Omega Healthcare Investors Inc (OHI): A High-Yield Healthcare REIT

Looking at industry supply, we can see below that the supply of facilities and beds to meet increasing future demand has been limited due to Certificate of Need (CON) restrictions, which are aimed at restraining health care facility costs and have helped industry occupancy rates:

Source: Omega Investor Presentation

Overall, we expect Omega’s operators to enjoy higher volumes thanks to expanding Medicare coverage and a growing senior population.

We think the company will continue to have plenty of opportunities for acquisitive growth as well. As seen below, Omega has done an outstanding job finding reinvestment opportunities over the last decade (double-digit sales growth in nine of the last 10 years), and tougher reimbursement from Medicare and Medicaid should continue encouraging consolidation.

Omega’s Key Risks

Omega’s biggest risks are arguably all outside of the company’s control.

Skilled nursing generally has higher reimbursement risk than other areas of healthcare such as senior housing because SNFs more on Medicare and Medicaid reimbursements from the government.

As a result, changes in federal policies and increased scrutiny over billing practices of SNF operators have potential to materially impact the ability of Omega’s tenants to meet their lease obligations.

While Omega has enjoyed rising Medicare and Medicaid rates over time (see below), lengths of stay are declining under alternative payment models such as bundling and managed care.

Source: Omega Investor Presentation

Despite shifts in rates and the length of patient stays, SNF Medicare patient days are still projected to grow due to increasing enrollment.

Source: Omega Investor Presentation