We are in the final leg of the Q2 earnings season, and a few real estate investment trusts (REITs) like Senior Housing Properties Trust SNH , National Health Investors, Inc. NHI , Ryman Hospitality Properties, Inc. RHP and Host Hotels & Resorts, Inc. HST are gearing up to report their numbers tomorrow.
The second-quarter earnings season has crossed the halfway mark, with 381 members of the elite S&P 500 index having already reported their financial numbers as of Aug 2. Per the latest Earnings Preview , the performance of these index constituents reflects 25% increase in total earnings on 10.4% higher revenues. Further, 80.1% companies surpassed bottom-line expectations, while 73.8% outperformed on the top-line front. This uptrend paints an encouraging picture of the ongoing reporting cycle.
In fact, the Finance sector (one of the 16 Zacks sectors) is expected to deliver earnings growth of 20.5% on 6.3% higher revenues for the June-end quarter. Companies in the REIT space - part of the Finance sector - are likely to report decent results this time around, backed by economic strength and healthy consumer sentiment.
However, the June rate hike and possibilities of further increases, later this year, have kept investors in the REIT space worried to some extent. Nonetheless, underlying asset categories and location of properties play a crucial role in determining the performance of REITs.
Therefore, surprises might be in store for some REITs, while others may disappoint this earnings season. However to predict that, we rely on the Zacks methodology, combining a favorable Zacks Rank - Zacks Rank #1 (Strong Buy) or 2 (Buy) or at least 3 (Hold) - and a positive Earnings ESP , to predict the chances of a beat this quarter. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .
Let us take a look at how the following REITs are placed ahead of their quarterly releases.
Senior Housing Properties is well positioned to benefit from the rising healthcare spending and aging population. Also, senior citizens constitute the major customer base of healthcare services - they end up spending more on healthcare services compared to the average population. Hence, with a high quality portfolio of senior living communities and office buildings leased to diverse tenants, the company is poised to capitalize on this expenditure trend of senior citizens on healthcare services.
However, oversupply in senior housing facilities and a tilt toward outpatient care remain immediate concerns.In the to-be-reported quarter, the company is likely to have gained from rising healthcare spending and a growing aging population. In fact, the Zacks Consensus Estimate for Q2 revenues of $277.3 million indicates a year-over-year increase of 4.6%.
Notably, deteriorating fundamentals of this sector also remains a headwind. The company's activities during the April-June quarter were inadequate to gain analyst confidence. In fact, the Zacks Consensus Estimate for funds from operations (FFO) per share of 44 cents for the quarter remained unchanged over the past month. Further, the figure remained flat year over year.
The company's surprise history is depicted in the chart below:
Senior Housing Properties Trust Price and EPS Surprise
Senior Housing Properties Trust Price and EPS Surprise | Senior Housing Properties Trust Quote
We can't conclusively predict a likely earnings beat for this Zacks Rank #2 stock as it has an Earnings ESP of -0.97%. Though a favorable Zacks Rank increases the predictive power of Earnings ESP, we also need to have a positive ESP to be confident of an earnings beat.
National Health Investors invests in income-producing health care-related facilities, including long-term care facilities, acute care hospitals, medical office buildings, retirement centers and assisted living facilities.
The company is likely to gain from rising healthcare spending, as well as an aging population. Furthermore, its Q2 results will likely reflect year-over-year growth in FFO per share and revenues. In fact, revenues for the quarter under review are expected to come in at $73.8 million. This reflects year-over-year growth of 5.7%.
The company witnessed a remarkable streak of beating earnings estimates, especially when looking at the previous four reports. In fact, it surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with an average positive beat of 1.9%.
National Health Investors, Inc. Price and EPS Surprise
National Health Investors, Inc. Price and EPS Surprise | National Health Investors, Inc. Quote
Yet, the company's activities during Q2 were insufficient to gain analyst confidence. In fact, the Zacks Consensus Estimate for FFO per share of $1.38 for the quarter remained unchanged in a month's time. Nonetheless, the figure witnessed rise of 4.5% from the prior-year quarter.
Furthermore, National Health Investors has a Zacks Rank of 2 and Earnings ESP of +0.15%. A positive Earnings ESP, combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.
Ryman Hospitality Properties headquartered at Nashville, TN, specializes in group-oriented, destination hotel assets in urban and resort markets. The company also operates a number of media and entertainment assets, including the Grand Ole Opry, the Ryman Auditorium and WSM-AM.
The company's results will likely reflect year-over-year improvement in its FFO per share and revenues.
The company's hospitality segment is expected to have recorded robust results in the soon- to-be-reported quarter. In fact, the Zacks Consensus Estimate for operating income from its hospitality segment is projected to register 37% year-over-year growth in the second quarter to 74 million. Also, revenues from this segment are pegged at $294 million, which reflects increase of nearly 11% year over year.
Revenues from occupied hotel rooms are pegged at $121 million. Also, the Zacks Consensus Estimate for revenues is pegged at nearly $328.7 million, which displays year-over-year rise of 10%.
Over the preceding four quarters, the company surpassed the Zacks Consensus Estimate in two occasions and missed in the other two, generating an average positive beat of 0.06%.
Ryman Hospitality Properties, Inc. Price and EPS Surprise
Ryman Hospitality Properties, Inc. Price and EPS Surprise | Ryman Hospitality Properties, Inc. Quote
Currently, Ryman Hospitality Properties has an Earnings ESP of 0.00% and a Zacks Rank #3. So, we can't conclusively predict a likely earnings beat.
Bethesda, MD-based lodging REIT Host Hotels & Resorts is expected to have gained from its solid portfolio of upscale hotels across potential markets and strategic capital-recycling program in the second quarter. The lodging REIT has been making well-planned redevelopments to fortify its position in vibrant markets.
Moreover, improved business travel demand with rising short-term group and transient bookings, higher group spends, and elevated demand from the leisure division signal brighter prospects for hotel REITs. Particularly, Host Hotels' second-quarter results are likely to highlight improved group business.
Further, the company's productivity-boosting efforts are encouraging and Host Hotels' Q2 performance is expected to display improvement in productivity at many of its hotels. In addition, the company has a healthy balance sheet with ample liquidity that augurs well for its growth endeavors.
Amid these, the Zacks Consensus Estimate for Q2 revenues is pegged at $1.49 billion, indicating an expected year-over-year increase of 3.7%. The Zacks Consensus Estimate for Room Revenues is pegged at $958 million, significantly up from $844 million reported in the prior quarter. The Food and Beverage revenues estimate is pegged at $430 million which is above the $413 million generated in the last quarter. Notably, the company usually reaps 29-30% of its total adjusted EBITDA in the April-June quarter.
Also, the Zacks Consensus Estimate of FFO per share for the quarter to be reported is 51 cents. The figure denotes an estimated rise of 4.1% year over year. Nonetheless, there was lack of any solid catalyst and therefore, in a month's time, this estimate remained unchanged. Additionally, though supply growth has been sluggish in the past, it has gathered momentum, of late. In fact, growth is expected to remain elevated in 2018, particularly in markets where the company has exposure.
The company's surprise history over the trailing four quarters is depicted in the chart below:
Host Hotels & Resorts, Inc. Price and EPS Surprise
Although it carries a Zacks Rank of 2, an Earnings ESP of 0.00% makes it difficult to predict an earning beat for the company this season. (Read more: Will Solid Portfolio Aid Host Hotels (HST) in Q2 Earnings? )
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) - a widely used metric to gauge the performance of REITs.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.