In an article published Sunday on Master Limited Partnerships, I provided the following lines to which a few readers are taking exception:
"It is my observation that the analysts echo the projections provided to them by the companies. Analyst projections change when the company guidance changes. That is the way it is in sector after sector. The analysts are copying the answers off of someone else's homework. They should not be judged for the accuracy of their answers because "their answers" were not "their answers" to start with. They were someone else's answers! So don't blame them if the answers are wrong."
Some of you need more evidence that this perception is accurate. Let me provide that evidence using examples from a sector with a smaller coverage universe so that I give examples from most of that universe. I will do Health Care REITs.
I will first provide the current normalized FFO projections - but I really want you to observe the percentage changes in the 2013 to 2014 projections and the spreads in the 2014 projections (High and Low numbers last updated 5-30-14). The data:
Health Care Update for Q2-14
Yields are calculated on Q2-14 dividends. The Dividend/FFO ratio uses the 2014 FFO projection. AVIV started trading on 3-21-13 and DOC on 7-19-13. The percent change columns measures the changes since the beginning of the year. LTM (last twelve month) dividend growth uses Q2-14 minus Q2-13 normalized dividend/share divided by Q2-13 dividend. LTM FFO growth uses Q1-14 minus Q1-13 normalized FFO/share divided by Q1-13 normalized FFO. LTM FAD growth does not use quarterly numbers - but the 2014 midpoint of the yearly guidance. The sector average LTM dividend change omits AVIV and DOC from that calculation. NHI, OHI and SBRA announced dividend increases in Q2-14. UHT has yet to announce its Q2-14 dividend - and this is the quarter when its small yearly increases happen.
|Share Price||2014 FFO Estimate||Div/||Div/||Percent Change||LTM Growth|
|Aviv REIT, Inc.||(NYSE:AVIV)||23.70||28.91||1.85||1.89||4.98||76.19||75.39||21.98||25.02||2.16||8.35||0.00%||0.0%||11.0%|
|Physicians Realty Trust||(NYSE:DOC)||12.24||14.42||0.98||0.89||6.24||101.12||90.91||17.81||21.49||-9.18||3.08||0.00%||300.0%||7.6%|
|Health Care REIT, Inc.||(NYSE:HCN)||53.57||63.41||4.00||4.07||5.01||78.13||88.33||18.37||21.34||1.75||2.45||3.92%||9.9%||7.1%|
|Health Care Properties||(NYSE:HCP)||36.32||41.18||3.06||3.03||5.29||71.95||87.20||13.38||16.38||-0.98||-2.10||3.81%||1.4%||-0.8%|
|Healthcare Realty Trust Incorporated||(NYSE:HR)||21.31||25.62||1.41||1.45||4.68||82.76||81.63||20.23||23.04||2.84||-0.41||0.00%||9.4%||10.5%|
|Healthcare Trust of America, Inc.||(NYSE:HTA)||9.84||12.39||0.69||0.73||4.64||78.77||92.74||25.91||28.84||5.80||5.35||0.00%||12.5%||6.9%|
|LTC Properties Inc.||(NYSE:LTC)||35.39||39.42||2.65||2.60||5.18||78.46||81.60||11.39||13.79||-1.89||6.31||9.68%||3.3%||6.8%|
|Medical Properties Trust Inc.||(NYSE:MPW)||12.22||13.31||1.12||1.10||6.31||76.36||79.25||8.92||12.36||-1.79||0.68||5.00%||4.0%||14.0%|
|National Health Investors||(NYSE:NHI)||56.10||63.57||4.13||4.21||4.85||73.16||82.80||13.32||15.94||1.94||2.45||4.76%||23.5%||6.3%|
|Omega Healthcare Investors Inc.||(NYSE:OHI)||29.80||36.59||2.73||2.79||5.47||71.68||80.00||22.79||26.07||2.20||-0.77||8.70%||7.9%||11.1%|
|Sabra Health Care REIT, Inc.||(NASDAQ:SBRA)||26.14||28.54||2.20||2.23||5.33||68.16||71.03||9.18||11.94||1.36||2.21||11.76%||19.6%||21.6%|
|Senior Housing Properties Trust||(NYSE:SNH)||22.23||24.25||1.74||1.76||6.43||88.64||97.50||9.09||12.60||1.15||-2.20||0.00%||0.0%||1.9%|
|Universal Health Realty Income Trust||(NYSE:UHT)||40.06||43.39||2.80||2.83||5.76||88.34||89.93||8.31||9.87||1.07||0.00||0.00%||-1.4%||1.1%|
Dividend dates are:
|AVIV: 04-11-14||DOC: 04-24-14||HCN: 05-19-14||HCP: 05-26-14||HR : 05-29-14||HTA: 07-02-14||LTC: monthly|
|MPW: 04-10-14||NHI: 05-08-14||OHI: 05-14-14||SBRA: 05-29-14||SNH: 05-20-14||UHT: 06-29-14||VTR: 06-26-14|
Health Care Price/FFO Ratios 06-20
