LTC Properties (LTC) Q2 Revenue Up 20%

LTC Properties (LTC 2.85%), a healthcare-focused real estate investment trust (REIT) specializing in senior housing and skilled nursing properties, reported results for Q2 2025 on August 4, 2025. The company posted materially higher diluted Core funds from operations (FFO) per share (non-GAAP) and revenue (GAAP) than expected, driven by substantial portfolio reinvestment and expansion of its seniors housing operating portfolio (SHOP) under the Real Estate Investment Diversification and Empowerment Act (RIDEA) structure. Diluted Core FFO per share came in at $0.68 (non-GAAP), surpassing the analyst forecast of $0.45 (non-GAAP), while revenue (GAAP) was $60.2 million, beating GAAP revenue expectations by $20.48 million. Although diluted earnings per share (GAAP) declined year over year, operational metrics improved, and management raised guidance for the year. Overall, the quarter marked a significant transformation of the business—with strong outperformance on key metrics and continued investment activity to diversify the asset base.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Business Overview and Strategic Focus

LTC Properties operates as a healthcare REIT, investing in senior housing and skilled nursing assets across the United States. Its business combines owning healthcare properties and providing mortgage and structured financing to operators in the sector. Revenue sources include rental income from triple-net leases—where tenants cover expenses such as maintenance, taxes, and insurance—mortgage lending, and, increasingly, operating income from properties directly managed under its SHOP segment.

In recent years, the company has prioritized diversifying its portfolio by adding different types of real estate assets and financing structures. In 2025, it accelerated a shift toward direct operation of senior housing properties under the RIDEA model, as evidenced by the conversion of 13 properties from triple-net leases into the SHOP portfolio and the planned addition of a New Perspective property. This strategy aims to capture more upside from property performance, but also exposes the company to more operational volatility and expense. Success depends on stable operator performance, careful capital deployment, and navigating regulatory risk, particularly as government healthcare programs play a vital role in tenant revenues.

Quarter Highlights: Financial Results and Operational Shifts

The quarter was marked by significant growth in direct operating income. The standout development was the conversion of 13 properties, previously operated under triple-net leases by Anthem and New Perspective, into the SHOP operating segment. These conversions totaled 832 units and $174.8 million in book value. The company reported that these assets produced $2.5 million in net operating income—about $780,000 higher than what the same properties generated under the former lease structure in Q2 2024.

Revenue (GAAP) benefited from this transformation, rising 20.2% from Q2 2024 to Q2 2025, while Core FFO per share also improved slightly year over year, rising to $0.68 from $0.67. Funds available for distribution (FAD) per share (non-GAAP) saw a drop to $0.56 from $0.68. However, on a Core FAD basis—excluding one-off charges like transaction costs—per share results improved to $0.71, up from $0.66. This highlights how one-time expenses, such as $6.7 million in transaction costs related to conversions and platform ramp-up, can obscure progress on recurring cash flow.

Expenses climbed $13.5 million from the prior year, due overwhelmingly to costs tied with SHOP operations, increased general and administrative spending, and higher transaction costs. The increase in operating complexity as LTC manages more properties directly affects both margins and administrative overhead. General and administrative expenses (GAAP) reached $8.45 million, a rise of nearly 25% versus Q2 2024. Interest expense (GAAP) fell to $8.01 million, down from $10.90 million in Q2 2024, as the company paid down debt and benefited from lower borrowing costs, helping limit the earnings impact of higher operating expenses.

The company remained active on the balance sheet and capital markets. It closed a $35.2 million acquisition for a California seniors housing community in the SHOP segment in July 2025, with a targeted 7% yield, and outlined another $320.0 million of investments expected to close within 60 days of quarter-end. This includes a $60 million mortgage loan at an 8.25% yield, expected to close in Q3 2025, and $260.0 million in additional SHOP investments with a targeted 7% average year-one yield. It also increased the capacity of its revolving credit facility from $425 million to $600 million, expandable to $1.2 billion under the new unsecured revolving credit agreement, supporting future acquisitions and liquidity needs.

Operator health remains a critical risk, highlighted by Genesis Healthcare—a top 10 LTC tenant—filing for bankruptcy after the quarter closed. Genesis continues meeting rent obligations, and LTC holds a $4.7 million security letter of credit. Management noted that the shift to SHOP increases potential upside but also exposes LTC more directly to operator performance and market swings. The company’s ongoing effort to diversify by asset type, operator, and region aims to manage this risk, balancing SHOP growth with other investment types such as mortgage and structured loans.

The company continued to pay a quarterly dividend of $0.57 per share, unchanged from the prior year period. This steady distribution aligns with REIT requirements that mandate paying most taxable income to shareholders.

Looking Ahead: Guidance and Future Areas of Focus

Management raised its guidance for GAAP net income per share, Diluted Core FFO, and Diluted Core FAD for FY2025, reflecting increased confidence in portfolio growth and the expected accretive contribution from recent and pending investments. The updated outlook includes GAAP net income per share of $3.45 to $3.48 (prior range $3.38 to $3.42) for FY2025. Core FFO per share of $2.67 to $2.71 (up from $2.65 to $2.69) for FY2025 (non-GAAP), and Core FAD per share of $2.80 to $2.83 (up from $2.78 to $2.82) for FY2025. The company projects SHOP segment net operating income of $10.4 million to $15.6 million for the full year, with annualized SHOP net operating income potentially ranging from $17.3 million to $35.7 million. Capital expenditures for SHOP assets are expected to be $660,000 to $920,000, or $1,200 to $1,400 per unit on an annualized basis.

The revised full-year guidance does not factor in additional investments, asset sales, new financings, or equity issuances beyond what is already in the pipeline. The company’s leadership emphasized ongoing efforts to broaden its operator and geographic base, as well as careful monitoring of operator financial health and regulatory shifts, especially in Medicare and Medicaid programs. Potential increases in expenses outpacing revenue gains as operations scale, and the ongoing challenge of operator stability, remain risks. The steady dividend and expanded credit capacity support ongoing portfolio growth, but successful execution of the new business model will remain in focus for investors and management alike.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.