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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
                                   (MARK ONE)
[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
               SECURITIES AND EXCHANGE ACT OF 1934 (FEE REQUIRED)
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
                                       OR
[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
                                        
                        COMMISSION FILE NUMBER:10-K
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-11314
LTC PROPERTIES, INC.
             (Exact
(Exact name of Registrant as specified in its charter)

MARYLAND                                                    71-0720518
(State or other jurisdiction of                          (I.R.S Employer
incorporation or organization)                          Identification No.)


                        300 Esplanade Drive,
MARYLAND
71-0720518
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
22917 Pacific Coast Highway, Suite 1860
                           Oxnard,350
Malibu, California 93030
                    (Address90265
(Address of principal executive offices)

       Registrant's
Registrant’s telephone number, including area code: (805) 981-8655

          
(310) 455-6010
Securities registered pursuant to Section 12(b) of the Act:

                   Title of Stock                                            
Name of each exchange
Title of Stock
on which registered
- ----------------------------------------------------                        -------------------------------------------
Common stock, $.01 Par Value
New York Stock Exchange
9.75% Convertible Subordinated Debentures due 2004                                    
9.50% Series A Cumulative Preferred Stock, $.01 Par Value
New York Stock Exchange
8.50% Convertible Subordinated Debentures due 2000                                    
9.00% Series B Cumulative Preferred Stock, $.01 Par Value
New York Stock Exchange
8.50% Series E Cumulative Convertible Subordinated Debentures due 2001                                    Preferred Stock, $.01 Par Value
New York Stock Exchange
7.75% Convertible Subordinated Debentures due 2002                                    New York Stock Exchange
8.25% Convertible Subordinated Debentures due 2001                                    New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
     Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes Xþ          No ___
                                        ---o
     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant'sthe Company’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     [X]Yes þ          No o
     Indicate by check mark whether the Company is an accelerated filer.     Yes þ          No o
     The aggregate market value of voting and non-voting stock held by nonaffiliatesnon-affiliates of the Company iswas approximately $400,532,793$150,679,375 as of January 31, 1997.

                                   22,098,361
     (NumberJune 30, 2003 (the last business day of the Company’s most recently completed second fiscal quarter).
18,005,643
(Number of shares of common stock outstanding as of January 31, 1997)

    Part III is incorporatedMarch 5, 2004)
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
Certain information contained in this annual report includes statements that are not purely historical and are “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding our expectations, beliefs, intentions or strategies regarding the future. All statements other than historical facts contained in this annual report are forward looking statements. These forward looking statements involve a number of risks and uncertainties. All forward looking statements included in this annual report are based on information available to us on the date hereof, and we assume no obligation to update such forward looking statements. Although we believe that the assumptions and expectations reflected in such forward looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. The actual results achieved by referenceus may differ materially from any forward looking statements due to the Company's definitive proxy
  statement forrisks and uncertainties of such statements.
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Stockholders and investors are cautioned not to unduly rely on such forward-looking statements when evaluating the Annual Meeting of Stockholders to be held on May 19, 1997.
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ITEM 1.    BUSINESS

GENERAL

  information presented in our filings and reports.
Item 1.     
BUSINESS
General
LTC Properties, Inc. (the "Company"), a health care real estate investment trust (a "REIT")(or REIT), was organized on May 12, 1992 in the State of Maryland and commenced operations on August 25, 1992. The Company investsWe invest primarily in long-term care and other health care related facilitiesproperties through mortgage loans, facilityproperty lease transactions and other investments. TheOur primary objective of the Company isobjectives are to sustain and enhance stockholder equity value and provide current income for distribution to stockholders through real estate investments in long-term care facilitiesproperties and other health care related facilitiesproperties managed by experienced operators providing quality care.operators. To meet this objective, the Company attemptsthese objectives, we attempt to invest in properties that provide opportunity for additional value and current returns to itsour stockholders and diversify itsour investment portfolio by geographic location, operator and form of investment.

  The Company was
In accordance with “plain English” guidelines provided by the Securities and Exchange Commission, whenever we refer to “our company” or to “us”, or use the terms “we” or “our”, we are referring to LTC Properties, Inc. and/or our subsidiaries.
We were organized to qualify, and intendsintend to continue to qualify, as a REIT. So long as the Company so qualifies,we qualify, with limited exceptions, the Company
will not be taxed under federal income tax laws at the corporate level on itswe may deduct distributions, both preferred dividends and common dividends, to our stockholders from our taxable income as long as it distributes at least 95 percent of that amount to
its stockholders.  The Company has distributed,income. We have made distributions, and intendsintend to continue to make distributions to itsour stockholders, in order to eliminate any federal tax liability.

  At
Owned Properties.As of December 31, 1996, the Company had investments2003, our investment in 248owned properties consisted of 53 skilled nursing facilitiesproperties with 28,628a total of 6,047 beds, and 3588 assisted living facilitiesproperties with 1,456a total of 4,182 units and one school in 3223 states, operated by 84 healthcare providers.

     OWNED PROPERTIES

  During 1996, the Company acquired for approximately $113,858,000 22 assisted
living facilities and 20 skilled nursing facilities.  Sixteen of the skilled
nursing facilities were acquired by six newly formed limited partnerships of
which the Company, through certain of its subsidiaries, is the general partner
and were purchased subject to mortgage loansrepresenting a gross investment of approximately $9,641,000.  Under
the partnership agreements, the Company has guaranteed payment$456.0 million. See Item 8. FINANCIAL STATEMENTS —Note 6. Real Estate Investmentsfor further description.
The following operators accounted for more than 10% of a 10%
preferred return to the holders of $8,932,000 in limited partnership interests.
Under certain circumstances, the limited partnership interests can be exchanged,
at the option of the holders, into 628,511 shares of the Company's common stock
at exercise prices ranging from $13.00 to $15.00 beginning in 1997.  Also during
1996, the Company sold four assisted living facilities for their approximate net
book value of $7,589,000.  The Company's long-term facilities are leased to
operators pursuant to long-term "triple net" leases and provide for increases in
the rent based upon specified rent increases or, to a lesser extent, upon
participation in revenue increases over defined base periods or increases based
on consumer price indices.

     MORTGAGE LOANSour 2003 revenue:
Lessee
Percent of Revenues
Alterra Healthcare Corporation
21.7
%
Assisted Living Concepts, Inc.
21.2
%
Sunwest Management, Inc.
15.3
%
Mortgage Loans. As part of the Company'sour strategy of making long-term investments in properties used in the provision of long-term health care services, the Company
provideswe provide mortgage financing on such properties based on theour established investment underwriting criteria established by the Company.  (See "Investmentcriteria. See“Investment and Other Policies"Policies” in this Section.)section for further discussion. We have also provided construction loans that by their terms converted into purchase/lease transactions or permanent financing mortgage loans upon completion of construction. See Item 8. FINANCIAL STATEMENTS —Note 6. Real Estate Investmentsfor further description.
See Item 8. FINANCIAL STATEMENTS —Note 11. Debt Obligationsfor a description of our Senior Mortgage Participation Payable, which is secured by certain of our mortgage loans receivable.
1
REMIC Certificates. We have completed securitizations by transferring mortgage loans to newly created Real Estate Mortgage Investment Conduits (or REMIC) that, in turn, issued mortgage pass-through certificates aggregating approximately the same amount. A portion of the REMIC Certificates were then sold to third parties and a portion of the REMIC Certificates were retained by us. The Company maintainsREMIC Certificates we retained are subordinated in right of payment to the REMIC Certificates sold to third parties and a portion of the REMIC Certificates we retained are interest only certificates which have no principal amount and entitle us to receive cash flows designated as interest. Since inception we have completed four REMIC pools. The first was in 1993 and was fully retired in 2003 without a realized loss within the pool. The last REMIC we completed was in 1998. We may again employ this type of financing in the future should we determine the financing environment was appropriate for this type of transaction. At December 31, 2003, we had investments in REMIC Certificates with a carrying value of $61.7 million and a fair market value of $48.2 million. See Item 8. FINANCIAL STATEMENTS —Note 6. Real Estate Investmentsfor further description of our investments in REMIC Certificates.
We maintain a long-term investment interest in its mortgages we originate either through the direct retention of the mortgages or through the retention of REMIC certificatesCertificates originated in our securitizations. We are a REIT and, as such, make our investments with the Company's securitizations. The Companyintent to hold them for long-term purposes. However, we may
from time-to-time, securitize a portion of itsour mortgage loan portfolio when a securitization provides the Companyus with the best available form of raising
capital to makefund additional long-term investments. In addition, the Company
believeswe believe that the certificates retained by the Company in itsREMIC Certificates we retain from our securitizations provide its shareholdersour stockholders with a more diverse real estate investment while maintaining the returns desired by the Company. As of December 31, 1996, the
Company had securitized $354,000,000 of mortgage loans that were originated by
the Company. Because the Company anticipates securitizing

                                       2

 
additional portions of its mortgage loan portfolio in the future, its mortgage
loan investments are carried at the lower of cost-or-market.

     REMIC CERTIFICATES

     On March 29, 1996, the Company securitized mortgage loans with an aggregate
outstanding principal balance of approximately $112,487,000 by creating a Real
Estate Mortgage provide value to our stockholders.
Investment Conduit ("REMIC") which, in turn, issued mortgage
pass-through certificates ("REMIC Certificates") aggregating approximately the
same amount.  A total of approximately $90,552,000 of REMIC Certificates were
subsequently soldand Other Policies
Objectives and Policies. Our investment policy is to third parties by the Company.  The Company retained the
remaining $21,935,000 face amount of the REMIC Certificates, which are
effectively subordinated in right of payment to the Certificates sold to third
parties.  A portion of the other REMIC Certificates the Company retained, which
have no principal amount, are interest-only certificates and entitle the Company
to receive cash flows designated as interest.  The proceeds from the sale were
used to pay down outstanding borrowings under the Company's lines of credit.  At
December 31, 1996, the Company had investments in REMIC Certificates with an
estimated fair value of $98,934,000 approximately ($92,545,000 at amortized
cost) secured by 148 long-term care facilities with a total of 16,064 beds in 24
states.  (See "Part 1, Item 2 -- Properties -- REMIC Certificates.")

     FINANCING AND OTHER TRANSACTIONS

     In February 1996, the Company sold, through a public offering, $30,000,000
aggregate principal amount of 7.75% Convertible Subordinated Debentures due
2002.  The debentures are convertible at any time prior to maturity into shares
of the Company's common stock at a conversion price of $16.50 per share.  The
net proceeds were used to repay borrowings under the Company's lines of credit.
In March 1996, the Company filed a shelf-registration statement with the
Securities and Exchange Commission covering up to $125,000,000 of debt and
equity securities to be sold from time to time in the future.  The registration
statement was declared effective on April 4, 1996.  Pursuant to the shelf
registration, the Company, in August 1996, completed the sale of $30,000,000 of
8.25% Convertible Subordinated Debentures due 2001.  The debentures are
convertible into shares of the Company's common stock at a price of $17.25 per
share.  Net proceeds from the offering were used to repay short-term borrowings.
Also in 1996, the Company repurchased and retired 120,000 shares of common stock
for an aggregate purchase price of approximately $1,831,000.

INVESTMENT AND OTHER POLICIES

     OBJECTIVES AND POLICIES

     The Company currently investsinvest primarily in income-producing long-term care facilities. The Company invests either (1) directly in mortgage loans secured by
long-term care facilities (2)properties. Also see“Government Regulation” below. Primarily, as a result of obligations we had under our Secured Revolving Credit, we have made few investments in the fee ownershiplast five years. In the fourth quarter of long-term care facilities2003 we retired the Secured Revolving Credit and signed a $45.0 million Unsecured Credit Agreement. Subsequent to December 31, 2003 we purchased for $3.4 million a 120 bed skilled nursing property in Texas. We have entered into a 20 year triple net lease with an operator which are leased to operators (3) or may participatebegins March 3, 2004, and for an annual lease amount of $0.4 million in such investments
indirectly throughthe first year and increasing 2% every year thereafter. At this time, we anticipate completing some additional level of new investments in partnerships, joint ventures or other entities2004; however, given the highly competitive environment for health care real estate acquisitions and mortgages, we can give no assurances that themselves make directwe will complete a significant level of new investments in such loans or facilities.

     2004.
Historically our investments have consisted of:
• 
mortgage loans secured by long-term care properties;
• 
fee ownership of long-term care properties which are leased to providers; or
• 
participation in such investments indirectly through investments in real estate partnerships or other entities that themselves make direct investments in such loans or properties.
In evaluating potential investments, the Company considerswe consider factors such factors as
(i) type of property, (ii) the location, construction quality, condition and
design of the property, (iii) the property's current and anticipated cash flow
and its adequacy to meet operational needs and lease obligations or debt service
obligations, (iv) the quality and reputation of the property's operator, (v) the
growth, tax and regulatory environments of the communities in which the
properties are located, (vi) the occupancy and demand for similar long-term care
facilities in the area surrounding the property and (vii) the Medicaid
reimbursement policies and plans of the state in which the property is located.

                                       3

 
     The Company places primary emphasis on investingas:
• 
type of property;
• 
the location;
• 
construction quality, condition and design of the property;
• 
the property’s current and anticipated cash flow and its adequacy to meet operational needs and lease obligations or debt service obligations;
• 
the experience, reputation and solvency of the licensee providing services;
• 
the payor mix of private, Medicare and Medicaid patients;
• 
the growth, tax and regulatory environments of the communities in which the properties are located;
2
• 
the occupancy and demand for similar properties in the area surrounding the property; and
• 
the Medicaid reimbursement policies and plans of the state in which the property is located.
For investments in long-term care facilities that haveproperties we favor low investmentcost per bed ratios andopportunities, whether in fee simple properties or in mortgages. In addition, with respect to skilled nursing properties, we attempt to invest in properties that do not have to rely on a high percentage of private pay patients or ancillary services to cover debt
service or lease obligations. The Company seeksprivate-pay patients. We seek to invest in facilitiesproperties that are located in suburban and rural areas of states with improving reimbursement
climates.states. Prior to every investment, the Company conductswe conduct a facilityproperty site review to assess the general physical condition of the facility,property and the potential of additional sub-acute services and the quality of care the operator provides.services. In addition, the Company reviewswe review the environmental reports, state survey and financial statements of the facilityproperty before the investment is made. The Company
prefersWe prefer to invest in facilitiesa property that havehas a significant market presence in its community and where state certificate of need and/or licensing procedures limit the entry of competing facilities. To date, most of the Company's investments have been made in the
form of mortgage loans secured by skilled nursing facilities. Due to
management's beliefproperties. We believe that assisted living facilities are an increasingly important sector in the long-term care market a larger portion of the Company's
futureand our investments will be made in the form ofinclude direct ownership of assisted living facilities. Management believes thatproperties.
For assisted living facilities representinvestments we have attempted to diversify our portfolio both geographically and across product levels. Thus, we believe that although the majority of our investments are in affordably priced units, our portfolio also includes a lower costsignificant number of long-term care alternative for senior adults thanupscale units in appropriate markets with certain operators. As skilled nursing facilities. The Company investsfacilities reimbursement cuts have created cost and pricing pressures in that industry, we have tended to emphasize fee simple investments in the assisted living sector where we believe facilities that
attract the moderate-income private pay patientstend to be both newer and less dependent, if at all, on any government reimbursement.
Our new Unsecured Credit Agreement signed in smaller communities,
preferablyDecember 2003, includes no formal restrictions in states that have adopted Medicaid waiver programs or areour investment in the
processany single type of adopting or reviewing their policies and reimbursement programproperty. At December 31, 2003, we had committed to provide funding for assisted living residences. The Company believes that
locating residences in a state with a favorable regulatory reimbursement climate
should provide a stable source of residents eligible for Medicaid reimbursement
to the extent private-pay residents are not available, and should provide
alternative sources of income for residents when their private funds are
depleted and they become Medicaid eligible.

     There are no limitations on the amount or percentage of the Company's total
assets that may be invested in any one property or joint venture, except for
investments in assisted living facilities ("ALFs").  The Board of Directors
authorized the CompanyAlterra Healthcare Corporation (or Alterra) $2.5 million over three years to invest upin leasehold improvements to 20%properties leased from us and an additional $2.5 million over three years to expand properties leased from us. Both of the Company's adjusted gross real
estate investment portfolio (adjusted to include approximately $278,881,000 of
mortgage loans to third parties underlying the December 31, 1996 balance of
investment in REMIC Certificates ) in ALFs, withthese investments would be made at a 10% limit on investments in
properties operated by Assisted Living Concepts, Inc. ("ALC").  ALC is an owner,
operator and developer of assisted living facilities.  Three executive officers
of the Company own approximately 5.5% of ALC's common stock as of December 31,
1996 and two of the Company's executive officers serve as members of the Board
of Directors of ALC.  The Company has discussed with its Board of Directors and
anticipates increasing the percentage of its adjusted gross real estate
investment portfolio that can be invested in ALFs and properties operated by ALCannual return to 30% and 15%, respectively during 1997.  Except for ALFs, no other limits have
been set on the number of properties in which the Company will seek to invest,
or of the concentration of investments in any one facility or any one city or
state, or the type or form of investment.

     BORROWING POLICIES

     The Companyus.
Borrowing Policies. We may incur additional indebtedness when, in the opinion of the
directors,our Board of Directors, it is advisable. The CompanyWe may incur such indebtedness to make investments in additional long-term care facilitiesproperties or to meet the distribution requirements imposed upon REITs under the Internal Revenue Code of 1986, as amended (the "Code") (see Taxation of the Company --  Requirements for
Qualifications).amended. For other short-term purposes, the Companywe may, from time to time, negotiate lines of credit, or arrange for other short-term borrowings from banks or otherwise. The CompanyWe may also arrange for long-term borrowings through public offerings or from institutional investors.
In addition, the Companywe may incur mortgage indebtedness on real estate which it haswe have acquired through purchase, foreclosure or otherwise. The CompanyWe may also obtain mortgage financing for unleveraged or underleveraged properties in which it haswe have invested or may refinance properties acquired on a leveraged basis. There is no limitation on the number or amount of mortgages whichthat may be placed on any 4
one property, and the Company haswe have no policy with respect to limitations on borrowing, whether secured or unsecured.

     PROHIBITED INVESTMENTS AND ACTIVITIES

     The
Prohibited Investments and Activities. Our policies, of the Company,which are subject to change by theour Board of Directors without stockholder approval, impose certain prohibitions and restrictions on variousour investment practices or activities including prohibitions against:
• 
acquiring any real property unless the consideration paid for such real property is based on the fair market value of the property;
• 
investing in any junior mortgage loan unless by appraisal or other method, the Directors determine that
(a) 
the capital invested in any such loan is adequately secured on the basis of the equity of the borrower in the property underlying such investment and the ability of the borrower to repay the mortgage loan; or
(b) 
such loan is a financing device we enter into to establish the priority of our capital investment over the capital invested by others investing with us in a real estate project;
• 
investing in commodities or commodity futures contracts (other than interest rate futures, when used solely for hedging purposes);
• 
investing more than 1% of our total assets in contracts for sale of real estate unless such contracts are recordable in the chain of title;
3
• 
holding equity investments in unimproved, non-income producing real property, except such properties as are currently undergoing development or are presently intended to be developed within one year, together with mortgage loans on such property (other than first mortgage development loans), aggregating to more than 10% of our assets.
Competition
In the Company including prohibition
against:

(i)  acquiring anyhealth care industry, we compete for real property unless the consideration paid for such real
     property is based on the fair market value of the property;
 
(ii) investing in any junior mortgage loan unless by appraisal orinvestments with health care providers, other method,
     the directors determine that (a) the capital invested in any such loan is
     adequately secured on the basis of the equity of the borrower in the
     property underlying such investment and the ability of the borrower to
     repay the mortgage loan or (b) such loan is a financing device entered into
     by the Company to establish the priority of its capital investment over the
     capital invested by others investing with the Company in a real estate
     project;
 
(iii)investing in commodities or commodity futures contracts (other than
     interest rate futures, when used solely for hedging purposes);
 
(iv) investing more than 1% of the Company's total assets in contracts for sale
     of real estate unless such contracts are recordable in the chain of title;
 
(v)  holding equity investments in unimproved, non-income producing real
     property, except such properties as are currently undergoing development or
     are presently intended to be developed within one year, together with
     mortgage loans on such property (other than first mortgage development
     loans), aggregating to more than 10% of the Company's assets.

COMPETITION

     The Company competes with otherhealth care related REITs, real estate partnerships, health
care providersbanks, insurance companies and other investors, including commercial banks, institutional
banksinvestors. Many of our competitors are significantly larger and insurance companies, many of which will have greater financial resources and lower cost of fundscapital than we have available to us. Our ability to compete successfully for real property investments will be determined by numerous factors, including our ability to identify suitable acquisition targets, our ability to negotiate acceptable terms for any such acquisition and the Company, in the acquisition, leasingavailability and financingcost of long-term care facilities. capital.
The operatorslessees and borrowers of our properties compete on a local, regional and, regionalin some instances, national basis with operatorsother health care providers. The ability of facilities that provide comparable services.
Operatorsthe lessee or borrower to compete successfully for patients based on qualityor residents at our properties depends upon several factors, including the levels of care reputation, physical
appearance of facilities,and services offered, family preferences, physician
referrals, staff and price.

INSURANCE

     The Company obtains title insurance with respect to each of its
investments. The Company generally requires: (i) with respect to each owned
property, an American Land Title Association ("ALTA") Extended Coverage Owner's
Policy of Title Insurance with an insured amount equal to the purchase price,
insuring that the Company holds fee simple title to the property subject only to
those liens and encumbrances approved by the Company; and (ii) with respect to
each mortgaged property, an ALTA Extended Coverage Lender's Policy of Title
Insurance with an insured amount equal to the loan amount, insuring the
Company's first-lien security interest in the property subject only to those
liens and encumbrances approved by the Company. However, ALTA Extended Coverage
Policies of Title Insurance are not available in all

                                       5

 
states, in which event the Company requires the broadest form of title coverage
available in the particular jurisdiction.

     In addition, the Company requires that its tenants (in the case of owned
properties) and borrowers (in the case of mortgaged properties) maintain
comprehensive liability insurance and casualty insurance with policy
specifications and insured limits customarily carried for similar properties and
cause their insurers to name the Company as an additional insured, loss payee
and/or mortgagee, as appropriate depending on the particular type of policy.  In
the case of casualty insurance, the insured limits may not be less than the full
replacement cost of the improvements constructed on the property, and coverage
is typically provided in the form of an "all-risk" policy.  However, there are
certain types of losses which may either be uninsurable or not economically
insurable.  For example, the Company generally requires its tenants and
borrowers to carry flood insurance if the property is located within a flood
plain area as designated by the applicable governmental authority, and
earthquake insurance if the property is located in a state, such as California,
where the risk of earthquake damage is high.  Such flood and earthquake coverage
is not always an insurable risk or may not be obtainable in amounts at least
equal to the full replacement cost of the improvements constructed on the
property.  Accordingly, there is no assurance that adequate coverage exists with
respect to each investment should there be serious flooding, seismic activities
or other uninsurable casualty in the areas where the properties constituting the
Company's investments are located.  Should an uninsured (or less than fully
insured) loss occur, the Company could lose its investment in, and anticipated
profits and cash flow from, a property.

EMPLOYEES

     The Company currently employs 13 persons.

GOVERNMENT FINANCING AND REGULATION OF HEALTH CARE

     GENERAL

     Medicaid programs or the equivalent are currently in existence in all of
the states in which the Company has nursing facility investments. While these
programs differ in certain respects from state to state, they are all subject to
certain federally imposed requirements, as a substantial portion of the funds
available under these programs is provided by the federal government. Medicaid
programs provide for payments to participatinglessees or borrowers, the reputation of the providers, physician referral patterns, physical appearances of the properties, family preferences, financial condition of the operator and other competitive systems of health care facilities on behalf
ofdelivery within the indigentcommunity, population and certain other eligible persons. California and Texas provide
for reimbursement at flat daily rates, as determined by the responsible state
agency and depending on certain levels of care. In all other states, payments
are based upon specific cost reimbursement formulas established by the
applicable state.

     Medicare and most state Medicaid programs utilize a cost-based
reimbursement system for nursing facilities which reimburses facilities for the
reasonable direct and indirect allowable costs incurred in providing routine
services (as defined by the programs) plus, in certain states, a return on
equity, subject to certain cost ceilings. These costs normally include
allowances for administrative and general costs as well as the costs of property
and equipment (depreciation and interest, fair rental allowance or rental
expense). In certain states, cost-based reimbursement is typically subject to
retrospective adjustment through cost report settlement, and for certain states,
payments made to a facility on an interim basis that are subsequently determined
to be less than or in excess of allowable costs may be adjusted through future
payments to the affected facility and to other facilities owned by the same
owner. State Medicaid reimbursement programs vary as to the methodology used to
determine the level of allowable costs which are reimbursed to operators.

                                       6

 
     The Medicaid and Medicare programs are subject to statutory and regulatory
changes, administrative rulings, interpretations of policy, intermediary
determinations and governmental funding restrictions, all of which may
materially increase or decrease program reimbursement to health care facilities.
No assurance can be given as to whether the future funding of such programs will
remain at levels comparable to the present levels.

     Both the Medicaid and Medicare programs contain specific requirements which
must be adhered to at all times by health care facilities in order to qualify
under the programs.  Based upon such information as periodically received by the
Company from the operators over the term of the loan, the Company believes that
the nursing facilities in which it has investments are in substantial compliance
with the various regulatory requirements applicable to them, although there can
be no assurance that the operators are in compliance or will be so at any time.

     In addition to the requirements to be met by the nursing facilities for
participation in the Medicaid and Medicare programs, the nursing facilities are
subject to regulatory and licensing requirements of federal, state and local
authorities.  The operator of each long-term care facility is licensed annually
by the board of health or other applicable agency in each state.  In granting
and renewing licenses, regulatory agencies consider, among other things, the
physical buildings and equipment, the qualifications of the administrative
personnel and nursing staff, the quality of care and continuing compliance with
the laws and regulations relating to the operation of the facilities.  State
licensing of facilities is a prerequisite to certification under Medicaid and
Medicare programs.  In the ordinary course of business, the operators receive
notices of deficiencies for failure to comply with various regulatory
requirements and take appropriate corrective and preventive actions.  The
Company believes that the nursing facilities in which it has investments are in
compliance with the applicable licensing or other regulation although there can
be no assurance that the operators are or will be in compliance at any time.

     The Company has increased its investments in ALFs during 1996.  ALFs are
subject to certain state regulations and licensing requirements.  In order to
qualify as a state licensed facility, ALFs must comply with regulations which
address, among other things, staffing, physical design, required services and
resident characteristics.  ALFs are also subject to various local building codes
and other ordinances, including fire safety codes.  These requirements vary from
state to state and are monitored to varying degrees by state agencies.

     Currently, ALFs are not regulated as such by the federal government.  State
standards required for ALF providers are less stringent than those required of
other licensed health care operators.  There can be no assurance that federal
regulations governing the operation of ALFs will not be implemented in the
future or that existing state regulations will not be expanded.  In addition,
only certain states have adopted laws or regulations permitting individuals with
higher acuity levels to remain in assisted living communities who may otherwise
qualify for placement in a nursing facility.  While only certain states
presently provide for any Medicaid reimbursement for assisted living residences,
several states are currently reviewing their policies and reimbursement programs
to provide funding for assisted living residences.  There can be no assurance
that such states will adopt the Medicaid waiver program.

     HEALTH CARE REFORM

     demographics.
Government Regulation
The health care industry is facing various challenges, including increased
governmentheavily regulated by the government. Our borrowers and private payor pressure onlessees who operate health care providers to control costs,
the migration of patients from acute care facilities into extended care and home
care settings and the vertical and horizontal consolidation of health care
providers.  The pressure to control health care costs intensified during 1993
and 1994 as a result of the national health care

                                       7

 
reform debate and will continue with renewed efforts in 1997 to balance the
federal budget. The need to slow the growth rate in federal health care
expenditures will be a priority. President Clinton's current budget proposal,
for example, seeks $138 billion dollars in reductions in Medicare expenditures
needed to address the short term solvency of the federal program, including
significant limitations on growth in provider reimbursement. It is anticipated
that further debate on overall structural reform of federal health care programs
will affect additional legislative action on cost-containment.

     The Company believes that government and private efforts to contain and
reduce health care costs will continue. These trends are likely to lead to
reduced or slower growth in reimbursement for certain services provided by some
of the Company's borrowers and lessees. The Company believes that the vast
nature of the health care industry, the financial strength and operating
flexibility of its operators and the diversity of its portfolio will mitigate
against the impact of any such diminution in reimbursement. However, the Company
cannot predict whether any of the above proposals or any other proposals will be
adopted and, if adopted, no assurance can be given that the implementation of
such reforms will not have a material adverse effect on the Company's financial
condition or results of operations.

TAXATION OF THE COMPANY

     GENERAL

     The Company has made an election to be taxed as a REIT under Sections 856
through 860 of the Code commencing with its taxable year ended December 31,
1992.  The Company believes, that commencing with such taxable year, it has been
organized and has operated in such a manner as to qualify for taxation as a REIT
under the Code, and the Company intends to continue to operate in such a manner.
However, no assurance can be given that the Company has operated or will be able
to continue to operate in a manner to so qualify or remain qualified.

     If the Company qualifies for taxation as a REIT, it will generally not be subject to federal corporate income taxes on its net income that is currently
distributed to stockholders.  This treatment substantially eliminates the
"double taxation" (at the corporate and stockholder levels) that generally
results from investment in a regular corporation.  However, under certain
circumstances, the Company will continue to be subject to federal income tax.

     The following is a general summary of the provisions that govern the
federal income tax treatment of a REIT and its stockholders. This summary is
qualified in its entirety by the applicable Code provisions, rules and
regulations promulgated thereunder, and administrative and judicial
interpretations thereof.

     REQUIREMENTS FOR QUALIFICATIONS

     The Code defines a REIT as a corporation, trust or association (i) which is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) which would be taxable as a domestic corporation but
for Sections 856 through 859 of the Code; (iv) which is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons; (vi)
during the last half of each taxable year not more than 50% in value of the
outstanding stock of which is owned, actually or constructively, by five or
fewer individuals (as defined in the Code to include certain entities); and
(vii) which meets certain other tests, described below.  The Code provides that
conditions (i) to (iv), inclusive, must be met during the entire taxable year
and that condition (v) must be met during at least 335 days of a taxable year of
12 months, or during a proportionate part of a taxable year of less than 12
months.

                                       8

 
     To qualify as a REIT for a taxable year under the Code, the Company must
elect or previously have elected to be so treated and must meet other
requirements, certain of which are summarized below, including percentage tests
relating to the sources of its gross income, the nature of the Company's assets
and the distribution of its income to stockholders.

     INCOME TESTS

     In order to maintain its qualification as a REIT, the Company annually must
satisfy three gross income requirements.  First, at least 75% of the Company's
gross income (excluding gross income from certain sales of property held
primarily for sale) for each taxable year must be derived directly or indirectly
from investments in real property (other than gains from property held primarily
for sale), mortgages on real property, or certain qualified temporary investment
income.  Second, at least 95% of the Company's gross income (excluding gross
income form certain sales of property held primarily for sale) for each taxable
year must be derived from such real property investments described with respect
to the 75% test, dividends, interest and gain from the sale or disposition of
stock or securities (other than gains from certain sales of property held
primarily for sale).  Third, short-term gain from the sale or other disposition
of stock or securities, gain from certain sales of property held primarily for
sale, and gain from the sale or other disposition of real property held for less
than four years (apart from involuntary conversions and sales of foreclosure
property) must represent less than 30% of the Company's gross income for each
taxable year.

     ASSET TEST

     At the close of each quarter of its taxable year, the Company must also
satisfy three tests relating to the nature of its assets.  First, at least 75%
of the value of the Company's total assets (including the assets held by its
subsidiaries and its allocable share of the assets held by partnerships in which
it or its subsidiaries is a partner) must be represented by real estate assets
(including interests in a qualifying REMIC and shares in a REIT), cash, cash
items and government securities.  Second, no more than 25% of the Company's
total assets (including the assets held by its subsidiaries and its allocable
share of the assets held by partnerships in which it or its subsidiaries is a
partner) may be represented by securities other than those includable in the 75%
asset class.  Third, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by the Company may not exceed 5% of
the value of the Company's total assets and the Company may not own more than
10% of any one issuer's outstanding voting securities.

