Omega: High Returns from Senior Living

07/18/2017 2:54 am EST


Ben Reynolds

CEO, Sure Dividends

Omega Healthcare Investors (OHI) operates in the recession-resistant healthcare real estate industry — people need skilled nursing facilities, regardless of the health of the broader economy, observes Ben Reynolds, editor of Sure Dividend.

Omega is the largest publicly-traded REIT in the U.S. dedicated to owning and operating skilled nursing facilities (SNFs).

Omega operates about 1,000 properties in 42 states and the U.K. that are occupied by 77 independent operators. Its portfolio is composed of approximately 86% SNFs and 14% Senior Housing Facilities (SHFs).

Omega is notably shareholder-friendly and has increased its quarterly distribution for 14 consecutive years and 19 consecutive quarters.

In May, Omega reported (5/3/17) financial results for the first quarter of 2017. The trust saw adjusted funds from operations per share increase by 3.6% over the same period a year ago.

Although this represents low single digit growth, it is still a welcome result since the company is expecting flat adjusted funds from operations per share in 2017 versus 2016. This flat guidance is due to changes in government reimbursement for skilled nursing facilities.

In April, Omega announced its 19th consecutive quarterly distribution increase to $0.63 per share. The new payout is a 1.6% sequential increase and an 8.6% increase over the same period a year ago.

More recently, Omega continued its international expansion efforts with the acquisition of U.K.-based Gold Care Homes. The transaction saw Omega acquire 18 home care facilities –- bringing its U.K. total to 53.

Omega is currently paying out 74% of 2017’s expected funds from operations, a conservative payout ratio for a REIT. The trust has no debt maturities over the next 2 years, and ~61% of its total debt matures after 2022.

Omega is well-positioned to benefit from favorable macroeconomic tailwinds moving forward. The population of 85+ seniors in the U.S. is expected to grow by about 50% in the next fifteen years.

Omega is the 4th largest publicly traded company in the healthcare REIT industry with a market capitalization of $6.5 billion, giving it the capability to drive growth by acquiring smaller operators.

Omega’s average dividend yield over the past 5 years is 6.3% and its current dividend yield is 7.7%. Right now is a historically opportune time to initiate or add to a stake in Omega Healthcare Investors.

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