What happened

Shares of Omega Healthcare Investors, Inc. (NYSE:OHI) fell roughly 10% in February according to data provided by S&P Global Market Intelligence. Although many healthcare real estate investment trusts, or REITs, had a rough month, nursing-home-focused Omega's loss was particularly bad. Most of the drop occurred on the day the REIT announced earnings.

So what

Nursing homes have been under notable pressure in recent years because of their reliance on third-party payers. Changes in government reimbursement programs have resulted in financial challenges for facility operators. This has made it more difficult for nursing-home companies to cover their rent. Although Omega has a diversified portfolio of properties and operators, trouble at just one or two operators can cause material financial trouble for the REIT. It has been working with its lessees to help them get through this rough patch and adjusting its portfolio to minimize its exposure to weaker properties.

Check out the latest earnings call transcript for Omega Healthcare Investors.

The acronym REIT spelled out with dice sitting atop piles of coins

Image source: Getty Images.

These are the right things to do, obviously. However, that doesn't change the fact that Omega is dealing with troubled operators. When the company announced fourth-quarter earnings, the news included an impairment charge of $27 million related to one customer (Orianna Health Systems) and a note about a $4 million underpayment by another (Daybreak). Regarding the underpayment, the company explained that the properties are in Texas, which has some of the lowest Medicaid repayment rates in the country, further highlighting one of the key issues Omega is facing. 

Omega played up its pending acquisition of MedEquities Realty Trust (NYSE:MRT), which it hopes marks a return to acquisition-led growth. However, investors clearly paid more attention to the fact that the troubles in the nursing home industry aren't over.

Now what

Omega is a well-run healthcare REIT. However, the area on which it is focused continues to face challenges, and that is affecting the company's business. Shareholders are starting to see that impact in a notable way, as well. After years regular dividend hikes, Omega hasn't increased the dividend for five consecutive quarters. Management expects 2019 funds from operations, or FFO, to comfortably cover the current dividend. It also professes a desire to raise the disbursement in the near future -- but that's just a promise, and it may not come true.

It's understandable that investors were displeased with the company's fourth-quarter results. You need to pay close attention to Omega's underlying business if you own it.