     DISTRIBUTION REQUIREMENTS

     The Company, in order to qualify as a REIT, is required to distribute
dividends (other than capital gain dividends) to its stockholders in an amount
at least equal to (A) the sum of (i) 95% of the Company's "REIT taxable income"
(computed without regard to the dividends paid deduction and by excluding the
Company's net capital gain) and (ii) 95% of the net income (after tax), if any,
from foreclosure property, minus (B) the excess of the sum of certain items of
non-cash income over 5% of "REIT taxable income" as described in clause (A)(i)
above.  Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before the Company timely
files its tax return for such year, if paid on or before the first regular
dividend payment date after such declaration and if the Company so elects and
specifies the dollar amount in its tax return.  To the extent that the Company
does not distribute all of its net capital gain or distributes at least 95%, but
less than 100%, of its "REIT taxable income", as adjusted, it will be subject to
tax thereon at regular corporate tax rates.  Furthermore, if the Company should
fail to distribute during each calendar year at least the sum of (i) 85% of its
REIT ordinary income for such year, (ii) 95% of its REIT capital gain income for
such year, and (iii) any undistributed taxable income from prior periods, the
Company would

                                       9

 
be generally subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed.

     FAILURE TO QUALIFY

     If the Company should fail to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
However, it is not possible to state whether in all circumstances the Company
would be entitled to such statutory relief.  If the relief provisions do not
apply, the Company would be subject to tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates.  Distributions to
stockholders in any year in which the Company fails to qualify will not be
deductible by the Company nor will they be required to be made.  Unless entitled
to relief under specific statutory provisions, the Company would also be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification is lost.  Failure to qualify for even one year
could result in the Company's incurring substantial indebtedness (to the extent
borrowings are feasible) or liquidating substantial investments in order to pay
the resulting taxes.

     TAXATION OF STOCKHOLDERS - GENERAL

     As long as the Company qualifies as a REIT, distributions made to the
Company's stockholders out of current or accumulated earnings and profits (and
not designated as capital gain dividends) will be taken into account by them as
ordinary income (which will not be eligible for the dividends received deduction
for corporations).  Distributions that are designated as capital gain dividends
will be taxed as long-term capital gains to the extent they do not exceed the
Company's actual net capital gain for the taxable year, although corporate
stockholders may be required to treat up to 20% of any such capital gain
dividend as ordinary income.  Distributions in excess of current or accumulated
earnings and profits will not be taxable to a stockholder to the extent that
they do not exceed the adjusted basis of the stockholder's common stock, but
rather will reduce the adjusted basis of such shares.  To the extent such
distributions exceed the adjusted basis of a stockholder's common stock, they
will be included in income as long-term capital gain (or short-term capital gain
if the shares have been held for one year or less) assuming the shares are held
as a capital asset in the hands of the stockholder.  Under special tax rules for
REITs, dividends declared in the last quarter of the calendar year and paid by
January 31 of the following year are treated as paid on December 31 of the year
declared.  Stockholders may not include in their individual income tax returns
any net operating losses or capital losses of the Company.

     The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. Other federal, state and local tax considerations
may apply depending on the Company's and its stockholders' circumstances.

FACTORS THAT MAY AFFECT FUTURE RESULTS

     Many of the statements herein are forward-looking in nature, and,
accordingly, whether they prove to be accurate is subject to many risks and
uncertainties. The actual results that the Company achieves may differ
materially from many forward-looking statements herein. Factors that could cause
or contribute to such differences include, but are not limited to, those
discussed below and those contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" as well as those discussed
elsewhere herein.

                                       10

 
     GOVERNMENT REGULATION

     Health Care Reform. The health care industry is facing various challenges,
including increased government and private payor pressure on health care
providers to control costs, the migration of patients from acute care facilities
into extended care and home care settings and the vertical and horizontal
consolidation of health care providers. The pressure to control health care
costs intensified during 1993 and 1994 as a result of the national health care
reform debate and will continue with renewed efforts in 1997 to balance the
federal budget. The need to slow the growth rate in federal health care
expenditures will be a priority. President Clinton's current budget proposal,
for example, seeks $138 billion in reductions in Medicare expenditures needed to
address the short term solvency of the federal program, including significant
limitations on growth in provider reimbursement. It is anticipated that further
debate on overall structural reform of federal health care programs will affect
additional legislative action on cost-containment.

     The Company believes that government and private efforts to contain and
reduce health care costs will continue. These trends are likely to lead to
reduced or slower growth in reimbursement for certain services provided by some
of the Company's borrowers and lessees. The Company believes that the vast
nature of the health care industry, the financial strength and operating
flexibility of its operators and the diversity of its portfolio will mitigate
against the impact of any such diminution in reimbursement. However, the Company
cannot predict whether any of the above proposals or any other proposals will be
adopted, and if adopted, no assurance can be given that the implementation of
such reforms will not have a material adverse effect on the Company's financial
condition or results of operations.

     Potential Operator Loss of Licensure or Certification.    The health care
industry is highly regulatedheavy regulation by federal, state and local law, and is directly
affected by state and local licensure, fines, and loss of certification to
participate in the Medicare and Medicaid programs, as well as potential criminal
penalties.  The failure of any borrower or lessee to comply with suchgovernments. These laws
requirements and regulations could affect its ability to operate the facility or
facilities and could adversely affect such borrower's or lessee's ability to
make debt or lease payments to the Company.

     In the past several years, due to rising health care costs, there has been
an increased emphasis on detecting and eliminating fraud and abuse in the
Medicare and Medicaid programs. Payment of any consideration in exchange for
referral of Medicare and Medicaid patients is generally prohibited by federal
statute, which subjects violators to severe penalties, including exclusion from
the Medicare and Medicaid programs, fines, and even prison sentences. In recent
years, both federal and state governments have significantly increased
investigation and enforcement activity to detect and punish wrongdoers. In
addition, legislation has been adopted at both state and federal levels that
severely restricts the ability of physicians to refer patients to entities in
which they have a financial interest.

     It is anticipated that the trend toward increased investigation and
informant activity in the area of fraud and abuse, as well as self-referral,
will continue in future years. In the event that any borrower or lessee were to
be found in violation of laws regarding fraud, abuse or self-referral, that
borrower's or lessee's ability to operate a health care facility could be
jeopardized, which could adversely affect the borrower's or lessee's ability to
make debt or lease payments to the Company and, thereby, adversely affect the
Company.

     Reliance on Government Reimbursement. A significant portion of the revenue
of the Company's borrowers and lessees is derived from governmentally-funded
reimbursement programs, such as Medicare and Medicaid. These programs are highly
regulated and subject to frequent and substantial changes resulting from legislation, adoption of rules and regulations, and administrative and judicial interpretations 11
of existing law. These changes may have a dramatic effect on the definition of permissible or impermissible activities, the relative costs associated with doing business and the amount of reimbursement by both government and other third-party payors. These changes may be applied retroactively. The ultimate timing or effect of these changes cannot be predicted. The failure of any borrower of funds from us or lessee of any of our properties to comply with such laws, requirements and regulations could result in sanctions or remedies such as denials of payment for new Medicare and Medicaid admissions, civil monetary penalties, state oversight and loss of Medicare and Medicaid participation or licensure. Such action could affect its ability to operate its facility or facilities and could adversely affect such borrower’s or lessee’s ability to make debt or lease payments to us.
The properties owned by us and the manner in which they are operated are affected by changes in the reimbursement, licensing and certification policies of federal, state and local governments. Properties may also be affected by changes in accreditation standards or procedures of accrediting agencies that are recognized by governments in the certification process. In addition, expansion (including the addition of new beds or services or acquisition of medical equipment) and occasionally the discontinuation of services of health care facilities are, in some states, subjected to state and regulatory approval through “certificate of need” laws and regulations.
The ability of our borrowers and lessees to generate revenue and profit determines the underlying value of that property to us. Revenues of our borrowers and lessees are generally derived from payments for patient care. Sources of such payments for skilled nursing facilities include the federal Medicare program, state Medicaid programs, private insurance carriers, health care service plans, health maintenance organizations, preferred provider arrangements, self-insured employers, as well as the patients themselves.
A significant portion of the revenue of our skilled nursing facility borrowers and lessees is derived from governmentally-funded reimbursement programs, such as Medicare and Medicaid. Because of significant health care costs paid by such government programs, both federal and state governments have adopted and continue to consider various health care reform proposals to control health care costs. In recent years, there have been fundamental changes in the Medicare program which havethat resulted in reduced levels of payment for a substantial portion of health care services. Moreover, health care facilities
have experienced increasing pressures from private payers attempting to control
health care costs, and reimbursement from private payers has in many cases
effectively been reduced to levels approaching those of government payers. In many instances, revenues from Medicaid programs are already insufficient to cover the actual costs incurred in providing care to those patients. According to a report issued by Kaiser Family Foundation in January 2003, 19 states have reduced, or are considering reducing, nursing facility payment rates. Moreover, health care facilities have experienced increasing pressures from private payors attempting to control health care costs, and
4
reimbursement from private payors has in many cases effectively been reduced to levels approaching those of government payors.
Governmental and popularpublic concern regarding health care costs may result in significant reductions in payment to health care facilities, and there can be no assurance that future payment rates for either governmental or private health
care planspayors will be sufficient to cover cost increases in providing services to patients. Any changes in reimbursement policies which reduce reimbursement to levels that are insufficient to cover the cost of providing patient care could adversely affect revenues of the Company'sour skilled nursing facility borrowers and lessees and to a much lesser extent our assisted living facilities borrowers and lessees and thereby adversely affect those borrowers'borrowers’ and lessees'lessees’ abilities to make their debt or lease payments to the Company.us. Failure of the borrowers or lessees to make their debt or lease payments would have a direct and material adverse impact on us.
On August 4, 2003, Centers for Medicare & Medicaid Services, commonly known as CMS, published a final rule announcing that it will implement a 3.0% market basket increase in skilled nursing facility prospective payment system rates for fiscal year 2004, which began October 1, 2003. In addition, the Company.

     COMPETITION

     rule will adjust fiscal year 2004 rates by an additional 3.26% to reflect cumulative forecast errors since the start of the skilled nursing facility prospective payment system on July 1, 1998.
The Company competesfederal physician self-referral law, commonly known as Stark II (or Stark Law), prohibits certain types of practitioners (including a medical doctor, doctor of osteopathy, optometrist, dentist or podiatrist) from making referrals for certain designated health services paid in whole or in part by Medicare and Medicaid to entities with other REITs, real estate partnerships,which the practitioner or a member of the practitioner’s immediate family has a financial relationship, unless the financial relationship fits within an applicable exception to the Stark Law. The Stark Law also prohibits the entity receiving the referral from seeking payment under the Medicare and Medicaid programs for services rendered pursuant to a prohibited referral. If an entity is paid for services rendered pursuant to a prohibited referral, it may incur civil penalties of up to $15,000 per prohibited claim and may be excluded from participating in the Medicare and Medicaid programs.
Legislative Developments
Each year, legislative proposals are introduced or proposed in Congress and in some state legislatures that would affect major changes in the health care providerssystem, either nationally or at the state level. Among the proposals under consideration are cost controls on state Medicaid reimbursements, health care provider cost-containment initiatives by public and other investors, including but not limitedprivate payors, health care coverage for uninsured, increased scrutiny of medical errors, limits on damages claimed in physician malpractice lawsuits, and a “Patient Bill of Rights” to banks andincrease the liability of insurance companies manyas well as the ability of which will have greater financial resources than
the Company,patients to sue in the acquisition, leasing and financingevent of health care
facilities. There can be no assurance that suitable investmentsa wrongful denial of claim. We cannot predict whether any proposals will be identifiedadopted or, that investments can be consummatedif adopted, what effect, if any, such proposals would have on commercially reasonable
terms.

     ENVIRONMENTAL MATTERS

     our business.
Environmental Matters
Under various federal, state and local environmental laws, ordinances and regulations, an owner of real property or a secured lender (such as the Company)us) may be liable in certain circumstances for the costs of removal or remediation of certain hazardous or toxic substances at, under or disposed of in connection with such property, as well as certain other potential costs relating to hazardous or toxic substances (including government fines and damages for injuries to persons and adjacent property). Such laws often impose such liability without regard to whether the owner or secured lender knew of, or was responsible for, the presence or disposal of such substances and may be imposed on the owner or secured lender in connection with the activities of an operator of the property. The cost of any required remediation, removal, fines or personal or property damages and the owner'sowner’s or secured lender’s liability therefore could exceed the value of the property, and/or the assets of the owner.owner or secured lender. In addition, the presence of such substances, or the failure to properly dispose of or remediate such substances, may adversely affect the owner'sowner’s ability to sell or rent such property or to borrow using such property as collateral which, in turn, would reduce the Company'sour revenues.
Although the Company's mortgage loans that we provide and leases covering our properties require the borrower and the lessee to indemnify the Companyus for certain environmental liabilities, the scope of such obligations may be limited and there can be no assurancewe cannot assure that any such borrower or lessee would be able to fulfill its indemnification obligations.

     HEALTH CARE REAL ESTATE INVESTMENT RISKS

     Volatility
5
Insurance
It is our current policy and we intend to continue this policy that all borrowers of Valuefunds from us and lessees of Real Estate. Realany of our properties secure adequate comprehensive property investments inand general and professional liability insurance that covers us as well as the healthborrower and/or lessee. Even though that is our policy, certain borrowers and lessees have been unable to obtain general and professional liability insurance because the cost of such insurance has increased substantially and some insurers have stopped offering such insurance for long term care industryfacilities. Additionally, insurance companies have filed for bankruptcy protection leaving certain of our borrowers and/or lessees without coverage for periods that were believed to be covered prior to such bankruptcies. The unavailability and associated exposure as well as increased cost of such insurance could have a material adverse effect on the lessees and borrowers, including their ability to make lease or mortgage payments. Although we contend that as a non-possessory landlord we are subject to varying degrees of risk. The economic performance
and values of health carenot generally responsible for what takes place on real estate canwe do not possess, claims including general and professional liability claims, may still be affected by many factors including
governmental regulation, economic conditions,asserted against us which may result in costs and demandexposure for health care
services. Therewhich insurance is not available. Certain risks may be uninsurable, not economically insurable or insurance may not be available and there can be no assurance that we, a borrower or lessee will have adequate funds to cover all contingencies. If an uninsured loss or a loss in excess of insured limits occurs with respect to one or more of our properties, we could be subject to an adverse claim including claims for general or professional liability, could lose the capital that we have invested in the properties, as well as the anticipated future revenue for the properties and, in the case of debt which is with recourse to us, we would remain obligated for any mortgage debt or other financial obligations related to the properties. Certain losses such as losses due to floods or seismic activity if insurance is available may be insured subject to certain limitations including large deductibles or co-payments and policy limits.
Employees
We currently employ 16 people. The employees are not members of any labor union, and we consider our relations with our employees to be excellent.
Taxation of Our Company
General. We believe that we have been organized and have operated in such a manner as to qualify for taxation as a REIT under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended, commencing with our taxable year ended December 31, 1992. We intend to continue to operate in such a manner, but no assurance can be given that we have operated or will be able to continue to operate in a manner so as to qualify or to remain qualified. This summary is qualified in its entirety by the applicable Internal Revenue Code provisions, rules and regulations, and administrative and judicial interpretations.
If we continue to qualify for taxation as a REIT, we will generally not be subject to federal corporate income taxes as long as we distribute all of our taxable income as dividends. This treatment substantially eliminates the “double taxation” (i.e., at the corporate and stockholder levels) that generally results from investment in a corporation. However, we will continue to be subject to federal income tax as follows:
First, we will be taxed at regular corporate rates on any undistributed taxable income, including undistributed net capital gains.
Second, under certain circumstances, we may be subject to the alternative minimum tax, if our dividend distributions are less than our alternative minimum taxable income.
Third, if we have (i) net income from the sale or other disposition of foreclosure property which is held primarily for sale to customers in the ordinary course of business or (ii) other non-qualifying income from foreclosure property, we may elect to be subject to tax at the highest corporate rate on such income, if necessary to maintain our REIT status.
Fourth, if we have net income from prohibited transactions (which are, in general, certain sales or other dispositions of property (other than foreclosure property) held primarily for sale to customers in the ordinary course of business), such income will be subject to a 100% tax.
Fifth, if we fail to satisfy the 75% gross income test or the 95% gross income test, but nonetheless maintain our qualification as a REIT because certain other requirements have been met, we will be subject to a 100% tax on an amount equal to (a) the gross income attributable to the greater of the amount by which we fail the 75% or 95% test multiplied by (b) a fraction intended to reflect our profitability.
6
Sixth, if we fail to distribute during each calendar year at least the sum of (i) 85% of our ordinary income for such year, (ii) 95% of our REIT capital gain net income for such year, and (iii) any undistributed taxable income from prior periods, we will be subject to a 4% excise tax on the excess of such required distribution over the amounts actually distributed.
Seventh, if we acquire an asset which meets the definition of a built-in gain asset from a corporation which is or has been a C corporation (i.e., generally a corporation subject to full corporate-level tax) in certain transactions in which the basis of the built-in gain asset in our hands is determined by reference to the basis of the asset in the hands of the C corporation, and if we subsequently recognize gain on the disposition of such asset during the ten-year period, called the recognition period, beginning on the date on which we acquired the asset, then, to the extent of the built-in gain (i.e., the excess of (a) the fair market value of such asset over (b) our adjusted basis in such asset, both determined as of the beginning of the recognition period), such gain will be subject to tax at the highest regular corporate tax rate, pursuant to IRS regulations.
Requirements for Qualification. The Internal Revenue Code defines a REIT as a corporation, trust or association:
(1) 
which is managed by one or more trustees or directors;
(2) 
the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest;
(3) 
which would be taxable, but for Sections 856 through 860 of the Internal Revenue Code, as a domestic corporation;
(4) 
which is neither a financial institution; nor, an insurance company subject to certain provisions of the Internal Revenue Code;
(5) 
the beneficial ownership of which is held by 100 or more persons;
(6) 
during the last half of each taxable year not more than 50% in value of the outstanding stock of which is owned, actually or constructively, by five or fewer individuals (including specified entities); and
(7) 
which meets certain other tests, described below, regarding the amount of its distributions and the nature of its income and assets.
The Internal Revenue Code provides that conditions (1) to (4), inclusive, must be met during the entire taxable year and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months.
Income Tests. There presently are two gross income requirements that we must satisfy to qualify as a REIT:
• 
First, at least 75% of our gross income (excluding gross income from “prohibited transactions,” as defined below) for each taxable year must be derived directly or indirectly from investments relating to real property or mortgages on real property, including rents from real property, or from certain types of temporary investment income.
• 
Second, at least 95% of our gross income (excluding gross income from prohibited transactions) for each taxable year must be derived from income that qualifies under the 75% test or from dividends, interest and gain from the sale or other disposition of stock or securities.
Cancellation of indebtedness income generated by us is not taken into account in applying the 75% and 95% income tests discussed above. A “prohibited transaction” is a sale or other disposition of property (other than foreclosure property) held for sale to customers in the ordinary course of business. Any gain realized from a prohibited transaction is subject to a 100% penalty tax.
Asset Tests. We, at the close of each quarter of our taxable year, must also satisfy four tests relating to the nature of our assets.
• 
First, at least 75% of the value of our total assets must be represented by real estate assets (including stock or debt instruments held for not more than one year purchased with the proceeds of a stock offering or long-term (at least five years) public debt offering of our company), cash, cash items and government securities.
• 
Second, not more than 25% of our total assets may be represented by securities other than those in the 75% asset class.
7
• 
Third, of the investments included in the 25% asset class, the value of any one issuer’s securities owned by us may not exceed 5% of the value of our total assets and we may not own more than 10% of any one issuer’s outstanding voting securities.
• 
Fourth, the Tax Relief Extension Act of 1999 (or 99 Act), provides that, subject to certain exceptions, for taxable years commencing after December 31, 2000, we may not own more than 10% of the total value of the securities of any issuer. See the 99 Act description beginning on page 9.
• 
Fifth, the 99 Act also provides that not more than 20% of our value may be represented by securities of one or more taxable REIT subsidiaries.
Ownership of a Partnership Interest or Stock in a Corporation. We own interests in various partnerships. In the case of a REIT that is a partner in a partnership, Treasury regulations provide that for purposes of the REIT income and asset tests the REIT will be deemed to own its proportionate share of the assets of the partnership, and will be deemed to be entitled to the income of the partnership attributable to such share. The ownership of an interest in a partnership by a REIT may involve special tax risks, including the challenge by the Internal Revenue Service of the allocations of income and expense items of the partnership, which would affect the computation of taxable income of the REIT, and the status of the partnership as a partnership (as opposed to an association taxable as a corporation) for federal income tax purposes.
We also own interests in a number of subsidiaries which are intended to be treated as qualified real estate investment trust subsidiaries. The Internal Revenue Code provides that such subsidiaries will be ignored for federal income tax purposes and all assets, liabilities and items of income, deduction and credit of such subsidiaries will be treated as assets, liabilities and such items of ours.
If any partnership or qualified real estate investment trust subsidiary in which we own an interest were treated as a regular corporation (and not as a partnership or qualified real estate investment trust subsidiary) for federal income tax purposes, we would likely fail to satisfy the REIT asset test prohibiting a REIT from owning greater than 10% of the voting power of the stock or value of securities of any issuer, as described above, and would therefore fail to qualify as a REIT. We believe that each of the partnerships and subsidiaries in which we own an interest will be treated for tax purposes as a partnership or qualified real estate investment trust subsidiary, respectively, although no assurance can be given that the Internal Revenue Service will not successfully challenge the status of any such organization.
REMIC. A regular or residual interest in a REMIC will be treated as a real estate asset for purposes of the REIT asset tests, and income derived with respect to such interest will be treated as interest on an obligation secured by a mortgage on real property, acquiredassuming that at least 95% of the assets of the REMIC are real estate assets. If less than 95% of the assets of the REMIC are real estate assets, only a proportionate share of the assets of and income derived from the REMIC will be treated as qualifying under the REIT asset and income tests. All of our REMIC Certificates are secured by real estate assets, therefore we believe that our REMIC interests fully qualify for purposes of the REIT income and asset tests.
Annual Distribution Requirements. In order to qualify as a REIT, we are required to distribute dividends (other than capital gain dividends) to our stockholders annually in an amount at least equal to:
(1) 
the sum of:
    (A) 
90% (95% for taxable years ending prior to January 1, 2001) of our “real estate investment trust taxable income” (computed without regard to the dividends paid deduction and our net capital gain); and
    (B) 
90% (95% for taxable years ending prior to January 1, 2001) of the net income, if any (after tax), from foreclosure property; minus
(2) 
the excess of certain items of non-cash income over 5% of our real estate investment trust taxable income.
These annual distributions are paid in the taxable year to which they relate. Alternatively, they must be declared and payable to stockholders of record in either October, November, or December and paid during January of the following year. In addition, if we elect, the dividends may be declared before the due date of the tax return (including extensions) and paid on or before the first regular dividend payment date after such declaration, and we must specify the dollar amount in our tax returns.
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Amounts distributed must not be preferential; that is, every stockholder of the class of stock with respect to which a distribution is made must be treated the same as every other stockholder of that class, and no class of stock may be treated otherwise than in accordance with its dividend rights as a class.
To the extent that we do not distribute all of our net long-term capital gain or distribute at least 90% (95% for taxable years ending prior to January 1, 2001), but less than 100%, of our “real estate investment trust taxable income,” as adjusted, it will be subject to tax on such amounts at regular corporate tax rates. Furthermore, if we should fail to distribute during each calendar year (or, in the case of distributions with declaration and record dates in the last three months of the calendar year, by the Companyend of the following January) at least the sum of:
(1) 
85% of our real estate investment trust ordinary income for such year;
(2) 
95% of our real estate investment trust capital gain net income for such year; and
(3) 
any undistributed taxable income from prior periods;
we would be subject to a 4% excise tax on the excess of such required distributions over the amounts actually distributed. Any real estate investment trust taxable income and net capital gain on which this excise tax is imposed for any year is treated as an amount distributed during that year for purposes of calculating such tax.
Failure to Qualify. If we fail to qualify for taxation as a REIT in any taxable year, and certain relief provisions do not apply, we will appreciate

                                       12
be subject to tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. Distributions to stockholders in any year in which we fail to qualify as a REIT will not be deductible by us, nor will any distributions be required to be made. Unless entitled to relief under specific statutory provisions, we will also be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost. It is not possible to state whether in all circumstances we would be entitled to the statutory relief. Failure to qualify for even one year could substantially reduce distributions to stockholders and could result in our incurring substantial indebtedness (to the extent borrowings are feasible) or liquidating substantial investments in order to pay the resulting taxes.
99 Act.The 99 Act has made a number of substantial changes to the qualification and tax treatment of REITs. The REIT changes are generally effective for taxable years commencing after December 31, 2000. The following is a brief summary of certain of the significant REIT provisions contained in the 99 Act.
(1) 
Investment limitations and taxable REIT subsidiaries. The 99 Act modifies the REIT asset test by adding a requirement that except for (I) “Safe Harbor Debt” and (II) the ownership of stock in “taxable REIT subsidiaries”, a REIT cannot own more than 10% of the total value of the securities of any issuer (or 10% Rule). The 10% Rule becomes effective for taxable years commencing after December 31, 2000. “Safe Harbor Debt” is non-contingent, non-convertible debt (or straight-debt) which satisfies one of the following three requirements: (a) the straight-debt is issued by an individual, or (b) all of the securities of the issuer owned by the REIT is straight debt or (c) the issuer is a partnership in which the REIT owns at least 20% of its profits.
(2) 
For a corporation to qualify as a taxable REIT subsidiary the following requirements must be satisfied.
(1) 
The REIT must own stock in the subsidiary corporation.
(2) 
Both the REIT and the subsidiary corporation must join in an election that the subsidiary corporation be treated as a “taxable REIT subsidiary” of the REIT.
(3) 
The subsidiary corporation cannot directly or indirectly operate or manage either a lodging or health care facility.
(4) 
The subsidiary corporation generally cannot provide to any person rights to any brand name under which lodging or health care facilities are operated.
A taxable REIT subsidiary can provide a limited amount of services to tenants of REIT property (even if such services were not considered customarily furnished in connection with the rental of real property) and can manage or operate properties, generally for third parties, without causing the rents received by the REIT from such parties not to be treated as rent from real properties. The rule that rents paid to a REIT do not qualify as rental from real property if the REIT owns more than 10% of the corporation paying the rent is modified by excepting rents paid by taxable REIT subsidiaries provided that 90% of the space is leased to third parties at comparable rents for comparable space.
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Interest paid by a taxable REIT subsidiary to the related REIT is subject to the earnings stripping rules contained in Section 163(j) of the Code and therefore the taxable REIT subsidiary cannot deduct interest in any year that it would exceed 50% of the subsidiary’s adjusted gross income. If any amount of interest, rent, or other deductions of the taxable REIT subsidiary to be paid to the REIT is determined not to be at arm’s length, an excise tax of 100% is imposed on the portion that is determined to be excessive. However, rent received by a REIT shall not fail to qualify as rents from real property by reason of the fact that all or any portion of such rent is redetermined for purposes of the excise tax.
The Act permits a REIT to own up to 100% of the stock of a “taxable REIT subsidiary.” However, the value of all of the securities of taxable REIT subsidiaries owned by the REIT cannot exceed 20% of the value of the REIT’s assets.
The 10% Rule generally will not apply to securities owned by a REIT on July 12, 1999 (or Transition Rule). However, the Transition Rule would cease to apply to securities of an issuer if, after July 12, 1999, the REIT acquires additional securities of such issuer or if such issuer engages in a substantial new line of business, or acquires any substantial assets, other than in a reorganization or in a transaction qualifying under Section 1031 or 1033 of the Code.
(3)
Ownership of health care facilities. The 99 Act permits a REIT to own and operate a health care facility for at least two years, and treat it as permitted “foreclosure” property, if the facility is acquired as the result of a default (or imminent default) of a lease or indebtedness.
(4)
REIT distribution requirements. The 99 Act reduces the requirement that a REIT must distribute at least 95% of its income as deductible dividends to 90% of its income.
(5)
Rents from personal property. A REIT may treat rent from personal property as rent from real property so long as the rent from personal property does not exceed 15% of the total rent from both real and personal property for the taxable year. The Act provides that this determination will be made by comparing the fair market value of the personal property to the fair market value of the real and personal property.
State and local taxation.We may be subject to state or local taxation in various state or local jurisdictions, including those in which we transact business or reside. Our state and local tax treatment may not conform to the federal income tax consequences discussed above.
Investor Information
We make available to the public free of charge through our internet website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such reports with, or furnish such reports to, the Securities and Exchange Commission. Our internet website address iswww.ltcproperties.com. We are not including the information contained on our website as part of, or incorporating it by reference into, this Annual Report on Form 10-K.
Corporate Governance Guidelines
We have adopted Corporate Governance Policies. The Corporate Governance Policies are posted on our website (www.ltcproperties.com) and are available in print to any stockholder who requests a copy.
Committee Charters
The Board of Directors has an Audit Committee, Compensation Committee and Nominating/ Corporate Governance Committee. The Board of Directors has adopted written charters for each committee, and we have posted them on our website (www.ltcproperties.com) and they are available in print to any stockholder who requests a copy.
Cautionary Statements
Certain information contained in this annual report includes statements that are not purely historical and are “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding our expectations, beliefs, intentions or strategies regarding the future. All statements other than historical facts contained in this annual report are forward looking statements. These forward looking statements involve a number of risks and
10
uncertainties. All forward looking statements included in this annual report are based on information available to us on the date hereof, and we assume no obligation to update such forward looking statements. Although we believe that the valueassumptions and expectations reflected in such forward looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. The actual results achieved by us may differ materially from any forward looking statements due to the risks and uncertainties of property securingsuch statements.
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Stockholders and investors are cautioned not to unduly rely on such forward-looking statements when evaluating the Company's mortgage loans or
any property acquired byinformation presented in our filings and reports.
Such risks and uncertainties include, among other things, the Companyfollowing risks including those described in more detail below:
• 
the status of the economy;
• 
the status of capital markets, including prevailing interest rates;
• 
compliance with and changes to regulations and payment policies within the health care industry;
• 
changes in financing terms;
• 
competition within the health care and senior housing industries; and
• 
changes in federal, state and local legislation.
Recently Enacted Tax Legislation Could have an Adverse Effect on the Market Price of our Equity Securities.On May 28, 2003, President Bush signed into law legislation that, for individual taxpayers, will generally reduce the tax rate on corporate dividends to a maximum of 15% for tax years 2003 to 2008. REIT dividends generally will not depreciate.

     Volatilityqualify for this reduced tax rate because a REIT’s income generally is not subject to corporate level tax. This new law could cause stock in non-REIT corporations to be a more attractive investment to individual investors than stock in REITs and could have an adverse effect on the market price or our equity securities.
A Failure to Maintain or Increase our Dividend Could Reduce the Market Price of Our Stock. During calendar 2002 we paid a quarterly dividend of $.10 per common share of stock. During calendar 2003, we paid a $.10 dividend in the first quarter, a $.15 dividend in the second and third quarter and a $.25 dividend in the fourth quarter on our common stock. The ability to maintain or raise our common dividend is dependent, to a large part, on growth of funds from operations. This growth in turn depends upon increased revenues from additional investments and loans, rental increases and mortgage rate increases.
At Times, We May Have Limited Access to Capital Which Will Slow Our Growth. A REIT is required to make dividend distributions and retains little capital for growth. As a result, a REIT is required to grow through the steady investment of new capital in real estate assets. Presently, we believe capital is readily available to us. However, there will be times when we will have limited access to capital from the equity and/or debt markets. During such periods, virtually all of our available capital will be required to meet existing commitments and to reduce existing debt. We may not be able to obtain additional equity or debt capital or dispose of assets on favorable terms, if at all, at the time we require additional capital to acquire health care properties on a competitive basis or meet our obligations.
Income and Returns.Returns from Health Care Facilities Can be Volatile. The possibility that the health care facilitiesproperties in which we invest will not generate income sufficient to meet operating expenses, will generate income and capital appreciation, if any, at rates lower than those anticipated or will yield returns lower than those available through investments in comparable real estate or other investments are additional risks of investing in health care related real estate. Income from properties and yields from investments in such properties may be affected by many factors, including changes in governmental regulation (such as zoning laws)laws and government payment), general or local economic conditions (such as fluctuations in interest rates and employment conditions), the available local supply of and demand for improved real estate, a reduction in rental income as the result of an inability to maintain occupancy levels, natural disasters (such as earthquakes and floods) or similar factors.

