There are a few different types of healthcare real estate investment trusts, or REITs, based on the types of properties they invest in. Some healthcare REITs specialize in hospitals, medical office buildings, or life science space. Others focus on long-term care facilities like assisted living, senior housing, and skilled nursing. One of these long-term care REITs worth taking a close look at is Omega Healthcare Investors (NYSE: OHI), which is one of the highest-dividend healthcare REITs on the market today.
Omega Healthcare Investors company profile
Omega Healthcare Investors in a healthcare REIT that primarily invests in skilled nursing facilities and senior housing. As of March 2021, the company owned 945 properties throughout the United States and the United Kingdom, with a total of 95,782 beds.
The company's main focus is on skilled nursing, which is also where it sees the most growth potential in the future. As of March 2021, the REIT's portfolio was made up of 83% skilled nursing and 17% senior housing.
Omega Healthcare Investors isn't in the business of providing skilled nursing to residents or managing senior housing facilities. Instead, the company leases its properties to several different operators on triple net leases. This triple net lease structure provides a lot of stability for the REIT and its investors with a set amount of rent being collected each month and the tenants covering most property-level expenses.
The REIT has recently brought on an additional revenue stream with its acquisition of Connected Living, a technology platform that improves communication in senior care communities.
Omega Healthcare Investors news
The biggest news for Omega Healthcare Investors has been the same for virtually every other healthcare REIT the past 12 months, and that's the COVID-19 pandemic. The healthcare industry was one of the hardest hit by the pandemic, and skilled nursing and senior housing facilities have seen a big drop in occupancy as a result.
From January 2020, to January 2021, the REIT's tenants saw an 11% drop in occupancy. To add to that pain, they also saw a 33% increase in expenses per patient from January 2020, to October 2020.
While occupancy and operating expenses don't directly affect Omega Healthcare Investors since it has triple net leases in place, it does greatly affect its tenants' ability to pay rent. Luckily, the REIT was able to collect over 98% of its rent through 2020 due to the government assistance that has been provided to long-term care facilities through the CARES Act and the federal Centers for Medicare & Medicaid Services (CMS) expanding the Accelerated and Advanced Payments Program to allow Medicare providers to take an advance on Medicare payments.
The trouble will come for Omega Healthcare Investors if occupancy and expenses aren't stabilized before government funding dries up and operators have to start paying back their advanced Medicare payments.
Even though it successfully collected over 99% of its rent in the fourth quarter of 2020 and January 2021, Omega Healthcare Investors is far from being out of the woods. The rent coverage across its portfolio has only remained positive because of federal stimulus funds, and it's likely that Omega will be in need of more assistance before it's able to stay afloat on its own.
Omega has still been working on growing its portfolio while dealing with the pandemic. In January of this year, Omega Healthcare Investors acquired 24 senior housing communities from Healthpeak Properties (NYSE: PEAK) for $510 million. This acquisition was purchased at an 8.5% yield, and is expected to generate an additional $43.5 million in revenue in 2021.
Possibly more notable than the addition of 24 properties to Omega's portfolio is the new relationship the acquisition provided with the tenant, Brookdale Senior Living. Brookdale is one of the largest senior housing operators in the United States, and a relationship with them is likely to provide additional opportunities for Omega Healthcare Investors in the future.
Omega Healthcare Investors stock price
One of Omega's biggest draws is its high dividend, which has grown over 88% in the past 10 years to its current yield of 7.15%. In fact, the company has increased its dividends for 17 consecutive years.
In terms of total return, Omega Healthcare Investors has provided a total return of 235.7% over the past 10 years compared to the S&P 500s total return of 269.5% over the same period.
The company had a strong rally from 2000 to 2015, with the price increasing almost 925%. That run got derailed in early 2015 when Omega announced it was issuing an additional 8 million shares and diluting ownership for investors. The price gained further downward momentum when the entire REIT sector experienced a sell-off in March, 2015.
The REIT had a steadily declining price until things turned around early in 2018 and its share price was making a quick recovery. Omega had just about reached its early 2015 price once the pandemic hit and prices plunged across the board.
As of March 30, 2021, Omega Healthcare Investors' share price was still down 12.37% from the beginning of 2020 but up slightly since the beginning of 2021 with a year-to-date gain of 2.18%. The company has consistently increased its AFFO, and its recent acquisition of its Brookdale portfolio demonstrates its plan to continue growing its portfolio. So aside from further setbacks from the pandemic, Omega Healthcare Investors should continue to see gains.
The pandemic is causing some serious short-term trouble for the operators leasing property from Omega, which means trouble for the REIT as well. However, the company should have a solid future once things stabilize.
The need for skilled nursing will continue, and the demand is expected to grow significantly over the next 20 years as a result of the aging population. It's expected that the population of people aged 65 and older will increase by 44% in the next 20 years.
On top of that, existing skilled nursing facilities currently enjoy a fair amount of protection against further supply. 86% of states have a moratorium on new beds of Certificate of Need (CON) restrictions preventing an influx of supply. This should ensure that these facilities aren't overbuilt in the coming years and that Omega can maintain its market share.
Another benefit to the skilled nursing business is that the majority of revenue is paid by Medicare and Medicaid. This keeps the industry insulated from the effects of a recession as long as government funding stays in place.
The bottom line on Omega Healthcare Investors
For investors who are confident in the healthcare industry's recovery, Omega Healthcare Investors is definitely a REIT to look at, especially with its high dividend payments and consistent dividend growth.
While this REIT is in about as strong of a position as it can be to survive the pandemic and continue growing once it's over, it's still too early to predict just how long COVID-19 is going to continue to hurt skilled nursing and senior housing facilities.
The biggest thing it has going for it in this situation is that the real estate it owns provides a service that is essential to our society, so chances are good that operators will receive further aid if it's needed throughout the industry. In the end, Omega Healthcare Investors will still own real estate that will continue to have a growing demand.