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Omega Healthcare Can Turn Lemons Into Lemonade


  • Omega and MedEquities Realty announced a merger agreement under which Omega will acquire all of the outstanding shares of MedEquities.
  • MedEquities was simply not getting traction and has turned into a “value trap”.
  • This new deal provides Omega with the right momentum to start the year, and closer to an upgrade in the elite SWAN club.
  • This idea was discussed in more depth with members of my private investing community, Rhino Real Estate Advisors. Get started today »

Some of you may recall that last February 2018 I downgraded shares in Omega Healthcare Investors (NYSE:OHI) from a SWAN to a SALSA. As readers know, to be considered a SWAN – stands for “sleep well at night” – the company must exhibit all of the ingredients of a high-quality enterprise.

Although I had to downgrade the company I explained thatI'm sticking with Omega… because I'm a value investor. That simply means that sometimes I have to go against the herd and even risk being called a dummy. Buying stocks when they are cheap has been the best way to build wealth in the stock market, and companies that are on sale reap the highest returns.”

Let me put this bluntly, I have earned my stripes on Seeking Alpha for digging deep into research, not writing click bait articles, but deep level research that can assist investors with protecting their hard-earned capital at all costs.

While many analysts and investors were fearful of Omega (over a year ago), I became more fixated on the underlying fundamentals, recognizing that eventually the company’s share price would normalize, and eventually return to its SWAN status.Source: Yahoo Finance

I wrote numerous articles in an effort to inspire investors to stay the course as I explained, In April 2018: “I am seeing the “green-shoots” form and ultimately the demographics will drive the dividend growth.

As many know, we have "pulled back the throttle" for Omega, not based on fundamentals, but strictly based on valuation. Since my last article (in November) there has been no material change in the company, except for one significant thing…

New Deal Should 'Jump Start' Growth Mode

Omega and MedEquities Realty Trust (MRT) announced a merger agreement under which Omega will acquire all of the outstanding shares of MedEquities. The

This article was written by

Brad Thomas profile picture

Brad Thomas has over 30 years of real estate investing experience and has acquired, developed, or brokered over $1B in commercial real estate transactions. He has been featured in Barron's, Bloomberg, Fox Business, and many other media outlets. He's the author of four books, including the latest, REITs For Dummies.

Brad, with his team of 10 analysts, runs the investing group iREIT® on Alpha, which covers REITs, BDCs, MLPs, Preferreds, and other income-oriented alternatives. The team of analysts has a combined 100+ years of experience and includes a former hedge fund manager, due diligence officer, portfolio manager, PhD, military veteran, and advisor to a former U.S. President. Learn more

Analyst’s Disclosure: I am/we are long OHI, DOC, MPW. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (67)

Brad Thomas profile picture
jakied - my WAG: 25% chance in 2019 and 75% chance in 2020. B
Brad, any chance of a div increase from OHI in 2019? Maybe to 68c or 70c?
I have a small position on OHI, 200 shares, bought in feb '17 @ 30.59. Always reinvest

the qtly div. Now have 230 shares. approx 15% return annually over the last two years.