     Illiquidity of Real Estate Investments.  Real estate investments are
relatively illiquid and, therefore, tend to limit the ability of the Company to
vary its portfolio promptly in response to changes in economic or other
conditions.  All of the Company's properties are "special purpose" properties
that could not be readily converted to general residential, retail or office
use.  Transfers of operations of nursing homes and other health care-related
facilities are subject to regulatory approvals not required for transfers of
other types of commercial operations and other types of real estate.  Thus, if
the operation of any of the Company's properties becomes unprofitable due to
competition, age of improvements or other factors such that the borrower or
lessee becomes unable to meet its obligations on the debt or lease, the
liquidation value of the property may be substantially less -- relative to the
amount owing on the mortgage loan -- than would be the case if the property were
readily adaptable to other uses.  The receipt of liquidation proceeds could be
delayed by the approval process of any state agency necessary for the transfer
of the property.  In addition, certain significant expenditures associated with
real estate investment (such as real estate taxes and maintenance costs) are
generally not reduced when circumstances cause a reduction in income from the
investment.  Should such events occur, the Company's income and funds available
for distribution would be adversely affected.

     Uninsured Loss.  The Company currently requires, and it is the intention of
the Company to continue to require, all borrowers and lessees to secure adequate
comprehensive property and liability insurance that covers the Company as well
as the borrower and/or lessee.  Certain risks may, however, be uninsurable or
not economically insurable and there can be no assurance the Company or a lessee
will have adequate funds to cover all contingencies itself.  Should such an
uninsured loss occur, the Company could lose its invested capital.

     Dependence
We Depend on Lease Income and Mortgage Payments from Real Property. Since a substantial portion of the Company'sour income is derived from mortgage payments and lease income from real property, the Company'sour income would be adversely affected if a significant number of the Company'sour borrowers or lessees were unable to meet their obligations to the Companyus or if the Companywe were unable to lease itsour properties or make mortgage loans on economically favorable terms. There can be no assurance that any lessee will exercise its option to renew its lease upon the expiration of the initial term or that if such failure to renew were to occur, the Companywe could lease the property to others on favorable terms.

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Item  2.    PROPERTIES

PORTFOLIO

     As
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We Rely on a Few Major Operators.
Assisted Living Concepts, Inc. (or ALC) leases 37 assisted living properties with a total of 1,434 units owned by us representing approximately 12.6%, or $72.5 million, of our total assets. In October 2001, ALC filed for reorganization under Chapter 11 of the federal bankruptcy laws. The filing was pre-negotiated with sufficient debt holders to allow ALC to reorganize its debt and equity and emerge from bankruptcy as of 12:01 a.m. on January 1, 2002. At the request of our Board of Directors, we agreed to reduce total rents under the 37 leases by $0.9 million a year, beginning January 1, 2002. Our Chairman, CEO and President, Mr. Andre C. Dimitriadis, became a Board member of ALC as of January 1, 2002.
ALC is a publicly traded company, and as such is subject to the filing requirements of the Securities and Exchange Commission.
Alterra Healthcare Corporation (or Alterra) leases 35 assisted living properties with a total of 1,416 units owned by us representing approximately 12.4%, or $71.3 million, of our total assets at December 31, 1996,2003. Alterra announced on January 22, 2003 that it had filed a voluntary petition with the Company`s  real estate investment portfolio
consistedU.S. Bankruptcy Court for the District of investmentsDelaware to reorganize under Chapter 11 of the U.S. Bankruptcy Code. Alterra’s Plan of Reorganization was approved in November 2003 and Alterra emerged from bankruptcy in December 2003 as a non-publicly traded company. All of our leases with Alterra were assumed, without change, by the reorganized Alterra.
Our financial position and ability to make distributions may be adversely affected by further financial difficulties experienced by ALC and Alterra or any of our other lessees and borrowers, including additional bankruptcies, inability to emerge from bankruptcy, insolvency or general downturn in business of any such operator, or in the event any such operator does not renew and/or extend its relationship with us or our borrowers when it expires.
Our Borrowers and Lessees Face Competition in the Healthcare Industry. The long-term care industry is highly competitive and we expect that it may become more competitive in the future. Our borrowers and lessees are competing with numerous other companies providing similar long-term care services or alternatives such as home health agencies, hospices, life care at home, community-based service programs, retirement communities and convalescent centers. There can be no assurance that our borrowers and lessees will not encounter increased competition in the future which could limit their ability to attract residents or expand their businesses and therefore affect their ability to make their debt or lease payments to us.
The Healthcare Industry is Heavily Regulated by the Government. Our borrowers and lessees who operate health care facilities are subject to heavy regulation by federal, state and local governments. These laws and regulations are subject to frequent and substantial changes resulting from legislation, adoption of rules and regulations, and administrative and judicial interpretations of existing law. These changes may have a dramatic effect on the definition of permissible or impermissible activities, the relative costs associated with doing business and the amount of reimbursement by both government and other third-party payors. These changes may be applied retroactively. The ultimate timing or effect of these changes cannot be predicted. The failure of any borrower of funds from us or lessee of any of our properties to comply with such laws, requirements and regulations could affect its ability to operate its facility or facilities and could adversely affect such borrower’s or lessee’s ability to make debt or lease payments to us.
Our Borrowers and Lessees Rely on Government and Third Party Reimbursement. The ability of our borrowers and lessees to generate revenue and profit determines the underlying value of that property to us. Revenues of our borrowers and lessees are generally derived from payments for patient care. Sources of such payments include the federal Medicare program, state Medicaid programs, private insurance carriers, health care service plans, health maintenance organizations, preferred provider arrangements, self-insured employers, as well as the patients themselves.
A significant portion of the revenue of our borrowers and lessees is derived from governmentally-funded reimbursement programs, such as Medicare and Medicaid. Because of significant health care costs paid by such government programs, both federal and state governments have adopted and continue to consider various health care reform proposals to control health care costs. In recent years, there have been fundamental changes in the Medicare program that resulted in reduced levels of payment for a substantial portion of health care services. In many instances, revenues from Medicaid programs are already insufficient to cover the actual costs incurred in providing care to those patients, and several states have reduced, or are considering reducing, nursing facility payment rates. Moreover, health care facilities have experienced increasing pressures from private payors attempting to control
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health care costs, and reimbursement from private payors has in many cases effectively been reduced to levels approaching those of government payors.
Governmental and public concern regarding health care costs may result in significant reductions in payment to health care facilities, and there can be no assurance that future payment rates for either governmental or private payors will be sufficient to cover cost increases in providing services to patients. Any changes in reimbursement policies which reduce reimbursement to levels that are insufficient to cover the cost of providing patient care could adversely affect revenues of our borrowers and lessees and thereby adversely affect those borrowers’ and lessees’ abilities to make their debt or lease payments to us. Failure of the borrowers or lessees to make their debt or lease payments would have a direct and material adverse impact on us.
On August 4, 2003, Centers for Medicare & Medicaid Services, commonly known as CMS, published a final rule announcing that it will implement a 3.0% market basket increase in skilled nursing facility prospective payment system rates for fiscal year 2004, which began October 1, 2003. In addition, the rule will adjust fiscal year 2004 rates by an additional 3.26% to reflect cumulative forecast errors since the start of the skilled nursing facility prospective payment system on July 1, 1998.
Congress and the States Have Enacted Healthcare Reform measures. The health care industry is facing various challenges, including increased government and private payor pressure on health care providers to control costs. While the Bush Administration has proposed expanded funding for Medicare prescription drug coverage, it has stated that it intends to offset the cost of this benefit in part from savings from overpayments to other Medicare providers. In addition, the Medicare Payment Advisory Commission, known as the MedPAC, an independent federal body established to advise Congress on issues affecting the Medicare program, recommended in a March 2003 report that Congress adopt additional reductions in skilled nursing facility reimbursement. While the MedPAC recommendations are not binding on Congress, they may affect congressional consideration of future Medicare reimbursement legislation. In June 2003, the U.S. House of Representatives and Senate adopted separate Medicare reform bills, neither of which would reduce Medicare skilled nursing facility rates. Nevertheless, no assurances can be given that legislation ultimately enacted by Congress, if any, would not reduce Medicare reimbursement to skilled nursing facilities or result in additional costs for operators of skilled nursing facilities.
The Balanced Budget Act enacted significant changes to the Medicare and Medicaid programs designed to modernize payment and health care delivery systems while achieving substantial budgetary savings. In seeking to limit Medicare reimbursement for long term care services, Congress established the prospective payment system for skilled nursing facility services to replace the cost-based reimbursement system. Skilled nursing facilities needed to restructure their operations to accommodate the new Medicare prospective payment system reimbursement. Since the skilled nursing facility prospective payment system was enacted, several publicly held operators of long-term care facilities and at least two publicly held operators of assisted living facilities have filed for reorganization under Chapter 11 of the federal bankruptcy laws. While certain long-term care operators and both assisted living operators have emerged from bankruptcy, during their reorganizations and in some instances subsequent thereto, they reduced their operations by rejecting leases and/or defaulting on loans resulting in properties being returned to lessors or lenders. There can be no assurances given that the remainder of 2004 and future years will not include additional bankruptcies of skilled nursing and assisted living operators.
In addition, comprehensive reforms affecting the payment for and availability of health care services have been proposed at the federal and state levels and major reform proposals have been adopted by certain states. Congress and state legislatures can be expected to continue to review and assess alternative health care delivery systems and payment methodologies. Changes in the law, new interpretations of existing laws, or changes in payment methodology may have a dramatic effect on the definition of permissible or impermissible activities, the relative costs associated with doing business and the amount of reimbursement by the government and other third party payors.
Moreover, many states are facing significant budget shortfalls, and most states are taking steps to implement cost controls within their Medicaid programs. On May 28, 2003, President Bush signed into law legislation providing $20.0 billion in temporary assistance to the states, $10.0 billion of which is earmarked for state Medicaid programs. However, in light of forthcoming regulations and continuing state Medicaid program reform and budget cuts, no assurance can be given that the implementation of such regulations and reform will not have a material adverse effect on our financial condition or results of operations.
We Could Incur More Debt.We operate with a policy of incurring debt when, in the opinion of our directors, it is advisable. We may incur additional debt by issuing debt securities in a public offering or in a private transaction.
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Accordingly, we could become more highly leveraged. The degree of leverage could have important consequences to stockholders, including affecting our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, development or other general corporate purposes and making us more vulnerable to a downturn in business or the economy generally.
A Failure to Reinvest Cash Available to Us Could Adversely Affect Our Future Revenues and Our Ability to Increase Dividends to Stockholders; There is Considerable Competition in Our Market for Attractive Investments. From time to time, we will have cash available from (1) proceeds of sales of shares of securities, (2) proceeds from new debt issuances, (3) principal payments on our mortgages and other investments, (4) sale of properties, and (5) funds from operations. We may reinvest this cash in health care investments in accordance with our investment policies, repay outstanding debt or invest in qualified short-term investments. We compete for real estate investments with a broad variety of potential investors. The competition for attractive investments negatively affects our ability to make timely investments on acceptable terms. Delays in acquiring properties or making loans will negatively impact revenues and perhaps our ability to increase distributions to our stockholders.
Our Failure to Qualify as a REIT Would Have Serious Adverse Consequences to Our Stockholders. We intend to operate so as to qualify as a REIT under the Code. We believe that we have been organized and have operated in a manner which would allow us to qualify as a REIT under the Code beginning with our taxable year ended December 31, 1992. However, it is possible that we have been organized or have operated in a manner which would not allow us to qualify as a REIT, or that our future operations could cause us to fail to qualify. Qualification as a REIT requires us to satisfy numerous requirements (some on an annual and quarterly basis) established under highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations, and involves the determination of various factual matters and circumstances not entirely within our control. For example, in order to qualify as a REIT, at least 95% of our gross income in any year must be derived from qualifying sources, and we must pay dividends to stockholders aggregating annually at least 90% (95% for taxable years ending prior to January 1, 2001) of our REIT taxable income (determined without regard to the dividends paid deduction and by excluding capital gains). Legislation, new regulations, administrative interpretations or court decisions could significantly change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification. However, we are not aware of any pending tax legislation that would adversely affect our ability to operate as a REIT.
If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. Unless we are entitled to relief under statutory provisions, we would be disqualified from treatment as a REIT for the four taxable years following the year during which we lost qualification. If we lose our REIT status, our net earnings available for investment or distribution to stockholders would be significantly reduced for each of the years involved. In addition, we would no longer be required to make distributions to stockholders.
Our Properties are Subject to Licensing, Certification and Accreditation. In addition to the requirements to be met by skilled nursing facilities (described below)for participation in 32the Medicare and Medicaid programs, skilled nursing facilities are subject to regulatory and licensing requirements of federal, state and local authorities. We have no direct control over our borrowers’ or tenants’ ability to meet the numerous state and federal regulatory requirements. If a borrower or tenant does not continue to meet all regulatory requirements, such borrower or tenant may lose its ability to provide or bill for health care services. If we cannot attract another health care provider on a timely basis or on acceptable terms, our revenues would be adversely impacted. In addition, our properties are special purpose properties that may not be easily adaptable to uses unrelated to health care. Transfers of operations of health care facilities are subject to regulatory approvals not required for transfers of other types of commercial operations and real estate.
Our Remedies May Be Limited When Mortgage Loans Default. To the extent we invest in mortgage loans, such mortgage loans may or may not be recourse obligations of the borrower and generally will not be insured or guaranteed by governmental agencies or otherwise. In the event of a default under such obligations, we may have to foreclose on the property underlying the mortgage or protect our interest by acquiring title to a property and thereafter make substantial improvements or repairs in order to maximize the property’s investment potential. Borrowers may contest enforcement of foreclosure or other remedies, seek bankruptcy protection against such enforcement and/or bring claims for lender liability in response to actions to enforce mortgage obligations. If a borrower seeks bankruptcy protection, the Bankruptcy Court may impose an automatic stay that would preclude us from enforcing foreclosure or other remedies against the borrower. Relatively high “loan to value” ratios and declines in the value of the property may prevent us from realizing an amount equal to our mortgage loan upon foreclosure.
14
Investments in Commercial Mortgage Backed Securities are Subject to Real Estate Risks Relating to the Underlying Properties. We retain subordinated portions of the REMIC Certificates issued in our securitizations. These REMIC Certificates are a form of mortgage backed securities and as such, we are subject to the same risks associated with investing directly in the underlying mortgage loans. This is especially true in our case due to the nature of the collateral properties securing the underlying mortgages in our securitizations. All of these properties are special purpose properties used for the delivery of long-term care services. Any risks associated with investing in these types of properties could impact the value of our investment in the REMIC Certificates we retain.
Investments in Commercial Mortgage-Backed Securities are Subject to Risks Associated with Prepayment of the Underlying Mortgages. As with many interest bearing mortgage-backed instruments, prepayments of the underlying mortgages may expose us to the risk that an equivalent rate of return is not available in the current market and that new investment of equivalent risk will have lower rates of return. Certain types of investments in commercial mortgage-backed securities may be interest only securities which expose the holder to the risk that the underlying mortgages may prepay at a faster rate than anticipated at acquisition. Faster than anticipated prepayments may cause the investment in interest only commercial mortgage-backed securities to have a lower than anticipated rate of return and could result in a loss of the initial investment under extreme prepayment scenarios.
Subordinated Securities may not be Repaid Upon Default. We invest in subordinated tranches of commercial mortgage backed securities (our retained REMIC Certificates). In general, subordinated tranches of commercial mortgage backed securities are entitled to receive repayment of principal only after all principal payments have been made on more senior tranches and also have subordinated rights as to receipt of interest distributions. In addition, an active secondary market for such subordinated securities is not as well developed as the market for other mortgage backed securities. Accordingly, such subordinated commercial mortgage backed securities may have limited marketability and there can be no assurance that a more efficient secondary market will develop.
We are Subject to Risks and Liabilities in Connection with Properties Owned Through Limited Liability Companies and Partnerships. We have ownership interests in limited liability companies and/or partnerships. We may make additional investments through these ventures in the future. Partnership or limited liability company investments may involve risks such as the following:
• 
our partners or co-members might become bankrupt (in which event we and any other remaining general partners or members would generally remain liable for the liabilities of the partnership or limited liability company);
• 
our partners or co-members might at any time have economic or other business interests or goals which are inconsistent with our business interests or goals;
• 
our partners or co-members may be in a position to take action contrary to our instructions, requests, policies or objectives, including our policy with respect to maintaining our qualification as a REIT; and
• 
agreements governing limited liability companies and partnerships often contain restrictions on the transfer of a member’s or partner’s interest or “buy-sell” or other provisions which may result in a purchase or sale of the interest at a disadvantageous time or on disadvantageous terms.
We will, however, generally seek to maintain sufficient control of our partnerships and limited liability companies to permit us to achieve our business objectives. Our organizational documents do not limit the amount of available funds that we may invest in partnerships or limited liability companies. The occurrence of one or more of the events described above could have a direct and adverse impact on us.
Item 2.     PROPERTIES
Investment Portfolio
At December 31, 2003, our “direct real estate investment portfolio” (properties that we own or on which we hold promissory notes secured by first mortgages) consisted of investments in 83 skilled nursing properties with 9,728 beds, 96 assisted living properties with 4,551 units and one school in 30 states. The CompanyWe had approximately $223,578,000$456.0 million (before accumulated depreciation of $11,640,000)$73.4 million) invested in long-term care
facilities owned by the Companyproperties we own and leasedlease to operators,lessees, approximately $178,262,000$72.7 million invested in mortgage loans (before allowance for doubtful accounts of $1,000,000)$1.3 million), and investments in REMIC Certificates with a carrying value of approximately $98,934,000, at estimated fair value,$61.7 million ($92,545,00063.1 million at amortized cost) invested in REMIC Certificates.

Skilled nursing facilities (SNFs).  At December 31, 1996, the Company had
investments in 248 skilled nursing facilities with a totalcost, prior to any adjustment of 28,628 beds, in
the form of direct ownership or mortgage loan interests, including interests in
mortgages underlying the Company's investment in REMIC certificates. available-for-sale certificates to fair market value).
15
Skilled nursing facilities provide restorative, rehabilitative and nursing care for people not requiring the more extensive and sophisticated treatment available at acute care hospitals. Many of the skilled nursing facilities provide ancillary services whichthat include occupational, speech, physical, respiratory and IV therapies, as well as provide sub-acute care services.  Such services which are paid either by the patient, or the patient'spatient’s family, or through the federal Medicare or state Medicaid programs.

Assisted living facilities (ALFs).  At December 31, 1996, the Company had
investments in 35 assisted living facilities with 1,456 units. Assisted living facilities serve elderly persons who require assistance with activities of daily living, but who do not require the constant supervision skilled nursing facilities provide. Services are generallyusually available 24-hours a day and include personal supervision and assistance with eating, bathing, grooming and administering medication. The facilities provide a combination of housing, supportive services, personalized assistance and health care designed to respond to individual needs.


                                OWNED PROPERTIES
                                        
     
The school in our real estate investment portfolio is a charter school. Charter schools provide an alternative to the traditional public school. Charter schools are generally autonomous entities authorized by the state or locality to conduct operations independent from the surrounding public school district. Laws vary by state, but generally charters are granted by state boards of education either directly or in conjunction with local school districts or public universities. Operators are granted charters to establish and operate schools based on the goals and objectives set forth in the charter. Upon receipt of a charter, schools receive an annuity from the state for each student enrolled.
Owned Properties.At December 31, 1996, the Company2003, we owned and leased to health care operators
4953 skilled nursing facilitiesproperties with a total of 6,5206,047 beds, and 2488 assisted living facilitiesproperties with a total of 8684,182 units and one school in 1723 states, representing a netgross investment of approximately $211,938,000. These long-term care facilities$456.0 million. The properties are leased pursuant to non-cancelable leases generally with an initial term of ten10 to twelve30 years. Many of the leases contain renewal options and some contain
options that permit the operators to purchase the facilities.

     The following table sets forth certain information regarding the Company's
owned properties as of December 31, 1996:


                                                              Average
                                  No. of                     Remaining
                No. of   No. of    Beds                      Lease Term        Purchase            Current Annual
  Location       SNFs     ALFs    /Units   Encumbrances     (in Months)          Price             Rent Payments
- -----------------------------------------------------------------------------------------------------------------

Alabama              8        1      912    $14,608,044                95     $ 29,287,996            $ 3,274,779
Arizona              3               587     18,909,717                44       18,486,509              2,335,600
California           3               473                               52        7,378,468                896,172
Florida              9             1,116                              102       39,064,291              4,061,847
Georgia              1               100                              137        2,500,000                248,750
Idaho                         1       39                              144        2,550,000                266,220
Illinois             1               148                               96        6,627,159                746,640
Iowa                 6               448      8,748,149                36        9,401,943              1,073,564
Kansas                        4      134      5,739,360               108        6,700,000                633,820
Montana              1               278      4,335,297                72        3,830,608                420,365
 

                                       14
 
 
                                                              Average
                                                             Remaining
                No. of   No. of    Beds    No. of            Lease Term        Purchase            Current Annual
  Location       SNFs     ALFs    /Units   Encumbrances     (in Months)          Price             Rent Payments
- -----------------------------------------------------------------------------------------------------------------
             
New Mexico           2               236                               72        6,898,696                785,951
Oklahoma                      1       37                              120        1,750,000                168,525
Oregon                        2       71                              144        4,550,000                463,410
Tennessee            2               224                              137        5,550,000                552,225
Texas                8        8    1,685      4,974,739                93       45,630,908              4,980,779
Virginia             3               443                              105       11,012,655              1,211,748
Washington           2        7      457     10,928,853               198       22,358,630              2,185,380
- -----------------------------------------------------------------------------------------------------------------
TOTAL               49       24    7,388    $68,244,159                (1)    $223,577,863   (2)      $24,305,775
=================================================================================================================


(1)  The amounts comprising the $68,244,159 of encumbrances include 1)
     $54,205,000 of non-recourse mortgages payable by the Company secured by 22
     skilled nursing facilities containing a total of 2,634 beds, 2) $8,300,000
     of tax-exempt bonds secured by 5 assisted living facilities in Washington
     with 184 units, and 3) $5,739,159 of capital lease obligations on 4
     assisted living facilities in Kansas with 134 units.

(2)  Of the total purchase price, $175,969,598 relates to investments in 49 SNFs
     with 6,520 beds and $47,608,265 relates to investments in 24 ALFs with 868
     units. The leases provide for a fixed minimum base rent during the initial and renewal periods. Most of the leases provide for annual fixed rent increases or increases based on consumer price indices over the term of the lease. In addition, certain of the Company'sour leases provide for additional rent through revenue participation (as defined in the lease agreement) in incremental revenues generated by the facilities over a defined base period, effective at various times during the term of the lease. Each lease is a triple net lease which requires the lessee to pay additional charges including all taxes, insurance, assessments, maintenance and repair (capital and non-capital expenditures), and other costs necessary in the operation of the facility. MORTGAGE LOANS

     At December 31, 1996, the Company had 67 mortgage loans secured by first
mortgages on 73 skilled nursing facilities with a total of 8,672 beds and 11
assisted living residences with 588 units located in 23 states. The mortgage
loans, which individually range from $302,500 to $11,240,000 in principal
amount, have current interest rates ranging from 9.16% to 13.2% generally have
25-year amortization schedules, have balloon payments due from 1997 to 2017 and
provide for certain facility fees.  Almost allMany of the mortgage loans provide for
annual increases inleases contain renewal options and one contains a limited period option that permits the interest rate based upon a specified increase of 10operator to 12.5 basis points.  Approximately $9,825,000 ofpurchase the loans due in 1997 will be
paid off once the Company completes a sale leaseback transaction for the same
amount on assisted living facilities that are being constructed.
     property.
16
The following table sets forth certain information regarding the Company'sour owned properties as of December 31, 2003 (dollar amounts in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
No. of
No. of
No. of
No. of
Lease
Current
Location
SNFs
ALFs
Schools
Beds/Units(1)
Encumbrances
Term(2)
Investment
Alabama
 
 
3
 
 
 
1
 
 
 
—
 
 
 
458
 
 
$
3,587
 
 
 
93
 
 
$
16,228
 
Arizona
 
 
4
 
 
 
3
 
 
 
—
 
 
 
1,026
 
 
 
12,827
 
 
 
152
 
 
 
45,854
 
California
 
 
1
 
 
 
3
 
 
 
—
 
 
 
436
 
 
 
17,513
 
 
 
97
 
 
 
36,713
 
Colorado
 
 
1
 
 
 
6
 
 
 
—
 
 
 
325
 
 
 
6,625
 
 
 
189
 
 
 
20,383
 
Florida
 
 
3
 
 
 
6
 
 
 
—
 
 
 
776
 
 
 
2,243
 
 
 
197
 
 
 
31,597
 
Georgia
 
 
3
 
 
 
1
 
 
 
—
 
 
 
364
 
 
 
5,002
 
 
 
84
 
 
 
7,113
 
Idaho
 
 
—
 
 
 
4
 
 
 
—
 
 
 
148
 
 
 
—
 
 
 
63
 
 
 
9,756
 
Indiana
 
 
—
 
 
 
2
 
 
 
—
 
 
 
78
 
 
 
—
 
 
 
72
 
 
 
5,070
 
Iowa
 
 
7
 
 
 
1
 
 
 
—
 
 
 
645
 
 
 
8,933
 
 
 
321
 
 
 
16,380
 
Kansas
 
 
4
 
 
 
4
 
 
 
—
 
 
 
447
 
 
 
8,907
 
 
 
236
 
 
 
16,597
 
Nebraska
 
 
—
 
 
 
4
 
 
 
—
 
 
 
156
 
 
 
—
 
 
 
64
 
 
 
9,332
 
New Jersey
 
 
—
 
 
 
1
 
 
 
1
 
 
 
39
 
 
 
—
 
 
 
117
 
 
 
12,195
 
New Mexico
 
 
6
 
 
 
1
 
 
 
—
 
 
 
604
 
 
 
11,157
 
 
 
101
 
 
 
30,913
 
N. Carolina
 
 
—
 
 
 
5
 
 
 
—
 
 
 
210
 
 
 
—
 
 
 
204
 
 
 
13,096
 
Ohio
 
 
—
 
 
 
11
 
 
 
—
 
 
 
487
 
 
 
20,983
 
 
 
126
 
 
 
44,718
 
Oklahoma
 
 
—
 
 
 
6
 
 
 
—
 
 
 
221
 
 
 
4,476
 
 
 
204
 
 
 
12,315
 
Oregon
 
 
1
 
 
 
4
 
 
 
—
 
 
 
324
 
 
 
3,961
 
 
 
65
 
 
 
17,812
 
Pennsylvania
 
 
—
 
 
 
1
 
 
 
—
 
 
 
69
 
 
 
5,440
 
 
 
172
 
 
 
8,327
 
South Carolina
 
 
—
 
 
 
3
 
 
 
—
 
 
 
128
 
 
 
—
 
 
 
204
 
 
 
7,610
 
Tennessee
 
 
3
 
 
 
—
 
 
 
—
 
 
 
201
 
 
 
—
 
 
 
238
 
 
 
3,866
 
Texas
 
 
12
 
 
 
13
 
 
 
—
 
 
 
2,147
 
 
 
19,706
 
 
 
172
 
 
 
55,521
 
Virginia
 
 
3
 
 
 
—
 
 
 
—
 
 
 
443
 
 
 
—
 
 
 
358
 
 
 
9,467
 
Washington
 
 
2
 
 
 
8
 
 
 
—
 
 
 
497
 
 
 
6,640
 
 
 
114
 
 
 
25,138
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL
 
 
53
 
 
 
88
 
 
 
1
 
 
 
10,229
 
 
$
138,000
(3)
 
 
 
 
 
$
456,001
(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1. 
Number of beds/ units applies to skilled nursing properties and assisted living residences only.
2. 
Weighted average remaining months in lease term.
3. 
Consists of: i) $123,314 of non-recourse mortgages payable by us secured by 22 skilled nursing properties containing a total of 2,691 beds, 18 assisted living properties with 961 units, ii) $6,640 of tax-exempt bonds secured by five assisted living properties in Washington with 188 units, iii) $4,085 of non-recourse capital lease obligations on four assisted living properties in Kansas with 134 units, and iv) $3,961 of multi-unit housing non-recourse tax-exempt revenue bonds on one assisted living property in Oregon with 112 units. As of December 31, 2003 our gross investment in properties encumbered by mortgage loans, bonds and capital leases was $171,429.
4. 
Of the total, $165,785 relates to investments in skilled nursing properties, $280,946 relates to investments in assisted living properties and $9,270 relates to an investment in a school.
17
Mortgage Loans.At December 31, 2003, we had 37 mortgage loans secured by first mortgages on 30 skilled nursing properties with a total of 3,681 beds and eight assisted living residences with 369 units located in 19 states. See Item 8.     FINANCIAL STATEMENTS —Note 6.     Real Estate Investmentsfor further description.
The following table sets forth certain information regarding our mortgage loans as of December 31, 1996:

2003 (dollar amounts in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average
Current
No. of
No. of
No. of
Interest
Months to
Face Amount of
Current Amount of
Annual Debt
Location
SNFs
ALFs
Beds/Units
Rate %
Maturity
Mortgage Loans
Mortgage Loans
Service(1)
Alabama
 
 
1
 
 
 
—
 
 
 
40
 
 
 
10.63
 
 
 
175
 
 
$
500
 
 
$
450
 
 
$
61
 
Arizona
 
 
1
 
 
 
—
 
 
 
144
 
 
 
12.40
 
 
 
10
 
 
 
2,400
 
 
 
2,186
 
 
 
315
 
Arkansas
 
 
2
 
 
 
—
 
 
 
274
 
 
 
10.88-11.08
 
 
 
87
 
 
 
3,400
 
 
 
2,811
 
 
 
418
 
California
 
 
5
 
 
 
—
 
 
 
756
 
 
 
10.40-12.40
 
 
 
125
 
 
 
11,371
 
 
 
9,926
 
 
 
1,417
 
Colorado
 
 
3
 
 
 
—
 
 
 
263
 
 
 
11.00-12.00
 
 
 
27
 
 
 
7,042
 
 
 
6,685
 
 
 
892
 
Florida
 
 
2
 
 
 
1
 
 
 
384
 
 
 
10.52-12.55
 
 
 
73
 
 
 
9,990
 
 
 
8,064
 
 
 
1,269
 
Georgia
 
 
1
 
 
 
—
 
 
 
63
 
 
 
11.80
 
 
 
37
 
 
 
1,200
 
 
 
1,126
 
 
 
150
 
Illinois
 
 
1
 
 
 
—
 
 
 
120
 
 
 
10.21
 
 
 
51
 
 
 
1,950
 
 
 
1,829
 
 
 
217
 
Iowa
 
 
1
 
 
 
1
 
 
 
143
 
 
 
11.91-12.50
 
 
 
47
 
 
 
4,400
 
 
 
4,218
 
 
 
557
 
Missouri
 
 
1
 
 
 
—
 
 
 
90
 
 
 
9.51
 
 
 
173
 
 
 
1,500
 
 
 
1,312
 
 
 
167
 
Montana
 
 
—
 
 
 
1
 
 
 
34
 
 
 
12.15
 
 
 
118
 
 
 
2,346
 
 
 
2,284
 
 
 
292
 
Nebraska
 
 
—
 
 
 
4
 
 
 
163
 
 
 
10.73-11.91
 
 
 
58
 
 
 
10,911
 
 
 
10,521
 
 
 
1,314
 
Nevada
 
 
1
 
 
 
—
 
 
 
100
 
 
 
11.25
 
 
 
79
 
 
 
1,200
 
 
 
970
 
 
 
150
 
Ohio
 
 
1
 
 
 
—
 
 
 
150
 
 
 
10.89
 
 
 
27
 
 
 
5,200
 
 
 
4,761
 
 
 
610
 
Oklahoma
 
 
1
 
 
 
—
 
 
 
161
 
 
 
11.78
 
 
 
90
 
 
 
1,300
 
 
 
1,101
 
 
 
168
 
S. Dakota
 
 
—
 
 
 
1
 
 
 
34
 
 
 
11.91
 
 
 
63
 
 
 
2,346
 
 
 
2,290
 
 
 
287
 
Texas
 
 
5
 
 
 
—
 
 
 
780
 
 
 
10.90-12.32
 
 
 
107
 
 
 
7,995
 
 
 
7,097
 
 
 
1,036
 
Washington
 
 
3
 
 
 
—
 
 
 
236
 
 
 
11.90-12.38
 
 
 
58
 
 
 
3,500
 
 
 
3,185
 
 
 
454
 
Wisconsin
 
 
1
 
 
 
—
 
 
 
115
 
 
 
11.00
 
 
 
158
 
 
 
2,200
 
 
 
1,929
 
 
 
272
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL
 
 
30
 
 
 
8
 
 
 
4,050
 
 
 
 
 
 
 
 
 
 
$
80,751
 
 
$
72,745
(2)
 
$
10,046
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

                                                           Average
                                  No.
1.
Includes principal and interest payments.
2.
Of the total current principal balance, $52,242 and $20,503 relate to investments in skilled nursing properties and assisted living properties, respectively. This balance is gross of Number of
                No. of   No. of    Beds     Interest      Months to      Face Amount of      Current Amount of      Current Annual
  Location       SNFs     ALFs    /Units     Rate %        Maturity      Mortgage Loans        Mortgage Loans      Debt Service (1)
- ------------------------------------------------------------------------------------------------------------------------------------


Alabama              1               142         11.18%           100        $  4,100,000       $     4,060,562        $   489,706
Arizona              2        1      479   10.58-11.70%            87          10,650,000            10,599,851          1,238,740
Arkansas             2               274   10.00-10.20%           171           3,400,000             3,361,692            396,918
California          11             1,587   10.00-13.20%           107          22,805,000            23,501,020          2,888,344
Colorado             4               373   10.00-11.92%           108           6,330,000             5,284,620            615,460
Florida              8        1    1,106    9.16-11.85%            96          30,944,862            31,726,985          3,644,254
Georgia              1        2      287          9.75%           116           8,050,000             8,030,186            929,512
allowance for doubtful accounts.
 
