Are Analyst Earning Projections Really Their Projections?

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 |  Includes: HCP, NHI, SBRA
by: Factoids

Summary

Do analysts merely echo company provided earnings projections?.

Evidence is provided in this article from the Health Care REIT sector.

Use your power of observation to make your own decision.

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
Company_name_and_ticker 1-01 06-20 1-01 06-20 Yield FFO FAD Price Pr+Div 14 FFO Target Div FFO FAD

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%
Ventas, Inc. (NYSE:VTR) 57.28 64.64 4.36 4.40 4.49 65.91 68.40 12.85 14.11 0.92 1.80 8.21% 5.8% 7.1%

Average 5.33 77.95 82.69 15.25 18.08 0.52 1.94 4.65% 33.0% 9.4%

Click to enlarge

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
Click to enlarge

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
Co. 2010 2011 2012 2013 2014 2015 12-13 13-14 14-15 2013 2014 2015 High Low Range

AVIV 0.00 0.00 0.00 1.26 1.89 2.10 na 50.00 11.11 22.94 15.30 13.77 195 183 6.35%
DOC 0.00 0.00 0.00 0.26 0.89 1.16 na 242.31 30.34 55.46 16.20 12.43 106 70 40.45%
HCN 3.13 3.41 3.51 3.36 4.07 4.28 -4.27 21.13 5.16 18.87 15.58 14.82 415 395 4.91%
HCP 2.19 2.69 2.76 3.01 3.03 3.13 9.06 0.66 3.30 13.68 13.59 13.16 310 299 3.63%
HR 1.29 1.15 1.31 1.32 1.45 1.56 0.76 9.85 7.59 19.41 17.67 16.42 147 143 2.76%
HTA 0.38 0.51 0.61 0.64 0.73 0.79 4.92 14.06 8.22 19.36 16.97 15.68 77 71 8.22%
LTC 1.88 2.15 2.26 2.37 2.60 2.79 4.87 9.70 7.31 16.63 15.16 14.13 262 257 1.92%
MPW 0.66 0.71 0.90 0.96 1.10 1.18 6.67 14.58 7.27 13.86 12.10 11.28 113 105 7.27%
NHI 2.76 2.88 3.18 3.55 4.21 4.42 11.64 18.59 4.99 17.91 15.10 14.38 437 414 5.46%
OHI 1.61 1.89 2.19 2.53 2.79 2.83 15.53 10.28 1.43 14.46 13.11 12.93 287 270 6.09%
SBRA 0.00 1.31 1.41 1.84 2.23 2.38 30.50 21.20 6.73 15.51 12.80 11.99 232 220 5.38%
SNH 1.70 1.73 1.75 1.69 1.76 1.85 -3.43 4.14 5.11 14.35 13.78 13.11 180 168 6.82%
UHT 2.61 2.57 2.84 2.77 2.83 2.89 -2.46 2.17 2.12 15.66 15.33 15.01 283 283 0.00%
VTR 2.85 3.37 3.80 4.14 4.40 4.60 8.95 6.28 4.55 15.61 14.69 14.05 447 428 4.32%

Average 6.89 30.35 7.52 19.55 14.81 13.80

Click to enlarge

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
Co. Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-13 Q3-13 Q4-13 Q1-14

HCN 168912 174522 190764 226258 222442 238859 256075 280811 286226 289712 34.24% 24.11% 28.67% 21.29%
HCP 275578 264806 293621 301247 323481 339529 327650 365692 346888 346559 11.59% 21.39% 7.24% 2.07%
HR 25927 25913 26539 25746 26561 27857 28712 30555 34601 33525 8.19% 18.68% 30.27% 20.35%
HTA 30438 29941 35671 35415 34245 34150 35699 37931 40054 42364 0.08% 7.10% 16.96% 24.05%
LTC 16907 17270 17563 17362 17655 19013 19139 19559 21949 22381 8.97% 12.65% 24.32% 17.71%
MPW 20537 22483 29668 33365 33860 34424 35920 38450 38069 42680 21.07% 15.24% 12.43% 23.98%
NHI 21448 21735 21386 22357 23369 23595 24398 26193 26749 32208 14.08% 17.16% 14.46% 36.50%
OHI 51316 56885 55689 58703 64876 71665 72686 74160 79881 84390 30.52% 26.33% 23.13% 17.76%
SBRA 14528 11708 13730 13175 14347 17499 15557 17500 18994 21719 13.31% 32.83% 32.39% 24.12%
SNH 67932 72388 73210 74777 75506 78944 79057 78845 75506 80122 7.99% 5.44% 0.00% 1.49%
UHT 8442 8179 8245 9029 8827 8937 8390 8674 8954 8937 1.76% -3.93% 1.44% 0.00%
VTR 293583 263910 277836 284896 259339 301571 298351 307164 313623 323355 7.38% 7.82% 20.93% 7.22%

Click to enlarge

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.