The analyst projected FFO stats for UHT that I find at Yahoo Finance look bad to me. Those projections are not in line with what UHT is reporting. This date uses a 2014 FFO projection that is a run rate based on current trends. HTA IPOed in June of 2012. 'Normalized FFO' stats for the pre-IPO years came from its 2011 10-K. When AVIV and DOC were added to the sector on 11-19-13, the sector average 2013 price/FFO ratio rose from 14.94 to 15.79. The DOC FFO projection fell 50%, distorting the 2013 sector ratio. 2012 FFO growth was 10.77% and 2013 growth was 7.65% before the addition of the newbies. AVIV and DOC do not distort the 2014 and 2015 sector average ratios.
|FFO / Share||% FFO Growth||Price/FFO||14 FFO Range|
I will first provide the current normalized FFO projections - but I really want you to observe the percentage changes in the 2013 to 2014 projections and the spreads in the 2014 projections (high and low projection numbers last updated 5-30-14). The data:
1 - To verify that you have focused on the right column of data, let me reiterate some of those projections. AVIV has a projection change of 50%. HCN has a projection change of 21%. HCP has a projection change of 0.66%. How do the analysts decide on which REITs to bless with significant changes, and which REITs to condemn with anemic FFO growth projections?
2 - I may also need to point out that the current company guidance is based on the existing assets. Many of these REITs are growing in size like weeds.
Just in case you need examples of this growth spurt, let's look at the raw FFO dollar amounts - which is provided in the next spreadsheet:
Last Ten Quarters Normalized FFO Dollars
|Normalized FFO Dollars||Year over year growth|
Next, let's look at the 2014 guidance provided by the REITs themselves in their Q1-14 earnings releases and conference calls.
For AVIV - 2014 normalized FFO guidance is $1.88/share to $1.92/share.
For DOC - 2014 normalized FFO guidance of $0.88 to $0.92/share.
For HCN - 2014 normalized FFO guidance of $4.03 to $4.13.
For HCP - 2014 FFO guidance of $2.96 and $3.02/share.
For LTC - 2014 guidance that 2014 normalized FFO will be between $2.56 and $2.58.
For MPW - 2014 normalized FFO will range between $1.10 and $1.14/diluted share.
For NHI - 2014 normalized FFO/share guidance of $4.14 to $4.20/share.
For OHI - 2014 adjusted FFO/share guidance of $2.74 to $2.77.
For SBRA - there was no change to the prior 2014 normalized FFO guidance of $2.19 to $2.23 and normalized AFFO guidance of $2.12 to $2.16.
For VTR - 2014 normalized FFO guidance of a range between $4.31 and $4.37/share.
It is now time for you to answer some questions:
AVIV has a projected 2014 increase of 50%. It is normal when extreme changes are coming in earnings, the spread in those earnings projections are huge. Look at the spread between the high and low projection. It is only 6%. Is this an example where the analysts are echoing the projection they get from the company?
Look at the FFO growth projected for HCP. Are the analysts "picking on" HCP - or are they echoing the projection they get from the company?
Look at the spread in the projections for HTA. It is the largest spread in this coverage universe. It is a coincidence that the large spread comes from one of the REITs that failed to provide specific guidance?
Look at the huge growth in FFO projected for NHI and SBRA. Here are another two examples of huge growth with low spreads in those growth projections. Both provided guidance. Is this huge growth and low spread incongruity a coincidence - or is it another two examples where the analysts are echoing the projections from the companies?
Summation - The analysts are mostly passing along company guidance as their own earning projections. This may be an out of consensus option. Use your own powers of observation to reach your own conclusion. Don't wait on some talking head to tell you whether this is true.
Disclosure: The author is long LTC, OHI, VTR. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.