Hello, dear friends — I have a few portfolio updates to start with as I get you updated on a few trades that triggered since I last wrote, so adjustments to the portfolio (including a few buys and sells) will be the focus of today’s Friday File. The latest update to the Real Money Portfolio is also available for those who want to see more detailed numbers.
Omega Healthcare (OHI) hit my profit target as optimism improved, and I sold that position. The pause in their dividend growth this year means this is not a “hold forever” kind of stock, and they continue to have some challenges with the concentration of their portfolio and the regulatory risk of medicare and medicaid as it relates to skilled nursing facilities. It’s undeniable that the demand for skilled nursing should rise, given the aging population, but it’s also undeniable that skilled nursing is a hard business without huge barriers to entry and without pricing power, given the dominance of government insurance in that marketplace. So many skilled nursing operators are skating close to the edge when it comes to sustaining their businesses, and when lots of operators are at risk that means the landlord is also at risk.
This is nothing new, that’s the reason for the shares collapsing last year — and I thought that was an overreaction. But now that we’ve recovered from that overreaction, I’m willing to sell the shares with a decent profit and move on. I think there are better ideas for long-term growth in real estate, and have moved some of that money to those ideas.
One of those is Kennedy-Wilson (KW), so I added a bit to my KW position, increasing it by about 20% with some of the proceeds of the sale of OHI — largely that’s just to keep my real estate allocation from dropping too substantially, and KW has been performing well as the market has grown more accepting of their ability to thrive even if interest rates rise a bit. I wouldn’t add dramatically to the position here at $22 or so, there may be more opportunistic price points in the future if we have another interest rate scare or a quick real estate panic, as happens from time to time (or, of course, a real estate crisis)… but adding on a bit makes sense to me and the value is still ...