Take Charge! The Indisputable Demographic Wave

Let’s get real here, the debate is not if Omega is a white SWAN, black SWAN or purple SWAN.

Summary

  • Let’s get real here, the debate is not if Omega is a white SWAN, black SWAN or purple SWAN.
  • The underlying issue that is consistently overlooked, and often misunderstood are the driving forces behind the skilled nursing business model.
  • The operators with symbiotic relationships with their capital sources will be the engines of innovation.
  • Discipline means thinking long term, and that is why I am sticking by Omega - it’s time to take charge!

Is it just me, or am I just fighting the wave of Omega Healthcare Investor(NYSE:OHI) short seller pundits chasing clicks on Seeking Alpha?

Let’s get real here, the debate is not if Omega is a white SWAN, black SWAN or purple SWAN. The underlying issue that is consistently overlooked, and often misunderstood are the driving forces behind the skilled nursing business model.

According to Population Reference Bureau, “the current growth of the population ages 65 and older is one of the most significant demographic trends in the history of the United States. Baby boomers - those born between 1946 and 1964 - have brought both challenges and opportunities to the economy, infrastructure, and institutions as they have passed through each major stage of life.”

To be clear, the true drivers for the skilled nursing sector are demographics, and in many of the bearish articles on Seeking Alpha (and other sites), writers simply overlook the argument that 65+ aged cohorts are “projected to more than double from 46 million today to more than 98 million by 2060.”

"Between 2020 and 2030 alone, the number of older persons is projected to increase by almost 18 million as the last of the large baby boom cohorts reaches age 65. Although much smaller in total size, the number of people ages 85 and older is projected to more than triple from 6 million today to nearly 20 million by 2060."

In a recent article, SA author Beyond Saving writes:

“In the bullish arguments for OHI, I have not seen an argument that the fundamentals are going to start improving. At best, the argument has been "the fundamentals are not THAT bad".

The author adds:

“Julian, myself and other bears have focused most of our criticisms on the macroeconomic environment for SNF REITs. I am bearish on the entire industry, and most of the points Julian made can be applied to every other SNF REIT as well.”

It’s one thing to say macro trends are declining, but the real trend driving skilled nursing are indisputable demographics. I consider the term “macroeconomic” to be somewhat of a misconception, because the government is really trying to help make healthcare more cost-efficient. That’s not so much about the government saving money, it’s more about getting as many people as possible to access beds. Simply put, we are running out of beds in the United States.

In other words, it boils down to supply and demand.

The proportion of older adults living in nursing homes increases considerably as they reach ages 80 and beyond. While just 7% of women ages 80-89 lived in nursing homes in 2010, this share almost tripled (19%) for those ages 90-99 years and jumped to 35% for those ages 100 and older.

Even if the shares of older men and women living in nursing or skilled nursing facilities in the future remain constant at 2010 levels, the larger number of Baby Boomers will mean substantial increases in the number of people needing such living arrangements after 2030.

For example, while 1.3 million people ages 65 and older lived in nursing or skilled nursing facilities in 2010, this number would rise to 2.3 million by 2030 and nearly 3 million by 2060.

Although U.S. policymakers and others have had many decades to plan for the inevitable aging of the Baby Boom cohort, it is not clear that sufficient preparations have been made to meet Baby Boomers’ anticipated needs in old age.

It’s true that in the 1990s the system was broken and Omega and many other healthcare companies had to pivot, but today the demographic forces are indisputable, and the true macroeconomic trends reflect the strong demand in skilled nursing properties.

The Consolidator: Omega Healthcare Investors