Omega Healthcare Investors Stock: Value of 9%-Yielder Up on Strong Results & Guidance
March 21, 2024
Why Investors Should Watch OHI Stock
The “silver tsunami” is going to keep real estate investment trusts (REITs) like Omega Healthcare Investors Inc (NYSE:OHI) on the radar of Wall Street analysts as the baby boomer generation continues to age and the demand for health-care facilities continues to climb.
Based on U.S. census estimates, in 2020, 17% of the U.S. population was 65 or older; by 2030, 21% of the U.S. population will be 65 or older; and by 2040, 22% of the U.S. population will be 65 or older. (Source: “Investor Presentation: March 2024,” Omega Healthcare Investors Inc, March 4, 2024.)
It’s expected that, by 2050, 24% of the U.S. population will be 65 or older. (Source: “What Will Retirement Look Like in 2025?” Yahoo! Finance, November 16, 2023.)
According to the U.S. Department of Health and Human Services, a person turning 65 years of age today has a 70% chance of needing long-term care services at some point. (Source: “How Much Care Will You Need?” U.S. Department of Health and Human Services, last accessed March 18, 2024.)
That’s music to the ears of Omega Healthcare Investors Inc, a triple-net equity REIT with a real estate portfolio of senior care centers, skilled nursing properties, and assisted living facilities.
The largest skilled nursing facility-focused REIT, Omega Healthcare has a $9.9-billion real estate portfolio that includes 862 facilities in 42 U.S. states and the U.K. Its 69 operators (tenants) are responsible for 84,125 beds. (Source: Omega Healthcare Investors Inc, March 4, 2024, op. cit.)
Although Omega Healthcare Investors is a great company, health care wasn’t the best industry to be in during the COVID-19 pandemic. The health-care industry, especially nursing homes and care facilities, took a hit in 2020—and Omega Healthcare Investors was no exception.
Health-care facilities like the ones owned by Omega Healthcare Investors Inc had to implement new and evolving protocols to limit the spread of COVID-19. Starting in January 2020, operators’ expenses per patient day increased due to costs related to staffing and personal protective equipment.
Still, between February 2020 and January 2021, the occupancy of the company’s properties declined by about 13%. Not surprisingly, the lower occupancy and higher expenses resulted in operators not being able to meet their rent obligations.
Lower revenues and earnings drove down the share prices of health-care REITs during the 2020 pandemic—a double whammy for companies like Omega Healthcare Investors Inc.
Many of the REIT’s operators continue to struggle with the impacts of the COVID-19 crisis on their occupancy and staffing.
On the plus side, the company’s occupancy rate has been on the rise since its low in January 2021. Omega Healthcare Investors has implemented restructuring plans with some of its operators, which has helped its occupancy rate rise above 80%.
Management noted that it expects the REIT’s first-quarter and second-quarter 2024 earnings to be negatively affected by its restructuring efforts, although it expects its earnings to improve as the year progresses. The company’s earnings pipeline is robust.
Solid Q4 Financial Results & Strong 2024 Guidance
For the fourth quarter ended December 31, 2024, Omega Healthcare Investors announced that its net income increased by 21% year-over-year to $57.0 million, or $0.22 per share. (Source: “Omega Reports Fourth Quarter and Full Year 2023 Results,” Omega Healthcare Investors Inc, February 7, 2024.)
Its National Association of Real Estate Investment Trusts (Nareit) funds from operations (FFO) in the fourth quarter were $129.0 million, or $0.50 per share, compared to a loss of $30.0 million, or $0.13 per share, in the same prior-year period.
The REIT’s adjusted funds from operations (AFFO) in the quarter came in at $173.0 million, or $0.68 per common share. That’s compared to $177.0 million, or $0.73 per common share, in the same period of 2022.
Omega Healthcare Investors Inc’s funds available for distribution (FAD) in the fourth quarter of 2023 were $163.0 million, or $0.64 per common share. That’s compared to $171.0 million, or $0.70 per common share, in the same period of 2022.
During the fourth quarter of 2023, the company invested $249.0 million in new real estate loans, real estate acquisitions, and capital projects. It also sold 32 facilities for $324.0 million in cash proceeds and debt repayments, for a gain of $10.0 million.
Omega Healthcare Investors Inc’s full-year 2023 net income came in at $249.0 million ($1.00 per share), its Nareit FFO was up at $591.0 million ($2.36 per share), its AFFO was $699.0 million ($2.79 per share), and its FAD was down slightly at $657.0 million ($2.62 per share).
During the year, the REIT made $667.0 million worth of new investments and sold 69 facilities for $485.0 million, generating a gain of $80.0 million.
Commenting on the results, C. Taylor Pickett, Omega Healthcare Investors Inc’s CEO, said, “As a result of this improving operating backdrop and the greater visibility into our financial performance, Omega is able to start providing annual AFFO guidance for the first time since the pandemic, and we expect our 2024 AFFO to be between $2.70 and $2.80 per share.” (Source: Ibid.)
Management Declared Monthly Dividends of $0.275 Per Share
Omega Healthcare Investors might not be at 100% with the collection of its contractual rent from its operators, but, as shown above, it’s still been generating solid AFFO and FAD.
This has allowed the company to maintain Omega Healthcare Investors stock’s dividend level at $0.67 per quarter since November 2019. (Source: “Dividend History,” Omega Healthcare Investors Inc, last accessed March 18, 2024.)
At its current share price, this translates to a dividend yield of 8.71% (as of this writing).
While some dividend hogs might wish the REIT would raise OHI stock’s payout, note that, unlike many companies, Omega Healthcare Investors Inc didn’t cut or suspend its payouts during the 2020 COVID-19 pandemic.
Moreover, with the company’s operations getting back to normal, there’s every reason to believe that it will eventually resume raising its dividend.
Omega Healthcare Investors Stock Surged Following 2023 Financial Results
Omega Healthcare Investors Inc isn’t entirely out of the woods yet, but it’s getting there. That sentiment is being reflected in its share price.
As you can see in the below chart, OHI stock popped by approximately 10% in early February after the REIT reported solid financial results and provided strong guidance.
Trading at $30.90 as of this writing, Omega Healthcare Investors stock is up by 21% over the last year and 3.1% year-to-date. In November 2023, OHI stock hit a record intraday high of $34.77.
Chart courtesy of StockCharts.com
Looking ahead, Wall Street analysts are bullish on Omega Healthcare stock and expect it to hit a record high over the coming months. They’ve provided a 12-month share-price target of $34.00 to $36.00, which points to gains of up to 16.5%.
The Lowdown on Omega Healthcare Investors Inc
Omega Healthcare Investors is one of the largest health-care REITs.
The company’s operations and earnings took a hit during the COVID-19 pandemic, but they’ve mostly recovered since then. Its occupancy rate is up by about eight percent from its January 2021 lows. The company collected about 91% of its contractual rent and mortgage interest from its operators during the fourth quarter of 2023.
With the REIT’s operating metrics improving, state and federal support remaining solid, and favorable demographic headwinds, its CEO believes that “the most significant challenges of the post-pandemic period are behind [it].”
That bodes well for Omega Healthcare Investors Inc’s earnings, share price, and high-yield dividends.
