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Senior Housing Properties (SNH) Q1 Earnings: What's in Store?

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Senior Housing Properties Trust (SNH - Free Report) is slated to report first-quarter 2019 results on May 9, before the opening bell. The company’s performance will likely reflect a year-over-year (y/y) decline in funds from operations (FFO) and revenues.

In the last reported quarter, this Newton, MA-based healthcare real estate investment trust (REIT) reported normalized FFO per share of 27 cents, missing the Zacks Consensus Estimate of 37 cents.  Results reflected decline in cash basis net operating income (NOI).

Over the trailing four quarters, the company met estimates on two occasions for as many misses, coming up with an average negative beat of 8.43%. This is depicted in the graph below.

Senior Housing Properties Trust Price and EPS Surprise

Let’s see how things are shaping up, prior to this announcement.

Factors to Consider

Data from the National Investment Center for Seniors Housing & Care (NIC) indicates that fundamentals of the seniors housing industry remained soft during the first quarter. In fact, the industry seems to still tide through excess supply as indicated by the y/y decline in occupancy rates.

Specifically, the first-quarter occupancy rate of 88.1% indicates a y/y contraction of 20 basis points (bps) and an expansion of 10 bps on a sequential basis. Also, seniors housing’s average rate of annual asking rent growth was 3%, unrevised from fourth-quarter 2018.

Given these quarterly statistics, revenue growth for the company’s seniors housing portfolio will likely be hindered, thereby unfavorably impacting top-line growth. In fact, first-quarter 2019 revenues are expected to be $439.8 million, declining 8.2% year over year.

The investment thesis related to the silver tsunami is no secret. In fact, going by a presentation, nearly 10,000 baby boomers will turn 65 every day through 2030. As this long-awaited demographic boom is being realized, absorption rate for seniors housing units advanced 30 bps from the prior quarter to 3% as of first-quarter 2019.

With more than half of its revenues tied to senior housing assets, the company is expected to report 2.1% y/y decline in its revenues to nearly $270 million.

Additionally, the flu season has been volatile for the past months, with visits from 65+aged individuals declining last November and then increasing in March. This recent upswing in flu visits is a concern for Healthcare REITs like Ventas, Inc. (VTR - Free Report) and Senior Housing Properties, and will likely weigh on the first-quarter 2019 net operating income of the latter.

The company has resorted to asset sales and this will likely result in lost revenues, thereby resulting in earnings dilution in the near term. In fact, in February, the company sold two medical office buildings (MOBs) in Florida for $2.9 million and another in Colorado for $2.6 million.

Lastly, prior to the first-quarter earnings release, it has been witnessing downward estimate revisions. As such, the Zacks Consensus Estimate of FFO per share for the quarter under review has been revised marginally downward to 38 cents over the past month, reflecting analysts’ bearish sentiments. Also, it represents a year-over-year decline of 15.6%.

Earnings Whispers

Our proven model does not show that Senior Housing Properties has the right combination of the two key ingredients — positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat in the first quarter.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Senior Housing Properties is -3.52%.

Zacks Rank: Senior Housing Properties carries a Zacks Rank of 5 (Strong Sell), which decreases the predictive power of ESP.

It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Several other players in the REIT space are lined up to report their financial results. Below are two stocks, poised to beat on earnings per the proven Zacks model. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors Real Estate Trust (IRET - Free Report) , scheduled to release earnings on May 8, has an Earnings ESP of +3.19% and currently carries a Zacks Rank of 3.

Global Medical REIT Inc. (GMRE - Free Report) , set to report quarterly numbers on May 8, has an Earnings ESP of +1.65% and carries a Zacks Rank of 3, at present.

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