                                      15
 
 
                                                           Average
                                  No. of                  Number of
                No. of   No. of    Beds     Interest      Months to      Face Amount of      Current Amount of      Current Annual
  Location       SNFs     ALFs    /Units     Rate %        Maturity      Mortgage Loans        Mortgage Loans      Debt Service (1)
- ------------------------------------------------------------------------------------------------------------------------------------
   
Illinois             2               322    9.76-11.10%           107           6,200,000             6,185,008            643,244
Iowa                 3               214   11.62-11.70%            95           4,000,000             3,940,365            493,338
Kansas               4               233    9.90-11.87%           108           4,320,000             3,995,045            474,810
Louisiana            1               127         10.89%           239           1,600,000             1,600,000            196,745
Mississippi          3               400         10.32%           117          11,250,000            11,240,003          1,216,767
Missouri             1               174         10.75%            45           2,801,000             2,872,520            375,658
Nebraska             1        4      266    9.00-14.32%            59           5,348,980             5,434,382            601,749
Nevada               1               100         10.38%           163           1,200,000             1,173,996            142,523
North
 Carolina            2               201   10.70-11.85%            66           3,770,000             3,728,490            449,556
Ohio                 1               150         10.19%           111           5,200,000             5,173,773            575,408
Oklahoma             1               161         10.90%           174           1,300,000             1,292,252            159,961
Oregon               1        3      261     9.76-9.90%            33           8,160,000             8,157,238            810,999
South
 Carolina            5               509         11.70%            73          11,250,000            11,229,957          1,357,532
Tennessee            3               201         10.73%           105           5,861,000             4,826,639            561,609
Texas               11             1,383   10.00-11.60%           115          16,650,000            16,364,741          1,998,690
Washington           4               310   11.00-11.70%           168           4,500,000             4,482,365            551,282
- ------------------------------------------------------------------------------------------------------------------------------------

TOTAL               73       11    9,260                                     $179,690,842       $178,261,690 (2)       $20,812,805
==================================================================================================================================


(1)  Includes principal and interest payments.
(2)  Of the total current principal balance, $159,698,336 relates to investments
     in 73 SNFs with 8,672 beds and $18,563,354 relates to investments in 11
     ALFs with 588 units.

     
In general, the Company's mortgage loans may not be prepaid except in the event of the sale of the facilitycollateral property to a third party that is not affiliated with the borrower, although partial prepayments (including the prepayment premium) are often permitted where a mortgage loan is secured by more than one property upon a sale of one or more, but not all, of the collateral properties to a third party which is not an affiliate of the borrower. The Company'sterms of the mortgage loans generally impose a penaltypremium upon prepayment of the loans depending upon the period in which the prepayment occurs, whether such prepayment was permitted or required, and certain other conditions such as upon the sale of the facilityproperty under a pre-existing purchase option, destruction or condemnation, or other circumstances as approved by the Company.  Suchus. On certain loans, such prepayment amount is based upon a percentage of the then outstanding balance of the loan, usually declining ratably each year. For other loans, the prepayment premium is based on a yield maintenance formula. In addition to a lien on the mortgaged property, the loans are generally secured by certain non-real estate assets of the facilitiesproperties and contain certain other security provisions in the form of letters of credit, pledged collateral accounts, security deposits, cross-default and cross-collateralization features and certain guarantees.  During 1996, the
Company received
See Item 8.     FINANCIAL STATEMENTS —Note 11.     Debt Obligationsfor a $941,000 payment with respect to the prepaymentdescription of one loan.

                                       16
our Senior Mortgage Participation Payable which is secured by certain of our mortgage loans receivable.
REMIC CERTIFICATESCertificates. At December 31, 1996, the estimated fair2003, we had investments in REMIC Certificates with a carrying value of the Company's REMIC
Certificate investments was $98,934,000$61.7 million ($92,545,000,63.1 million at amortized cost)cost prior to any adjustment of available-for-sale certificates to fair market value).
The REMIC Certificates retained by the Companywe retain are subordinate in rank and right of payment to the REMIC Certificates sold to third-party investors and as such would bear the first risk of loss in the event of an impairment to any of the
18
underlying mortgages.  Management believes it employs conservative underwriting policies
and to date there have been no credit losses on any of the mortgages underlying
the Certificates nor are any credit losses currently anticipated. The REMIC Certificates are collateralized by three pools consisting of 8569 first mortgage loans secured by 148103 skilled nursing facilitiesproperties with a total of 16,06411,823 beds in 2419 states. Each mortgage loan, all of which werewe originated, by the Company, is evidenced by a promissory note and secured by a mortgage, deed of trust, or other similar instrument that creates a first mortgage lien on a fee simple estate in real property (a "Mortgaged Property").property. The $278,881,000$213.3 million current principal amount of mortgage loans represented by the REMIC Certificates have individual principal balances ranging from approximately $297,000 to
$13,760,000, have a weighted average interest rate of approximately 11.21%11.0%, and
have remaining terms to scheduled maturities ranging from 28 months2004 to 220
months.

     2028.
The following table sets forth certain information regarding the three
pools of mortgage loans securing the REMIC Certificates as of December 31, 1996:

                                       17
2003 (dollar amounts in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Original Principal
Current Principal
Number of
Number of
Amount of Remaining
Amount of Remaining
Current Annual
Location
Properties
Beds
Mortgage Loans
Mortgage Loans (1)
Debt Service
Alabama
 
 
3
 
 
 
405
 
 
$
8,100
 
 
$
7,328
 
 
$
1,028
 
Arizona
 
 
3
 
 
 
587
 
 
 
18,305
 
 
 
16,622
 
 
 
1,981
 
California
 
 
18
 
 
 
1,816
 
 
 
36,545
 
 
 
23,831
 
 
 
3,863
 
Colorado
 
 
1
 
 
 
177
 
 
 
2,000
 
 
 
1,852
 
 
 
247
 
Florida
 
 
7
 
 
 
945
 
 
 
32,310
 
 
 
27,846
 
 
 
3,658
 
Georgia
 
 
11
 
 
 
1,203
 
 
 
24,472
 
 
 
22,312
 
 
 
3,088
 
Iowa
 
 
7
 
 
 
508
 
 
 
10,938
 
 
 
10,685
 
 
 
1,204
 
Louisiana
 
 
1
 
 
 
127
 
 
 
1,600
 
 
 
1,394
 
 
 
208
 
Michigan
 
 
1
 
 
 
236
 
 
 
3,000
 
 
 
2,481
 
 
 
386
 
Mississippi
 
 
3
 
 
 
400
 
 
 
14,050
 
 
 
10,124
 
 
 
1,209
 
Missouri
 
 
1
 
 
 
100
 
 
 
1,500
 
 
 
1,398
 
 
 
164
 
Montana
 
 
2
 
 
 
163
 
 
 
5,600
 
 
 
5,226
 
 
 
697
 
Nebraska
 
 
2
 
 
 
256
 
 
 
4,700
 
 
 
4,433
 
 
 
576
 
New Mexico
 
 
4
 
 
 
443
 
 
 
15,821
 
 
 
14,764
 
 
 
1,526
 
Ohio
 
 
1
 
 
 
50
 
 
 
1,100
 
 
 
700
 
 
 
155
 
Oklahoma
 
 
1
 
 
 
112
 
 
 
1,300
 
 
 
1,088
 
 
 
173
 
Tennessee
 
 
6
 
 
 
550
 
 
 
16,827
 
 
 
15,450
 
 
 
2,123
 
Texas
 
 
29
 
 
 
3,645
 
 
 
52,858
 
 
 
43,993
 
 
 
6,115
 
Washington
 
 
2
 
 
 
100
 
 
 
1,900
 
 
 
1,764
 
 
 
227
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL
 
 
103
 
 
 
11,823
 
 
$
252,926
 
 
$
213,291
 
 
$
28,628
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

                                                          Original Principal      Current Principal Amount
                         Number of       Number of       Amount of Remaining        of Remaining Mortgage       Current Annual
      Location          Facilities         Beds             Mortgage Loans                Loans (1)              Debt Service
 
 
- --------------------------------------------------------------------------------------------------------------------------------

Alabama                            8           1,069               $ 18,425,800                $ 18,074,641          $ 2,253,561
Arizona                            5             955                 26,018,000                  25,708,985            2,863,918
California                        16           1,705                 27,404,786                  25,753,046            3,588,009
Connecticut                        4             499                 10,656,000                  10,478,251            1,297,858
Florida                            3             330                 13,160,000                  12,875,952            1,533,085
Georgia                           10           1,078                 20,822,000                  20,566,473            2,498,370
Illinois                           6             679                 12,426,000                  12,150,073            1,495,306
Iowa                              10             750                 13,531,000                  13,782,238            1,493,545
Kansas                             1              66                  1,200,000                   1,191,133              140,033
Kentucky                           1              67                    726,000                     711,348               88,862
Michigan                           3             444                  6,800,000                   6,698,413              828,043
Mississippi                        1             120                  2,800,000                   2,773,733              332,810
Missouri                           5             545                  9,489,000                   9,297,497            1,161,454
Montana                            5             658                 14,278,000                  14,073,620            1,536,239
Nebraska                           4             378                  6,614,000                   6,545,787              770,105
New Mexico                         5             350                  9,007,000                   8,757,245            1,127,306
North Carolina                     2             256                  5,350,000                   5,217,532              649,726
Ohio                               3             243                  7,000,000                   6,732,363              815,867
Oklahoma                           1             112                  1,300,000                   1,262,522              167,409
S. Dakota                          1              50                    585,000                     574,982               64,189
Tennessee                          4             297                  6,952,000                   6,884,490              822,951
Texas                             45           5,020                 64,280,000                  62,341,306            7,773,876
Washington                         4             289                  4,583,000                   4,502,040              544,601
Wisconsin                          1             104                  2,075,000                   1,927,543              264,000
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL                            148          16,064               $285,482,586                $278,881,213          $34,111,123
================================================================================================================================


(1)  1.Included in the balances of the mortgages underlying the REMIC Certificates are $56,457 of non-recourse mortgages payable by our subsidiaries. We originated these mortgages, which were subsequently transferred to the REMIC. The properties and the mortgage debt are reflected in our balance sheet.
The mortgage loans underlying the REMIC Certificates
     are $54,205,000 of non-recourse mortgages payable by the Company.  These
     mortgages were originated by the Company and were transferred to the REMIC.
     Subsequently, the properties securing the mortgages were acquired by the
     Company in unrelated transactions, subject to the related mortgage debt.
     The properties and the mortgage debt are reflected in the Company's balance
     sheet.

     Such mortgage loans generally have 25-year amortization schedules with balloon payments duefinal maturities ranging from 19992004 to 2015, unless prepaid prior thereto.2028. Contractual principal and interest distributions with respect to the $63.1 million amortized cost basis, $92,545,000 of REMIC Certificates (excluding unrealized losses on changes in estimated fair value of $1.4 million) we retained by the Company are subordinated to distributions of interest and principal with respect to the $192,210,000$150.4 million of REMIC Certificates held by third parties. Thus, based on the terms of the underlying mortgages and assuming no unscheduled prepayments occur contractualnor are any maturities extended as a result of the inability of the borrower to refinance, scheduled principal reductionsdistributions on the REMIC Certificates we retained by the Company will commence in AugustMarch 2004 with final maturitydistributions in April 2015.2028. Distributions on any of the REMIC Certificates will depend, in large part, on the amount and timing of payments, collections, delinquencies and defaults with respect to the mortgage loans represented by the REMIC Certificates, including the exercise of certain purchase options under existing facilityproperty leases or the sale of the Mortgaged
Properties.mortgaged properties. Each of the mortgage loans securing the REMIC Certificates containcontains similar prepayment and certain security provisions with respect to the Company'sas our mortgage loans.

                                       18
As part of the REMIC transactions discussed above, the Company serveswe serve as the sub-servicer and, in such capacity, isare responsible for performing substantially all of the servicing duties relating to the mortgage loans represented by the REMIC Certificates. The Company receivesWe receive monthly fees equal to a fixed percentage of the then outstanding mortgage loansloan balance in the REMIC, which in management'sour opinion represent currentlyrepresented then prevailing terms for similar transactions. Because the fees received for such servicing result in only
adequate compensation after considering the costs to service the loans, the
Company does not recognize a separate asset for servicing rights. transactions at that time.
19
In addition, the Companywe will act as the special servicer to restructure any mortgage loans in the REMIC that become in default. As noted previously, we assume the first dollar of any losses on the defaulted loans.
At December 31, 1996,2003, the REMIC Certificates we held by the Company havehad an effective interest rate of approximately 15.84%15.4% based on the expected future cash flows with no unscheduled prepayments.

MAJOR OPERATORS

     As
Item 3.
LEGAL PROCEEDINGS
We are a party from time to time to various general and professional liability claims and lawsuits asserted against the lessees or borrowers of December 31, 1996, Retirement Care Associates ("RCA"), Horizon
Healthcare Corporation ("HHC"), Sun Healthcare Group, Inc. ("Sun") and Assisted
Living Concepts, Inc. ("ALC") operated, on a combined basis, 115 facilities
representing 43.6% ($273.2 million) of the Company's adjusted gross real estate
investment portfolio (adjusted to include the mortgage loans to third parties
underlying the $92.5 million--amortized cost basis--investmentour properties, which in REMIC
Certificates). At December 31, 1996, RCA, HHC, Sun and ALC operated 34, 36, 26
and 19, facilities, respectively, representing approximately 14.3% ($89.8
million), 13.8% ($86.2 million), 9.0% ($56.6 million) and 6.5% ($40.6 million),
respectively, of the Company's adjusted gross portfolio. RCA, HHC, Sun and ALCour opinion are publicly traded companies, and other information regarding these operators
is on file with the Securities and Exchange Commission. The financial position
of the Company and its ability to make distributions may be adversely affected
by financial difficulties experienced by any of such operators, or any other
major operator of the Company, including bankruptcy, insolvency or general
downturn in business of any such operator,not singularly or in the event any such operator
doesaggregate material to our results of operations or financial condition. These types of claims and lawsuits may include matters involving general or professional liability, which we believe under applicable legal principles are not renew and/our responsibility as a non-possessory landlord or extend its relationship with the Company or its borrowers
as it expires.

                                       19

 
Item 3.      LEGAL PROCEEDINGS
 
     None.

ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     None.
 
ITEM 4a.     EXECUTIVE OFFICERS



         NAME               Age                           Position
- -----------------------   -------   -----------------------------------------------------

Andre C. Dimitriadis           56   Chairman, Chief Executive Officer and Director
William McBride III            36   President, Chief Operating Officer and Director
James J. Pieczynski            33   Senior Vice President and Chief Financial Officer


     Mr. Dimitriadis co-founded the Company in 1992 and was employed by Beverly
Enterprises, Inc., an owner/operator of long-term care facilities, retirement
living facilities and pharmacies, from October 1989 to May 1992, where he served
as Executive Vice President and Chief Financial Officer.  Prior tomortgage holder. We believe that he was
employed by American Medical International, Inc., an owner/operator of
hospitals, from 1985 to 1989, where he served as Executive Vice President -
Finance, Chief Financial Officer and Director.  Mr. Dimitriadis serves as
Chairman of the board of directors of Health Management, Inc. and a member of
the board of directors of Assisted Living Concepts, Inc. and Magellan Health
Services.

     Mr. McBride co-founded the Company in 1992 and was employed by Beverly
Enterprises, Inc., an owner/operator of long-term care facilities, retirement
living facilities and pharmacies, from April 1988 to July 1992, where he served
as Vice President, Controller and Chief Accounting Officer from April 1988.
Prior to that, he was employed by Ernst & Young LLP, an international accounting
firm, from 1982 to 1988.  Mr. McBride serves as Chairman of the board of
directors of Assisted Living Concepts, Inc. and a member of the board  of
directors of Malan Realty Investors, Inc.

     Mr. Pieczynski has served as Senior Vice President and Chief Financial
Officer of the Company since May 1994. He joined the Company in December 1993 as
Vice President and Treasurer. Prior to that, he was employed by American Medical
International, Inc., an owner/operator of hospitals, from May 1990 to December
1993, where he served as Assistant Controller and Director of Development. From
1984 to 1990, he was employed by Arthur Andersen & Co. LLP, an international
accounting firm. 

                                       20

 
ITEM 5.     MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
            STOCKHOLDER MATTERS

(a)  The Company's common stock is listed on the New York Stock Exchange.  Set
     forth belowthese matters are the highresponsibility of our lessees and low reported sale prices forborrowers pursuant to general legal principles and pursuant to insurance and indemnification provisions in the Company'sapplicable leases or mortgages. We intend to continue to vigorously defend such claims.
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5.
MARKET FOR THE COMPANY’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) 
Our common stock is listed on the New York Stock Exchange (or NYSE). Set forth below are the high and low reported sale prices for our common stock as reported on the NYSE.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2003
2002
High
Low
High
Low
First Quarter
 
$
7.170
 
 
$
5.250
 
 
$
7.950
 
 
$
6.050
 
Second Quarter
 
$
9.550
 
 
$
6.000
 
 
$
8.540
 
 
$
7.450
 
Third Quarter
 
$
11.760
 
 
$
9.130
 
 
$
8.700
 
 
$
5.470
 
Fourth Quarter
 
$
15.000
 
 
$
11.500
 
 
$
8.500
 
 
$
5.850
 
(b) 
As of December 31, 2003 we had approximately 552 stockholders of record of our common stock.
(c) 
We declared total cash distributions on common stock as set forth below:
 
 
 
 
 
 
 
 
 
2003
2002
First Quarter
 
$
0.10
 
 
$
0.10
 
Second Quarter
 
 
0.15
 
 
 
0.10
 
Third Quarter
 
 
0.15
 
 
 
0.10
 
Fourth Quarter
 
 
0.25
 
 
 
0.10
 
 
 
 
 
 
 
 
 
 
$
0.65
 
 
$
0.40
 
 
 
 
 
 
 
 
On March 10, 2004, we declared a $0.25 per common stock as reportedshare dividend payable on the New York Stock Exchange.


                                                                                  PRICE PER SHARE
                                                                           High                       Low
                                                                 ------------------------   -----------------------

1995
- ----
   First Quarter                                                                   13.625                    12.500
   Second Quarter                                                                  13.750                    12.625
   Third Quarter                                                                   15.250                    13.125
   Fourth Quarter                                                                  15.500                    14.000
 
1996
- ----
   First Quarter                                                                   17.125                    14.875
   Second Quarter                                                                  16.625                    15.125
   Third Quarter                                                                   17.250                    15.875
   Fourth Quarter                                                                  18.875                    16.250
 
1997
- ----
   First Quarter                                                                   18.250                    17.750
        (through February 1, 1997)

(b)  As of JanuaryMarch 31, 1997, there were approximately 6752004, to stockholders of record of the Company's common stock.  At the date of filing of this Annual Report
     on Form 10-K/A, the Company is unable to estimate the number of additional
     stockholders whose shares are held for them in street name or nominee
     accounts.
(c)  The Company has declared total cash distributions for the two years 1995
     and 1996 as set forth below:


                                                                        Distributions Declared Per Share
                                                                        --------------------------------
1995
- ----

   Quarter ended March 31                                                            $ .29 
   Quarter ended June 30                                                               .29
   Quarter ended September 30                                                         .315
   Quarter ended December 31                                                          .315
                                                                                    ------
                                                                                    $ 1.21
                                                                                    ====== 
1996
- ----
   Quarter ended March 31                                                           $ .315
   Quarter ended June 30                                                               .34
   Quarter ended September 30                                                          .34
   Quarter ended December 31                                                           .34
                                                                                    ------
                                                                                    $1.335
                                                                                    ======


     The Company intendsMarch 19, 2004. We intend to distribute to itsour stockholders a majority of its
funds from operations and, in any event, an amount at least sufficient to satisfy the distribution requirements of a REIT. Cash flows from operating activities available for distribution to stockholders will be derived primarily from interest and rental payments from itsour real estate investments. All distributions will be made by the Company subject to approval of the Board of Directors and will depend on theour earnings, of the Company, itsour financial condition and such other factors as the Board of Directors deem relevant. In order to qualify for the beneficial tax treatment accorded to REITs by Sections 856 through 860 of the Internal Revenue Code, the Company iswe are required to make distributions to holders of itsour shares equal to at least 95%90% (95% for years ending prior to January 1, 2001) of the Company's "REITour REIT taxable income."

                                        (See “Annual Distribution Requirements” beginning on page 8.)
20
(d) 
Securities authorized for issuance under equity compensation plans as of December 31, 2003 is as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Compensation Plan Information
(a)
(b)
(c)
Number of securities remaining
Number of securities to
Weighted-average
available for future issuance
be issued upon exercise
exercise price of
under equity compensation plans
of outstanding options
outstanding options,
(excluding securities reflected
Plan Category
warrants and rights
warrants and rights
in column (a))
Equity compensation plans approved by security holders
 
 
285,871
 
 
$
5.63
 
 
 
53,176
 
Equity compensation plans not approved by security holders
 
 
—
 
 
 
—
 
 
 
—
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
285,871
 
 
$
5.63
 
 
 
53,176
 
21
 
 ITEM 6.  SELECTED FINANCIAL INFORMATION

     
Item 6.
SELECTED FINANCIAL INFORMATION
The following table of selected financial information for the twelve months
ended December 31, 1996, 1995, 1994 and 1993 and for the period from August 25,
1992 (commencement of operations) to December 31, 1992 should be read in conjunction with the Company'sour financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K/A.

10-K.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2003
2002
2001
2000
1999
(In thousands, except per share amounts)
Operating Information:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
63,447
 
 
$
68,137
 
 
$
67,591
 
 
$
82,204
 
 
$
82,923
 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 
20,877
 
 
 
21,322
 
 
 
21,435
 
 
 
26,871
 
 
 
21,716
 
 
Depreciation and amortization
 
 
12,489
 
 
 
13,705
 
 
 
12,216
 
 
 
13,744
 
 
 
12,122
 
 
Impairment charge
 
 
1,260
 
 
 
7,097
 
 
 
16,671
 
 
 
5,337
 
 
 
14,939
 
 
Legal expenses
 
 
1,078
 
 
 
803
 
 
 
289
 
 
 
478
 
 
 
405
 
 
Operating and other expenses
 
 
6,561
 
 
 
6,044
 
 
 
8,702
 
 
 
5,303
 
 
 
5,453
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total expenses
 
 
42,265
 
 
 
48,971
 
 
 
59,313
 
 
 
51,733
 
 
 
54,635
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before non-operating income and minority interest
 
 
21,182
 
 
 
19,166
 
 
 
8,278
 
 
 
30,471
 
 
 
28,288
 
 
Non-operating income
 
 
1,970
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
1,304
 
 
Minority interest
 
 
(1,300
)
 
 
(1,308
)
 
 
(973
)
 
 
(982
)
 
 
(1,018
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
 
21,852
 
 
 
17,858
 
 
 
7,305
 
 
 
29,489
 
 
 
28,574
 
Discontinued Operations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) from discontinued operations
 
 
168
 
 
 
(538
)
 
 
(11,773
)
 
 
(6,842
)
 
 
3,253
 
 
Gain on sale of assets, net
 
 
2,299
 
 
 
14,483
 
 
 
1,560
 
 
 
8,990
 
 
 
—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) from discontinued operations
 
 
2,467
 
 
 
13,945
 
 
 
(10,213
)
 
 
2,148
 
 
 
3,253
 
Net income (loss)
 
 
24,319
 
 
 
31,803
 
 
 
(2,908
)
 
 
31,637
 
 
 
31,827
 
Preferred stock redemption charge
 
 
(1,241
)
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
Preferred stock dividends
 
 
(16,596
)
 
 
(15,042
)
 
 
(15,077
)
 
 
(15,087
)
 
 
(15,087
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) available to common stockholders
 
$
6,482
 
 
$
16,761
 
 
$
(17,985
)
 
$
16,550
 
 
$
16,740
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per share Information:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic net income (loss) available to common stockholders
 
$
0.36
 
 
$
0.91
 
 
$
(0.75
)
 
$
0.63
 
 
$
0.61
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted net income (loss) available to common stockholders
 
$
0.36
 
 
$
0.91
 
 
$
(0.75
)
 
$
0.63
 
 
$
0.61
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock Distributions declared
 
$
0.65
 
 
$
0.40
 
 
$
0.00
 
 
$
0.87
 
 
$
1.56
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance Sheet Information:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate investments, net
 
$
515,752
 
 
$
552,434
 
 
$
604,306
 
 
$
622,428
 
 
$
683,736
 
Total assets
 
 
574,924
 
 
 
599,925
 
 
 
648,568
 
 
 
676,585
 
 
 
721,811
 
Total debt
 
 
156,250
 
 
 
227,837
 
 
 
284,634
 
 
 
262,560
 
 
 
292,274
 
Total liabilities
 
 
192,741
 
 
 
239,113
 
 
 
294,785
 
 
 
272,546
 
 
 
303,300
 
Minority interest
 
 
13,401
 
 
 
13,399
 
 
 
13,404
 
 
 
9,912
 
 
 
9,894
 
Total stockholders’ equity
 
 
368,782
 
 
 
347,413
 
 
 
340,379
 
 
 
394,127
 
 
 
408,617
 
Other Information:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows provided by operating activities
 
$
36,218
 
 
$
42,903
 
 
$
43,852
 
 
$
45,307
 
 
$
60,785
 
Cash flows provided by (used in) investing activities
 
 
20,707
 
 
 
19,320
 
 
 
46,772
 
 
 
45,697
 
 
 
(48,156
)
Cash flows used in financing activities
 
 
(47,007
)
 
 
(60,544
)
 
 
(86,172
)
 
 
(91,789
)
 
 
(11,477
)
22

                                                          (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                           RESTATED(3)
                                             ------------------------------------
                                                  1996         1995        1994        1993        1992(1)
                                                ---------   ----------   ---------   ---------   -----------

OPERATING INFORMATION:
Revenues                                        $ 54,930    $  35,569    $ 27,641    $ 15,847    $  4,012
Expenses:
   Interest expense                               20,604        9,407       6,563       6,400       2,597
   Depreciation and amortization                   6,298        3,072       1,781         799          41
   Amortization of Founders' stock                   114          221         372         481         281
   Provision for loan losses                           -            -         550         372          75
   Minority interest                                 898           57           -           -           -
   Operating and other expenses                    4,479        2,772       3,037         948         255
                                                --------    ---------    --------    --------    --------
      Total expenses                              32,393       15,529      12,303       9,000       3,249
                                                --------    ---------    --------    --------    --------
Other income (loss)                                6,173       (1,656)        667           -           -
                                                --------    ---------    --------    --------    --------
Income before cumulative effect of
      change in accounting                        28,710       18,384      16,005       6,847         763
Cumulative effect of accounting change                 -            -       1,205           -           -
                                                --------    ---------    --------    --------    --------
Net Income                                      $ 28,710    $  18,384    $ 17,210    $  6,847    $    763
                                                ========    =========    ========    ========    ========
Weighted average shares outstanding               19,257       18,257      15,443       9,169       7,962
                                                ========    =========    ========    ========    ========
 
PER SHARE INFORMATION:
Net income before cumulative effect of
 accounting change                              $   1.49    $    1.01    $   1.04    $   0.75    $   0.10
Cumulative effect on prior year (year
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating Results
Year ended
 December 31, 1993) of a change in method
 of accounting for REMIC Certificates                  -            -        0.07           -           -
                                                --------    ---------    --------    --------    --------
Net income                                      $   1.49    $    1.01    $   1.11    $   0.75    $   0.10
                                                ========    =========    ========    ========    ========

Distributions declared (2)                      $  1.335    $    1.21    $   1.10    $   1.02    $   0.35
 
BALANCE SHEET INFORMATION:
Real estate investments, net                    $488,134    $ 340,441    $220,025    $147,269    $ 94,802
Total assets                                     500,538      357,378     239,369     154,303     148,562
Total debt                                       283,472      174,083      55,835      61,804      73,192
Total liabilities                                299,207      185,458      66,148      69,156      78,250
Minority interest                                 10,528        1,098           -           -           -
Total stockholders' equity                       190,803      170,822     175,093      85,147      70,312
 
OTHER INFORMATION:                                  1996         1995        1994        1993        1992
                                                --------    ---------    --------    --------    --------
Cash flows from operating activities            $ 33,789    $  24,197    $ 19,242    $  8,863    $  3,268
Cash flows used in investing activities          (94,210)    (111,459)    (73,546)    (52,706)    (94,578)
Cash flows provided by (used) in financing
     activities                                   62,135       74,430      65,465      (2,817)    141,075
Weighted average shares outstanding               19,257       18,257      15,443       9,169       7,962


