‘Too many companies are focused on every stakeholder there is’

While the listed sector has progressed, there are still obstacles, says Harm Meijer.

Although the European listed sector has come a long way since the early 2000s, one area in which some companies need to improve is their understanding of capital markets. That’s according to Harm Meijer, managing director and co-founder of ICAMAP, the Luxembourg-based investment fund manager, which he founded with Guillaume Poitrinal and Alexandre Aquien.

Meijer says the sector is now much more professional, has much more data available, has a greater degree of transparency, and is subject to better corporate governance than previously.

“It’s a huge improvement and we really have to thank the companies and EPRA for their commitment in this area,” he told Real Asset Insight’s Richard Betts in an interview for EPRA’s Myth Buster series of videos.

Despite the progress, there are still hindrances, according to Meijer. “In Europe, you have many countries, many languages many cultures, many laws and many taxes. The more we can harmonise this, the better it will be for property,” he says.

Understanding the markets

The process of improvement is long-term, and there is still room for refinement among the listed companies themselves, notably in terms of their knowledge of capital markets. “Some companies understand capital markets, some only partly, some absolutely not at all,” Meijer explains. “This can be dangerous because it is very important that capital markets have the trust of companies.” He cautions that without trust, markets will not provide capital and could revert to the saying ‘if in doubt throw it out’.

The onus is also on companies to be “optimised at all times”, he says. “Do they have the right assets, are they creating value, are costs being minimised, is the balance sheet okay, and is corporate governance optimal as well? Frankly, you don’t want to run into a downturn and the capital markets start to question whether you will make it, whether you will have to raise equity.”

Ultimately, it is a company’s track record that is key. But it is also a question of mindset, suggests Meijer. “Too many companies are really focused on every stakeholder there is. But you also have to focus on ‘the shareholder’ because, in the end, it is about returns and if returns are not being generated they will not give you the capital.”

‘Some companies understand capital markets, some only partly, some absolutely not at all. This can be dangerous because it is very important that capital markets have the trust of companies.’

Harm Meijer, ICAMAP

He also questions the preoccupation by some with net asset value (NAV) per share – the book value per share. “In my view this intense focus basically harms the growth of the sector.”

Meijer explains that NAV per share does not capture all of a company’s characteristics: it is based on a historic valuation, it is subjective and undertaken by a third party, and it does not reflect quality of the management, track record or governance strategy. “These are not in the balance sheet in terms of how much depth they carry,” notes Meijer.

So, to facilitate growth, Meijer says if equity can be raised when the market is hot, companies should go for it. “If you can do a deal which adds value per share while not worsening the risk profile of your company, that is absolutely key.”

Too many rules

The EU rules on prospectuses are being relaxed, which should make equity raising easier, but Meijer warns that “we have to be careful that the alignment works between companies and investors”.

He adds that there are too many rules. “Some of the annual accounts these days are very big [publications] and sometimes they get so big that I think we’re losing a bit of what we really need to focus on.”

There is, he says, a need to concentrate on ensuring that financial metrics are calculated in the same way among property companies, and with the same frequency. “Most of them are calculated only once a year or half yearly and it would be great if we could move that to quarterly.”

And, if a further metric could be added to the reports that companies produce? Meijer would choose CO2 per square metre over the lifetime of a building or whole property portfolio. “That is what the future is these days,” he says.