Omega Healthcare's Merger With Aviv REIT Is A Perfect Match


The healthy Real Estate Investment Trust merger of Omega Healthcare with Aviv REIT (both specialize in skilled nursing facilities) captures investor confidence with positive outlooks on long-term performance. This merger will be a $3 billion deal that will combine 874 properties in 41 states. The extent of the deal is important because, in general, senior housing facilities are private- pay, while skilled nursing facilities are riskier, since they depend on reimbursement through Medicare and Medicaid.

This merger will ensure Omega’s position in REIT, with a portfolio of $10 billion in skilled nursing assets.

REITs are aiming to acquire bulk portfolios, in order to be cost efficient and generate greater returns via a consolidation of operations and a decrease in debt costs. This is why Omega was more willing to purchase Aviv as a whole rather than its properties individually over time. This will make Omega the largest consolidator of skilled nursing with little competition.

Omega owns 562 properties and Aviv owns 312 properties to combine for a total market capitalization (total number of shares outstanding or equity value of a company) of $10.3 billion. Therefore, the combination of the two companies will have the largest concentration of skilled nursing facility properties, especially in Ohio (11%), Florida (10%), and Texas (9%).

Aviv shareholders and unitholders will receive 0.90 Omega Healthcare Investor (OHI) shares for each Aviv share or unit. Aviv shareholders and unitholders will own 30% of the newly consolidated company.

The merger will generate about $9 million in cost synergies (the money saved in operating costs after the companies combine) and $2.81 to $2.87 per diluted share (the total number of possible shares that would be outstanding after conversion of entities such as convertible bonds).

Omega will give investors increased dividend safety, as it already has a steady record of dividend growth of $0.10 quarterly increases. The combination of Aviv and Omega offers security of long-term performance for investors.

Summary by

To read more from SeekingAlpha click here