suspension of distributions from the unlisted healthcare fund in the second half. The FY 2025 distribution was $0.042 per unit. HCW did not declare distributions in the second half in order to maintain balance sheet flexibility. Moving on to the balance sheet on page 19. NTA at June was $1.44 per unit, with a movement to June driven by portfolio cap rate expansion. All the Healthscope assets were valued independently. HCW's senior debt facility has been extended until November 2026.
Turning now to capital management on page 20. As we have already said, our capital management has remained prudent as we sought to preserve liquidity and maintain strategic flexibility. Adjusted for recently exchanged asset sales, June 2025 pro forma cash and undrawn debt is $104 million, and June 2025 pro forma gearing is 31%. This is at the low end of our target gearing range. Moving on to the outlook for FY 2026 on page 22. In FY 2026, our focus remains on resolving the Healthscope situation. Our key goal is to ensure continuity of services at our facilities in order to protect long-term value for HCW's unitholders.
We continue to make progress in this regard. We will continue to manage our capital prudently and don't intend to declare distributions until the situation has been resolved. Until such time as that is achieved, it is not appropriate to provide guidance for FY 2026. Our conviction in healthcare real estate remains strong, with long-term growth underpinned by powerful megatrends. In closing, we would like to thank our unitholders, the HealthCo Board, the HMC Capital team, and all of our tenant partners. I will now hand back to the operator for Q&A.
Thank you. If you would like to ask a question, please press Star, one on your telephone and wait for your name to be announced. If you would like to cancel your request, please press Star, two. If you are on a speaker phone, please pick up the handset to ask your question. Your first question today comes from Solomon Zhang from JP Morgan. Please go ahead.
Morning, Christian. Thanks for the time. First question for me is probably for you, Sid, just on slide eight. When you're talking about the alternative lease arrangements, I understand that you can't disclose the commercial terms and, you know, it's commercial in confidence and a delicate situation, but I was hoping you can just touch on some of, I guess, the high level, I guess, where these lease arrangements are sitting and have you agreed on key terms such as rent levels, tenure, incentives?
Yes, Solomon. The conditional agreements contemplate the key commercial terms. They remain, to your point, commercially in confidence, and given the sensitive nature of the negotiations and this process that's yet to play out, I don't want to go into any further details beyond that.
Could you comment on whether it applies to all the assets or a majority or a minority of the assets that you own?
All of the assets.
Right. Makes sense. The second question for me is just on the impact of your unlisted healthcare fund distribution freeze on your interest coverage ratio. I understand it directly impacts FFO, but how does it flow through to your headstock ITR?
We feel we're in compliance with all our debt covenants as of June. We will continue to remain compliant with all the debt covenants in FY 2026, Solomon.
Yeah, it makes sense. Just in terms of the income that they include in that, you know, the EBITDA of their ITR, does that include the distributions or the distributable earnings of the unlisted healthcare fund?
It is included in the covenant calculation, Solomon, but as I said, we remain confident around our covenants in FY 2026.
I think, Solomon, we're very comfortable that we're positioned now with the excess cash, the excess liquidity, the rent coverage ratio, the support from our banks to ride through the next 12 months very comfortably.
Thanks.
Thank you. Your next question comes from David Pobucky from Macquarie Group. Please go ahead. David, your line is now live. We'll briefly move on. Your next question comes from Simon Chan from Morgan Stanley. Please go ahead.
Good day, guys. Hey, a few questions. The first one just on your debt roll. You guys, it looks like you've rolled your debt from May through to November, so four-month extension, 2026. Just wondering two things. One, why do such a short roll? I thought most accomplishments, you know, when they extend debt, they extend for longer than four months. That's part A of the question. Part B, it seems like you've cut the facility size down to $475 million. Is that just to save money on loan fees or, yeah, can you comment on that, please, guys?
Yeah, hi, Simon. It's Christian here. We extended the facility by six months. Our lending syndicate is very supportive of all the stuff that we are doing. The reduction in facility was part of the extension that we'd entered into.
Did any of the terms change in this whole extension, like margins or other stuff?
All the terms are similar to the previous arrangements. To note, obviously by the extension, it ensures that the debt isn't current in the financial year.
Yeah. I guess by the time your December results rolls around, it's going to become current again, right? Because it expires in November 2026.
That's correct. We're continuing to manage our balance sheet, but in a proactive manner, Simon.
Cool. Great. Hey, can you guys just give me an update as to two of your assets, please, in particular Proxima and Eden Park over in Macquarie Park? Proxima, my understanding is there was a rental guarantee, right? How is that going? Remind me when it rolls off, and is the asset effectively 100% rented now such that there will be no impact on earnings in FY 2026? Also, just on Eden Park, is the tenant paying rent? Is everything okay there?
Yeah, hi Simon. Proxima is a health hub on the Gold Coast. It's adjacent to Gold Coast University Hospital and Gold Coast Private Hospital. It's a great facility in a great location that's anchored by Queensland Health. The rental guarantee expired at the end of FY 2025. Current leasing levels are in excess of 80%, though we'll continue to lease that facility up in the current financial year. Simon, we've got commitments over 90% and we've got a great tenant that is the Delta. We're just waiting for them to commence their fit out. We're really pleased with how that's gone. The rental levels are in excess of what we expected when we set out to do that project. We're pretty pleased with how it's coming along and the covenant counterparty there with the government is a strong counterparty risk.
Macquarie Park, nothing to worry about there?
No, look, there's a Saluda, a key tenant in Macquarie Park. They're performing really well. The team negotiated a really good market rent review this year with them. The other tenant there is Agros that have just gone through a capital fundraising. They're a life sciences operator, and all arrears and rental were cleared when that capital raising was done. We're pretty comfortable about where that's heading.
