MIPIM 2022: Real estate stocks are ‘under-researched, under-valued and under-appreciated’

Harm Meijer, co-founder of fund manager Icamap, has made a strong case for investing in real estate stocks at Mipim in Cannes.

It is often said that during times of inflation and rising interest rates, real estate is a safe haven for investors. Harm Meijer, founding partner of Luxembourg-based Icamap would agree, but wants to make the point more specifically: investors are better off putting their money into listed real estate. On Wednesday, Meijer presented his case during a rooftop breakfast at Mipim in Cannes.

Icamap calls itself ‘a specialised fund manager’ and runs a platform of €1.7 bn through three funds: Icamap I, Icawood I and Icamax. Its biggest fund is Icawood I, a low-carbon timber development fund. Icamap has offices in Luxembourg, London and Paris where 18 investment professionals work at outperforming the EPRA Eurozone Index (by 20.5% since June of 2020).   

Meijer believes listed real estate is an attractive market for investors, but that they do not always fully appreciate its advantages. Why is it overlooked?

In making the case for listed real estate, Meijer points to the liquidity of stocks as opposed to direct real estate, the great variety, the possibility of buying at a discount to the underlying value, value-add investments, the transparency and often the focus on sustainability. Furthermore, a portfolio of investments with a sizeable chunk of listed real estate stocks offers a better risk-return and the return is better than on bonds. Meijer also found that during periods of rising rates, listed real estate outperforms the broader stock market.

Is this a well-kept secret? And why is that the case? Meijer has noticed that ‘listed real estate hardly gets any coverage’. That was another result of his research: 56% of listed real estate companies in Europe are followed by only one analyst or none at all. Consequently, there is only a small group of professional investors who can make knowledgeable decisions on real estate stocks.

Meijer thinks that real estate stocks are undervalued and sees the strong merger and acquisition activity which took place in the real estate sector last year as a clear sign. There was more going on in the M&A space than in 2019 and 2020 combined. Moreover: ‘M&A activity will continue,’ Meijer says.

Other reasons to invest in the segment are the relatively high dividends, and listed real estate is also taking the lead on ESG matters. Real estate will remain an inflation hedge, since ‘there will be less development, so existing real estate increases in value', says Meijer.

What the economy will do in the current climate is still a question. During periods of uncertainty, the performance of the sub-sectors of real estate differ sharply. Logistics has achieved returns of plus 52.4% since the start of 2020, while retail has suffered a 42.2% loss. Storage has also done well, while office real estate has slumped 12.2% into the red and residential has booked gains of 8.8%.

As far as the performance of logistics is concerned, have investors who lost out on the 52.4% return missed the boat? Meijer is cautious. He thinks logistics will take a pause, but that it is still promising in the long term. There is pressure on yields right now. ‘Even within the sub-sector of logistics there are differences,’ he says. ‘Urban logistics is booming and will continue to do so.’

Meijer admits it has been a roller-coaster period with Covid-19 and Ukraine as ‘black swan events’. However, the outlook for listed real estate in general remains favourable. The big risk would be a recession, he says. ‘At that point I would say, sell everything!’