Sleep Well at Night with the Highest Paying Health Care REIT
However, as dividend seeking investors, we are more focused on the income component -- the essence of a "sleep well at night" value proposition. Today investors are looking for the strongest repeatable sources of income while also focusing on a fundamental policy of principal preservation.
REITs offer that combination: A unique asset category that provides reliable and sustainable income and strong potential for capital appreciation. Accordingly, with all of the uncertainty investors' face, REITs could offer a safer haven.
Healthcare REITs are predominantly considered a highly defensive sector due to the non-cyclical nature -- namely, people do not tend to change their healthcare spending patterns depending on the economy. Accordingly, healthcare REITs indirectly participate in the defensive nature of their tenants through their lease payments.
Omega Healthcare Investors (OHI) , a pure play nursing home company, is the highest paying health care REIT. The Maryland-based company invests principally in long-term healthcare facilities. Omega has a market capitalization of $2.573 billion with a current dividend yield is 7.67% and year-to-date total return of 27.93%.
The company owned or held mortgages on 460 skilled nursing facilities, assisted living facilities and other specialty hospitals with approximately 51,117 licensed beds located in 33 states and operated by 47 third-party healthcare operating companies.
I had an opportunity to catch up with C. Taylor Pickett, CEO of Omega Healthcare Investors, (he has served in this capacity since 2001). Pickett is also a director and has served in this capacity since 2002.
Thomas: What does the Affordable Care Act mean for OHI investors?
Pickett: The Affordable Care Act will have a minimal impact on patients in skilled nursing facilities. The vast majority of SNF patients are already covered by Medicaid and/or Medicare.
Thomas: Omega invests primarily in long-term, healthcare facilities (97.3% skilled nursing). How will Medicare cuts impact your tenants -- skilled nursing operators?
Pickett: If there are SNF Medicare cuts, then our tenant operators will have reduced revenue. A 1% Medicare cut would reduce our cash flow to rent coverage ratio by approximately 0.03. The potential 2% sequestration cut would reduce our rent coverage ratio by 0.06. Our current trailing 12 month rent coverage ratio for the period ending June 30 is 1.58. Our operator coverages provide significant cushion to absorb rate reductions. Importantly however, this is not the case for the industry as a whole.
Thomas: Omega has a well-balanced portfolio of 460 facilities, 47 operators, in 33 states. How do you intend to expand and what geographic markets are most attractive?