(1)  From August 25, 1992 (commencement of operations) to December 31, 1992.
(2)  Distributions may exceed current2003 compared to year ended December 31, 2002
Revenues for the year ended December 31, 2003 were $63.4 million compared to $68.1 million for the same period in 2002. Rental income decreased $0.9 million primarily as a result of the effect of classifying eight properties leased to Sun Healthcare Group, Inc. (or Sun) as non-accrual rents ($3.3 million) and the elimination of rents from sold properties not subject to Statement of Financial Accounting Standard (or SFAS ) No. 144“Accounting for the Impairment or accumulated net income.
(3)  As further discusseddisposal of Long-Lived Assets”reclassification ($0.9 million), partially offset by the receipt of past due rent that we had not accrued due to collectibility uncertainties ($0.5 million), the receipt of rent from properties formerly operated by CLC Healthcare Inc. (or CLC) see Item 8. FINANCIAL STATEMENTS —Note 8. CLC Healthcare, Inc.($1.5 million), security deposits applied to past due rents ($0.5 million), acquisitions ($0.1 million) and new leases and rental increases provided for in Note 1existing lease agreements ($0.7 million). Same store rental income, (rental income from properties owned for both years ended December 31, 2003 and 2002) decreased $1.8 million due to the effect of Consolidated Financial Statements
     included herein,classifying rents on eight properties leased to Sun as non-accrual rents, partially offset by the Company has restated its 1996, 1995receipt of past due rent that we had not accrued due to collectibility uncertainties and 1994 results
     of operations to effect a changenew leases and normal rental rate increases, as set forth in the method usedlease agreements.
Interest income from mortgage loans and notes receivable decreased $0.9 million primarily as a result of the early payoff of four mortgage loans (one in 2003 and three in 2002) and the receipt of past due interest on CLC’s line of credit in September 2002. Interest income from REMIC Certificates for the year ended December 31, 2003 decreased $3.0 million compared to account for its2002 due to the amortization of the related asset and the early payoff of certain mortgage loans underlying our investment in REMIC Certificates. In March 1995, NAREIT adoptedInterest and other income increased $0.1 million in 2003 from the following definitionprior year due primarily to the receipt of Funds From
Operations ("FFO"): net income (computedinterest on our investment in accordance with GAAP) excluding
gains (or losses)secured notes of ALC.
Interest expense decreased $0.4 million in 2003 from the prior year. Included in interest expense for 2003 was a $2.1 million write-off of debt restructuringissue costs related to our early retirement of our Secured Revolving Credit. Interest expense decreased due to a decrease in average borrowings outstanding during the year and salesa decrease in interest rates on our Secured Revolving Credit partially offset by an increase in our overall weighted average interest rate related to our Senior Participation Payable. See Item 8. FINANCIAL STATEMENTS —Note 11. Debt Obligationsfor a description and further discussion of property, plus
depreciationour Secured Revolving Credit and Senior Mortgage Participation Payable.
Depreciation and amortization expense for 2003 decreased $1.2 million from the prior year due to properties sold in 2002 not subject to SFAS No. 144 reclassification and a lower basis of realcertain assets due to impairment charges taken in 2002.
We perform periodic comprehensive evaluations of our investments. During our evaluation of the realizability of expected future cash flows from the mortgages underlying our REMIC Certificates, there were indications that certain expected future cash flows would not be realized by the REMIC Trust. Accordingly, we recorded a $1.3 million impairment charge to reflect the estimated impact on future cash flows from loan prepayments occurring during, or expected to occur subsequent to, the first quarter of 2003 related to certain subordinated REMIC Certificates we hold. During 2002 we recorded impairments of $1.7 million in one skilled nursing property and after adjustmentsone assisted living property ($0.7 million of which is included in net loss from discontinued operations). Of this $1.7 million, $1.0 million applied to a skilled nursing property where we agreed to a rent reduction that required an impairment adjustment and $0.7 million was for unconsolidated entitiesan assisted living property we agreed to sell at less than net book value. We recorded a $1.6 million impairment for mortgage loans on two skilled nursing properties. Of this amount, $0.6 million was for a skilled nursing property that had closed and the borrower defaulted on the loan and $1.0 million was for a loan on a skilled nursing property whose operator was reporting losses from operations and requesting temporary loan payment modifications. Additionally, we recorded a $4.5 million impairment on investments in whichREMIC Certificates. Of this $4.5 million charge, $1.2 million was for loans paying off prior to maturity and reducing the value of our interest only REMIC Certificates, $0.5 million was for one skilled nursing property that closed, $1.3 million was for one skilled nursing facility that we, as loan servicing agent for the REMIC Trust, agreed could pay the loan off at a REIT holds$1.0 million reduction in principal and $1.5 million was for one skilled nursing property whose operator advised us they were considering either closing the facility or attempting to convert the building to an interest.  In addition, the Company excludes any
unrealized gains or losses resulting from temporary

                                       22

 
changesalternative use.
23
Legal expenses were $0.3 million higher in 2003 than in 2002 due to higher legal costs for general litigation defense. Operating and other expenses increased $0.5 million due to higher property tax payments made on behalf of operators in 2003 as compared to 2002.
Non-operating income of $2.0 million was recognized in 2003 as a result of ALC’s early redemption of its secured notes that we owned. No non-operating income was recognized in the estimated fair value of its REMIC Certificates in the computation
of FFO. The Company implemented this new definition of FFO effective as of the
NAREIT-suggested adoption date of January 1, 1996. prior year.
For the year ended December 31, 1996, the Company's FFO was $28,793,000 representing2003, net income from discontinued operations was $2.5 million. During 2003 we sold eight skilled nursing facilities, one of $28,710,000 plus depreciationwhich was formerly operated by Sun and three were formerly operated by CLC. We recognized a $2.3 million gain on real estate investmentsthese sales and received $15.7 million in net proceeds which we used to pay $3.8 million in mortgage debt related to these properties, $2.6 million to repay outstanding borrowings under the Secured Revolving Credit and the remaining net proceeds were used to fund the partial redemption of $6,256,000, less
unrealized gains on its REMIC Certificate investmentsour Series A Preferred Stock. During 2003 we reported income from discontinued operations of $6,173,000

     The Company believes that FFO is an important supplemental measure of
operating performance.  FFO should not be considered as an alternative to net
income or any other GAAP measurement of performance as an indicator of operating
performance or as an alternative to cash flows from operations, investing, and
financing activities as a measure of liquidity.  The Company believes that FFO
is helpful in evaluating a real estate investment portfolio's overall
performance considering the fact that historical cost accounting implicitly
assumes that the value of real estate assets diminishes predictably over time.
The term FFO$0.2 million. This reclassification was designed by the REIT industry to provide useful supplemental
information.  FFO provides an alternative measurement criteria, exclusive of
certain non-cash charges included in GAAP income, by which to evaluate the
performance of such investments.  FFO, used by the Companymade in accordance with SFAS No. 144 which requires that the NAREIT definition mayfinancial results of properties meeting certain criteria be reported on a separate line item called “Discontinued Operations.” During 2002 we recognized a $14.5 million gain related to sale of 15 skilled nursing properties and one assisted living property and reported a $0.5 million loss from discontinued operations.
During 2003 we announced the redemption of 40% of the outstanding shares of our Series A Preferred Stock. This redemption was completed January 30, 2004, and as a result, we recognized original issuance costs of $1.2 million that were related to the shares we redeemed as a preferred stock redemption charge. We did not be comparableredeem any preferred stock in 2002. Preferred stock dividends increased $1.6 million due to similarly entitled items reported
by other REITs that have not adopted the NAREIT definition.

                                       23

 
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS

OPERATING RESULTS

     Year ended December 31, 1996 comparedissuance of 2.2 million shares of 8.5% Series E Convertible Preferred Stock (or Series E Preferred Stock) in September of 2003.
Net income available to common stockholders for the year ended December 31, 1995

     Total revenues2003 was $6.5 million compared to $16.8 million for the twelve monthsyear ended December 31, 1996 increased by
$19,361,000 or 54%2002. This decrease is due primarily to $54,930,000 from $35,569,000.  The increase was primarily
duegains on asset sales in 2002 as previously discussed.
Year ended December 31, 2002 compared to increased rental income of $10,594,000, increased mortgage interest
income of $4,382,000 and increased interest income from REMIC Certificates of
$3,480,000.year ended December 31, 2001
Revenues for the year ended December 31, 2002 were $68.1 million compared to $67.6 million for the same period in 2001. Rental income increased $7,375,000 as a result of $113,858,000 of
property acquisitions made in 1996 and by $3,011,000 as a result of a full
year's effect on rental revenue of facilities acquired during 1995.  Rental
revenue also increased by $109,000 due to contingent rents received from certain
facilities based on increases in the facilities' incremental operating revenues
(as defined in the respective leases).  "Same-store" rentals (rents from
facilities owned for all of 1995 and 1996) increased by $99,000 as a result of
additional rents received in 1996 on facilities that are subject to rental
increases tied to increases in Consumer Price Indices (CPI). The increase in
mortgage interest income resulted from the higher overall mortgage investment
base in 1996 as compared to the 1995 investment base.  Interest from REMIC
Certificates increased$4.2 million primarily as a result of the third securitization transaction whichacquisition of properties in December 2001, new leases and rental increases provided for in the existing lease agreements, partially offset by the elimination of rents from sold properties and closed properties and a reduction in March 1996.  The remainingrents due from ALC. Specifically “same store” rental income, (rental income from properties owned for both years ended December 31, 2002 and 2001) increased $0.9 million due to rental rate increases provided for in the leases partially offset by decreases in rents due from ALC. Properties acquired in December 2001 and a loan that converted to an owned property in 2002 resulted in a $5.8 million increase in rental income during 2002 while properties sold in 2001 and 2002 resulted in a $2.5 million decrease in rental income.
Interest income from mortgage loans and notes receivable decreased $1.9 million primarily as a result of $905,000 was
primarily due to penalties the Company receivedearly payoff of five mortgage loans (three in 1996 from prepayments2002 and two in the second half of 2001), the conversion of one mortgage loan to an owned property, a receipt of delinquent interest related to a bankruptcy order in the prior year and eight loans underlying the effect of not accruing interest on one mortgage loan.
Interest income from REMIC Certificates held by the
Company.

     Total expenses for the twelve months ended December 31, 1996 increased by
$16,864,000 or 109% to $32,393,000 from $15,529,000 a year ago.  The increase
resulted primarily from increases in interest expense of $11,197,000,
depreciation and amortization expense of $3,119,000, and from operating and
other expense of $1,707,000.  Interest expense increased primarily due to a
higher borrowing base in 1996 that resulted from convertible debt issuances
totaling $60,000,000 offset by $18,813,000 of conversions, increases in net bank
borrowings of $30,930,000 and increases in net mortgage financing of
$37,498,000.  During 1996, the Company acquired 22 assisted living facilities
and 20 skilled nursing facilities resulting in an increase in depreciation and
amortization expense.  Operating and other expenses increased by $1,707,000 or
62% due to approximately $1,445,000 in additional salaries and bonuses.
Approximately $1,299,000 of the increase in salaries and bonuses were
attributable to higher wages and bonuses paid to existing personnel and
approximately $146,000 was due to additional staffing.  The remaining portion of
the increase in operating expense was due to higher administrative costs.
Minority interest expense increased $841,000decreased $2.1 million due to the additionamortization of six new
partnership transactionsthe related asset, the early payoff of certain mortgage loans underlying our investment in 1996.

     Total expenses forREMIC Certificates and the twelve months ended December 31, 1996, as a
percentagesale of revenues,REMIC Certificates in the third quarter of 2001.
Interest and other income increased 35% as compared$0.4 million due primarily to the prior period. The
relatively higher increasereceipt of interest income from our investment in expenses when compared to revenues was primarilysecured ALC notes.
Interest expense decreased $0.1 million due to financing activitieslower debt outstanding along with a decrease in the latter part of 1995 and 1996 which utilized
more debt than equity. As a result, interest expense, as a percentage of
revenues, increased by approximately 42%. In addition, the investments funded
with these borrowings generally resulted in lower spreads as a result of market
interest rate pressures, when compared to prior investments which utilized more
equity financing. on our Secured Revolving Credit, partially offset by a higher interest rate on our Senior Mortgage Participation Payable.
Depreciation and amortization expense increased by 33% as a
percentage of revenues$1.5 million due to the increaseacquisition of properties in December 2001 and the Company'sconversion of mortgage loans into owned properties, asset base in 1996partially offset by approximately $113,858,000. Minority expense also
increased 920% asproperties sold not subject to SFAS No. 144 reclassification and a percentagelower basis of revenues as a result of the six additional
partnership transactions completed in 1996 and the full year impact of the
partnership transaction completed in 1995. Operating and other expenses
increased by 5% as a percentage of revenues primarilycertain assets due to higher salariesimpairment charges taken in 2001 and bonuses paid to existing staff during 1996.

                                       24

 
     Other income (loss) increased in 1996 over 1995 due to the higher estimated
fair value2002.
We perform periodic comprehensive evaluations of the Company's REMIC Certificate investments when compared to prior
year's.  The higher estimated fair value was attributable to the Company's third
securitization which was completed in March 1996.  On an overall basis, the
Certificates' estimated fair value was $6,389,000 greater than book value as of
December 31, 1996.our investments. As a result, we determined certain investments in long term care properties were impaired. During 2002 we recorded impairments of $1.7 million in one skilled nursing property and one assisted living property ($0.7 million of which is included in net loss from discontinued
24
operations). Of this $1.7 million, $1.0 million applied to a skilled nursing property where we agreed to a rent reduction that required an impairment adjustment and $0.7 million was for an assisted living property we agreed to sell at less than net book value. We recorded a $1.6 million impairment for mortgage loans on two skilled nursing properties. Of this amount, $0.6 million was for a skilled nursing property that had closed and defaulted on the foregoing, net incomeloan and $1.0 million was for a loan on a skilled nursing property whose operator was reporting losses from operations and requesting temporary loan payment modifications. Additionally, we recorded a $4.5 million impairment on investments in REMIC Certificates. Of this $4.5 million charge, $1.2 million was for loans paying off prior to maturity and reducing the twelve months ended
December 31, 1996 increased $10,326,000 over the same period a year earlier.

     Year ended December 31, 1995 compared to the year ended December 31, 1994

     Total revenues increased $7,928,000 primarily as a resultvalue of increased
rental income of $4,292,000, increased interest income onour I/ O REMIC Certificates, of
$2,980,000 and increased interest income on mortgage loans of $280,000. The
increase in rental income of $4,292,000$0.5 million was due primarily to additional rents of
$1,748,000 resulting fromfor one skilled nursing property acquisitions made in 1995 and by $2,362,000
as a result of a full year's effect on rental revenue of facilities acquired
during 1994. "Same-store" rentals (rents from facilities ownedthat closed, $1.3 million was for all of 1995
and 1994) increased by $116,000 primarily as a result of an additional $107,000
of rent associated with the expansion of one skilled nursing facility that we, as loan servicing agent for the REMIC Trust, agreed could pay the loan off at a $1.0 million reduction in principal and $1.5 million was for one skilled nursing property whose operator advised us they were considering either closing the facility or attempting to convert the building to an alternative use. During 2001 we recorded net impairments of $16.7 million ($11.9 million of which is included in loss from discontinued operations) for 14 skilled nursing properties; $0.5 million in lease termination costs; $1.5 million on which
60 new beds were constructeda note receivable and by $9,000 resulting$9.8 million on ALC’s pre-bankruptcy convertible subordinated debentures.
Legal expenses increased $0.5 million in 2002 from increased rent on one
facility due to a rent adjustment tied to increases in CPI. Rental revenue also
increased by increased by $66,000 due to contingent rents received based on
increases in the facilities' incremental operating revenues (as defined in the
respective leases). Interest income on REMIC Certificates increased $2,980,000
primarily2001 due to the full year impactincreased costs of the securitization transaction
completed in 1994. Interest income on mortgage loans increased $6,443,000 due to
the investments completed in 1995 and $3,996,000 due to the full year impact of
mortgage loan investments completed in 1994. The increases were offset by
reductions in interest income of $9,506,000 relating to the sale of mortgages to
the REMIC and $653,000 resulting from the prepayment of certain mortgages in
1994. The remaining increase in total revenues of $376,000 was primarily due to
an increase of $158,000 in prepayment penalties received by the Company in 1995
and increases in facility fees and other income of $218,000.

     Total expenses for the twelve months ended December 31, 1995 increased
$3,226,000 primarily due to increases in interest expense of $2,844,000 and
depreciation and amortization of $1,140,000.  Interest expense increased by
approximately $3,581,000 due to the issuance of $30,000,000 of convertible
debentures in September 1994 and $61,500,000 of convertible debentures in
September 1995.  Interest expense also increased by approximately $899,000 due
to increased levels of bank borrowings and by approximately $954,000 due to the
assumption of non-recourse mortgages.  These increases were offset by a decrease
of $2,590,000 in interest expense in connection with the conversion of a portion
of the Company's 9.75% convertible debentures in 1995.  Increased expenses were
also attributable to increased depreciation and amortization totaling $1,140,000
as a result of acquisitions in 1995 and 1994.  During 1995, the Company acquired
11 skilled nursing facilities and six assisted living residences.  The above
increases were offset by decreases in operating and other expenses of $265,000.
Reduction in operating and other expenses resulted primarily from a decrease in
compensation expense of $764,000 offset by increased staffing and administrative
costs.  Minority interest increased by $57,000 due to a partnership formed by
the Company in 1995.

     Total expenses for the twelve months ended December 31, 1995, as a
percentage of revenues, decreased by approximately 2% as compared to the prior
period. Although on an overall basis revenues compared to expenses were stable
between the periods, there were some changes with respect to certain expense
categories. Interest expense, as a percentage of revenues, increased 11% as a
result of a greater proportion of debt being used to finance the 1995
investments as compared to 1994, which utilized debt and

                                       25

 
equity more proportionately. Depreciation and amortization expense increased by
34% as a percentage of revenues due to the additional investments in 1995 and
the full impact of 1994 owned property investments which primarily occurred
during the second half of 1994. These increases were offset by decreases in the
provision for loan or lease losses of 100%.general litigation defense. Operating and other expenses decreased by approximately 29% as$2.6 million due primarily to a percentage of revenues primarily$2.5 million charge for an adjustment to stockholder loans in 2001.
The loss from discontinued operations was $11.2 million lower due to comparatively lower compensation expenseimpairment charges recorded in 1995.

     2001 on properties that were sold in 2002. During 2002 we sold 15 skilled nursing properties and one assisted living property resulting in a net gain of $14.5 million. During 2001, we sold three skilled nursing properties, three assisted living properties and three schools resulting in a net gain of $3.2 million. Additionally, we sold certain REMIC Certificates with a net book value of $19.0 million resulting in a $1.1 million loss. We also sold other miscellaneous assets during 2001 which resulted in an aggregate $0.5 million loss.
The decreaseyear ended December 31, 2002, resulted in othernet income (loss)available to common stockholders of $16.8 million compared to a net loss after preferred dividends of $18.0 million for the year ended December 31, 1995
was2001. This increase is due primarily to gains on asset sales in 2002, impairment charges in 2001 and the lowercharge for an adjustment to stockholder loans in 2001.
Critical Accounting Policies
Preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. See Item 8. FINANCIAL STATEMENTS —Note 2. Summary of Significant Accounting Policiesfor a description of the significant accounting policies we followed in preparing the consolidated financial statements for all periods presented. We have identified the following significant accounting policies as critical accounting policies in that they require significant judgment and estimates and have the most impact on financial reporting.
Impairments. Impairment losses are recorded when events or changes in circumstances indicate the asset is impaired and the estimated undiscounted cash flows to be generated by the asset are less than its carrying amount. Management assesses the impairment of properties individually and impairment losses are calculated as the excess of the carrying amount over the fair value of assets to be held and used, and the Company's REMIC Certificate
investments as of December 31, 1995 when compared to estimated fair value at
December 31, 1994.  On an overall basis, the Certificates' estimated fair value
was $216,000 greater than book value as of December 31, 1995.

     As more fully described in Note 1 of the Consolidated Financial statements 
included herein, the Company restated its earnings to adoptcarrying amount over the fair value accounting provisionsless cost to sell in instances where management has determined that we will dispose of Statementthe property, as per SFAS No. 121“Accounting for the Impairment of Financial Long-Lived Assets and for Long-Lived Assets to be Disposed of” for years prior to 2002 and as per SFAS No. 144“Accounting Standards No. 115. As
a result,for the cumulative effect on earningsImpairment or Disposal of $1,205,000Long-Lived Assets” beginning January 1, 2002. In determining fair value, we use current appraisals or other third party opinions of value and other estimates of fair value such as estimated undiscounted future cash flows.
To the extent there are defaults or unrecoverable losses on the date of 
adoption (January 1, 1994) has been reflected as a separate component in the 
Consolidated Statement of Income for the year ended December 31, 1994.

     As a resultunderlying mortgages of the foregoing, net income for the twelve months ended
December 31, 1995 increased $1,174,000 over the same period a year earlier.

LIQUIDITY AND CAPITAL RESOURCES

     As of December 31, 1996, the Company had investments in 248 skilled nursing
facilities with a total of 28,628 beds and 35 assisted living facilities with a
total of 1,456 units in 32 states.  The Company's real estate investment
portfolio consisted of approximately $178,262,000 invested in mortgage loans
(before allowance for doubtful accounts of $1,000,000), approximately
$98,934,000 of REMIC Certificates at estimated fair value ($92,545,000 cost
basis), and approximately $223,578,000 (before accumulated depreciation of
$11,640,000) investedresulting in long-term care facilities owned by the Company and
leased to operators.

     During 1996, the Company completed investments totaling over $205,000,000
which consisted of purchases of 42 long-term care facilities for approximately
$113,858,000 and mortgage loans of $99,440,000 net of the sale of four
properties in Texas for $7,589,000.  The Company financed its investments
through the sale of $60,000,000 aggregate principal amount of convertible
debentures in February and August 1996, the sale of $90,552,000 of REMIC
Certificates in March 1996, the assumption of non-recourse mortgage loans
totaling $9,641,000, the issuance of $8,932,000 in limited partnership
interests, short-term borrowings and cash on hand.  During 1996, the Company
repurchased and retired 120,000 shares of common stock for an aggregate price of
approximately $1,831,000.  The Company also paid off one of its outstanding
mortgage loans totaling $3,331,000.

     Under the Credit Agreement, the Company has an unsecured line of credit in
the amount of $45,000,000 which expires on May 31, 1998. Borrowings under the
credit line bear interest at LIBOR plus 1.5% and are subject to standard
affirmative and negative covenants. As of February 1, 1997, the Company had
$38,700,000 in borrowings outstanding under the Credit Agreement bearing a
weighted average interest rate of approximately 7.2%. In addition, the Company
has entered into the Repurchase Agreement with a financial institution under
which it can borrow up to $84,000,000. The scheduled maturity of the Repurchase
Agreement is November 15, 1997; however, the Company has historically been able
to renew the Repurchase Agreement. Borrowings under the Repurchase Agreement
bear interest at LIBOR plus 2% and are secured by a pledge of certain mortgage
loans. At February 1, 1997, $50,000,000 was outstanding under the Company's
Repurchase Agreement bearing an average interest rate of approximately 7.7%.

     The credit and repurchase agreements (collectively "lines of credit") limit
the amount of borrowings available to between 50% and 60% of the Company's
borrowing base.  Under the Credit Agreement, the Company's borrowing base is
comprised of certain owned properties and mortgage loans.  At December 31, 1996,
the borrowing base under the Credit Agreement is limited to 50% of the cost of
the total applicable value of the properties and 60% of the total applicable
value of eligible mortgage loans in the borrowing base or

                                       26

 
approximately $45,000,000. Under the Repurchase Agreement, the borrowing base
consists of various loans which have been assigned to the financial institution.
The Company can borrow up to 60% of the loans which have been assigned. Based on
the current level of collateral and borrowings at February 1, 1997, there was
approximately $28,451,000 available under the Company's Repurchase Agreement
which the Company anticipates will be increased to $34,000,000 when additional
collateral is accepted. In addition, the Company had registered in a shelf
registration but had not issued up to $77,250,000 of additional securities for
future issuance from time to time.

     In July 1996, in connection with obtaining a $50,180,000 commitment to
enter into a sale leaseback transaction with Assisted Living Concepts, Inc.
("ALC"), the Company agreed to sell four assisted living facilities ("ALFs") it
acquired during 1996 in Texas to ALC for approximately $7,589,000.  There was no
gain or loss recognized on the sale; however,  the Company received an
administration fee of approximately $214,000 in conjunction with the sale of the
four ALFs.  In connection with the commitment, the Company entered into a one-
year forward ten-year interest rate swap agreement (the "November 1996
Agreement"). The terms of the commitment provide for an initial lease term of
twelve years and an lease rate of 9.90% on each facility acquired. The Company
will finance this commitment with fixed rate financing, and as such, has
utilized an interest rate swap to "lock-in" the rate at which such financing
will be obtained.  Interest rate swaps are contractual agreements between the
Company and third parties to exchange fixed and floating interest payments
periodically without the exchange of the underlying principal amounts (notional
amounts).  Under the November 1996 Agreement, the Company will be credited with
interest at the three-month LIBOR and will incur interest at a fixed rate of
6.835% on a $40,000,000 notional amount beginning on November 7, 1997.  The
November 1996 Agreement will be terminated on or before November 7, 1998 which
is the latest date on which the Company expects to fully fund the commitment and
have long-term financing in place.  At December 31, 1996, the Company had an
unrealized gain of $251,000 under the November 1996 Agreement.

     The Company also anticipates completing a securitization transaction within
the next year, the proceeds of which will be used to repay borrowings
outstanding under its Repurchase Agreement and its Credit Agreement.  In
connection with such securitization, the Company, in September 1995, entered
into a seven-year forward interest rate swap agreement (the "September 1995
Agreement"). Under the September 1995 Agreement, beginning on March 31, 1997 and
continuing semi-annually thereafter, the Company is to be credited interest at
the six month LIBOR and incur interest at a fixed rate of 6.64% on a notional
amount of $60,000,000 which is being accounted for as a hedge.  This effectively
"locked-in" the net interest margin on $60,000,000 principal amount of senior
certificates the Company anticipates will be sold in the securitization
transaction.  Concurrent with the closing of the hedged transaction, any gains
and losses associated with the interest rate swap will be included as a
component of the proceeds of the transaction.  The September 1995 Agreement will
be terminated at the earlier of (i) an anticipated securitization transaction to
be completed during the second half of 1997 or (ii) November 17, 1997.  At
December 31, 1996, the Company had an unrealized loss of $253,000 under the
September 1995 Agreement.

     The Company has the option to redeem, without penalty, its currently
outstanding $843,000 aggregate principal amount of 9.75% Convertible
Subordinated Debentures at any time.  Since such debentures are convertible into
common stock of the Company at a conversion price of $10.00 per share, the
Company anticipates that substantially all of such debentures will be converted
if it elects to redeem the debentures.

     During January 1997, the Company provided mortgage loans totaling
approximately $18,530,000 and acquired one skilled nursing facility for
$2,556,000.  Included in the mortgage loans are approximately $17,330,000 of
mortgage loans on assisted living facilities which will be paid off once the
Company

                                       27

 
completes a sale leaseback transaction for the same amount on assisted living
facilities that are being constructed. As of February 1, 1997, the Company had
outstanding investment commitments totaling $82,790,000, consisting of
approximately $22,650,000 in commitments to make mortgage loans and commitments
for the acquisition of one nursing and 25 assisted living facilities for an
aggregate purchase price of approximately $60,140,000, including the remaining
$35,330,000 commitment to Assisted Living Concepts, Inc. discussed previously.
The Company expects to fund substantially all of these commitments by the end of
1997. In addition, in January 1997, the Company sold 1,000,000 shares of common
stock at $17.75 per share through a public offering. Of the net proceeds,
$17,300,000 was used to pay borrowings under the unsecured line of credit.

     The Company expects its future income and ability to make distributions
fromreduced cash flows, from operations to depend on the collectibility of its mortgage
loans receivable, REMIC Certificates and rents.  The collection of these loans,subordinated certificates and rents will be dependent,we hold would, in large part, upon the successful
operation by the operators of the skilled nursing and assisted living facilities
owned by or pledged to the Company.  The operating results of the facilities
will depend on various factors over which the operators/owners may have no
control.  Those factors include, without limitation, the status of the economy,
changes in supply of or demand for competing long-term care facilities, ability
to control rising operating costs, and the potential for significant reforms in
the long-term care industry.  In addition, the Company's future growth in net
income and cash flow may be adversely impacted by various proposals for changes
in the governmental regulations and financing of the long-term care industry.
The Company cannot presently predict what impact these proposals may have, if
any.  The Company believes that an adequate provision has been made for the
possibility of loans proving uncollectible but will continually evaluate the
status of the operations of the skilled nursing and assisted living facilities,
the Company's borrowers and the underlying collateral for mortgage loans and
make future revisions to the provision, if considered necessary.

     The Company's investments, principally its investments in mortgage loans,
REMIC Certificates, and owned properties, are subject to the possibility of loss
of their carrying values as a result of changes in market prices, interest rates
and inflationary expectations.  The effects on interest rates may affect the
Company's costs of financing its operations and the fair market value of its
financial assets.  The Company generally makes loans which have predetermined
increases in interest rates and leases which have agreed upon annual increases.
Inasmuch as the Company initially funds its investments with its revolving bank
line and repurchase agreement, the Company is at risk of net interest margin
deterioration if medium and long-term rates were to increase between the time
the Company originates the investment and the time it securitizes the loans or
replaces the short-term variable rate borrowings with a fixed rate financing.
To help reduce the negative impact of changes in interest rates, the Company
partially hedges, or locks in, its net interest rate spread on its investments
with interest rate swaps, as previously described.

     The REMIC Certificates retained by the Company are subordinate in rank and
right of payment to the certificates sold to third-party investors and as such
wouldgeneral bear the first risk of lossloss. In accordance with EITF 99-20, management evaluates the realizability of expected future cash flows periodically. Management includes in its evaluation such factors as actual and/or expected loan prepayments, actual and/or expected credit losses, and other factors that may impact the amount and timing of REMIC Certificate future cash flows. An impairment is recorded in current period earnings when management believes that it is likely that a portion of the underlying mortgage collateral would not be realized by the REMIC Trust.
25
Securitization Transactions.We are a REIT and, as such, make investments with the intent to hold them for long-term purposes. However, mortgage loans may be transferred to a REMIC, a qualifying special-purpose entity, when a securitization provides us with the best available form of capital to fund additional long-term investments. When contemplating a securitization, consideration is given to our current and expected future interest rate posture and liquidity and leverage position, as well as overall economic and financial market trends.
A securitization is completed in a two-step process. First, a wholly owned special-purpose bankruptcy remote corporation (or REMIC Corp.) is formed and selected mortgage loans are sold to the REMIC Corp. without recourse. Second, the REMIC Corp. transfers the loans to a trust (or REMIC Trust) in exchange for commercial mortgage pass-through certificates (or REMIC Certificates) which represent beneficial ownership interests in the eventREMIC Trust assets (the underlying mortgage loans). Under this structure, the REMIC Trust is a qualifying special purpose entity from which the mortgages are isolated from us and the REMIC Corp. Holders of REMIC Certificates issued by the REMIC Trust have the right free of any conditional constraints to pledge or exchange those interests, and neither we or the REMIC Corp. maintain effective control over the transferred assets (the mortgages). The REMIC Trust is administered by a third-party trustee solely for the benefit of the REMIC Certificate holders.
Under the securitization structure described above, we account for the transfer of the mortgages as a sale and any gain or loss is recorded in earnings. The gain or loss is equal to the excess or deficiency of the cash proceeds and fair market value of any subordinated certificates received when compared with the carrying value of the mortgages sold, net of any transaction costs incurred and any gains or losses associated with an impairmentunderlying hedge. Subordinated certificates received by us are recorded at their fair value at the date of the transaction. We have no controlling interest in the REMIC since the majority of the beneficial ownership interests (in the form of REMIC Certificates) are sold to third-party investors. Consequently, the financial statements of the REMIC Trust are not consolidated with those of our company for financial reporting purposes.
REMIC Certificates retained by us as consideration for the mortgages sold are accounted for at fair value. In determining fair value on the date of sale, management considers various factors including, pricing of the certificates sold relative to the certificates retained as evaluated by the underwriters, discount rates and applicable spreads at the time of issuance for similar securities (or adjustments thereto if no comparable securities are available), assumptions regarding prepayments including the weighted-average life of prepayable assets, if any, and estimates relating to potential realized credit losses.
The REMIC Certificates issued by the REMIC Trust include various levels of senior, subordinated, interest only and residual classes. The subordinated REMIC Certificates generally provide a level of credit enhancement to the senior REMIC Certificates. The senior REMIC Certificates (which historically have represented 66% of the total REMIC Certificates) were then sold to outside third-party investors through a private placement under Rule 144A of the Securities Act of 1933, as amended. The subordinated REMIC Certificates along with the cash proceeds from the sale of the senior REMIC Certificates were retained by the REMIC Corp. as consideration for the initial transfer of the mortgage loans to the REMIC Trust. Neither we, nor the REMIC Corp. is obligated to purchase any of the underlying mortgages.REMIC Trust assets or assume any liabilities.
Description of the REMIC Certificates.REMIC Certificates represent beneficial ownership interests in the REMIC Trust and can be grouped into three categories; senior, subordinated and subordinated interest only (or I/ O). The returnsREMIC Certificates sold to third-party investors are the senior certificates and those retained by us are the subordinated certificates. The senior and the subordinated certificates have stated principal balances and stated interest rates (or pass-through rates). The I/ O REMIC Certificates have no stated principal but are entitled to interest distributions. Interest distributions on the Company's investment inI/ O REMIC Certificates are subject to certain uncertainties and contingencies including,
without limitation,typically based on the level of prepayments, estimated future credit losses,
prevailingspread between the monthly interest rates,received by the REMIC Trust on the underlying mortgage collateral and the timingmonthly pass-through interest paid by the REMIC Trust on the outstanding pass-through rate REMIC Certificates. Interest and magnitudeprincipal distributions are made in order of creditREMIC Certificate seniority. As such, to the extent there are defaults or unrecoverable losses on the underlying mortgages collateralizingresulting in reduced cash flows, the securitiessubordinated certificates held by us would in general bear the first risk of loss. Management evaluates the realizability of expected future cash flows periodically. An impairment is recorded in current period earnings when management believes that areit is probable that a resultportion of the general condition of the real estate market or long-term care industry.  As
these uncertainties and contingencies are difficult to predict and are subject
to future events that may alter management's estimations and assumptions, no
assurance canunderlying mortgage collateral would not be given that current yields will not vary significantly in future
periods.  To minimize the impact of prepayments, the mortgage loans underlyingrealized by the REMIC Certificates generally prohibit prepayment unless the property is sold
to an unaffiliated third party (with respect to the borrower).  Additionally,
management believes it employs conservative underwriting policies and to date
there have

                                       28

 
been no credit losses on any of the mortgages underlying the certificates nor
are any credit losses currently anticipated.

