HealthCo Healthcare and Wellness REIT (ASX:HCW) is seeing the beginning of a material uplift in tenant covenant quality through a lease transfer to a state government-backed counterparty, signaling potential dividend reinstatement, Jefferies said in a note on Thursday.

The company disclosed Thursday that troubled hospital operator Healthscope, from which HealthCo owns 11 private hospitals, reached an agreement to surrender its existing lease of Mount Private Hospital in Western Australia to Bethesda Health Care.

This update provides clearer timing on Healthscope's restructuring process, the investment firm said.

Jefferies said the REIT appears undervalued, trading at a 53% discount to net tangible assets, and sees potential for dividend reinstatement in fiscal year 2027.

The brokerage maintained a hold rating on HealthCo Healthcare and Wellness REIT with a price target of AU$0.75.