Healthcare Focused REIT Omega Healthcare's De-Risked Portfolio Attracts Investors Amidst Uncertain Environment

Mizuho Securities has upgraded Omega Healthcare Investors Inc OHI from Neutral to Buy with a price target of $35, up from $31, citing optimistic industry and company-specific factors. 

Industry drivers include higher hospital admissions, indicating gains in Skilled Nursing Facility (SNF) occupancy into FY24, and a more favorable regulatory environment. 

Mizuho's analysts, Vikram Malhotra and Georgi Dinko, note that a recent in-house physician survey reveals that admission volumes are surpassing already "elevated" expectations. 

Notably, senior elective surgeries are also exceeding pre-COVID levels. Although this may not lead to an immediate rise in occupancy due to ongoing labor challenges, it does indicate a positive 2024.

Company-specific factors include portfolio de-risking completion and potential cash flow improvements for FY24. 

With an 8% dividend yield, low leverage, and uncertainty in the macro and rate environment, OHI remains appealing to investors.

Several investors were cautious about investing in SNFs due to the forthcoming minimum staffing regulations. 

However, following the implementation of these rules, fewer regulatory surprises are anticipated. Most tenants/operators must increase staffing levels to comply with the new standards. 

While these higher costs can affect coverages, Mizuho says they are manageable.

The OHI portfolio has significantly reduced risk and has effectively restructured and transitioned multiple tenants, concurrently reallocating the capital obtained from asset sales.

Price Action: OHI shares are up 1.52% at $32.15 on the last check Friday.