     Certain of the Certificates retained by the Company have designated
certificate principal balances and a stated certificate interest "pass-through"
rate.  These Certificates are subject to credit risk to the extent that there
are estimated or realized credit losses on the underlying mortgages, and as such
their effective yield would be negatively impacted by such losses.  The Company
also retains the interest-only (I/O) Certificates, which provide cash flow
(interest-only) payments that result from the difference between the interest
collected from the underlying mortgages and interest paid on all the outstanding
pass-through rate certificates.  Trust.
In addition to the risk from credit losses, the I/O Certificates are also subject to prepayment risk, in that prepayments of the underlying mortgages reduce future interest payments of which a portion flows to the I/O Certificates, thus, reducing their effective yield. The Certificates'Certificates’ fair values are estimated, in part, based on a spread over the applicable U.SU.S. Treasury rate, and consequently, are inversely affected by increases or decreases in such interest
26
rates. There is no active market in these securities from which to readily determine their value. The estimated fair values of both classes of Certificates are subject to change based on the estimate of future prepayments and credit losses, as well as fluctuations in interest rates and market risk. Although the Company iswe are required to report itsour REMIC Certificate investments available for sale at fair value, many of the factors considered in estimating their fair value are difficult to predict and are beyond the control of the Company'sour management, consequently, changes in the reported fair values may vary widely and may not be indicative of amounts immediately realizable if the Companyour company was forced to liquidate any of the Certificates.
On January 1, 1999, we adopted SFAS No. 134“Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise.”Upon adoption of SFAS No. 134, we, based on our ability and intent to hold our investments in REMIC Certificates, transferred our I/O REMIC Certificates and certificates with an investment rating of “BB” or higher from the trading category to the available-for-sale category and our certificates with an investment rating of “B” or lower to the held-to-maturity category. The Company believestransfer was recorded at fair value on the date of the transfer.
Mortgage Loans Receivable. Mortgage loans receivable are recorded on an amortized costs basis. We maintain a valuation allowance based upon the expected collectibility of our mortgage loans receivable. Changes in the valuation allowance are included in current period earnings. In accordance with SFAS No. 114“Accounting by Creditors for Impairment of a Loan”we evaluate the carrying values of our mortgage loans receivable on an individual basis. Management periodically evaluates the realizability of future cash flows from the mortgages when events or circumstances, including the non-receipt of principal and interest payments and/or significant deteriorations of the financial conditions of the borrowers indicate that itsthe carrying amount of the mortgage loan receivable may not be recoverable. An impairment charge is recognized in current period earnings and is calculated as the difference between the carrying amount of the mortgage loan receivable and the discounted cash flowflows expected to be received, or if foreclosure is probable, the fair value of the collateral securing the mortgage.
Mortgage Servicing Rights. We sub-service mortgage loans that are collateral for REMIC Certificates issued in our securitization transactions for which we receive servicing fees, based on market rates for such services at the time the securitization is completed, equal to a fixed percentage of the outstanding principal on the collateral loans. A separate asset for servicing rights is not recognized since the servicing fees received only adequately compensate us for the cost of servicing the loans. The fair value of servicing rights for mortgage loans originated and retained by us are estimated based on the fees received for servicing mortgage loans that serve as collateral for REMIC Certificates. All costs to originate mortgage loans are allocated to the mortgage loans since the fair value of servicing rights only sufficiently covers the servicing costs.
Revenue Recognition.Interest income on mortgage loans and REMIC Certificates is recognized using the effective interest method. We follow a policy related to mortgage interest whereby we consider a loan to be non-performing after 60 days of non-payment of amounts due and do not recognize unpaid mortgage interest income from operations availablethat loan until the amounts have been received. Base rents under operating leases are accrued as earned over the terms of the leases. Substantially all of our leases contain provisions for distributionspecified annual increases over the rents of the prior year and are generally computed in one of four methods depending on specific provisions of each lease as follows: (i) a specified annual increase over the prior year’s rent, generally 2%; (ii) an increase based on the change in the Consumer Price Index from year to year; (iii) an increase derived as a percentage of facility net patient revenues in excess of base revenue amounts or reinvestment, its remaining borrowing capacity under its
lines of credit and anticipated securitization transaction are sufficient to(iv) specific dollar increases over prior years. SEC Staff Bulletin No. 101Revenue Recognition in Financial Statements (or SAB 101) does not provide for paymentthe recognition of itssuch contingent revenue until all possible contingencies have been eliminated. We consider the operating costs, fund investments and provide funds
for distribution to its stockholders. In addition to its borrowing capacity, the
Company is considering various other proposals for additional long-term
financing to meet the needshistory of the Company.

                                       29
lessee and the general condition of the industry when evaluating whether all possible contingencies have been eliminated and have historically, and expect in the future, to not include contingent rents as income until received. We follow a policy related to rental income whereby we consider a lease to be non-performing after 60 days of non-payment of amounts due and do not recognize unpaid rental income from that lease until the amounts have been received.
Rental revenues relating to leases that contain specified rental increases over the life of the lease are recognized on the straight-line basis when we believe that all of the rent related to a particular lease will be collected according to the terms of the lease. In evaluating whether we believe all the rent will be collected all of the following conditions must be met: (i) the property has been operated by the same operator for at least six months (adding a new property to a master lease with an operator that otherwise qualifies does not disqualify the lease from being straight-lined); (ii) payments for any monetary obligations due under the lease, or any other lease such operator has with us have been received late no more than (four) times during last eight fiscal quarters; (iii) the operator of the property has not during the last eight fiscal quarters (a) been under the protection of any Bankruptcy court; (b) admitted in writing its
27
inability to pay it debts generally as they come due; (c) made an assignment for the benefit of creditors; or, (d) been under the supervision of a trustee, receiver or similar custodian; and (iv) the property operating income has covered the applicable lease payment in each of the prior four fiscal quarters.
We will discontinue booking rent on a straight-line basis if the lessee becomes delinquent in rent owed under the terms of the lease and has been put on “non-accrual” status (i.e. we have stopped booking rent on an accrual basis for a particular lease because the collection of rent is uncertain). Once a lease is on “non-accrual” status, we will evaluate the collectibility of the related straight-line rent asset. If it is determined that the collection problem is temporary, we will resume booking rent on a straight-line basis once payment is received for past due rents. If it appears that we will not collect future rent under the “non-accrual lease” we will record an impairment charge related to the straight-line rent asset.
Management periodically evaluates the realizability of future cash flows from the mortgages underlying our REMIC Certificates. Included in our evaluation, management considers such factors as actual and/or expected loan prepayments, actual and/or expected credit losses, and other factors that may impact the amount and timing of REMIC Certificate future cash flows. Impairments are recorded when an adverse change in cash flows is evident and is determined to be other than temporary in nature. Additionally, interest recognition amortization schedules are adjusted periodically to reflect changes in expected future cash flows from the REMIC Certificates, thus, accordingly adjusting future interest income recognized.
Transactions with Affiliate. See Item 8. FINANCIAL STATEMENTS —Note 8. CLC Healthcare, Inc., for a description of our transactions with CLC Healthcare, Inc. and the accounting policies we followed related to those transactions.
Liquidity and Capital Resources
Financing Activities:
In the third quarter of 2003 we issued 2,200,000 shares of our Series E Preferred Stock that generated net cash proceeds of approximately $52.4 million. Each share of Series E Preferred Stock has a liquidation value of $25.00 per share and is convertible at anytime into shares of our common stock at a conversion price of $12.50 per share of common stock, subject to adjustment under certain circumstances. The cash proceeds and cash on hand were used to fully repay amounts outstanding under our Secured Revolving Credit. Following this repayment, in December 2003 we cancelled our Secured Revolving Credit a year early and entered into a new three-year Unsecured Credit Agreement that provides for $45.0 million of total commitments with no scheduled maturities other than the three-year term and provides for the inclusion of additional banks and an expansion of the Unsecured Credit Agreement under certain terms and conditions. The Unsecured Credit Agreement pricing varies between LIBOR plus 2.75% and LIBOR plus 3.25% (4.1% at December 31, 2003) depending on our leverage ratio. The Unsecured Credit Agreement contains financial covenants customary to an unsecured line of credit.
Subsequent to December 31, 2003, we borrowed $21.0 million under the Unsecured Credit Agreement in January 2004 and used $4.5 million to pay, prior to maturity, mortgage debt that was due in January 2005 and used $16.5 million to fund the partial redemption of our Series A Preferred Stock described below. During February 2004, we repaid the $21.0 million from the proceeds of the redemption of ALC Senior and Junior Secured Notes and some of the proceeds from the issuance of our 8% Series F Cumulative Preferred Stock (or Series F Preferred Stock), both described below. At present, we have no outstanding amounts under the Unsecured Credit Agreement.
On December 31, 2003, we announced that we would be receiving approximately $12.3 million plus accrued interest in January 2004 from the early redemption of ALC Senior and Junior Secured Notes we owned. On that same day we announced a partial (40% or 1,225,680 shares) redemption of our Series A Preferred Stock. The redemption price of the Series A Preferred Stock per share, including accrued and unpaid dividends, was $25.1914. On January 29, 2004, we distributed $30.9 million to redeem the 1,225,680 shares. Funds were provided from cash on hand, primarily from asset sales described below and the draw under our Unsecured Credit Agreement. As a result of this redemption we recorded a $1.2 million non-cash preferred stock redemption charge which represented 40% of the original issuance costs of the Series A Preferred Stock.
During the year ended December 31, 2003, we purchased and retired 482,800 shares of common stock for an aggregate purchase price of $3.2 million, an average of $6.72 per share. The shares were purchased on the open market under a Board authorization to purchase up to 5,000,000 shares. Including the shares purchased in 2003, 2,348,200 shares have been purchased under this authorization; therefore, we continue to have an open Board
28
authorization to purchase an additional 2,651,800 shares of common stock. Also during 2003 we purchased 5,000 each of our Series A Preferred Stock and our 9.0% Series B Cumulative Preferred Stock (or Series B Preferred Stock) for a total purchase price of approximately $0.2 million.
Additionally during 2003, we received $4.4 million from principal payments (including the pay-off price to maturity of one officer loan) on stockholder loans and $1.3 million for the exercise by employees of stock options. In February 2004 two loans to Board members were paid in full. As a result, subsequent to the February 2004 payments, we have no outstanding loans to employees or Board members. The two loans paid in February 2004 to two Board members who sold shares of our common stock to repay the loans. These sales were made in accordance with our policy regarding “Securities Trades by Company Personnel” and both Board members timely filed Forms 4 with the Securities and Exchange Commission.
In 2003 we distributed $11.6 million in common dividends and $15.2 million in preferred dividends. We declared preferred dividends of $16.6 million in 2003 not including the preferred stock redemption charge recorded relating to the 40% redemption of the Series A Preferred Stock. As a result of the redemption of our Series A and Series B Preferred Stock, issuance of our Series E Preferred Stock described above, the issuance of our 8.0% Series F Cumulative Preferred Stock (or Series F Preferred Stock), described below, and assuming no conversion of our Series E Preferred Stock, our preferred dividends in 2004 will be approximately $17.1 million (excluding a preferred stock redemption charge related to the original issuance costs associated with the Series A and Series B Preferred Stock redeemed in the first quarter of 2004 as discussed below).
During 2003, we borrowed $7.5 million and repaid $55.9 million under our now terminated Secured Revolving Credit. Funds were provided for this net reduction from a combination of cash on hand at the beginning of 2003, the net proceeds from the issuance of our Series E Preferred Stock, asset sales described below and net cash provided from operations.
We paid the Senior Mortgage Participation holder approximately $11.4 million from the proceeds of principal payments on mortgage loans described below and we paid approximately $14.3 million ($3.8 million from net proceeds from asset sales) in principal payments on non-participated mortgage loans.
As of December 31, 2003, we are obligated in 2004 to make approximately $3.0 million in scheduled principal payments on our mortgage loans payable, bonds payable and capital lease obligations (there are no 2004 maturities) and in 2005 through 2008 the total scheduled principal payments and debt maturities are approximately $16.3 million, $47.4 million, $2.2 million and $16.3 million, respectively. Subsequent to December 31, 2003, $5.8 million of the 2005 maturities were prepaid.
In February 2004 we announced the sale of a total of 4,000,000 shares of our Series F Preferred Stock that generated net proceeds of approximately $98.5 million. This stock was issued at $25.00 per share prior to expenses and fees. Also in February we announced the redemption of the remaining 1,838,520 outstanding shares of our Series A Preferred Stock and the redemption of all of the outstanding 1,988,000 shares of our Series B Preferred Stock. Of the $98.5 million net proceeds, approximately $96.3 million will be used to fund these two redemptions including the accrued and unpaid dividends. In the first quarter of 2004 we will have a non-cash preferred stock redemption charge of $4.0 million related to the remaining original issuance costs of the Series A and Series B Preferred Stock.
Subsequent to December 31, 2003 we purchased for $3.4 million a 120 bed skilled nursing property in Texas. We have entered into a 20 year lease with an operator which begins March 3, 2004 and for an annual amount of $0.4 million in the first year and increasing 2% every year thereafter.
Available Shelf Registrations:
Issuance of both the Series E Preferred Stock and the Series F Preferred Stock reduced the capacity under our currently effective shelf registration to $45.0 million. In anticipation of acquisitions or other refinancings in 2004, we intend to file a new Form S-3 that will increase our available securities offering capacity to a total of $200.0 million and anticipate that the registration statement will become effective in the first or second quarter of 2004. We may from time to time raise capital under our currently effective shelf registration or the anticipated new shelf registration by issuing, in public or private transactions, our equity and debt securities, but the availability and terms of such issuance will depend upon then prevailing market and other conditions.
29
Operating and Investing Activities:
During the year ended December 31, 2003, net cash provided by operating activities was $36.2 million. We completed the placement of a mortgage loan of $1.7 million, acquired two skilled nursing properties for approximately $1.2 million and invested approximately $2.3 million in building improvements and furniture and equipment leased to operators.
We received during 2003 approximately $12.9 million from principal payments on mortgage loans receivable and paid to the holder of the Senior Mortgage Participation approximately $11.4 million in principal payments as discussed above.
In 2003 we sold eight skilled nursing properties for a total gross sales price of $16.2 million. We received net proceeds of $15.7 million which we used to repay $3.8 million in mortgage debt related to these sold properties, $2.6 million was used to repay borrowings under our Secured Revolving Credit and we used the remaining net proceeds to redeem 40% of our outstanding Series A Preferred Stock.
Subsequent to December 2003, we sold a 72 bed skilled nursing property in Georgia for $1.5 million and used $1.3 million of the proceeds to pay a mortgage note payable.
In addition to the $3.8 million paydown of mortgage debt related to asset sales, we also repaid five loans payable to REMIC Pools originated by us totaling $7.7 million and made $2.8 million in scheduled principal payments on mortgage loans, notes payable and capital leases.
We also invested approximately $2.0 million in 2003 to purchase additional ALC Senior and Junior Secured Notes that have subsequently been redeemed as discussed above.
New Leases in 2003:
In the first quarter of 2003 Sun advised us that they would no longer make lease payments on nine properties they leased from us and stopped paying rent in February 2003. Additionally, we did not collect or record rental revenue on 19 properties leased to CLC for the first eight months of 2003 before these properties were turned over by CLC to a management company who subsequently began paying us rent on these 19 properties in September 2003. These 19 properties, along with one former Sun property are now leased under a master lease with Center Healthcare, Inc. (or Center Healthcare) providing for lease revenue in 2004 of approximately $4.6 million. Of the remaining eight Sun properties, one was sold as described above and the remaining seven properties were leased during the fourth quarter of 2003 to three separate operators. Taking into consideration the rental revenue generated in 2003 from the sold properties, the former Sun properties and the former CLC properties, we anticipate rental income will increase in 2004 by approximately $3.4 million as a result of these new leases offset by the reduction in rental revenues as a result of properties sold in 2003. Subsequent to December 31, 2003, at our election, we paid $3.7 million to acquire a defaulted mortgage loan in the 1994 REMIC pool. The amount paid represents the outstanding balance on the loan which approximated the fair value.
REMIC Revenue and Cash Flow:
Loans within certain REMIC Certificate pools have amortized, are scheduled to mature or have paid off early. As a result, we anticipate REMIC interest income in 2004 will be approximately $1.0 million less than 2003, absent any modifications of the underlying loans. As of December 31, 2003, scheduled maturities on REMIC Certificates we hold are $6.7 million, $8.1 million, $9.8 million, $6.5 million, $3.2 million and $27.2 million for the years ending December 31, 2004, 2005, 2006, 2007, 2008 and thereafter.
Commitments:
As of December 31, 2003, we had committed to provide to Alterra $2.5 million over three years to invest in leasehold improvements to properties they lease from us and an additional $2.5 million over three years to expand properties they lease from us. Both of these investments would be made at a 10% annual return to us.
30
Contractual Obligations:
We monitor our contractual obligations to ensure funds are available to meet obligations when due. The following table represents our long-term contractual obligations as of December 31, 2003 and excludes the effects of interest (amounts in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
Less than 1 year
1-2 years
3-5 years
After 5 years
Mortgage loans payable
 
$
123,314
 
 
$
2,304
 
 
$
62,088
 
 
$
16,614
 
 
$
42,308
 
Bonds payable and capital lease obligations
 
 
14,686
 
 
 
719
 
 
 
1,612
 
 
 
1,855
 
 
 
10,500
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
138,000
 
 
$
3,023
 
 
$
63,700
 
 
$
18,469
 
 
$
52,808
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Off-Balance Sheet Arrangements:
We had no off-balance sheet arrangements as of December 31, 2003.
Liquidity:
We believe we have sufficient liquidity and financing capability to fund additional investments in 2004, maintain our preferred dividend payments, pay common dividends at least sufficient to maintain our REIT status and repay borrowings at or prior to their maturity through our generation of funds from operation, borrowings under our Unsecured Credit Agreement, asset sales, proceeds from mortgage notes receivable, principal payments from REMIC certificates we hold or additional financings. We believe our liquidity and sources of capital are adequate to satisfy our cash requirements. We cannot, however, be certain that these sources of funds will be available at a time and upon terms acceptable to us in sufficient amounts to meet our liquidity needs.
Item 7a.     Quantitative and Qualitative Disclosures About Market Risk
Readers are cautioned that statements contained in this section “Quantitative and Qualitative Disclosures About Market Risk” are forward looking and should be read in conjunction with the disclosure under the heading “Statement Regarding Forward Looking Disclosure” set forth above.
We are exposed to market risks associated with changes in interest rates as they relate to our mortgage loans receivable, investments in REMIC Certificates and debt. Interest rate risk is sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control.
We do not utilize interest rate swaps, forward or option contracts or foreign currencies or commodities, or other types of derivative financial instruments nor do we engage in “off-balance sheet” transactions. The purpose of the following disclosure is to provide a framework to understand our sensitivity to hypothetical changes in interest rates as of December 31, 2003.
Our future earnings, cash flows and estimated fair values relating to financial instruments are dependent upon prevalent market rates of interest, such as LIBOR or term rates of U.S. Treasury Notes. Changes in interest rates generally impact the fair value, but not future earnings or cash flows, of mortgage loans receivable, our investment in REMIC Certificates and fixed rate debt. For variable rate debt, such as our revolving line of credit, changes in interest rates generally do not impact the fair value, but do affect future earnings and cash flows.
At December 31, 2003, based on the prevailing interest rates for comparable loans and estimates made by management, the fair value of our mortgage loans receivable was approximately $74.5 million. A 1% increase in such rates would decrease the estimated fair value of our mortgage loans by approximately $2.8 million while a 1% decrease in such rates would increase their estimated fair value by approximately $3.0 million. A 1% increase or decrease in applicable interest rates would not have a material impact on the fair value of our investment in REMIC Certificates or fixed rate debt.
We had no borrowings outstanding under our Unsecured Credit Agreement at December 31, 2003. Thus, an increase or decrease in interest rates would have no impact on annual interest expense on our Unsecured Credit Agreement.
The estimated impact of changes in interest rates discussed above are determined by considering the impact of the hypothetical interest rates on our borrowing costs, lending rates and current U.S. Treasury rates from which our financial instruments may be priced. We do not believe that future market rate risks related to our financial
31
instruments will be material to our financial position or results of operations. These analyses do not consider the effects of industry specific events, changes in the real estate markets, or other overall economic activities that could increase or decrease the fair value of our financial instruments. If such events or changes were to occur, we would consider taking actions to mitigate and/or reduce any negative exposure to such changes. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in our capital structure.
32
Item 8.     FINANCIAL STATEMENTS
Page
                                                                                             ----
Report of Independent Auditors.................................................................25

Auditors
34
Consolidated Balance Sheets as of December 31, 19962003 and 1995...................................26

2002
35
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 1996, 19952003, 2002 and 1994...............................................................27

2001
36
Consolidated Statements of Stockholders'Stockholders’ Equity for the years ended December 31, 1996, 19952003, 2002 and 1994.........................................................28

2001
37
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 19952003, 2002 and 1994...............................................................29

2001
38
Notes to Consolidated Financial Statements.....................................................30
Statements
39


                                       30
33
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
LTC Properties, Inc.
We have audited the accompanying consolidated balance sheets of LTC Properties, Inc. as of December 31, 19962003 and 19952002 and the related consolidated statements of operations and comprehensive income, stockholders'stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 1996.2003. Our audits also included the financial statement schedules listed in the index at Item 14(a)15(a). These financial statements and financial statement schedules are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted auditing
standards.in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of LTC Properties, Inc. at December 31, 19962003 and 1995,2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 19962003 in conformity with accounting principles generally accepted accounting principles.in the United States. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

     As discussed in Note 1, the Company has restated its financial statements,
after discussions with the Staff of the Securities and Exchange Commission, to
adopt the fair value accounting provisions of SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities", for its investment in REMIC
certificates, as opposed to the previously reported amortized cost accounting.
As a result of this change in accounting, the Company earnings increased in 1996
by $6,173,000 ($0.32 per share), decreased in 1995 by $1,656,000 ($0.09 per
share), and increased in 1994 by $1,872,000 ($0.12 per share).

                                     /s/ ERNST & YOUNG LLP 



/s/ ERNST & YOUNG LLP
Los Angeles, California
January 13, 1997, 
February 9, 2004
except Notefor Notes 8, 10, 11 and 12
as to which the date is February 1, 1997

                                       31
March 5, 2004
34
LTC PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
 
                                                                                                (RESTATED)
                                                                             --------------------------------------------
                                                                                  DECEMBER 31,              December 31,
                                                                                      1996                      1995
                                                                             -------------------       ------------------
ASSETS                                                                                        (In thousands)

Real Estate Investments:
Buildings and improvements, net of accumulated depreciation and
     amortization:   1996 - $11,640; 1995 - $5,487                                      $199,591                 $104,546
Land                                                                                      12,347                    7,236
Mortgage loans receivable, held for sale, net of allowance for 
     doubtful accounts:  1996 - $1,000; 1995 - $997                                      177,262                  161,059
REMIC Certificates, at estimated fair value                                               98,934                   67,600
                                                                             -------------------       ------------------
      Real estate investments, net                                                       488,134                  340,441
Other Assets:
  Cash and cash equivalents                                                                3,148                    1,434
  Restricted cash                                                                              -                    8,300
  Debt issue costs, net                                                                    4,150                    3,331
  Interest receivable                                                                      2,817                    2,093
  Prepaid expenses and other assets                                                        2,289                    1,779
                                                                             -------------------       ------------------
                                                                                          12,404                   16,937
                                                                             -------------------       ------------------
    Total assets                                                                        $500,538                 $357,378
                                                                             ===================       ==================
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Convertible subordinated debentures due 1999 - 2004                                     $135,828                 $ 94,641
Bank borrowings                                                                           79,400                   48,470
Mortgage loans payable                                                                    54,205                   16,707
Bonds payable and capital lease obligations                                               14,039                   14,265
Accrued interest                                                                           6,015                    3,196
Accrued expenses and other liabilities                                                     3,041                    2,415
Distributions payable                                                                      6,679                    5,764
                                                                             -------------------       ------------------
     Total liabilities                                                                   299,207                  185,458
 
Minority interest                                                                         10,528                    1,098
 
Commitments                                                                                    -                        -
Stockholders' equity:
Preferred stock $0.01 par value: 10,000,000 shares                                             -                        -
     authorized;  none issued and outstanding
Common stock $0.01 par value; 40,000,000 shares authorized; shares issued
     and outstanding: 1996 - 19,484,208; 1995 - 18,297,254                                   195                      183
Capital in excess of par value                                                           195,297                  178,453
Cumulative net income                                                                     71,914                   43,204
Cumulative distributions                                                                 (76,603)                 (51,018)
                                                                             -------------------       ------------------
    Total stockholders' equity                                                           190,803                  170,822
                                                                             -------------------       ------------------
    Total liabilities and stockholders' equity                                          $500,538                 $357,378
                                                                             ===================       ==================

                                                                                
                             See accompanying notes

                                       32

 
                             LTC PROPERTIES, INC.

                      CONSOLIDATED STATEMENTS OF INCOME                     

                    (In
(In thousands, except per share amount)



                                                          YEARS ENDED DECEMBER 31,
                                             -----------------------------------------------
                                                                 (RESTATED)
                                             -----------------------------------------------
                                                   1996              1995            1994
                                             --------------    ------------     ------------
 
Revenues:

  Rental income                                     $20,529         $ 9,935          $ 5,643
  Interest income from mortgage loans                17,498          13,116           12,836
  Interest income from REMIC Certificates            14,383          10,903            7,923
  Interest and other income                           2,520           1,615            1,239
                                             --------------    ------------     ------------
 
          Total revenues                             54,930          35,569           27,641
 
Expenses:
  Interest expense                                   20,604           9,407            6,563
  Depreciation and amortization                       6,298           3,072            1,781
  Amortization of Founders' stock                       114             221              372
  Provision for loan losses                               -               -              550
  Minority interest                                     898              57                -
  Operating and other expenses                        4,479           2,772            3,037
                                             --------------    ------------     ------------
 
          Total expenses                             32,393          15,529           12,303
                                             --------------    ------------     ------------
 
Other income/(loss):
  Unrealized holding gain/(loss) on changes
   in estimated fair value of REMIC
   Certificates                                       6,173          (1,656)             667
                                             --------------    ------------     ------------
Income before cumulative effect of
  accounting change                                  28,710          18,384           16,005 
Cumulative effect of accounting change                    -               -            1,205 
                                             --------------    ------------     ------------
Net income                                          $28,710         $18,384          $17,210
                                             ==============    ============     ============

Per share amounts:
  Income before cumulative effect of
   accounting charge                                $  1.49         $  1.01          $  1.04
  Cumulative effect on prior year (year ended
   December 31, 1993) of a change in method
   of accounting for REMIC Certificates                   -               -             0.07
                                             --------------    ------------     ------------    
Net income                                          $  1.49         $  1.01          $  1.11
                                             ==============    ============     ============
 
Weighted average shares outstanding                  19,257          18,257           15,443
                                             ==============    ============     ============
amounts)
 
 
 
 
 
 
 
 
 
 
 
December 31,
2003
2002
ASSETS
Real Estate Investments:
 
 
 
 
 
 
 
 
 
Buildings and improvements, net of accumulated depreciation and amortization: 2003 — $73,376; 2002 — $61,101
 
$
357,282
 
 
$
366,679
 
 
Land
 
 
25,343
 
 
 
24,996
 
 
Properties held for sale, net of accumulated depreciation and amortization: 2003 — $0; 2002 — $3,215
 
 
—
 
 
 
13,665
 
 
Mortgage loans receivable, net of allowance for doubtful accounts: 2003 — $1,280; 2002 — $1,280
 
 
71,465
 
 
 
82,675
 
 
REMIC Certificates
 
 
61,662
 
 
 
64,419
 
 
 
 
 
 
 
 
 
 
Real estate investments, net
 
 
515,752
 
 
 
552,434
 
Other Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
17,919
 
 
 
8,001
 
 
Debt issue costs, net
 
 
1,496
 
 
 
5,309
 
 
Interest receivable
 
 
3,809
 
 
 
3,764
 
 
Prepaid expenses and other assets
 
 
4,495
 
 
 
2,069
 
 
Prepaid expenses and other assets related to properties held for sale
 
 
—
 
 
 
2,037
 
 
Notes receivable (includes $9,292 due from CLC Healthcare, Inc. in 2003 and $7,836 in 2002)
 
 
19,172
 
 
 
18,343
 
 
Marketable debt securities
 
 
12,281
 
 
 
7,968
 
 
 
 
 
 
 
 
 
 
 
59,172
 
 
 
47,491
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
574,924
 
 
$
599,925
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Bank borrowings
 
$
—
 
 
$
48,421
 
Mortgage loans payable
 
 
123,314
 
 
 
134,388
 
Bonds payable and capital lease obligations
 
 
14,686
 
 
 
15,361
 
Senior mortgage participation payable
 
 
18,250
 
 
 
29,667
 
Accrued interest
 
 
952
 
 
 
1,267
 
Accrued expenses and other liabilities
 
 
2,514
 
 
 
4,419
 
Accrued expenses and other liabilities related to properties held for sale
 
 
—
 
 
 
4,609
 
Liability for 9.5% Series A Preferred Stock redemption — 1,226 shares
 
 
30,642
 
 
 
—
 
Distributions payable
 
 
2,383
 
 
 
981
 
 
 
 
 
 
 
 
 
 
Total liabilities
 
 
192,741
 
 
 
239,113
 
Minority interests
 
 
13,401
 
 
 
13,399
 
Stockholders’ Equity:
 
 
 
 
 
 
 
 
Preferred stock $0.01 par value: 2003 — 15,000 shares authorized; shares issued and outstanding: 2003 — 8,026; 2002 — 7,062
 
 
189,163
 
 
 
165,183
 
Common stock $0.01 par value; 2003 — 35,000 shares authorized; shares issued and outstanding: 2003 — 17,807; 2002– 18,055
 
 
178
 
 
 
181
 
Capital in excess of par value
 
 
250,055
 
 
 
253,050
 
Cumulative net income
 
 
274,948
 
 
 
250,629
 
Other
 
 
(638
)
 
 
(6,112
)
Cumulative distributions
 
 
(344,924
)
 
 
(315,518
)
 
 
 
 
 
 
 
 
 
Total stockholders’ equity
 
 
368,782
 
 
 
347,413
 
 
 
 
 
 
 
 
 
 
Total liabilities and stockholders’ equity
 
$
574,924
 
 
$
599,925
 
 
 
 
 
 
 
 
See accompanying notes

                                       33
notes.
35
LTC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                  (Restated)
                (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



                                                                  Capital in                                           Total
                                        Common        Stock       excess of      Cumulative       Cumulative       Stockholders'
                                        Shares        Amount      par value      Net Income      Distributions         Equity
 
                                   ----------------------------------------------------------------------------------------------

