Log In * * * * * share Trending Investing #StockWatch Investing #StockWatch Nov 20, 2017 @ 05:08 PM Omega Healthcare: This Nursing Home Operator Should Soon Recover * (BUTTON) * (BUTTON) * (BUTTON) * (BUTTON) * (BUTTON) * (BUTTON) MoneyShow Opinions expressed by Forbes Contributors are their own. MoneyShow MoneyShow , Contributor [960x0.jpg?fit=scale] Omega Healthcare Investors has been written about frequently since its earnings miss. However, following a pullback in price, advisors reiterate their long-term buy ratings on this healthcare REIT. Shutterstock Omega Healthcare Investors (OHI) has long been a popular choice for income advisors. The real estate investment trust focuses on nursing homes and health care facilities--sectors that benefit from an aging population. Following a pullback in price, five MoneyShow.com contributors reiterate their long-term buy ratings on this health care REIT. Brett Owens, Contrarian Outlook Less experienced investors often overreact to quarterly earnings reports. They get lost in the near-term details without considering the bigger picture. As a result, they get scared and sell when they should be buying—and purchase when prices are already high with the good news “priced in.” While we contrarians pay attention to details around earnings announcements, we don’t react without thought, deliberation and consideration for the big picture. Omega Healthcare Industries just raised its dividend for the 21st straight quarter. Most dividend aristocrats gain their titles after a quarter-century—OHI is making an accelerated case to be crowned in just six years. The stock now pays an amazing 9%. This is only the third time in the last ten years that Omega Healthcare has paid this much. The last two occasions were ideal times to buy. Is this time different? A deadbeat operator is to blame (or thank) for the current sale. They are so late on their rent payments that Omega Healthcare is exploring moving the operator’s properties to a better partner. In the meantime, rent is going unpaid and the company has lowered its 2017 cash flow guidance. Omega is actually assuming it will receive no rent from this delinquent problem child for the rest of the year. Even with this “worst-case scenario” assumed, management remained confident enough to give investors their usual quarterly raise. They believe this is a one-time, isolated incident that is unlikely to be repeated. Occupancy levels—a leading indicator of operator trouble—jives with their reasoning. Overall, the big picture for skilled nursing facility demand looks great. The industry, which is actually seeing supply decrease as demand increases, is projected to be in a supply deficit within the decade. And while investors fret about bad apple operators, they're also missing the fact that total patient days at skilled nursing facilities are increasing, and are projected to accelerate higher in the coming years. CEO Taylor Pickett and his team have managed their operator relationships successfully for his entire tenure (as evidenced by their stock’s amazing 5,000%+ returns over Taylor’s 16 years at the helm). It’s probably not different this time. Omega Healthcare is a great buy today. Mark Skousen, Forecasts & Strategies I continue to like the prospects for Omega Healthcare. It is the most undervalued dividend-paying stock around. Based in Hunt Valley, Maryland, Omega is a real estate investment trust that provides financing and capital to the long-term health care industry, especially skilled nursing facilities. The company owns or holds mortgages on more than 900 assisted living facilities, nursing homes and specialty hospitals in the United States and Britain. Omega recently announced the acquisition of 15 skilled nursing facilities in Indiana, which will make it the nation’s largest owner of post-acute-care centers. As a real estate investment trust, Omega must pay out at least 90% of its net cash flow in the form of dividends. So we earn an attractive yield that is not only sustainable but should grow substantially. Last month, Omega announced that it was boosting its quarterly dividend from 64 cents to 65 cents per share. This is the company’s 21st consecutive quarterly increase. Its return on equity (ROE) is 9%, compared to 6% for the industry as a whole. With the population graying—and living longer—nursing homes and assisted living facilities are going to see a steady influx of business in the years ahead. Brit Ryle, The Wealth Advisory Omega Healthcare Investors is a boring company, but the gains certainly aren’t. And they’ll keep coming. There’s already a huge need for skilled nursing facilities in the U.S., and the second-largest generation in the country’s history will be pushing the demand even higher. This means that Omega Healthcare is good for 20% a year for decades to come. The stock took a hit last month after missing earnings expectations. The major reason for the dip was because of an issue with a large tenant—Orianna. The company is looking to move its properties to other operators and sees rental income falling by $10 million during the process. But this is a temporary setback for this health care stock. There’s still a huge need for skilled nursing facilities in the U.S., and the second-largest generation in the country’s history will be pushing the demand even higher. This means that OHI is good for 20% a year for decades to come. Keep adding shares on this one before they move higher. I’m continuing to rate Omega Healthcare Investors as a Strong Buy anywhere under $35. The 12-month price target is remaining at $50. Ben Reynolds, Sure Retirement Omega Healthcare Investors' portfolio is composed of approximately 85% senior nursing facilities (SNFs) and 15% senior housing facilities (SHFs). Omega operates approximately 1,000 properties, which in turn are run by 77 independent operators. On October 30, Omega Healthcare reported financial results for the third quarter of fiscal 2017. Results were far worse than the market anticipated; the trust reported a net loss of $137.5 million while the quarter’s funds from operations (FFO) were a loss of $46.8 million (-$0.24 per common unit). The company’s financial woes can be directly attributed to tenant issues. More specifically, Omega recorded a $194.7 million accounting impairment on direct financing lease accounts receivable related to two tenants, most notably Orianna Health Systems. The mechanics of these charges are actually quite straightforward: because of Orianna’s poor financial performance, Omega had been closely monitoring this tenant and eventually placed them on a cash basis for revenue recognition when their performance did not improve. This means that now Omega does not record Orianna’s revenue until it is actually paid, which is in stark contrast to how most accounting schemes work. We believe it is possible that Omega will eventually reclaim some of its $194.7 million in accounting write-offs if Orianna’s performance improves. Importantly, Orianna is taking serious measures to improve performance, including “replacing the entire executive management team.” These issues seem short-term in nature. On a more positive note, Omega also reported its 21st consecutive quarterly distribution increase. This shows its continued willingness to emphasize returning cash to shareholders. Despite Omega’s woes in the most recent quarter, the trust should deliver satisfactory growth over the long run, driven by industry tailwinds. The population of 85-year-old people in the U.S. is expected to grow by about 50% in the next fifteen years. As the 4th largest publicly-traded healthcare REIT, Omega is well-positioned to benefit from this trend. Moreover, Omega’s large size (a market capitalization of $6.1 billion) is advantageous as it gives them the ability to acquire smaller property owners. Omega’s poor performance in the most recent quarter does not provide an accurate representation of the trust’s long-term distribution safety. Omega’s current quarterly distribution combined with its newly revised 2017 FFO guidance implies a distribution coverage ratio of 1.26x, indicating that its payout is safe for the foreseeable future Omega is a compelling buying opportunity for the long-term, high-yield investor. 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