Paying off debt would have given a near term return as high, if not higher than the implied cap rate at which the buyback was undertaken AND increased HCW's negotiating position re rents with either new prospective tenants or Healthscope.
Challenge now is the easiest to sell properties (the child care centres) are gone and everybody knows HCW is in a bind so won't be under pressure to offer a full price on any assets up for sale.
My view is in the low 80's the prospects for a rent cut are pretty well factored in however. I also like that HMC didn't panic and hedge out HCW's rate exposure for several years like some peers have.
A couple more rate cuts by the RBA will relieve a decent amount of pressure from interest expense and likely bring buyers for HCW assets out of the woodwork to further reduce the pressure from leverage and improve their negotiating position with regards to the Healthscope hospitals.
My view is the HCW should exit aged care now given sentiment towards the sector is very positive (unsustainably so in my opinion) and some of the primary care assets that I don't feel have the same sort of barriers to entry as hospitals long term.
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