OMEGA HEALTHCARE INVESTORS INC (OHI) stock intrinsic value fair value estimate & owner earnings analysis

Omega Healthcare Investors owns roughly 1,020 healthcare properties - mostly skilled-nursing homes and assisted-living communities - in 42 US states, the United Kingdom and Jersey, and leases them to about 90 independent operators on long triple-net leases, under which the operator pays the property taxes, insurance and upkeep and rent rises by a fixed 2-2.5% a year. It also lends about $1.4 billion to operators. The tenants are paid mostly by Medicaid and Medicare, so the landlord's real risk is whether its operators stay solvent. What the business earns. We measure the cash left for owners after the operators' rent is collected, after the company's own spending on building improvements, and after charging stock compensation as a real cost. We strip out non-cash rent accounting (the straight-line rent the company books ahead of receiving it), which is why our figure sits below the company's funds from operations. On that basis owners' cash ran between $2.19 and $2.88 a share over 2016-2025 and was $2.47 in 2025. Before interest - the cash the property business produces for lenders and owners together - it has been remarkably steady at $3.12 to $3.71 a share for ten years, with a median of $3.30, and $3.21 in 2025. The 2025 figure rose only 4% per share from 2024 even though total operating cash flow rose 17%, because the share count grew 13% in a year as the company sold new stock to buy buildings. This repeated issuance is the defining feature of the business: since 2016 the diluted share count has risen about 57%, and per-share cash flow before interest is no higher than it was in 2016. The dividend of $2.68 a share has not been raised since 2020 and absorbs essentially all of owners' cash. The anchor. We use $3.25 a share of pre-interest cash, slightly below the ten-year median, because that window includes the 2020-2021 period when some rent was still being paid by operators who later failed. In the first half of 2026 the business produced about $1.62 a share of comparable cash, consistent with that level. Owners' cash grew about 3% in 2025; we assume a flat first year rather than anything faster. Recent tenant events. Two large operators went through bankruptcy: LaVie (Chapter 11 June 2024), whose lease was taken over by Avardis in May 2025 at $3.1 million a month rising 2.5% a year to 2037, and Genesis Healthcare (Chapter 11 July 2025), which has kept paying full rent on 31 facilities while its assets are sold to a buyer approved by the court in January 2026; the Omega lease has not yet been assumed by that buyer. Operators producing about a fifth of revenue are on a cash basis because their rent is not considered reliably collectible. Maplewood, a large senior-housing tenant, has had its rent escalators deferred and reinstated. The 2025 federal budget law freezes nursing-home provider taxes and cuts Medicaid in ways that may push states to trim reimbursement over time. Debt. Borrowings are about $4.06 billion after the January 2026 repayment of the 2026 notes and term loan: senior notes of $700 million at 4.50% due 2027, $550 million at 4.75% due 2028, $500 million at 3.63% due 2029, $600 million at 5.20% due 2030, $700 million at 3.38% due 2031, $700 million at 3.25% due 2033, plus a $300 million 2028 term loan and a small revolver balance. Cash on hand was about $39 million at June 30, 2026. Because much of this debt is fixed well below current rates for several more years, it is cheaper to carry than its face value suggests; we credit about $230 million for that in the base and bull cases, giving net debt of about $3.79 billion, or $11.97 a share. In the bear case we give no such credit, since that case assumes refinancing on worse terms: $4.02 billion, or $12.70 a share. Interest costs about $225 million a year against roughly $1 billion of pre-interest cash, so coverage is comfortable, and the maturities are well laddered with no single year above $850 million. Base case. Rents keep rising by their contractual 2-2.5% a year, but that rise is roughly offset each year by operators who fail, ask for rent cuts, or are replaced at lower rents - the pattern of the last decade, in which per-share cash before interest has been flat despite escalators. We credit no growth from acquisitions, because they have been paid for with new shares and have not raised per-share results. Pre-interest cash of $3.20 next year and $3.25 thereafter, held for 40 years on the evidence that nursing-home real estate has been continuously re-leased to new operators after every failure over three decades. The business is worth about $48.85 a share; it owes $11.97; the shares are worth about $36.90. Bear case. One full industry downturn of the kind skilled-nursing landlords suffered in 2017-2020, when operators including Orianna, Daybreak, Gulf Coast and later Agemo and LaVie stopped paying and pre-interest cash per share fell about 10-15% from peak, combined with state Medicaid cuts following the provider-tax freeze. Here cash per share falls from $3.15 to $2.45 over two years as several large tenants (Genesis, Maplewood and other cash-basis operators) cut or stop rent, then recovers slowly to $2.90 as buildings are re-leased to new operators, and the story is valued only for 30 years. Even at the trough, cash before interest of about $775 million covers the roughly $230 million interest bill more than three times, so the debt can be carried. The business is worth about $38.93 a share; it owes $12.70; the shares are worth about $26.20. Bull case. Operator health keeps improving as it has since 2023 - occupancy recovering and cash-basis tenants paying full rent - so the contractual escalators show through: pre-interest cash grows 1.5% a year for ten years from $3.25, then holds. We do not credit acquisition growth or a dividend increase. The business is worth about $56.34 a share; it owes $11.97; the shares are worth about $44.40. Accounting judgements. We charged the company's capital-improvement spending as a cost, treating only the portion that matches revenue growth as investment. We removed straight-line rent and lease-inducement accounting from cash, and we treated stock compensation (about $44 million in 2025) as an expense. We value the business before interest and then subtract the debt, so leverage is counted once. Previous analysis. Our prior estimate was prepared on a different basis and its figures are not comparable. In the business itself, since then Genesis has continued to pay full rent through bankruptcy and the sale of its business was approved, the 2026 notes were repaid, and first-half 2026 cash flow held at the level we use. Margin of safety price. We are reasonably confident in the earnings level: ten years of pre-interest cash per share within a narrow band through a pandemic and a wave of tenant bankruptcies, backed by hard assets with alternative operators. The worst plausible outcome is a broad Medicaid squeeze that pushes several large operators into failure at once while the company cannot sell shares on acceptable terms; the laddered maturities and three-times interest coverage mean the structure survives that, though the dividend would likely be cut. The things we are most likely to be wrong about are the durability of the cash-basis tenants and whether the federal budget law turns into state rate cuts; if both go against us the shares are worth roughly the bear figure in the mid-$20s. The business pays about $2.68 a share a year over the holding period, though that dividend is not covered by much spare cash. From $22, with roughly $2.68 a year of dividends and the shares reaching the base value within about three years, the base case implies well over 20% a year, and in the bear case the dividends plus a value near the bear figure imply a return close to the target. Above the low-to-mid $20s the bear case would no longer allow the goal to be met, so we set the margin of safety price at $22.