Omega Healthcare Investors Inc. (NYSE:OHI) is a real estate investment trust (REIT) in Hunt Valley, Maryland, offering an enticing 10 percent dividend yield that could tempt investors who expect the company to surmount financial setbacks and rising interest rates.
Despite the economy growing more strongly than it has in several years, Omega Healthcare’s management has been trying to guide the REIT through credit challenges incurred by a handful of its major rent-paying operators. Even though REITs traditionally become less appealing to investors when interest rates rise, Omega Healthcare has demographics on its side as the aging “baby boom” population, composed of those born between 1946 and 1964, increasingly will need the skilled nursing and assisted living facilities that the company offers through its roughly 1,000 properties.
I asked a key Omega Healthcare executive what caused his company to incur a financial slump at a time when economic growth has been on the rise.
Omega Healthcare Operators Facing Headwinds
“Our operators have been facing slow but steady revenue headwinds for a few years now as migration to Medicare Advantage has reduced reimbursement and length of stay,” said Matthew Gourmand, Omega Healthcare’s senior vice president of investor relations. “Recently, the very economic strength you refer to has resulted in higher wage cost inflation which has compounded the top-line pressures. While these headwinds are slowing and demographics are beginning to provide a tailwind, it might not be reflected in our stock until investors see these improvements.”
Favorable demographic trends for health care REITs are supported by the Census Bureau’s projection that the baby-boom population will total 61.3 million in 2029, when the youngest in that cohort reach age 65. If those born before 1946 are included, people age 65 and older in 2029 will total 71.4 million, or 20 percent of the U.S. population, compared to just under 14 percent in 2012.
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Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce,Seeking Alpha, GuruFocus and other publications and websites. Paul is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is the editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz.
