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The week started with an uneven note, but a little chill from overseas is built into our outlook. Earnings in this country are the important thing. The numbers keep stacking up nicely. All we need to do is ride the tides from quarter to quarter.


It's no surprise to hear that Apple (AAPL: $319, down 2% yesterday) is not going to make its revenue target amid production outages and a decline in consumer activity in China. Depending on how you count the numbers, anywhere from 50 million people to a quarter of a billion are now under some form of travel restraint while the coronavirus saga plays out. Those conditions delayed the start of iPhone manufacturing after the long Lunar New Year holiday, creating shortages around the world.


Apple isn't alone. About 1/3 of the S&P 500 has mentioned the coronavirus in this quarter's earnings reports, usually with the caveat that it's too early to tell how the situation in China will affect sales and supply chains. But we remain optimistic. Customers who want an iPhone will simply wait a little longer to get the device they covet, so the company will get the money either way. Within China proper, Apple Stores will eventually reopen and return to business as usual. It's not like people on quarantine are buying phones from competitors right now anyway, so no market share is lost.


Otherwise, our earnings season remains strong. Agilent (A: $85, down 1%) had a decent quarter, with $1.35 billion in revenue turning into $0.81 per share in profit . . . nearly 6% growth on the top line and almost 7% on the bottom, a little better than we anticipated. The viral outbreak may take 4% out of revenue in the current quarter, however, effectively setting the company back a few months. We aren't worried here, either. Diagnostic tests left unprocessed will simply back up until conditions return to normal and a weak season now will turn into a windfall later in the year.


Vornado (VNO: $68, flat), on the other hand, has no real connection to China except in the incidental risk that New York store traffic will flatten in the absence of Chinese tourists. Real Estate is after all a localized enterprise, and when your properties are an ocean away from a crisis, it's like the trouble is not happening.  That's Vornado.


Coronavirus didn't come up at all in the earnings report. Instead, only good things happened in New York: $1.01 per share in profit came in 16% above our target and translated into a full $1.63 per share in Funds From Operations, again beating our expectations. As management points out, BMR subscribers got a "nice bonus" last month with our long-awaited $1.95 special dividend.


And we aren't expecting a lot of virus talk tomorrow morning when two more of our REITs report. Let's get you ahead of their numbers now.





Earnings Preview: Ventas (VTS: $60, flat)

Earnings Date: Thursday, 8:00 a.m. ET

Expectations: 4Q19
Revenue: $970 million

Net Profit: $147 million
EPS: $0.27
Funds From Operations: $0.92


Year Ago Quarter Results
Revenue: $923 million

Net Profit: $62 million
EPS: $0.17
Funds From Operations: $0.96


Implied Revenue Growth: 5%
Implied EPS Growth: 58%
Implied FFO Decline: 4%


Target: $72
Sell Price: $43, hereby raised to $53
Date Added: November 18, 2016
BMR Performance: 17% plus the 5.3% dividend per year


Key Things To Watch For in the Quarter


Three months ago Ventas was a $74 stock before management warned that "occupancy took a precipitous leg down at the end of September" and cut guidance. The piece of the portfolio that stumbled was the Senior Housing properties the company operates on its own behalf, representing about 25% of the operation. Since competitors haven't reported any problems, we need to know whether this is a one-time glitch or something more substantial. That's what we'll learn tomorrow morning.


For now, our expectations aren't high, but they are far from apocalyptic. Guidance last quarter implied Funds From Operations of roughly $0.92 per share and as little as $0.19 per share in earnings. We suspect there's a little room for upside on both fronts. Either way, as long as FFO comes in above $0.79 per share, the dividend is alive and well. That's all we need to preserve the 5.3% yield while we wait for the business to recover its equilibrium. If not, $72 million in cash will cover the rough spots.




Earnings Preview: Office Properties Income Trust (OPI: $34, down 1%)

Earnings Date: Tuesday, 8:00 a.m. ET

Expectations: 4Q19
Revenue: $160 million
Net Loss: $8 million
EPS: -($0.21)
Funds From Operations: $1.35


Year Ago Quarter Results
Revenue: $104 million

Net Loss: $58 million
EPS: -($2.31)
Funds From Operations: $1.56


Implied Revenue Growth: 53%
Implied EPS Growth: sharply narrower loss
Implied FFO Decline: 14%


Target: $36
Sell Price: $22, hereby raised to $29
Date Added: April 21, 2016
BMR Performance: -22%


Key Things To Watch For in the Quarter


A year after the company's creation in the union of Government Properties Income Trust and Select Income Trust, we're still waiting for the old numbers to roll out of the year-over-year comparisons and finally start presenting us with a real organic trend. This is the last quarter where the old pre-merger numbers will apply. After this, the picture will get a whole lot clearer. And once management finishes selling off $750 million in property, we'll know even more about what the new operating footprint looks like.


Until that happens, the only number we need to watch is Funds From Operations. As long as at least $0.55 per share comes in every quarter, Office Properties can pay its dividend out of current cash flow. That's a yield of 6.4%, worth sticking around for that moment of clarity to arrive.


Note that you need to be careful if you are buying a substantial block of shares in this company. The volume is very low. We have observed the bid/ask spread and it can widen sharply with a transaction of as little as 1-2000 shares.  If you are buying more than that, take your time and feed it into the system so as not to knock the stock up or down 10-15 cents.