Balances at December 31, 1993              9,737         $ 97       $ 89,698          $ 7,610         $(12,258)          $ 85,147
Amortization of Founders' stock                -            -            372                -                -                372
Issuance of common stock, net              4,800           48         59,570                -                -             59,618
Conversions of debentures, net of
     unamortized issue costs of            3,330           34         32,261                -                -             32,295
      $1,237
Repurchase of common stock                  (209)          (2)        (2,666)               -                -             (2,668)
Net income                                     -            -              -           17,210                -             17,210
Distributions ($1.10 per share)                -            -              -                -          (16,881)           (16,881)
                                   ----------------------------------------------------------------------------------------------
Balances at December 31, 1994             17,658          177        179,235           24,820          (29,139)           175,093
                                   ----------------------------------------------------------------------------------------------
Amortization of Founders' stock                -            -            221                -                -                221
Exercise of stock options                      2            -             24                -                -                 24
Conversions of debentures, net of                                                                            -
     unamortized issue costs of            1,936           19         18,924                -                              18,943
      $651
Repurchase of common stock                (1,299)         (13)       (18,076)               -                -            (18,089)
Repurchase of warrants                         -            -         (1,875)               -                -             (1,875)
Net income                                     -            -              -           18,384                -             18,384
Distributions ($1.21 per share)                -            -              -                -          (21,879)           (21,879)
                                   ----------------------------------------------------------------------------------------------
Balances at December 31, 1995             18,297          183        178,453           43,204          (51,018)           170,822
                                   ----------------------------------------------------------------------------------------------
Amortization of Founders' stock                -            -            114                -                -                114
Exercise of options                            3            -             39                -                -                 39
Conversions of debentures, net of                                                           -
     unamortized issue costs of            1,304           13         18,521                                 -             18,534
      $576
Repurchase of common stock                  (120)          (1)        (1,830)               -                -             (1,831)
Net income                                     -            -              -           28,710                -             28,710
Distributions ($1.335 per share)               -            -              -                -          (25,585)           (25,585)
                                   ----------------------------------------------------------------------------------------------
Balances at December 31, 1996            $19,484         $195       $195,297          $71,914         $(76,603)          $190,803
                                   ==============================================================================================
OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Years ended December 31,
2003
2002
2001
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
40,554
 
 
$
41,440
 
 
$
37,259
 
 
Interest income from mortgage loans and notes receivable
 
 
9,814
 
 
 
10,718
 
 
 
12,593
 
 
Interest income from REMIC Certificates
 
 
9,964
 
 
 
12,970
 
 
 
15,116
 
 
Interest and other income
 
 
3,115
 
 
 
3,009
 
 
 
2,623
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenues
 
 
63,447
 
 
 
68,137
 
 
 
67,591
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 
20,877
 
 
 
21,322
 
 
 
21,435
 
 
Depreciation and amortization
 
 
12,489
 
 
 
13,705
 
 
 
12,216
 
 
Impairment charge
 
 
1,260
 
 
 
7,097
 
 
 
16,671
 
 
Legal expenses
 
 
1,078
 
 
 
803
 
 
 
289
 
 
Operating and other expenses
 
 
6,561
 
 
 
6,044
 
 
 
8,702
 
 
 
 
 
 
 
 
 
 
 
 
 
Total expenses
 
 
42,265
 
 
 
48,971
 
 
 
59,313
 
 
 
 
 
 
 
 
 
 
 
Income before non-operating income and minority interest
 
 
21,182
 
 
 
19,166
 
 
 
8,278
 
 
Non-operating income
 
 
1,970
 
 
 
—
 
 
 
—
 
 
Minority interest
 
 
(1,300
)
 
 
(1,308
)
 
 
(973
)
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
 
21,852
 
 
 
17,858
 
 
 
7,305
 
Discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from discontinued operations
 
 
168
 
 
 
(538
)
 
 
(11,773
)
 
Gain on sale of assets, net
 
 
2,299
 
 
 
14,483
 
 
 
1,560
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) from discontinued operations
 
 
2,467
 
 
 
13,945
 
 
 
(10,213
)
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
 
24,319
 
 
 
31,803
 
 
 
(2,908
)
 
Preferred stock redemption charge
 
 
(1,241
)
 
 
—
 
 
 
—
 
 
Preferred stock dividends
 
 
(16,596
)
 
 
(15,042
)
 
 
(15,077
)
 
 
 
 
 
 
 
 
 
 
Net income (loss) available to common stockholders
 
$
6,482
 
 
$
16,761
 
 
$
(17,985
)
 
 
 
 
 
 
 
 
 
 
Net Income (Loss) per Common Share from Continuing Operations Net of Preferred Stock Dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.22
 
 
$
0.15
 
 
$
(0.45
)
 
 
 
 
 
 
 
 
 
 
 
Diluted
 
$
0.22
 
 
$
0.15
 
 
$
(0.45
)
 
 
 
 
 
 
 
 
 
 
Net Income (Loss) Per Common Share from Discontinued Operations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.14
 
 
$
0.76
 
 
$
(0.30
)
 
 
 
 
 
 
 
 
 
 
 
Diluted
 
$
0.14
 
 
$
0.75
 
 
$
(0.30
)
 
 
 
 
 
 
 
 
 
 
Net Income (Loss) Per Common Share Available to Common Stockholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.36
 
 
$
0.91
 
 
$
(0.75
)
 
 
 
 
 
 
 
 
 
 
 
Diluted
 
$
0.36
 
 
$
0.91
 
 
$
(0.75
)
 
 
 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
 
 
17,836
 
 
 
18,371
 
 
 
23,924
 
 
 
 
 
 
 
 
 
 
 
Comprehensive Income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) available to common stockholders
 
$
6,482
 
 
$
16,761
 
 
$
(17,985
)
 
Unrealized (loss) gain on available-for-sale securities
 
 
(427
)
 
 
(1,435
)
 
 
2,807
 
 
Reclassification adjustment
 
 
1,303
 
 
 
276
 
 
 
1,376
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
 
$
7,358
 
 
$
15,602
 
 
$
(13,802
)
 
 
 
 
 
 
 
 
 
 
See accompanying notes

                                       34
notes.
36
LTC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares
Capital in
Preferred
Common
Preferred
Common
Excess of
Cumulative
Cumulative
Stock
Stock
Stock
Stock
Par Value
Net Income
Other
Distributions
Balance — December 31, 2000
 
 
7,080
 
 
 
26,031
 
 
$
165,500
 
 
$
260
 
 
$
296,568
 
 
$
221,734
 
 
$
(11,872
)
 
$
(278,063
)
 
Interest added to stockholder note balance
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
(369
)
 
 
—
 
Adjustment to stockholder note balance
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
2,453
 
 
 
—
 
Reclassification adjustment
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
1,376
 
 
 
—
 
Unrealized gain on available-for-sale securities
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
2,807
 
 
 
—
 
Repurchase of stock
 
 
(18
)
 
 
(7,588
)
 
 
(317
)
 
 
(75
)
 
 
(41,661
)
 
 
—
 
 
 
—
 
 
 
—
 
Net loss
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
(2,908
)
 
 
—
 
 
 
—
 
Preferred stock dividends
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
(15,077
)
Vested restricted stock
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
23
 
 
 
—
 
 
 
—
 
 
 
—
 
Canceled restricted stock
 
 
—
 
 
 
(50
)
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance — December 31, 2001
 
 
7,062
 
 
 
18,393
 
 
 
165,183
 
 
 
185
 
 
 
254,930
 
 
 
218,826
 
 
 
(5,605
)
 
 
(293,140
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest added to stockholder note balance
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
(62
)
 
 
—
 
Payments on stockholder notes
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
877
 
 
 
—
 
Reclassification adjustment
 
 
—
 
��
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
276
 
 
 
—
 
Unrealized loss on available-for-sale securities
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
(1,435
)
 
 
—
 
Repurchase of stock
 
 
—
 
 
 
(338
)
 
 
—
 
 
 
(4
)
 
 
(2,329
)
 
 
—
 
 
 
—
 
 
 
—
 
Net income
 
 
—
 
 
 
 
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
31,803
 
 
 
—
 
 
 
—
 
Preferred stock dividends
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
(15,042
)
Vested restricted stock
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
286
 
 
 
—
 
 
 
—
 
 
 
—
 
Reclassification of unvested restricted stock
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
163
 
 
 
—
 
 
 
(163
)
 
 
—
 
Common stock cash distributions ($0.40 per share)
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
(7,336
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance — December 31, 2002
 
 
7,062
 
 
 
18,055
 
 
 
165,183
 
 
 
181
 
 
 
253,050
 
 
 
250,629
 
 
 
(6,112
)
 
 
(315,518
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest added to stockholder note balance
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
(9
)
 
 
—
 
Payments on stockholder notes
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
4,444
 
 
 
—
 
Stock option exercises
 
 
—
 
 
 
246
 
 
 
—
 
 
 
2
 
 
 
1,325
 
 
 
—
 
 
 
—
 
 
 
—
 
Reclassification adjustment
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
1,303
 
 
 
—
 
Unrealized loss on available-for-sale securities
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
(427
)
 
 
—
 
Repurchase of stock
 
 
(10
)
 
 
(483
)
 
 
(250
)
 
 
(5
)
 
 
(3,188
)
 
 
—
 
 
 
—
 
 
 
—
 
9.5% Series A Preferred Stock redemption
 
 
(1,226
)
 
 
—
 
 
 
(30,642
)
 
 
—
 
 
 
1,241
 
 
 
—
 
 
 
—
 
 
 
(1,241
)
8.5% Series E Preferred Stock offering
 
 
2,200
 
 
 
—
 
 
 
55,000
 
 
 
—
 
 
 
(2,562
)
 
 
—
 
 
 
—
 
 
 
—
 
Net income
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
24,319
 
 
 
—
 
 
 
—
 
Preferred stock dividends
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
(16,596
)
Accelerated vesting of stock options
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
23
 
 
 
—
 
 
 
—
 
 
 
—
 
Vested restricted stock
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
132
 
 
 
—
 
Canceled restricted stock
 
 
—
 
 
 
(11
)
 
 
—
 
 
 
—
 
 
 
(31
)
 
 
—
 
 
 
31
 
 
 
—
 
Other
 
 
—
 
 
 
—
 
 
 
(128
)
 
 
—
 
 
 
197
 
 
 
—
 
 
 
—
 
 
 
—
 
Common stock cash distributions ($0.65 per share)
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
(11,569
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance — December 31, 2003
 
 
8,026
 
 
 
17,807
 
 
$
189,163
 
 
$
178
 
 
$
250,055
 
 
$
274,948
 
 
$
(638
)
 
$
(344,924
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
37
LTC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
                     
                                (In thousands)

                                                                              Year ended December 31,
                                                           ----------------------------------------------------------
                                                                                     (Restated)
                                                           ----------------------------------------------------------
                                                                    1996               1995                1994
                                                              ----------------   -----------------   -----------------

OPERATING ACTIVITIES:
  Net income                                                        $  28,710           $  18,384           $  17,210
  Adjustments to reconcile net income to net cash provided
   by operating activities:
     Depreciation and amortization                                      7,999               4,998               2,956
     Unrealized holding gain/(loss) on changes in
      estimated fair value of REMIC Certificates                       (6,173)              1,656                (667)
     Cumulative effect of accounting change                                 -                   -              (1,205)
     Noncash charges                                                      296                 237                 226
     Net change in other assets and liabilities                         2,957              (1,078)                722
                                                                    ---------           ---------           ---------
       Net cash provided by operating activities                       33,789              24,197              19,242
 
INVESTING ACTIVITIES:
  Investment in real estate mortgages                                 (99,440)           (101,908)           (120,472)
  Acquisitions of real estate properties, net                         (95,285)            (23,403)            (41,136)
  Sale of real estate properties, net                                   7,589                   -                   -
  Deferred facility fees, net                                             233                 251                 558
  Proceeds from sale of REMIC Certificates,  net                       86,674              19,216              80,203
  Principal payments on real estate mortgages                           2,272               2,634               8,550
  Restricted cash                                                       8,300              (8,300)                  -
  Principal payments on mortgage loans payable                         (3,893)                (37)                  -
  Other                                                                  (660)                 88              (1,249)
                                                                    ---------           ---------           ---------
       Net cash used in investing activities                          (94,210)           (111,459)            (73,546)
 
FINANCING ACTIVITIES:
  Proceeds from issuance of convertible debenture offerings            60,000              61,500              30,000
  Proceeds from issuance of common stock, net                              39                   -              59,618
  Proceeds from issuance of bonds                                           -               8,300                   -
  Debt issue costs                                                     (2,167)             (2,409)             (1,101)
  Repurchase of warrants                                                    -              (1,875)                  -
  Distributions paid                                                  (24,670)            (21,237)            (14,388)
  Borrowings under the lines of credit                                219,000             133,220             109,800
  Repayment of bank borrowings                                       (188,070)            (84,750)           (115,800)
  Repurchase of common stock                                           (1,831)            (18,089)             (2,668)
  Other                                                                  (166)               (230)                  4
                                                                    ---------           ---------           ---------
       Net cash provided by (used in) financing activities             62,135              74,430              65,465
                                                                    ---------           ---------           ---------
(Decrease) increase in cash and cash equivalents                        1,714             (12,832)             11,161
Cash and cash equivalents, beginning of year                            1,434              14,266               3,105
                                                                    ---------           ---------           ---------
Cash and cash equivalents, end of year                              $   3,148           $   1,434           $  14,266
                                                                    =========           =========           =========
 
Supplemental disclosure of cash flow information:
  Interest paid during the year                                     $  16,631           $   7,428           $   6,909
                                                                    =========           =========           =========
(In thousands, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year ended December 31,
2003
2002
2001
OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
24,319
 
 
$
31,803
 
 
$
(2,908
)
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
12,998
 
 
 
14,400
 
 
 
13,866
 
 
Gain on sale of real estate and other investments, net
 
 
(2,299
)
 
 
(14,483
)
 
 
(1,560
)
 
Write-off of debt issue costs related to early retirement of bank debt
 
 
2,075
 
 
 
—
 
 
 
—
 
 
Gain on redemption of investment in marketable debt securities, net
 
 
(1,970
)
 
 
—
 
 
 
—
 
 
Non-cash impairment charge
 
 
1,260
 
 
 
7,807
 
 
 
28,584
 
 
Adjustment to stockholder notes receivable
 
 
—
 
 
 
—
 
 
 
2,453
 
 
Other non-cash charges, net
 
 
4,584
 
 
 
4,475
 
 
 
4,639
 
(Increase) decrease in interest receivable
 
 
(28
)
 
 
(621
)
 
 
32
 
(Increase) decrease in prepaid, other assets and allowance
 
 
(2,639
)
 
 
11
 
 
 
(1,068
)
(Decrease) increase in accrued interest
 
 
(309
)
 
 
119
 
 
 
(1,279
)
(Decrease) increase in accrued expenses and other liabilities
 
 
(1,773
)
 
 
(608
)
 
 
1,093
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
 
 
36,218
 
 
 
42,903
 
 
 
43,852
 
INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
Investment in real estate mortgages
 
 
(1,707
)
 
 
—
 
 
 
—
 
Acquisition of real estate properties and capital improvements, net
 
 
(3,467
)
 
 
(1,422
)
 
 
(1,689
)
Proceeds from sale of real estate investments, net
 
 
15,664
 
 
 
12,090
 
 
 
43,493
 
Principal payments on mortgage loans receivable
 
 
12,886
 
 
 
6,022
 
 
 
9,291
 
Investment in debt securities
 
 
(2,015
)
 
 
(26
)
 
 
(2,909
)
Proceeds from redemption of investment in debt securities
 
 
281
 
 
 
903
 
 
 
—
 
Advances to CLC Healthcare, Inc. 
 
 
(1,452
)
 
 
(792
)
 
 
(5,537
)
Repayment of advances to CLC Healthcare, Inc. 
 
 
2,146
 
 
 
1,393
 
 
 
1,149
 
Other
 
 
(1,629
)
 
 
1,152
 
 
 
2,974
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by investing activities
 
 
20,707
 
 
 
19,320
 
 
 
46,772
 
FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
Debt issue costs
 
 
(1,064
)
 
 
(3,335
)
 
 
(1,187
)
Distributions paid
 
 
(26,763
)
 
 
(23,200
)
 
 
(14,259
)
Proceeds from stock offering
 
 
52,438
 
 
 
—
 
 
 
—
 
Repayment of stockholder loans
 
 
4,444
 
 
 
—
 
 
 
—
 
Bank borrowings
 
 
7,500
 
 
 
10,000
 
 
 
50,000
 
Repayment of bank borrowings
 
 
(55,921
)
 
 
(55,561
)
 
 
(64,000
)
Proceeds from issuance of senior mortgage participation
 
 
—
 
 
 
30,000
 
 
 
—
 
Repayment of senior mortgage participation
 
 
(11,417
)
 
 
(333
)
 
 
—
 
Mortgage loan borrowings
 
 
—
 
 
 
—
 
 
 
11,500
 
Principal payments on mortgage loans, notes payable and capital leases
 
 
(14,332
)
 
 
(14,537
)
 
 
(3,966
)
Redemption of convertible subordinated debentures
 
 
—
 
 
 
(2,408
)
 
 
(22,230
)
Repurchase of common and preferred stock
 
 
(3,443
)
 
 
(2,332
)
 
 
(42,054
)
Other
 
 
1,551
 
 
 
1,162
 
 
 
24
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cash used in financing activities
 
 
(47,007
)
 
 
(60,544
)
 
 
(86,172
)
 
 
 
 
 
 
 
 
 
 
Increase in cash and cash equivalents
 
 
9,918
 
 
 
1,679
 
 
 
4,452
 
Cash and cash equivalents, beginning of year
 
 
8,001
 
 
 
6,322
 
 
 
1,870
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents, end of year
 
$
17,919
 
 
$
8,001
 
 
$
6,322
 
 
 
 
 
 
 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest paid
 
$
16,612
 
 
$
19,946
 
 
$
22,184
 
Non-cash investing and financing transactions:
 
 
 
 
 
 
 
 
 
 
 
 
 
SeeNote 4: Supplemental Cash Flow Informationfor further discussion.
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes

                                       35
notes.
38
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1.     THE COMPANY

Organization and Investments

     The Company
LTC Properties, Inc. (the "Company") was incorporated on May 12, 1992 in
the State of(LTC), a Maryland andcorporation, commenced operations on August 25, 1992. The Company,
whichLTC is organized as a real estate investment trust (or REIT) that invests primarily in long-term care facilitiesproperties through mortgage loans, facilityproperty lease transactions and other investments. As
2.     Summary of December 31, 1996, the Company had investments in 248
properties ("the Properties") located in 32 states and operated by 84 health
care providers. The Properties include 248 skilled nursing facilities with a
total of 28,628 beds and 35 assisted living residences with a total of 1,456
units. At December 31, 1996, the Company's real estate investment portfolio
consisted of approximately $223,578,000 (before accumulated depreciation of
$11,640,000) invested in 73 long-term care facilities owned by the Company and
leased to operators, approximately $178,262,000 (before allowance for doubtful
accounts of $1,000,000) invested in 67 mortgage loans secured by 73 skilled
nursing facilities and 11 assisted living facilities ("ALFs") and approximately
$92,545,000 invested in REMIC Certificates secured by 148 skilled nursing
facilities.

Restatement

     As previously disclosed in the current and prior years, the Company has
securitized portions of its mortgage loan portfolio and retained a portion of
the resulting REMIC Certificates to hold as long-term investments.
Historically, the Company has accounted for its REMIC Certificate investments at
amortized cost and provided fair value disclosures because of the highly
specialized nature of the collateral underlying the REMIC Certificates, the lack
of marketability of the Certificates and the Company's intent and investment
posture to hold its real estate investments for long-term purposes.  Moreover,
the Company believes that the fair value accounting provisions of SFAS 115,
which require the recognition of unrealized gains or losses resulting from
temporary changes in the fair value of originated mortgage-backed securities
(the REMIC Certificates) that are retained by the Company, may reflect equity
or earnings in the Company's financial statements that may not be ultimately
realized and portray a level of liquidity with respect to its REMIC Certificates
that may not exist.  Furthermore, the Company believed that the accounting
literature supported the accounting for the REMIC Certificates at amortized
cost.  However, after reconsideration following discussions with the Staff of
the Securities and Exchange Commission, the Company decided to adopt the fair
value accounting provisions of SFAS 115 as opposed to the amortized cost
accounting the Company believed applicable under SFAS 115.  The fair value
accounting provisions require the recognition in earnings of temporary changes
in the fair values of the Company's REMIC Certificates investments, irrespective
of the Company's reservations about the realizability of such earnings.
Accordingly, the 1996 financial statements, which include the results of
operations for the years ended December 31, 1996, 1995 and 1994, have been
restated to reflect the adjustment to estimated fair value, of the Company's 
REMIC Certificate investments. As a result, the Company has increased earnings
by $6,173,000 for the year ended 1996, decreased earnings by $1,656,000 in 1995
and increased earnings by $1,872,000 in 1994, to record the temporary changes in
the fair value of its REMIC Certificate investments during each reporting 
period.

                                       36

 
                             LTC PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies
Basis of Presentation

     Presentation.The accompanying consolidated financial statements include the accounts of the Company, itsLTC, our wholly-owned subsidiaries and our controlled partnerships. All intercompany investments, accounts and transactions have been eliminatedeliminated. Control over those partnerships is based on the provisions of the partnership agreements that provide us with a controlling financial interest in consolidation.

the partnerships. Under the terms of the partnership agreements, we are responsible for the management of the partnerships’ assets, business and affairs. Our rights and duties in management of the partnerships include making all operating decisions, setting the capital budgets, executing all contracts, making all employment decisions, and the purchase and disposition of assets, among others. The general partner is responsible for the ongoing, major, and central operations of the partnership and makes all management decisions. In addition, the general partner assumes the risk for all operating losses, capital losses, and is entitled to substantially all capital gains (appreciation).
The limited partners have virtually no rights and are precluded from taking part in the operation, management or control of the partnership. The limited partners are also precluded from transferring their partnership interests without the expressed permission of the general partner. However we can transfer our interest without consultation or permission of the limited partners.
In January 2003, the Financial Accounting Standards Board (or FASB) issued Interpretation No. 46“Consolidation of Variable Interest Entities”(or FIN 46) to expand upon and strengthen existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. Accounting guidance prior to FIN 46 required that we include another entity in our consolidated financial statements only if we controlled the entity through voting interests. FIN 46 changes that guidance by requiring that we consolidate a “variable interest entity” if we are subject to a majority of the risk of loss from the “variable interest entity’s” activities, or are entitled to receive a majority of the entity’s residual returns, or both. FIN 46 also requires disclosure about “variable interest entities” that we are not required to consolidate but in which we have a significant variable interest. In December 2003, FIN 46 was revised and the effective date of applying FIN 46 to certain variable interests was deferred. The revised FIN 46 requires us to apply the provision of FIN 46 immediately to any special purpose entities and to any “variable interest entities” created after January 31, 2003. Application of the provisions will be required for all other “variable interest entities” in financial statements for periods ending after March 15, 2004. We have evaluated the requirements of FIN 46 and we believe that as of December 31, 2003, we do not have investments in any entities that meet the definition of a “variable interest entity.”
Certain reclassifications have been made to the prior period financial statements to conform to the current year presentation as required by Statement of Financial Accounting Standards (or SFAS) No. 144“Accounting for the Impairment or Disposal of Long-Lived Assets.”
Use of Estimates

     The preparationEstimates.Preparation of the consolidated financial statements in conformity with accounting principles generally accepted accounting principlesin the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

     Interest income on mortgage loans and REMIC Certificates is recognized on
the accrual basis using the effective interest method. The total amount of the
base rent payments from operating leases is accrued as earned over the term of
the lease. Contingent rental income, which is generated by a percentage of
increased revenue over a specified base period revenue of the long-term care
facilities, is recognized as earned.

Cash Equivalents

     Equivalents.Cash equivalents consist of highly liquid investments with a maturity of three months or less when purchased and are stated at cost which approximates market.
Land, Buildings and Improvements

     Improvements.Land, buildings and improvements are recorded at cost. Depreciation is provided on acomputed principally by the straight-line basis over the estimatedmethod for financial reporting purposes and by accelerated methods for income tax purposes. Estimated useful lives of the related
assets whichfor financial reporting purposes range from 3 years on computers to 7 years for equipment and 35 to 40 years for buildings.
Depreciation expense on buildings
39
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Impairments. Impairment losses are recorded when events or changes in circumstances indicate the asset is impaired and improvements, including facilities owned
under capital leases, was $6,214,000, $2,996,000the estimated undiscounted cash flows to be generated by the asset are less than its carrying amount. Management assesses the impairment of properties individually and $1,740,000 forimpairment losses are calculated as the years
ended December 31, 1996, 1995excess of the carrying amount over the fair value of assets to be held and 1994, respectively.

     Duringused, and carrying amount over the year,fair value less cost to sell in instances where management has determined that we will dispose of the Company adopted Statement of Financial Accounting
Standards (SFAS)property, per SFAS No. 121 "Accounting“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".  This pronouncement requires that
impairmentOf” for years prior to 2002 and per SFAS No. 144“Accounting for the Impairment or Disposal of Long-Lived Assets” beginning January 1, 2002. In determining fair value, we use current appraisals or other third party opinions of value and other estimates of fair value such as estimated discounted future cash flows.
To the extent there are defaults or unrecoverable losses for such assets be based on the fair valueunderlying mortgages of the asset.REMIC Certificates resulting in reduced cash flows, the subordinated certificates held by us would, in general, bear the first risk of loss. In accordance with this pronouncement,EITF 99-20, management evaluates the Company records impairment losses on
long-lived assets when indicatorsrealizability of impairment are present and the undiscountedexpected future cash flows estimated to be generated by these assets are less than their
carrying amounts.periodically. Management assesses the potential for impairment on a
property by property basis.  The adoption of SFAS No. 121 had no impact on the
Company's consolidated financial statements as no impairment write-downs were
necessary.

                                       37

 
                             LTC PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Mortgage Loans Receivable

     The Company maintains a long-term investment interestincludes in its mortgages
either throughevaluation such factors as actual and/or expected loan prepayments, actual and/or expected credit losses, and other factors that may impact the direct retention of mortgages or through the retentionamount and timing of REMIC certificates originatedCertificates’ future cash flows. An impairment is recorded in the Company's securitizations. The Company may,
from time-to-time, securitizecurrent period earnings when management believes that it is probable that a portion of itsthe underlying mortgage loan portfolio in
transactions accountedcollateral would not be realized by the REMIC Trust.
Securitization Transactions.LTC is a REIT and, as such, makes investments with the intent to hold them for as sales,long-term purposes. However, mortgage loans may be transferred to a REMIC, a qualifying special-purpose entity, when a securitization provides the Companyus with the best available form of raising capital to makefund additional long-term investments. Because portionsWhen contemplating a securitization, consideration is given to our current and expected future interest rate posture and liquidity and leverage position, as well as overall economic and financial market trends.
A securitization is completed in a two-step process. First, a wholly owned special-purpose bankruptcy remote corporation (or REMIC Corp.) is formed and selected mortgage loans are sold to the REMIC Corp. without recourse. Second, the REMIC Corp. transfers the loans to a trust (or REMIC Trust) in exchange for commercial mortgage pass-through certificates (or REMIC Certificates) which represent beneficial ownership interests in the REMIC Trust assets (the underlying mortgage loans). Under this structure, the REMIC Trust is a qualifying special purpose entity from which the mortgages are isolated from us and the REMIC Corp. Holders of REMIC Certificates issued by the REMIC Trust have the right free of any conditional constraints to pledge or exchange those interests, and neither we or the REMIC Corp. maintain effective control over the transferred assets (the mortgages). The REMIC Trust is administered by a third-party trustee solely for the benefit of the Company's mortgage loan portfolioREMIC Certificate holders.
Under the securitization structure described above, we accounted for the transfer of the mortgages as a sale with any gain or loss recorded in earnings. The gain or loss is equal to the excess or deficiency of the cash proceeds and fair market value of any subordinated certificates received when compared with the carrying value of the mortgages sold, net of any transaction costs incurred and any gains or losses associated with an underlying hedge. Subordinated certificates received by us are anticipatedrecorded at their fair value at the date of the transaction. We have no controlling interest in the REMIC since the majority of the beneficial ownership interests (in the form of REMIC Certificates) are sold to third-party investors. Consequently, the financial statements of the REMIC Trust are not consolidated with those of our company for financial reporting purposes. The securitization transactions and the related transaction structures used therein were completed during or prior to 1998 and prior to the implementation of SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS No. 140 modified some of the requirements that previously existed under prior accounting principles that provided for the transfer of mortgages in securitization transactions to be securitized inaccounted for as sales. Should we complete future securitizations, we anticipate that such securitization structure would comply with the future, the Company is required to classify
its mortgages as held for sale and account for them at the lower of cost-or-
market under thesales accounting provisions of SFAS 65. However, historically,No. 140.
REMIC Certificates retained by us as consideration for the Company hasmortgages sold its mortgages solely in connection with its REMIC securitizations and does
not anticipate selling any of its mortgages other than in the course of
completing future securitizations.

     The Company considers mortgages that have not yet been securitized to be 
"uncommitted mortgages" (as defined under SFAS No. 65) until they have been 
acceptedare accounted for securitization by two independent rating agencies.at fair value. In determining fair value on the estimated market value for such mortgages, the Companydate of sale, management considers estimated 
prices and yields, which are based in part on a spread over the applicable U.S. 
Treasury Note Rate, sought by qualified institutional buyersvarious factors including, pricing of the REMIC 
certificates originated in the Company's securitizations. As of December 31, 
1996, the estimated market value of Company's mortgage loan investments, all 
which are considered uncommitted mortgages, exceeded their amortized cost.  The 
Company determines the lower of cost or market of its mortgage loans on an 
aggregate basis.  To the extent that the aggregate cost basis exceeds the 
aggregate market value, a valuation allowance is established with the resulting 
amount included in the determination of net income.  Changes in the valuation 
allowance are included in current period earnings.

Hedging of Anticipated Transactions

     As further discussed in Notes 4 and 9, the Company has entered into forward
interest rate swap agreements to hedge certain firm commitments and to hedge
anticipated securitization transactions. Firm commitments subject the Company to
interest rate risksold relative to the extent that debt or other fixed rate financing will be
usedcertificates retained as evaluated by the underwriters, discount rates and applicable spreads at the time of issuance for similar securities (or adjustments thereto if no comparable securities are available), assumptions regarding prepayments including the weighted-average life of prepayable assets, if any, and estimates relating to fund such investments.  In such circumstances, the Company may elect to
hedge such financings thereby reducing its exposure to interest rate risk.  The
Company designates such interest rate swaps as hedges when the significant
characteristics and expected terms of the anticipated transaction are identified
and when it is probable that the anticipated transaction will occur.  Any gains
or losses on the qualifying hedges are recognized upon the completion of the
hedged transaction.

Federal Income Taxes

     No provision has been made for federal income taxes. The Company qualifies
as a real estate investment trust under Sections 856 through 869 of the Internal
Revenue Code of 1986, as amended. As such, the Company is not taxed on its
income which is distributed to stockholders, provided that such distribution is
at least 95 percent of its taxable income. At December 31, 1996, the reported
amount of the Company's net assets and liabilities exceeds the tax bases by
approximately $21,000,000.

     For Federal Tax purposes, depreciation is taken on the Company's owned
properties based on the assets' tax bases (which is materially the same as GAAP
book value) calculated, in general, at a rate of 3.6%, using the straight-line
method over a period of 27.5 years.

     Earnings and profits, which determine the taxability of dividends to
stockholders, differ from net income for financial statement purposes due to the
treatment required under the Internal Revenue Code of certain interest income
and expense items, depreciable lives and bases of assets.

                                       38
potential realized credit losses.
40
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Investments in REMIC Certificates

     Income on investments in the Company's REMIC Certificates, including
interest-only Certificates,  is recognized based on the effective interest
method using the anticipated yield over the expected life of these investments.
These Certificates are recorded at their estimated fair value at the time of the
transactions and are accounted for under the provisions of SFAS No. 115 (as
described before in "Debt Securities"). Impairment adjustments are made if the
projected yield of a certificate class is less than the risk-free rate of return
on an investment with similar duration.  Such projected yields are based on
management's best estimate of future cash flows at each reporting date.

