What does guidance in Mexican FIBRAs look like? And what should it look like?

This week, we come back to our guidance trends analyses focusing on the Mexican REITs (or FIBRAs). As we have said in previous publications of this guidance series, common guidance metrics vary from sector to sector, and hence, so do best practices on this matter. The idea is that companies should share the metrics that are most relevant for investors and analysts’ model projections.

It is important to note that as usual we only consider guidance to be formal guidance if it is properly disclosed, numeric (even if it is a range), and not only broad management comments on a very high-level view of the direction the business is taking. As for the sector classification of companies, we are following the definitions from the BMV (Bolsa Mexicana de Valores).

FIBRAs – Current formal guidance strategy

Source: Company materials

*Notes:

• Fibra Danhos provides directional guidance (non-numeric) for: occupancy rate, fixed and variable income, leverage, water and energy consumption, and gender inclusion efforts, in its annual report.

• Fibra Danhos and Upsite discuss potential estimates for GLA to be developed in their quarterly earnings reports, but not as formal guidance.

Source: Company materials

Source: Company materials

*Notes:

• Fibra Inn suspended its guidance in 2017. Before this, it shared annual point estimates on the first quarter of the year, through press releases and in its results presentations: income, ADR, occupancy rate, net operating income.

Source: Company materials

*Notes:

• Fibra Storage discusses potential estimates for GLA to be developed, but not a formal guidance.

• FHIPO suspended its quarterly guidance in 4Q19. Before this, they used to share it in their earnings presentations, through broad comments on its portfolio, leverage strategy, and net income.

Because Mexican FIBRAs are involved in various real estate asset classes, our analysis is done by segment (Diversified, Industrial, Hotel, and Others):

• As can be seen on the tables above, currently only four out of the 17 FIBRAs provide formal guidance. Two of these are diversified FIBRAs, while the other two are industrial, meaning that 25 and 66 percent of these segments, respectively, provide formal guidance.
• For those companies that do provide guidance, the number of metrics shared varies, ranging from two to seven metrics per FIBRA. On average, they guide on four metrics.
• All four companies that do provide guidance include it in their earnings reports and calls. One of them also includes it in earnings presentations.
• Guidance strategies for these four FIBRAs are mostly based on ranges. Only one of them provides point estimates as well.
• Three out of the four FIBRAs update their guidance quarterly. One discloses it annually on the fourth quarter.

So, what do the largest real estate investment trusts (by market cap) in the world do?

Retail

• Simon Property Group provides quarterly, range estimates on three metrics: net income per diluted share, FFO per diluted share, and portfolio NOI. These are presented in their earnings reports and calls, as well as through press releases.

• Realty Income provides guidance on a quarterly basis through press releases, earnings reports and calls, as well as in their annual report. The following 12 metrics are considered, using ranges and point estimates: net Income per share, real estate depreciation and impairments per share, gain on sales of properties per share, merger-related costs, normalized FFO per share, AFFO per share, same-store rent growth, occupancy, cash G&A expenses, property expenses, income tax expenses, and acquisition volume.

Office

• Boston Properties provides guidance on earnings per share and FFO per share, using ranges, on a quarterly basis. This is done through press releases, and through earnings reports and calls.

• Alexandria Real Estate provides guidance every quarter through press releases, earnings reports and calls, and the annual report. The following 15 metrics are considered, using ranges and point estimates: projected construction spending, lease renewal and re-leasing rental rates, earnings per share, FFO per share, adjusted FFO per share, occupancy, same property NOI, straight-line rent revenue, G&A expenses, capitalization of interest, interest expense, net debt and preferred stock to adjusted EBITDA, fixed-charge coverage ratio, and sources and uses of capital.

Lodging

• Host Hotels and Park Hotels & Resorts suspended their guidance in 2020 in the face of the COVID-19 pandemic and have yet to resume their guidance strategies. 

• Before the pandemic, Host Hotels used to provide range-based guidance on net income, adjusted EBITDA, diluted earnings per common share, FFO per diluted share, and adjusted FFO per diluted share. This was done quarterly through earnings reports and calls, as well as press releases.
• Before the pandemic, Park Hotels & Resorts used to provide range-based guidance on comparable RevPAR growth, comparable RevPAR, net income, net income attributable to stockholders, diluted earnings per share, adjusted EBITDA, comparable hotel adjusted EBITDA margin change, and diluted adjusted FFO per share. This was quarterly through earnings reports and calls, as well as press releases.

Industrial

• Prologis provides quarterly guidance on the following 15 metrics: net earnings, core FFO, core FFO excluding net promotes, average occupancy, cash same store NOI, strategic capital revenue, net promote income, G&A expenses, development stabilizations, development starts, building acquisitions, building contributions, building and land dispositions, net sources, and realized development gains. This is done using ranges in their earnings reports and calls. 

• Duke Realty provides quarterly guidance on the following 13 metrics: net income, FFO and core FFO per share attributable to common shareholders – diluted; growth in AFFO, average percentage leased, same property NOI, building acquisitions and dispositions, development starts, service operations income, G&A, effective leverage, fixed charge coverage, and net debt to core EBITDA. This is done using ranges in their earnings reports and calls.

What should we learn from this?

Large global REITs overall share a much more detailed guidance than local FIBRAs, including a significantly greater number of metrics (10 metrics on average, considering the 6 REITs who are currently providing guidance). The most popular metrics included in the guidance strategies are earnings and/or net income per share, FFO and AFFO results and ratios, occupancy, NOI, and G&A or other expenses. Those peers who share more than 10 metrics mostly dig into more operating information, such as building/development stabilization, acquisitions, dispositions, and development, as well as rent growth.

We think it is quite interesting that only around one third of FIBRAs have formal guidance strategies in place. While the pandemic might have been tricky for guiding results, we still believe that companies that have not done so yet, should relaunch a guidance strategy (or launch one if they haven’t had it in the past). It doesn’t have to include so many metrics as the ones from global players. Even guiding on 2 or 3 key metrics will go a long way. We actually think guidance in this sector is particularly useful as we have seen that analysts sometimes have very heterogeneous expectations, and many FIBRAs have very scarce equity research coverage (meaning formal guidance would really help investors). Naturally, a guidance strategy would also help investor relations teams be better prepared to answer questions without being exposed to regulatory risks.

If you need any help defining your guidance strategy, please let us know. We, at Miranda IR, will be more than happy to help.