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Omega Healthcare (OHI) Closes MedEquities Realty Acquisition

Moumita Chattopadhyay

Omega Healthcare Investors, Inc. OHI has announced the completion of the cash-and-stock deal to acquire MedEquities Realty Trust, Inc. Valued at around $600 million, the transaction has helped in the diversification of Omega Healthcare’s assets as well as operators.

Particularly, with this move, Omega Healthcare added a diversified portfolio of investments, including 34 properties in seven states, operated by 11 different operators. According to the company’s previous press release, because of this acquisition, property-type diversification will augment non-skilled nursing assets moderately by $296 million. The buyout is anticipated to be accretive to funds from operations (FFO) per share.

Specifically, per the agreement, each outstanding shares of MedEquities common stock was converted into the right to receive 0.235 Omega common shares and $2.00 in cash. Based on the closing price of $37.67 for Omega common stock on May 16, this equates to a value of $10.85 per MedEquities share.

Notably, Omega Healthcare, which invests in the long-term healthcare industry, mainly in skilled nursing (SNF) and assisted living facilities, has emerged as a leading SNF-focused REIT, and achieved diversification in terms of geography and operator in the United States and the U.K. The company’s properties are operated by a diverse group of healthcare companies, mainly in a triple-net lease structure.

Further, Omega is targeting accretive buyouts this year, after completing its strategic asset repositioning and portfolio restructurings in 2018. Such strategic disposition programs offer solid scope for capital redeployment in its growth endeavors. However, revenue reduction related to its prior-year asset sales and challenging operating environment for its operators remain concerns.

Omega currently carries a Zacks Rank #3 (Hold). The company’s shares have gained 5.3% in three months’ time compared with the industry’s rally of 5.1%.

Stocks to Consider

Some better-ranked stocks from the real-estate space include Duke Realty Corp. DRE, Lamar Advertising Company LAMR and PS Business Parks, Inc. PSB, each carrying a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Duke Realty’s Zacks Consensus Estimate for 2019 funds from operations (FFO) per share moved marginally north to $1.40 in the past month.

Lamar’s FFO per share estimates for the current year remained unchanged at $5.81 over the past week.

PS Business Parks’ Zacks Consensus Estimate for the ongoing year’s FFO per share moved up slightly to $6.61 in the past week.

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