Omega Healthcare Investors: A Great Bet On An Inevitable Trend

Source: Company

Omega Healthcare Investors, (NYSE: OHI  ) is a great choice for investors who want to get exposure to a strongly performing healthcare REIT while benefiting from favorable long-term dynamics in the senior health care market.

Omega Healthcare Investors offers investors strong expansion drive with aggressive investment outlays, high occupancy rates and a convincing dividend record.

As everybody knows, life expectancies are rising due to better work and living conditions and advancements in the medical field. As a result, people live longer, but also require more assistance in advanced age.

Source: Omega Healthcare Investors, Investor Presentation May 2014

People aged 85 or above are more likely than any other age group to require assistance in their daily lives.

More importantly, the age group 85+ is expected to increase meaningfully over the next couple of decades, and that age group will represent a larger share of the total population.

This is a great economic opportunity for Omega Healthcare Investors.

With a larger share of older people in the population, health care REITs which specialize in senior health care should experience meaningful boosts to their top and bottom lines in the coming decades.

Naturally, investments in senior health care-focused REITs are inherently long-term, but nonetheless are a great way to get exposure to a megatrend.

Omega Healthcare Investors capitalizes on this trend of rising, secular health care demand. The REIT owned or held mortgages on 547 health care-related properties at the end of the first quarter including 515 skilled nursing facilities (94% of total), 21 assisted living facilities (4%) and 11 specialty hospitals and other facilities (2%). These properties are operated by 49 third-party health care operating companies in 37 states.

Building a strong health care-related property portfolio
Omega Healthcare Investors is fairly aggressive when it comes to spending money on new investments and the company has a record of regularly shelling out hundreds of millions a year for the acquisition of new projects.

Investments in capital projects and the expansion of its property portfolio should serve the company and its shareholders well over the next couple of decades as the long-term investment thesis gradually plays out.

High occupancy rates
As usual, when it comes to real estate-related investments, investors should take a close look at a REIT's occupancy rate. Better yet, investors should look at a REIT's historical occupancy rates in order to determine whether the company can provide investors with a solid occupancy record.

And Omega Healthcare Investors indeed has a credible record in displaying high occupancy rates as the following chart highlights. More importantly, the REIT has much more potential to improve occupancy rates in the coming years and deliver value for shareholders via higher facility utilization.

Source: Omega Healthcare Investors, Investor Presentation May 2014

High occupancy rates ultimately underscore cash flows, and by extension, distributions to shareholders.

One can't analyze a REIT without looking at its dividend history. Omega Healthcare Investors has a long dividend record starting in the early 1990s and paid dividends throughout most of the twenty two years.

The Healthcare REIT recently declared a dividend hike to $0.50 per share per quarter which represented the REIT's seventh consecutive dividend hike.

With an annualized dividend yield of more than 5%, Omega Healthcare Investors is a solid bet on both the senior health care industry and rising dividends in the years ahead.

The Foolish Bottom Line
With its focus on senior health care facilities, an aggressive growth policy, high occupancy rates and an impressive dividend record, Omega Healthcare Investors is a top choice among Healthcare REITs with much more dividend potential as its growth strategy pays off.

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Kingkarn Amjaroen

Kingkarn Amjaroen is a financial analyst taking an interest in the basic materials, retail and financial sector.

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8/28/2015 4:06 PM
OHI $34.35 Up +0.04 +0.12%
Omega Healthcare I… CAPS Rating: ****