Omega Healthcare (OHI) is one of our favorite high-yield companies. Why is it down so far? The answers can tell us a lot about the real outlook for Real Estate in general, as opposed to the way the stocks have been moving as the outbreak blows through.
The company pays a $0.67 dividend every three months and back at the $40 level this equated to a very comfortable 6.7% yield. The stock slowly rose from the $36 level to the mid-40s over the past 12 months and then BOOM, panic ensued in the stock market and in the space of three weeks, the stock dropped from $45 to a low of $13 on Wednesday. It rebounded to $22 yesterday, up 50%.
We spoke with the senior vice president of investor relations recently and asked him directly what was going on with the stock. He had no answers for us, which at first we thought was negative, but on further evaluation we now believe this to be very positive.
But rumors had spread about senior housing facilities in the US as the first confirmed case of the global pandemic of coronavirus disease in the United States was announced by the state of Washington on January 21st. Two deaths were announced on February 26. The city was the first to suffer a cluster of cases of COVID-19 during the 2019–20 coronavirus pandemic, including the first six U.S. fatalities. Many of the deceased were residents of a nursing home in Kirkland, a suburb of Seattle.
Back to Omega. The VP said there is NOT ONE case of coronavirus in any of their 900 buildings. Furthermore, he said just 12% of their facilities are senior housing facilities, 40% are nursing critical centers, and 48% are Medicaid facilities. There has been talk of people taking their parents from senior housing facilities. But of the latter two categories, these people cannot leave. They need the help and care that is offered here.
The stock now yields 12%. In light of these new facts, we would suggest that the stock market is giving you one of the best buying opportunities in recent history. Note that Todd Shaver does own shares.
As to some of things we said yesterday in our News Flash about New Residential, an update. First of all, we misspoke when we said the preferreds reflect “loans that come due.” That is not true of course. The preferreds are perpetual, meaning that they do not mature. They are callable in 2024 and 2025. If not, they reset at what could be much higher interest rates. We apologize. But note that all three preferreds rose yesterday between 28 and 43%. And they are still WAY BELOW par, or $25 where they normally trade in calmer times.
Secondly, we said that the Chairman and CEO Michael Nierenberg had bought over a million shares on March 5. We double-checked the SEC filings and now believe he was awarded stock options at those prices, but has not exercised them yet. Since they were in the $15-16 range, we would suggest that Mr. Nierenberg GET TO WORK to get the stock back up there to where it belongs(!)
But note that all three preferreds rose yesterday between 28% and 43%. And they are still WAY BELOW par, or $25 where they normally trade in calmer times. The stock itself was up 18% yesterday and even if they cut the dividend in half, the stock would yield 15%. We’re not saying they will, but you can see the dynamics of how the market has over-reacted.