Omega Healthcare: Time To Get Greedy On This 9.78% Yielding REIT

Omega Healthcare: Time To Get Greedy On This 9.78% Yielding REIT


OHI’s current multiple of 8.16x price to FFO and a sub 80% dividend payout ratio indicates that shares are undervalued compared to its peers and other REITs.

Shares have fallen to a point where OHI’s yield is almost exceeding 10% while their current FFO over the TTM is $3.36 per share with $0.85 per share in Q3.

There are significant headwinds that investors should be aware of that could impact OHI’s FFO in 2022 if some of their operator rent obligations are not rectified.

I believe OHI’s strong balance sheet, management expertise, and long-term tailwinds from an aging population will overtake the short-term turbulence.

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Charday Penn/E+ via Getty Images Shares of Omega Healthcare Investors ( OHI ) were rebounding since the pandemic crash, and this summer, a complete 180 occurred. On July 29th, shares closed at $37.37, and over the past 4 ½ months, OHI has declined by $9.96 (26.65%). It’s no secret that nursing homes were hit hard by the pandemic, and OHI is the largest Skilled Nursing Facility focused REIT. OHI has 944 properties that provide 96,082 beds across 63 operators. Things didn’t get better when news broke on September 21st that three of OHI’s operators that accounted for 9% of their estimated contractual rent and mortgage payments had stopped making rent payments due to the pandemics impact on occupancy. OHI isn’t out of the woods yet, and almost two years later, the pandemic isn’t over as mutated strains have emerged several times. There are certainly headwinds in the short term, especially since we can’t predict what will occur with COVID-19. OHI has faced almost two years of adversity, and with shares dropping below $28, I believe it’s time to get greedy on this 9.78% yielding REIT.

I have been a shareholder of OHI since October 4th, 2017. Since I have owned shares of OHI, I have reinvested every dividend. As of today, my share count has increased by 39.06%, and the annual dividend income generated from my shares has increased by 41.16%. I bought shares two times, and my average share price from the capital I deployed is $29.48. Even though shares of OHI are under my current purchase price, my actual investment is up 27.07%. I rode OHI down to the $25.50 range in 2018, and even though the circumstances are different this time, I believe OHI will be just fine. My investment thesis hasn’t changed, and I will continue to collect and reinvest the dividends at lower prices until shares rebound once again. The beautiful thing about dividend investing is you actually don’t need capital appreciation to generate a profit. Shares were under when I bought them, yet I am still up 27.07%, my share count has increased by 39.06%, and my dividend income has increased by 41.16% over the years. As baby boomers continue to age, Skilled Nursing Facilities and Senor Housing are going to become more in demand. We have all heard the saying buy low sell high, and right now, OHI is giving investors a golden opportunity to add this specialized REIT to their portfolio. (Source: Omega Healthcare Investors) Why the facilities within OHI’s portfolio are a necessity to society

Skilled Nursing Facilities are frequently utilized as a transition from a hospital stay serving as an intermediary step before the patient returns home or to an assisted living facility. These facilities provide inpatient rehabilitation following hospitalization for an accident, injury, or illness following a hospitalization. The length of stay is determined by the medical condition and the insurance criteria for coverage. The typical services provided are primarily physical, occupational, and speech therapy. Nurses are available 24 hours a day, and a physician manages care while the patient is receiving these services.

We have an aging population, and the average lifespan has increased over the decades, causing an increased need for Skilled Nursing Facilities. Chronic and acute medical conditions, falls, and surgeries have led to an increased need for rehabilitation outside of the hospital before the patent is discharged to their permanent living setting. Medicare requires a three-night stay at a hospital for the services from a Skilled Nursing Facility to be covered by insurance. Skilled Nursing Facilities are licensed by the state’s Department of Health Services and are held to regulation and inspection requirements. Some of the care offered by these facilities are stroke recovery, […]

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