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French landlord Icade grows €5 billion healthcare business amid COVID-19 woe

France-based landlord Icade, which owns a €13.8 billion portfolio of mainly office and healthcare assets across several European countries, is planning further investments in its healthcare division in 2020 following a €145 million nursing home portfolio acquisition.

The targeted expansion comes despite the company incurring an expected hit of around €50 million to net current cashflow for 2020 due to the impact of the coronavirus pandemic.

Speaking during a first-half earnings call, CEO Olivier Wigniolle said that the company was keen to grow Icade Santé at an even faster rate, but that it was "not willing to run beyond what is reasonable" in terms of market prices.

"With respect to the healthcare investment division, we are ensuring further growth and international expansion," said Wigniolle, according to an English translation of his comments. "We are talking about some €200 million ear-marked in acquisitions, and we have other plans. We'll see whether we crystallize them by year-end."

Icade's expansion of its healthcare business, which includes a portfolio of assets across France, Germany and Italy worth €5.3 billion as of June 30, is part of company plans announced in 2018 to establish the first Europe-wide healthcare REIT. The company said in February, before the full impact of the coronavirus pandemic was felt, that it aimed to launch an initial public offering of Icade Santé shares by 2022. Wigniolle did not provide an update on the IPO plans during the first-half earnings call.

Wigniolle said that Icade Santé has shown "tremendous resilience" during the COVID-19 crisis, "even more resilien[ce] than offices." Icade Santé's net rental income for the first half of 2020 stood at €145.9 million, a 12.9% increase from the same period a year earlier, driven by 2019 acquisitions. However, the healthcare business is expected to contribute a €3 million to €4 million hit to net current cash flow for 2020 due to delayed completions and acquisitions.

"We have an asset class that is noncyclical, it is very robust, and it's driven by long-term contracts as well," Wigniolle said.

Icade's latest acquisition for its healthcare business extends its reach across European markets, one of the targets of the company's 2018 IPO plans. Icade acquired a portfolio of nine nursing homes, eight in Germany and one in France, for €145 million in a sale-and-leaseback deal with global dependency care operator Orpea SA.

The transaction will close between September and the end of November, depending on the completion of certain assets in the portfolio, according to additional details provided by Icade during the earnings call. The acquisition was completed at a yield of around 5% and differentiated by asset, it said.

Wigniolle said the deal with ORPEA represented a major step in Icade Santé's European expansion plans. "This is the first operation in the long-term partnership plan with one of the leaders in this category of assets," he said. "We're continuing to diversify internationally."

Icade's office portfolio, which makes up more than 60% of its total portfolio value, saw net rental income fall by 1.3% to €175 million in the first half of 2020. The result was despite "significant disposals" in 2019, according to a company presentation.

Icade has put its guidance for 2020 on hold due to a "high degree of uncertainty," said Wigniolle. "The uncertain environment means that we would rather push back our guidance for fiscal 2020 to when we'll be announcing Q3 revenue in October," he said.

Icade's dividend payout policy will be "very stable," he added, with a payout of 90% of noncurrent cash flow.