Leaders with LTC Properties (NYSE: LTC) said Medicaid rate increases were one positive aspect from the second financial quarter, even as some of its assets were seeing occupancy issues and ongoing deferrals in rent.

Occupancy “disappointingly deteriorated” among certain assets, including LTC’s skilled nursing facilities, analysts with BMO Capital Markets reported. While overall SNF occupancy was up by 80 basis points between Q2 2024 and Q2 2023 to land at 75.3%, 95% of the Westlake Village, Calif.-based real estate investment trust’s (REIT) June occupancy declined 100 basis points to 77%.

The most surprising drop in occupancy was among LTC’s ALG Senior assisted living properties, and it took up most of LTC’s earnings call on Tuesday. This occupancy decline prompted LTC to defer $1.5 million in rent between May and June for 11 ALG assisted living properties with another $250,000 deferred in rent per month until census can be built back, said Clint Malin, chief investment officer for LTC.

LTC’s portfolio is made up of 50% skilled nursing properties and 50% seniors housing, totaling 194 properties in 26 states, with 31 operating partners.

Malin noted that coverage is starting to tick up a little bit in LTC’s portfolio, and that Medicaid rate increases among skilled nursing assets is a “positive aspect” moving forward into the second half of the year.

“The second quarter went generally according to plan,” said Wendy Simpson, CEO of LTC Properties. “We did encounter a challenge with respect to occupancy issues at select assisted living communities operated by ALG Senior but we very quickly provided solutions that are in the best interest of LTC, our partner and our shareholders.”

More lease restructuring for the future

LTC Properties amended a master lease with skilled nursing operator HMG Healthcare during Q2 2024 as well, covering 11 facilities in Texas. The term is extended through December 2028, the REIT said.

As a condition of the amendment, HMG agreed to repay $11.9 million on its $13.5 million working capital note during the 2024 second quarter, which was subsequently amended to July 11, 2024, according to LTC Properties’ Q2 2024 report.

During Q2 and beyond, HMG paid the $11.9 million in full and is working on the capital note repayment obligation of $1.6 million through the end of 2028.

“I’m very proud of LTCs track record with respect to successfully mitigating challenges as they arise, and that we’ve done so quickly and transparently with continued improvement across our industry,” Simpson said of occupancy issues. “I remain optimistic that we are on the right path for growth.”

Beating analyst expectations and future investments

Total revenues increased from $48.2 million in Q2 2023 to $50.1 million in Q2 2024, as a result of higher interest income from mortgage and mezzanine loan originations in 2023, construction loan funding in 2024, interest rate escalations and insurance proceeds related to sold properties, LTC said in its report.

LTC had total liquidity of $189.3 million, including $6.2 million in cash on hand, $118.2 million available under an unsecured revolving line of credit.

Funds from operations (FFO) for Q2 of 67 cents per share beat analyst expectations of 66 cents per share, but missed on funds available for distribution (FAD), BMO analysts said. FAD per share was 65 cents per share, while expectations were closer to 70 cents per share among analysts.

LTC executives did not update guidance. Previously, LTC Properties provided annual guidance of $2.63 to $2.65 per share during its Q1 earnings call for 2024.

In terms of loans and transactions, LTC originated a $12.7 million skilled nursing facility loan at 9.2% during Q2 2024. The Texas property has both skilled nursing and assisted living, with 104 SNF beds and 78 AL units – the investment is considered an unconsolidated joint venture and is expected to generate $884,000 in revenue for the year.

The REIT also sold two closed Texas properties for $500,000 and received a $2 million loan payoff.

After Q2, LTC Properties agreed to fund a $26.1 million mortgage loan for the construction of a 116-unit independent living, assisted living and memory care community in Illinois, and sold an assisted living facility in Texas for $8 million.