Omega Healthcare’s appetite for long-term care growth, despite the havoc caused by the pandemic, should help the real estate investment trust to come out ahead of its peers in the near future, according to an investment analyst. 

He said a couple of “weak tenants” are offset by strong properties.

“Omega Healthcare is about 80% skilled nursing facilities which are on the cusp of a fundamental rebound from the damaged state induced by the COVID shutdown and all the regulatory and occupancy pressures that came with it,” investment analyst Dane Bowler wrote for Seeking Alpha in a post Monday. 

“I see the combination of recovering fundamentals in the skilled nursing sector and a highly opportunistic foray into senior housing as paving the way for long-term growth,” he added. 

The biggest risk facing the healthcare REIT is the current state of its facilities operated by Genesis HealthCare and Agemo, which made up about 6.4% and 5.4% of its 2020 revenues, respectively, according to Bowler. Though both operators were hurt by COVID-19, he noted that Omega’s properties leased to them are performing better on rent than other REITs in their same position. 

“The primary reason these tenants are struggling at the moment is COVID. They were doing fine before it, but the interruption was painful,” Bower explained. 

“Fortunately, the government is helping SNF operators quite significantly with relief funding. It has allowed them to stay open and operate and pay rent,” he continued. “Going forward, the SNF business will recover and the funding will stop. This is a bit of an awkward period as we find out which happens first.” 

SNF growth, ALF acquisitions

He also noted that Omega has two big growth areas: organic skilled nursing and timely purchases of senior housing. He noted that though many SNF operators have struggled in 2020 landlords have been able to raise rent by a little more than 2%. On the seniors housing side, Omega recently purchased about 24 senior living facilities that are leased to Brookdale Senior Living in an “opportunistic purchase.” 

“Those who owned senior housing going in will have suffered on the way down, only to break even in the end. But those like [Omega] who bought in at the bottom will suffer almost none of the downside and get to enjoy the upside of recovery,” he explained. 

Bowler concluded that even if some of Omega’s latest moves don’t come to fruition, “the cash flows are so strong that OHI should come out ahead of peers” with “more current cash flow and a better growth outlook.”