I will take it.
Brad Thomas profile picture
jakied - Thanks for reading and commenting. All the best. Brad
Brad Thomas profile picture
jarvisbr - you have, thanks for reading and happy new year. Brad
Agreed, I have stayed the course on OHI and I feel like I am being rewarded for my patience. Thanks for the thorough analysis and detail as usual.
Another OHI special.
'Growth' through merger..... and then write off 20%-30%.
Can't wait for the 'revelation' 18 months from now.
Brad Thomas profile picture
CEFspert - lets see if the dividend is increased in 18 months...
delphicpop profile picture
SWANs swimming in lemonade and SALSA = heartburn. Please explain what SALSA stands for. Is this just your term or is it more broadly accepted?
Here's how I've got it, and use it: SWAN (sleep well at night; strong, reliable, steadfast, deep & deepening moat, regular and growing dividends; would trust them to raise my children, if needed lol); SALSA (not SWANs, adding a "spice" to a portfolio, Safe And Lasting Seeking Alpha, a secondary tier of worthy, non-core holdings). The rest, for me: SLOP (Sorrowfully Lazy Or Piggish), "Sucker Yields," those-to-avoid.
Brad Thomas profile picture
lewhite - We are maintaining a TRIM....and I am evaluating a new more FV number after Q4 earnings...I still own around 1/4 of the initial shares and I was overweight through most of 2018...I would not consider nibbling foolish at this price point, and as you know, every investor has his/her own risk profile. I consider the MRT deal sound and validates management discipline and depth of knowledge in the healthcare sector. All the best. Brad
Thanks for the reply, Brad. I sold 1/2 on your recommendation, then got out completely when the market tanked, and health care was holding up. Also sold 1/2 of my VTR position I guess I will follow you, and try to pick them up again at lower prices.
So, Brad, I am unsure if you own OHI or not. You sold half and then I thought you sold some more. Then you suggested nibbling in the low 30's. Have you now changed your position on OHI? Does this acquisition put OHI back in the buy category at today/s price?
Bought OHI early 2018 at a discount for the dividend and the necessity of the medical properties space. Has outperformed and exceeded my expectations. Wish I bought more.
Brad Thomas profile picture
Ironwill27 - nice job...thanks for reading and all the best. Brad
Brad Thomas profile picture
mooch2run44 - glad to be of service and happy new year. Brad
Dave_KC profile picture
Any idea when this sale will happen?
Brad Thomas profile picture
Dave_KC - "The transaction is expected to close in the first half of 2019. Completion of the transaction is not subject to approval by Omega’s stockholders and is not subject to any financing contingency. " seekingalpha.com/... Thanks for reading and all the best. Brad
Dave_KC profile picture
thanks Brad.
Vandooman profile picture
Hanging in hardly describes the OHI experience. It was steady downhill for 3 years and the stock is just back to where it was 5 years ago. If you had bought any time before March of this year you would have been hurting. Sometimes a buy recommendation at the bottom leads to another bottom. Every all-time low is followed by another all-time low. Anyone who bought three years ago is just back to where they started. Zero appreciation.

It comes down to how you feel about healthcare. My read is there are big pressures coming for universal healthcare. Millennials feel they have been left out of the life their parents had, including never owning a home and poor job security with no affordable fall back health insurance. We may see a revolution in 2020, as exemplified by the recent election of candidates pushing a socialist agenda. Hard to place a bet on healthcare reimbursements down the road if politicians may decide to take the necessary money out of the hides of providers, as they have done before.

Brad, you finally sold me on VTR but for other healthcare I will stick with DOC and MPW.
Brad Thomas profile picture
johnclanaro - That's the million dollar question....I am still in the trim mode, but I am contemplating a change to BUY...I'll likely wait on Q4 results and confirmation of the Orianna closeout (Q1-19). The MRT deal certainly provides support for a new price target and upgrade....All the best. Brad
johnclanaro profile picture
In your dec 31 article my winners and losers for 2018 you stated that you are cutting back significantly on ohi because it is fairly valued. Now with the medequity realty merger are you again accumulating ohi.
micktrades profile picture
Brad, I'm sure you'll be proven correct longer term, but for now I'll wait for a lower re-entry <30 after selling my OHI holdings at 37.50 last month.
Thanks for the info and analysis.
Brad Thomas profile picture
micktrades - Thanks for reading and commenting. All the best. Brad
richjoy403 profile picture
"Let me put this bluntly, I have earned my stripes on Seeking Alpha for digging deep into research, not writing click bait articles, but deep level research that can assist investors with protecting their hard-earned capital at all costs."

Brad -- Hyperbole? Having read many of your articles over the last 8+ years--IF I believed that statement was without merit, I wouldn't hesitate to express my opinion. Congrats, you're lookin' good in those kind of stripes!

I'm also sure OHI's BoD had already decided before pursuing MedEquities, they would either divest the non-SNF properties, or the acquisition would launch diversification to come (and if I had a voice in the boardroom, I would be inclined toward diversification).

Brad Thomas profile picture
Rich, you may be write, but I was referring to the click bait "lemon" article...and I agree that OHI is fully aware of their investment objectives....and that they are buying a sound portfolio of assets, that includes an A-rated hospital. Happy New Year! Brad
Trapping Value profile picture
Looks like the other junk they bought in 2015-2016 (including Orianna) and had to start unloading in 2018. What did they sell over the last year $600 million of properties?
As for the title I should have used your cheesy line
"My Oh My! OHI! What The hell did you buy???"
Next acquisition :)
Brad Thomas profile picture
Trapping Value - Maybe I should have used "the 40% downside" click bait title...just for you: writing.umn.edu/...
Brad Thomas profile picture
G. Blair Bauer - hopefully a dividend increase at year-end....things are headed in the right direction. All the best. Brad
Still rattled by OHI. I am holding my shares,but will wait a few quarters before I dare to buy more.
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