Icade Santé: Old Europe sold on hospitals

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Sickly returns from retail and office properties are pushing real estate investors to find healthier yields elsewhere. Hospital and nursing home owners are seizing the opportunity to garner growth capital. Europe’s largest healthcare property owner Icade Santé will raise €800m of equity as part of its growth plans. Pricing for an upcoming initial public offering announced on Wednesday has valued the group at up to €6.4bn.

Healthcare facilities, such as Icade Santé’s private hospitals, are becoming increasingly attractive. They offer stable inflation-linked returns. Rent collections remained strong during the pandemic, even as tenants in other sectors fell behind.

Icade Santé plans to grow beyond its traditional boundary with acquisitions of nursing homes. It has bought new properties in Italy, Germany and France in recent years.

Healthcare projects are lower risk due to high levels of pre-letting. Rental growth — which is usually inflation-linked — is lower than in other sectors. Lease contracts, though, are typically less capital intensive with tenants taking on maintenance and insurance costs. Care and nursing homes have similar qualities, with the added incentive that the wealthy, ageing populations of Europe are driving stronger demand. 

Annual returns in healthcare remain some of the highest in listed European property at 5.5 percentage points relative to 10-year government bonds, according to property researcher Green Street. Returns for care homes are higher still.

Investor excitement is reflected in Brussels-listed Aedifica, which is mostly exposed to care homes. Investors have rewarded an acquisitive strategy; the group has more than doubled gross assets over the past five years. Aedifica’s share price has risen similarly. Shares trading at a premium of 60 per cent to net asset value give credit for a strong pipeline and further growth. 

Icade Santé has ambitious growth plans too. Including IPO proceeds, it will invest €3bn by 2025 with 70 per cent of that total in care homes. That expectation underpins pricing at the top of the range with a premium in line with that of Aedifica.