This week we interviewed some of the most prominent Institutional Investor rated analysts covering LatAm real estate stocks to understand their views on what the most relevant metrics for the sector are, its strengths and weaknesses, and what they see as the best communication strategies.
Most relevant metrics for the Real Estate Sector
All analysts agreed that the most relevant operating metrics for real estate companies are unsurprisingly occupancy, lease spreads, and average rents. Construction costs and dividend yields are also considered important by most of them.
As for financial metrics, all participants look at FFO, FFO per share, AFFO, AFFO per share, and their respective growths and margins over time. Loan-to-value ratios, EBITDA, NOI (net operating income), and NAV (net asset value) were also mentioned. NAV is particularly useful when valuing companies.
What do analysts want from the Earnings Report/Call?
For the report, analysts want to see details on leasing activity, renewal rates, and progress on the development or acquisition pipelines (as well as the potential impact to the P&L). Any other details that portray the market’s strength and trends are welcome.
Some believe that reports from real estate companies are difficult to compare, since different portfolio diversification strategies, as well as different reporting methodologies, make it difficult. This is especially true for adjusted funds for operations (AFFO), since the reconciliation from FFO is not standardized.
For earnings calls, more than one analyst mentioned that companies in this sector have a tendency of reading their earnings releases, which takes up a significant amount of the calls’ time. They would prefer to hear key highlights for the quarter, and then hear more background information that gives them the right context to understand the financials. Guidance is also highly appreciated.
What are the sector’s strengths and weaknesses?
Although it doesn’t come as a surprise, all participating analysts believe that recent nearshoring and e-commerce trends are the main strengths for the real estate sector at this time. This is particularly true for the industrial segment. Many analysts emphasized that supply chain shifts take time, and that there still aren’t enough assets to respond to potential demand for space. This gives real estate companies ample margin to grow in coming years.
Analysts also mentioned that they think companies have strong management teams that are well-prepared and accessible when contacted.
The main weaknesses are the stocks’ lack of liquidity and discounted valuations. Political risks (including safety issues in the country’s Northern region and energy regulations), as well as unsatisfactory infrastructure conditions to materialize potential growth, were also mentioned. Some believe the companies’ currently devaluated stock prices come from a distrust of FIBRAs’ governance structures.
Improving Communications Strategy
All analysts believe that, overall, Mexican real estate companies have good communication strategies and are readily available to answer any questions they may have. They feel like they can count on IR teams on a need-to-know basis. This is true for their contact with other members of the companies’ management teams as well.
They also stated that investor days are more valuable than companies may realize, and that they could be further used to stay in touch with the market. They consider this, coupled with regular quarterly contact, to be a best practice.
Lastly, one participant mentioned that it could be beneficial for real estate players to try to report their earnings results earlier, or at least, to make a coordinated effort to not report all at once (usually during the last days of earnings season). These tend to be overlapped with reports from larger companies from other sectors, which analysts end up prioritizing.
Miranda IR’s Take on the Results
So, what can an IR team do with this information?
- Include the most relevant metrics in the highlights section at the beginning of the earnings release.
- Provide more context and case studies during conference calls rather than reading the report out loud.
- Guidance is always important. Try to offer some expectations for operating or financial metrics at least once a year, even if they are in range format.
- Communicate with analysts regularly and schedule calls to free up time for investors to ask questions during the quarterly Q&A session.
- Consider holding an investor day on an annual basis in a hybrid format. Analysts are thankful for the flexibility and are more likely to attend.
- Keep a clear and consistent message throughout quarters. If there is a change in strategy, be very detailed in why this changed. Aim to be as available as possible.
As always, in Miranda IR we would be more than happy to help you adapt your IR materials and communication strategy to better accommodate to the market’s needs.
Contacts at Miranda Partners