Cool. That market rent review you just mentioned with Saluda Medical, was that a big one? Did you get a good positive leasing spread there?
Significant, yes. The comp NOI growth that we quoted, Simon, on the first page there, a large part of that was driven by rent reviews and leasing spreads across the book, including that particular deal. I don't want to get into specifics per tenancy, but yes, that was significant. The team did a great job to negotiate it.
That's very good. Thanks very much, guys.
Thank you.
Thank you. Your next question comes from David Pobucky from Macquarie. Please go ahead.
Good morning, team. Sorry about earlier. I'm just done covering a few things and apologies if I missed some of this. Would you mind just talking a bit about the operating performance of the Healthscope assets, please? I think about a year ago you may have mentioned that the EBITDA ratio for Healthscope was about 3x , including the incentive at that point. Is that right?
Yeah, that was a year ago based on the incentive at the time. That was cash due and payable versus EBITDA. Current update, David, the receivers and their advisors are keeping us up to date with the performance of the facilities. They've assured us, and it correlates with all of our data points, that the facilities, from an occupancy perspective, are improving. VMO retention is high and a credit to the way Healthscope, post their receivership, have been managing things day on day. If you were to visit any of the facilities, there's been very minimal disruption on site, which is great for patients and great for the communities.
Thanks. Just following up on that. Going back to a year ago, 3x exit incentive would have implied 1.5x. My understanding is industry norm sounds like it should be about 2x I think you know where I'm going with this, but that would imply rent cuts could be in the order of up to 25%. Just wanted to understand how we should think about that or any color you can provide around that, please.
I'm not going to get into giving you the rent cut assumption you've made there. What I would say is, from last year to this year, conditions have improved. Rent coverage has improved. We don't anticipate what the number you've quoted to be the number that we end at. It is certainly well out of step with the deals that we've got on the table in front of us today.
Thank you, Sid. I appreciate that color there. Do the conditional agreements with alternative operators exist with each and every Healthscope asset in HCW and in the direct portfolio?
Yeah, that's right, David.
How do you think about the potential quality of lease covenant with potential alternative operators versus Healthscope?
It'll be a big improvement on the current counterparty covenant.
Yeah, just had one on valuations. They're down 6% half on half. Correct me if I'm wrong. How much of the devaluation do you think is tenant-related risk factored in versus general market? Do valuers have consideration for the alternative arrangements?
At the moment, all of the leases remain on foot. We've provided a slide on the Healthscope page which shows the movement on the Healthscope hospital valuations, which are the driver for most of the changes across the book. The way the valuers view it today is that the leases remain on foot. In the absence of those leases being terminated or changed, they're assessing risk on through the cap rate as opposed to the underlying cash flows.
Yeah, sorry, just one final question for me on the UHF distribution that was suspended. If you could just talk through your thoughts on that, do you expect UHF to pay a distribution in FY 2026? If and when Healthscope is resolved, do you expect to be paid the distributions that have been suspended to that point in time?
They're not providing guidance on distributions at Healthscope today, David. The focus is we're going to resolve Healthscope and we're going to set these hospitals up for long-term success. That's the focus at the moment.
Understand. Okay, thanks for all the color, Sid.
Thank you. Once again, if you would like to ask a question, please press S tar, one on your telephone and wait for your name to be announced. Your next question comes from Callum Brammer from Macquarie. Please go ahead.
Apologies, we were double booked to try and make sure we got a question. Maybe I can just follow up with a couple. To the extent that UHF doesn't pay a distribution, can you just talk to the impact for your ICR and your ability to remain above the covenant without any distribution from UHF? My second one was, I note in the notes to the accounts you refer to the margin on the debt being subject to the LVR for the group. Can you just talk about how that margin steps up depending on that LVR, please?
Yeah, just around the margin, we don't comment on our LVR covenants. Callum, just in terms of the UHF, sorry, the first question, Callum, sorry if you're the moment. ICR coverage. I think the question came up, Callum, you may have missed it just before. We're in compliance with all of our covenants, and we're very comfortable with where we sit today in terms of the outlook for the next 12 months.
The test is at the end of the period for the ICR, isn't it?
The test.
Is that correct?
It's a semi-annual test look back. I think one of the other key points to note is, I mean, Healthscope are paying cash rent, so you know we can turn those distributions on at HCW, but you know as Sid has pointed out, you know it's a bit prudent to prepare ourselves for any new deal with new operators. We're just managing the cash, but you know as Christian pointed out earlier, we're comfortable with our interest coverage.
Okay, thanks so much.
Thank you. Your next question comes from Andy McFarlalne from Bell Potter. Please go ahead.
Hi guys, just two quick ones for me. The time rent collection noted there's 95% through the period. Can you just give us a little bit of color on what that 5% was where it wasn't collected?
It was just a timing issue, Andy. It's been received post 30 June. We got it all after 30 June.
Otherwise, is it relating to one or multiple assets?
Just one tenant. It's been re-leased since.
Just around asset sales. Obviously, it will be during the period. Just wondering if you're contemplating anything for the next 12 months.
Yeah, look, obviously we wanted to just get the balance sheet in a really good shape to kind of navigate a transition of the Healthscope facilities. The balance sheet's in good shape. Gearing's at, you know, the lower end of the range. We've got liquid assets that are in demand that we can trade whenever we feel like we need to. We'll just do it as a function of the capital requirements as we work through the Healthscope situation.
Got it. Thanks, Sid.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Sharma for any closing remarks.
Thank you all for your interest and your questions today. We do appreciate the patience as we work through this situation, and hopefully we've provided some good color today on where things are heading. I look forward to catching up with all of you over the next few days. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.