Concentrations of Credit Risk

     The Company's credit risks primarily relate to cash and cash equivalents,
the investment in REMIC Certificates, mortgage loans receivable, facility leases
and interest rate swaps. Cash and cash equivalents are primarily held in bank
accounts and overnight investments. — (Continued)
The REMIC Certificates relate to
participating interests in real estate mortgage investment conduits ("REMICs")
as discussed in Note 4.issued by the REMIC Trust include various levels of senior, subordinated, interest only and residual classes. The Company's mortgage loans receivable relate primarily
to loans secured by long-term care facilities as discussed in Note 4. The
facility leases relatesubordinated REMIC Certificates generally provide a level of credit enhancement to the long-term care facilities the Company owns and
leases to third party operators.senior REMIC Certificates. The Company's financial instruments, principally its investment insenior REMIC Certificates and mortgage loans receivable, are subject to the possibility of
loss(which historically have represented 66% of the carrying valuestotal REMIC Certificates) were then sold to outside third-party investors through a private placement under Rule 144A of the Securities Act of 1933, as a resultamended. The subordinated REMIC Certificates along with the cash proceeds from the sale of either the failure of other parties
to perform according to their contractual obligations or changes in market
prices which may make the instrument less valuable.  The Company obtains various
collateral and other protective rights, and continually monitors these rights,
in order to reduce such possibilities of loss.  In addition, the Company
provides reserves for potential losses based upon management's periodic review
of its portfolio.

     Thesenior REMIC Certificates were retained by the Company are subordinate in rank and
rightREMIC Corp. as consideration for the initial transfer of paymentthe mortgage loans to the certificatesREMIC Trust. Neither we, nor the REMIC Corp. is obligated to purchase any of the REMIC Trust assets or assume any liabilities.
Description of the REMIC Certificates.REMIC Certificates represent beneficial ownership interests in the REMIC Trust and can be grouped into three categories; senior, subordinated and subordinated interest only (or I/O). The REMIC Certificates sold to third-party investors are the senior certificates and asthose retained by us are the subordinated certificates. The senior and the subordinated certificates have stated principal balances and stated interest rates (or pass-through rates). The I/O REMIC Certificates have no stated principal but are entitled to interest distributions. Interest distributions on the I/O REMIC Certificates are typically based on the spread between the monthly interest received by the REMIC Trust on the underlying mortgage collateral and the monthly pass-through interest paid by the REMIC Trust on the outstanding pass-through rate REMIC Certificates. Interest and principal distributions are made in order of REMIC Certificate seniority. As such, to the extent there are defaults or unrecoverable losses on the underlying mortgages resulting in reduced cash flows, the subordinated certificates held by us would in general bear the first risk of lossloss. Management evaluates the realizability of expected future cash flows periodically. An impairment is recorded in the event of an impairment to anycurrent period earnings when management believes that it is probable that a portion of the underlying mortgages.  The returnsmortgage collateral would not be realized by the REMIC Trust.
On January 1, 1999, we adopted SFAS No. 134“Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise.”Upon adoption of SFAS No. 134, based on the Company's investmentour ability and intent to hold our investments in REMIC Certificates, are subjectwe transferred our I/O REMIC Certificates and certificates with an investment rating of “BB” or higher from the trading category to certain uncertaintiesthe available-for-sale category and contingencies including,
without limitation,our certificates with an investment rating of “B” or lower to the level of prepayments, estimated future credit losses,
prevailing interest rates, and the timing and magnitude of credit lossesheld-to-maturity category. The transfer was recorded at fair value on the underlying mortgages collateralizing the securities that are a resultdate of the general condition of the real estate market or long-term care industry.  As
these uncertainties and contingencies are difficult to predict and are subject
to future events that may alter management's estimations and assumptions, no
assurance can be given that current yields will not vary significantly in future
periods.  To minimize the impact of prepayments, the mortgage loans underlying
thetransfer.
The I/O REMIC Certificates generally prohibit prepayment unless the property is sold
to an unaffiliated third party (with respect to the borrower).  Additionally,
management believes it employs conservative underwriting policies and to date
there have been no credit losses on any of the mortgages underlying the
certificates nor are any credit losses currently anticipated.

     Certain of the Certificates retained by the Company have designated
certificate principal balances and a stated certificate interest "pass-through"
rate.  These Certificates are subject to credit risk to the extent that there
are estimated or realized credit losses on the underlying mortgages, and as such
their

                                       39

 
                             LTC PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

effective yield would be negatively impacted by such losses.  The Company
also retains the interest-only (I/O) Certificates, which provide cash flow
(interest-only) payments that result from the difference between the interest
collected from the underlying mortgages and interest paid on all the outstanding
pass-through rate certificates.  In addition to the risk from credit losses, the
I/O Certificates are also subject to prepayment risk, in that prepayments of the
underlying mortgages reduce future interest payments of which a portion flows to
the I/O Certificates, thus, reducing their effective yield.  The Certificates'Certificates’ fair values are estimated, in part, based on a spread over the applicable U.SU.S. Treasury rate,Rate, and consequently, are inversely affected by increases or decreases in such interest rates. There is no active market in these securities from which to readily determine their value. The estimated fair values of both classes of Certificatescertificates are subject to change based on the estimate of future
prepayments andthe current interest rate environment, estimated spreads over the U.S. Treasury Rate at which the retained certificates might trade, expectations regarding credit losses, as well as fluctuations in interestif any, expected weighted-average life of the underlying collateral and discount rates and
market risk.

Net Income Per Share

     Computationcommensurate with the risks involved.
Because of net income per share is based on weighted average numberthe nature of sharesthe underlying mortgage collateral of common stock outstanding and dilutive common stock equivalents
(principally stock options).

Debt Securities

     The Company's investment in debt securities is limited to its investments
in REMIC Certificates, which resulted from its past securitizations.  It is the
Company's intent to hold itsour REMIC Certificate investments, as long-term
investments. SFAS No. 115 "Accounting for Certain Investmentsmany market and/or industry specific factors may affect the treasury rate spreads or discount rates used in Debt and Equity
Securities" (SFAS 115), requires that securities retained which resulted fromestimating the origination and securitization of mortgage loans be recorded and accounted
for at fair value withof the REMIC Certificates. Such factors may include, but are not limited to uncertainty surrounding proposed or pending changes in the securities' fair value reflected as a
separate component of earnings in the current period, irrespective of an
organization's intent or ability to hold such securities or the level of
marketability, if any, with respect to such securities.  As such, the Company
reflects the change in the Certificates' estimated fair value as a separate
component of earnings at each reporting period.  The Company believes that any
unrealized gainsfederal and/or losses reflectedstate reimbursement programs for long-term care which may be subject to among other things, budgetary constraints, perceptions surrounding the future supply of long-term care beds, changes in its income statement, as required by
SFAS 115, would not be immediately realizable becauseregulations surrounding the operation of the investment posture
of the Companylong-term care facilities and the illiquid nature of certain of the Certificates retained
from its securitizations.

     In estimating the Certificates' fair value, significant judgment is used
since there is no market for these Certificates.  In arriving at such estimates,
management considersassociated costs therewith, and operating factors which affect the Certificates' projected cash flows including, but not limited to, actuallabor costs, insurance costs and other costs. Additionally, the general interest rate environment and the availability and demand of higher yielding investments also are factors that impact the spreads and/or yields used in estimating the fair value of the REMIC Certificates. Investor sentiment towards any one or more of these factors can impact where our REMIC Certificate investments would be priced by a potential investor at any given point in time. Because there are a limited number of securities similar to the REMIC Certificates held by us, which trade infrequently, if at all, we balance our fair value estimates with valuations of more traditional types of asset-backed securities that have similar rating characteristics with REMIC Certificates held by us. Differences between the carrying amounts of our REMIC Certificate investments and the estimated prepayments, projected
credit losses, if any, on the underlying mortgages, as well as general economic
and regulatory factors affectingfair value of those certificates, are due in large part to current market sentiments towards the long-term care industry and prevailingvarious factors cited above. Changes in market interest rate conditions. Since many of these factorssentiments are difficult to predict, and are beyond the control of the Company'sat best, thus, management changes in the
reported fair values may vary widely and may not be indicative of amounts
immediately realizable if the Company was forcedendeavors to liquidate any of the
Certificates.

Securitization Transactions

     Under the Company's securitization structure (see Note 4), transfers of
mortgage loans to a Real Estate Mortgage Investment Conduit ("REMIC Trust"), a
qualifying special-purpose entity, are accounted for as a sale upon completion
of the transaction with any gain or loss recorded in earnings

                                       40
41
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

at the time— (Continued)
utilize its understanding of the transaction.underlying collateral and the expected cash flows therefrom, to determine whether changes in values are other than market related.
Mortgage Loans Receivable. Mortgage loans receivable are recorded on an amortized cost basis. We maintain a valuation allowance based upon the expected collectibility of the mortgage loans receivable. Changes in the valuation allowance are included in current period earnings. In determiningaccordance with SFAS No. 114“Accounting by Creditors for Impairment of a gainLoan”we evaluate the carrying values of mortgage loans receivable on an individual basis. Management periodically evaluates the realizability of future cash flows from the mortgages when events or loss,circumstances, including the Company
comparesnon-receipt of principal and interest payments and/or significant deteriorations of the financial conditions of the borrowers indicate that the carrying amount of the mortgage loan receivable may not be recoverable. An impairment charge is recognized in current period earnings and is calculated as the difference between the carrying amount of the mortgage loan receivable and the discounted cash flows expected to be received, or if foreclosure is probable, the fair value of the mortgages sold, net of any transaction costs
incurred and any gains or losses associated withcollateral securing the underlying hedge, to the
cash proceeds and fair market value of any subordinated certificates received.
Subordinated certificates received by the Company are recorded at their
estimated fair value on the date of the transaction. Additionally, under this
structure, the Company has no controlling interest in the REMIC since the
majority of the beneficial ownership interests (in the form of REMIC
certificates) are sold to third-party investors. Consequently, the financial
statements of the REMIC Trust are not consolidated with those of the Company for
financial reporting purposes.

Stock-Based Compensation

     In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation" (Statement 123) which provides companies an alternative to
accounting for stock-based compensation as prescribed under APB Opinion No. 25
(APB 25).  Statement 123 encourages, but does not require companies to recognize
expense for stock-based awards based on their fair value at date of grant.
Statement 123 allows companies to continue to follow existing accounting rules
(intrinsic value method under APB 25) provided that pro-forma disclosures are
made of what net income and earnings per share would have been had the new fair
value method been used.  The Company has elected to adopt the disclosure
requirements of Statement 123 but will continue to account for stock-based
compensation under APB 25.  Statement 123's disclosure requirements are
applicable to stock-based awards granted in fiscal years beginning after
December 15, 1994.

mortgage.
Mortgage Servicing Rights

     Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 122 "Mortgage Servicing Rights" (SFAS 122).  SFAS 122
requires the recognition of a separate asset for the right to serviceRights.We subservice mortgage loans that are acquired through either the purchase or origination of mortgage
loans.  The pronouncement also requires the allocation of costs amongcollateral for REMIC Certificates issued in our securitization transactions for which we receive servicing rights and the loans,fees, based on their relative fair values.  Currently, the
Company serves as the sub-servicer on its REMIC transactions comprising 85 loans
at December 31, 1996.  In that capacity, the Company receives fees which are
determined based on prevailing market rates for such services at the time the securitization is completed, equal to a fixed percentage of each REMIC transaction.  Becausethe outstanding principal on the collateral loans. A separate asset for servicing rights is not recognized since the servicing fees received only adequately compensates us for the cost of servicing the loans. The fair value of servicing rights for mortgage loans originated and retained by us are estimated based on the fees received for such servicing result in
only adequate compensation after considering themortgage loans that serve as collateral for REMIC Certificates. All costs to service the loans, the
Company does not recognize a separate asset for servicing rights.

     With respect to servicing rights associated withoriginate mortgage loans originated
byare allocated to the Company, the estimated fair value of such rights would be determined
based on the underlying characteristics of the mortgages the Company services in
its REMIC securitizations.  Sincemortgage loans since the fair value of suchservicing rights only sufficiently covers the servicing costs.
Investments. Available-for-sale securities are stated at fair value, with the unrealized gains and losses, reported in other comprehensive income. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in net income. The cost of such servicing, no separate servicing assetsecurities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest and other income.
Revenue Recognition.Interest income on mortgage loans and REMIC Certificates is recognized sinceusing the effective interest method. We follow a policy related to mortgage interest whereby we consider a loan to be non-performing after 60 days of non-payment of amounts due and do not recognize unpaid mortgage interest income from that loan until the past due amounts have been received. Base rents under operating leases are accrued as earned over the terms of the leases. Substantially all of our leases contain provisions for specified annual increases over the rents of the prior year and are generally computed in one of four methods depending on specific provisions of each lease as follows: (i) a specified annual increase over the prior year’s rent, generally 2%; (ii) an increase based on the change in the Consumer Price Index from year to year; (iii) an increase derived as a percentage of facility net patient revenues in excess of base revenue amounts or (iv) specific dollar increases over prior years. SEC Staff Bulletin No. 101Revenue Recognition in Financial Statements (or SAB 101) does not provide for the recognition of such contingent revenue until all possible contingencies have been eliminated. We consider the operating history of the lessee and the general condition of the industry when evaluating whether all possible contingencies have been eliminated and have historically, and expect in the future, to not include contingent rents as income until received. We follow a policy related to rental income whereby we consider a lease to be non-performing after 60 days of non-payment of past due amounts and do not recognize unpaid rental income from that lease until the amounts have been received.
Rental revenues relating to leases that contain specified rental increases over the life of the lease are recognized on the straight-line basis when we believe that all of the rent related to a particular lease will be collected according to the terms of the lease. In evaluating whether we believe all the rent will be collected all of the following conditions must be met: (i) the property has been operated by the same operator for at least six months (adding a new property to a master lease with an operator that otherwise qualifies does not disqualify the lease from being straight-lined); (ii) payments for any monetary obligations due under the lease, or any other lease such operator has with us have been received late no more than four times during last eight fiscal quarters; (iii) the operator of the property has not during the last eight fiscal quarters (a) been under the protection of any Bankruptcy court; (b) admitted in writing its inability to pay it debts generally as they come due; (c) made an assignment for the benefit of creditors; or, (d) been
42
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
under the supervision of a trustee, receiver or similar custodian; and (iv) the property operating income has covered the applicable lease payment in each of the prior four fiscal quarters.
We will discontinue booking rent on a straight-line basis if the lessee becomes delinquent in rent owed under the terms of the lease and has been put on “non-accrual” status (i.e. we have stopped booking rent on an accrual basis for a particular lease because the collection of rent is uncertain). Once a lease is on “non-accrual” status, we will evaluate the collectibility of the related straight-line rent asset. If it is determined that the collection problem is temporary, we will resume booking rent on a straight-line basis once payment is received for past due rents. If it appears that we will not collect future rent under the “non-accrual lease” we will record an impairment charge related to the straight-line rent asset.
Management periodically evaluates the realizability of future cash flows from the mortgages underlying our REMIC Certificates. Included in our evaluation, management considers such factors as actual and/or expected loan prepayments, actual and/or expected credit losses, and other factors that may impact the amount and timing of Certificate future cash flows. Impairments are recorded when an adverse change in cash flows is evident and is determined to be other than temporary in nature. Additionally, interest recognition amortization schedules are adjusted periodically to reflect changes in expected future cash flows from the REMIC certificates, thus, accordingly adjusting future interest income recognized.
Transactions with Affiliate. SeeNote 8. CLC Healthcare, Inc.for a description of our transactions with CLC Healthcare, Inc. (or CLC) and the accounting policies we followed related to those transactions.
Federal Income Taxes.LTC qualifies as a REIT under the Internal Revenue Code of 1986, as amended and as such, no provision for Federal income taxes has been made. A REIT may deduct distributions to its stockholders from its taxable income. If at least 90% (95% for taxable years ending prior to January 1, 2001) of a REIT’s taxable income is distributed to its stockholders and it complies with other Internal Revenue Code requirements, a REIT generally is not subject to Federal income taxation.
For Federal tax purposes, depreciation is generally calculated at a rate of 3.6% based on the assets’ tax basis (which approximates cost) using the straight-line method over a period of 27.5 years. Earnings and profits, which determine the taxability of distributions to stockholders, differ from net income for financial statement purposes principally due to the treatment of certain interest income and expense items, the non-deductibility of impairment charges, and the depreciable lives and basis of assets under the Internal Revenue Code. At December 31, 2003, the book basis of our net assets exceeded the tax basis by approximately $8,212,000 due primarily to additional depreciation taken for tax purposes.
Concentrations of Credit Risks.Financial instruments which potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, REMIC Certificates, mortgage loans receivable and operating leases on owned properties. Our financial instruments, principally REMIC Certificates, mortgage loans receivable and operating leases, are subject to the possibility of loss of carrying value as a result of the failure of other parties to perform according to their contractual obligations or changes in market prices which may make the instrument less valuable. We obtain various collateral and other protective rights, and continually monitor these rights, in order to reduce such possibilities of loss. In addition, we provide reserves for potential losses based upon management’s periodic review of our portfolio.
Our REMIC Certificates are subordinate in rank and right of payment to the certificates sold to third-party investors and as such, in most cases, would bear the first risk of loss in the event of an impairment to any of the underlying mortgages. The returns on the REMIC Certificates are subject to uncertainties and contingencies including, without limitation, the level of prepayment, prevailing interest rates and the timing and magnitude of credit losses on the mortgages underlying the securities that are a result of the general condition of the real estate market or long-term care industry. These uncertainties and contingencies are difficult to predict and are subject to future events that may alter management’s estimations and assumptions therefore, no assurance can be immaterial.  Therefore, the entire cost of
originatinggiven that current yields will not vary significantly in future periods. In general, the mortgage loans underlying the REMIC Certificates generally prohibit prepayment unless the property is allocatedsold to an unaffiliated third party (with respect to the borrower).
Certain of the REMIC Certificates retained by us have designated certificate principal balances and a stated certificate interest “pass-through” rate. These REMIC Certificates are subject to credit risk to the extent that there
43
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
are estimated or realized credit losses on the underlying mortgages, and as such mortgages.

New Accounting Pronouncementtheir effective yield would be negatively impacted by such losses. We also retain the I/ O REMIC Certificates. In June 1996,addition to the risk from credit losses, the I/ O REMIC Certificates are also subject to prepayment risk, in that prepayments of the underlying mortgages reduce future interest payments of which a portion flows to the I/ O REMIC Certificates, thus, reducing their effective yield.
Discontinued Operations.In August 2001, the Financial Accounting Standards Board ("FASB")(or FASB) issued StatementSFAS No. 144“Accounting for the Impairment or Disposal of Long-Lived Assets,” which was required to be adopted in fiscal years beginning after December 15, 2001. SFAS No. 144 supercedes SFAS No. 121,“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and provides a single accounting model for long-lived assets to be disposed of. Subsequent to January 1, 2002, and in accordance with SFAS No. 144, properties held-for-sale on the balance sheet includes only those properties available for immediate sale in their present condition and for which management believes that it is probable that a sale of the property will be completed within one year. Properties held-for-sale are carried at the lower of cost or fair value less estimated selling costs. No depreciation expense is recognized on properties held-for-sale once they have been classified as such. In accordance with the implementation provisions of SFAS No. 144, the operating results of real estate assets designated as held-for-sale subsequent to January 1, 2002 are included in discontinued operations in the consolidated statement of operations. In addition, all gains and losses from real estate sold are also included in discontinued operations. As prescribed by SFAS No. 144, gains and losses on prior years related to assets included on discontinued operations in 2002 have been reclassified to discontinued operations for comparative purposes. Assets designated as held-for-sale prior to January 1, 2002, have been accounted for under SFAS No. 121 and accordingly, gains and losses from these assets have not been included in discontinued operations. SeeNote 6. Real Estate Investments, for a detail of the components of the net loss from discontinued operations.
Net Income Per Share. Basic earnings per share is calculated using the weighted-average shares of common stock outstanding during the period excluding common stock equivalents. Diluted earnings per share includes the effect of all dilutive common stock equivalents.
Stock-Based Compensation. Effective January 1, 2003, we adopted SFAS No. 148“Accounting for Stock-Based Compensation — Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123“Accounting for Stock-Based Compensation” to provide alternative methods of transition to SFAS No. 123’s fair value method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 and APB Opinion No. 28“Interim Financial Reporting” to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy for stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS No. 148 provides three transition methods for entities that adopt the fair value recognition provisions of SFAS No. 123 for stock-based employee compensation. In addition to the prospective method originally provided under SFAS No. 123, SFAS No. 148 provides for a modified prospective method and a retroactive restatement method. We have adopted the prospective method and therefore will recognize compensation expense related to all employee stock-based awards granted, modified or settled after January 1, 2003. No options were granted in 2003.
We use the Black-Scholes model for calculating stock option expense. This model requires management to make certain estimates including stock volatility, discount rate and the termination discount factor. If management incorrectly estimates these variables, the results of operations could be affected. Prior to January 1, 2003, we accounted for stock option grants in accordance with APB Opinion No. 25,“Accounting for Stock Issued to Employees” (APB 25) and related Interpretations. Historically, we granted stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. Under APB 25, because the exercise price of our employee stock options equaled the market price of the underlying stock on the date of grant, no compensation expense was recognized.
Fair Value of Financial Accounting StandardsInstruments.SFAS No. 125 "Accounting for Transfers
and Servicing107“Disclosures about Fair Value of Financial AssetsInstruments”requires the disclosure of fair value information about financial instruments for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and Extinguishmentsestimates of Liabilities" (SFAS 125)
which is effective for transactions occurring after December

                                       41
future cash flows. In that regard, the derived fair value estimates cannot be
44
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

31, 1996— (Continued)
substantiated by comparison to independent markets and, applicable to assets held on or acquired after January 1, 1997.
SFAS 125 amendsin many cases, could not be realized in immediate settlement of the instrument. SFAS No. 115107 excludes certain financial instruments and supersedes all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair market value amounts presented in the footnotes to these financial statements do not represent our underlying value in financial instruments.
The carrying amount of cash and cash equivalents approximates fair value because of the short-term maturity of these instruments. The fair value of investments in marketable debt securities in 2002 is based upon quotes from a broker who trades in those securities and in 2003 it is based on face value due to the issuer’s announcement of early redemption The fair values of mortgage loans receivable, REMIC Certificates and long-term debt obligations are based upon the estimates of management and on rates currently prevailing for comparable loans, and instruments of comparable maturities.
Segment Disclosures.SFAS No. 77 "Reporting by
Transferors131“Disclosures About Segments of an Enterprise and Related Information”establishes standards for Transfers of Receivables with Recourse." In addition, Statement
125 amends certain other accounting literaturethe manner in which provided guidance with
respect to the Company's REMIC securitization transactions.

     SFAS 125 provides specific criteria for determining whether or not a
transfer of assets is a sale or a secured borrowing. In order for sales
accounting to apply, the new criteria specifies that 1) transferred assets must
be isolated from the transferor 2) the transferee obtains the right free of any
conditional constraints to pledge or exchange the assets, or the transferee is a
qualifying special purpose entity of which the holders of the beneficial
interests have the right free of any conditional constraints to pledge or
exchange those interests, and 3) the transferor does not maintain effective
control over the transferred assets. The Company believes that the structure of
its securitizations would continue to meet the sales accounting standards
established in SFAS 125, however, to the extent that recent interpretations of
certain provisions of SFAS 125 would require modification to the REMIC
structure, the Company would make the necessary modifications to allow for its
future securitizations to continue to be accounted for as sales. In addition,
SFAS 125 provides that upon completion of a sale, the assets received and the
liabilities incurred, if any, shall be recognized at their fair values at the
time of the transaction with any gains or losses recognized in earnings.public business enterprises report information about operating segments. Management believes that these new provisions will not have a material impact on
the financial position or results of operations of the Company with respect to
any future securitizations.

     SFAS 125 also requires the measurement of servicing assets and liabilities
when an entity undertakes an obligation to service financial assets.  The
Company currently provides servicing on the loans from its three previous REMIC
securitizations and would expect to do so in any future REMIC. However,
historically, the Company receives only adequate compensation for such servicing
and, as such, has determined that any servicing asset would be immaterial.
Therefore, management believes that this provision of SFAS 125 will not
materially impact the Company's financial position.

     Furthermore, SFAS 125 modifies the accounting for certain financial assets
that can contractually be prepaid or otherwise settled in such a way that the
holder would not substantially recover all of its recorded investment to be
accounted for at their fair value under SFAS 115.our operations comprise one operating segment.
New Accounting Pronouncements. The Company currently accounts
for its investmentsfollowing accounting pronouncements became effective or were issued in REMIC Certificates at estimated fair value, consequently,
there would be2003 and have no material effect on our financial statements:
• 
SFAS No. 149“Amendment of Statement 133 on Derivative Instruments and Hedging Activities”requires that contracts with comparable characteristics be accounted for similarly and clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative, clarifies when a derivative contains a financing component and amends the definition of an underlying investment to conform it to language used in other FASB promulgations. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. At December 31, 2003, we did not have any derivative instruments or contracts outstanding nor were we involved in any hedging relationships. If in the future we enter into any derivative contracts or hedging relationships we will follow the guidelines set forth in SFAS No. 149;
• 
SFAS No. 150“Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”requires certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity to be classified as liabilities. Many of these instruments were previously classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and to all other instruments that existed as of the beginning of the first interim financial reporting period beginning after June 15, 2003. In October 2003 portions of SFAS No. 150 that apply to non-controlling (minority) interests in finite-life entities were deferred indefinitely. Also in October 2003 the FASB clarified that any non-controlling minority interest that may be redeemed with equity of any entity (including equity of an entity other than the subsidiary) does not meet the definition of a mandatorily redeemable financial instrument and thus does not fall under SFAS No. 150 guidelines. Since the partnership agreements with our limited partners (minority interests) specify that the limited partners’ exchange rights may be settled in our common stock or cash at our option the adoption of SFAS No. 150 does not have an impact on the financial statement presentation or accounting for our minority interests. However, our adoption of SFAS No. 150 did require that the Series A Preferred Stock we called for redemption on December 31, 2003 be classified as a liability.
• 
FIN 45“Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. FIN 45 also outlines additional disclosures that a guarantor must make in its interim and annual financial statements about its obligations under certain guarantees that it has issued. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. During 2003 we did not enter into any guarantees nor did we have any guarantees outstanding at December 31, 2003.
45
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
3.
Major Operators
We have two lessees, based on properties subject to lease agreements and secured by mortgage loans that represent between 10% and 20% of our total assets. The following table summarizes our major lessees’ assets, stockholders’ equity, interim revenue and net income (loss) from continuing operations as of or for the nine months ended September 30, 2003 per the lessees’ public filings:
 
 
 
 
 
 
 
 
 
Assisted Living Concepts, Inc.
Alterra Healthcare Corporation
(unaudited, in thousands)
Current assets
 
$
26,828
 
 
$
83,674
 
Non-current assets
 
 
187,256
 
 
 
458,487
 
Current liabilities
 
 
25,711
 
 
 
348,541
 
Non-current liabilities
 
 
155,895
 
 
 
748,172
 
Redeemable preferred stock
 
 
—
 
 
 
—
 
 
Gross revenue
 
 
125,519
 
 
 
309,018
 
Operating expenses
 
 
112,144
 
 
 
313,846
 
Income (loss) from continuing operations
 
 
2,276
 
 
 
(32,641
)
Net income (loss)
 
 
2,770
 
 
 
(65,624
)
 
Cash provided by operations
 
 
7,332
 
 
 
184
 
Cash provided by investing activities
 
 
5,067
 
 
 
82,568
 
Cash used in financing activities
 
 
(8,660
)
 
 
(81,498
)
Assisted Living Concepts, Inc. (or ALC) leases 37 assisted living properties with a total of 1,434 units owned by us representing approximately 12.6%, or $72,486,000, our total assets at December 31, 2003. In October 2001, ALC filed for reorganization under Chapter 11 of the federal bankruptcy laws. The filing was pre-negotiated with sufficient debt holders to allow ALC to reorganize its debt and equity and emerge from bankruptcy as of 12:01 a.m. on January 1, 2002. The final order affirming the reorganization was made in December 2001, consequently we reflected the transaction as of December 31, 2001. We agreed to reduce total rents under the 37 leases by $875,000 a year, beginning January 1, 2002, and received a lease rejection claim of $2,500,000 for this concession. Under the provisions of ALC’s Plan, we would have been entitled to receive, due to our ownership of pre-bankruptcy convertible subordinated debentures and the lease rejection claim, $7,986,000 of ALC’s new Senior Secured Notes (or Senior Notes) bearing interest at 10% per annum, payable semi-annually in arrears, $3,026,000 new Junior Secured Notes (or Junior Notes) bearing interest payable in additional new Junior Notes for three years at 8% and thereafter payable in cash at 12% per annum, payable semi-annually in arrears and 1,238,076 shares of ALC common stock. Provisions of the Revenue Code governing REITs prohibit REITs from owning debt and/or equity securities representing more than 10% of the value or voting power of any one issuer. Without qualifying as safe harbor debt, the Senior Notes and the Junior Notes would have been included in the calculation of 10% of the value of ALC. In order to qualify as safe harbor debt and retain our REIT status we were able to hold only the debt. For REIT income test purposes, provisions would also disqualify income from any entity in which a REIT owns 10% or more of the total combined voting power of all classes of stock or 10% or more of the total value of shares of all classes of a corporate tenant. And as a result, we could not be owners of the ALC common stock. In December 2001, we entered into an Assignment and Assumption Agreement with Healthcare Holdings, Inc. (or HHI), a wholly owned subsidiary of CLC, allowing HHI to purchase the right to receive the common stock of ALC. SeeNote 8. CLC Healthcare, Inc. andNote 10. Marketable Debt Securitiesfor further discussions. At the request of LTC’s Board of Directors, our Chairman, CEO and President, Mr. Andre C. Dimitriadis, became a Board member of ALC as of January 1, 2002. During the bankruptcy and since emergence, ALC has been current on all lease payments to us.
Alterra leases 35 assisted living properties with a total of 1,416 units owned by us representing approximately 12.4%, or $71,281,000, of our total assets at December 31, 2003. Alterra announced on January 22, 2003, that it had filed a voluntary petition with the U.S. Bankruptcy Court for the District of Delaware to reorganize under Chapter 11 of the U.S. Bankruptcy Code. Alterra’s Plan of Reorganization was approved in November 2003 and Alterra
46
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
emerged from bankruptcy in December 2003 as a non-publicly traded company. All of our leases with Alterra were assumed, without change, by the reorganized Alterra. Alterra is no longer a publicly traded company.
ALC is a publicly traded company, and as such is subject to the filing requirements of the Securities and Exchange Commission. Our financial position and ability to make distributions may be adversely affected by further financial difficulties experienced by ALC and Alterra or resultsany of our other lessees and borrowers, including additional bankruptcies, inability to emerge from bankruptcy, insolvency or general downturn in business of any such operator, or in the event any such operator does not renew and/or extend its relationship with us or our borrowers when it expires.
4.
Supplemental Cash Flow Information
 
 
 
 
 
 
 
 
 
 
 
 
 
For the year ended December 31,
2003
2002
2001
(in thousands)
Non-cash investing and financing transactions:
 
 
 
 
 
 
 
 
 
 
 
 
Assumption of mortgage loans payable related to acquisitions of real estate properties
 
$
—
 
 
$
1,357
 
 
$
50,774
 
Assumption of minority interest liability related to acquisition of general partnership interest
 
 
—
 
 
 
—
 
 
 
3,518
 
Assumption of accrued interest related to acquisitions of real estate properties
 
 
—
 
 
 
—
 
 
 
229
 
Conversion of mortgage loans and secured lines of credit into owned properties
 
 
—
 
 
 
3,832
 
 
 
3,899
 
Reduction in receivables from CLC related to the acquisition of debt securities
 
 
—
 
 
 
—
 
 
 
7,800
 
Exchange of third party debt securities related to the acquisitions of real estate properties
 
 
—
 
 
 
—
 
 
 
7,925
 
Reduction in receivables from CLC related to the acquisitions of real estate properties
 
 
—
 
 
 
—
 
 
 
9,285
 
Increase in short term notes receivable related to the disposition of real estate properties
 
 
—
 
 
 
2,631
 
 
 
8,483
 
Preferred stock redemption charge relating to the original issuance costs of the 40% of Series A Preferred Stock redeemed
 
 
1,241
 
 
 
—
 
 
 
—
 
5.
Impairment Charge
We periodically perform a comprehensive evaluation of our real estate investment portfolio. During 2002, we adopted SFAS No. 144“Accounting for the Impairment or Disposal of Long-Lived Assets” and therefore calculate the impairment losses as the excess of the carrying value over the fair value of assets to be held and used, and the carrying value over the fair value less cost to sell in instances where management has determined that we will dispose of the property. Prior to 2002, we calculated impairment losses using the same methodology as per SFAS No. 121“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” In recent years the long-term care industry experienced significant adverse changes, which have resulted in operating losses by certain of our lessees and borrowers and in some instances the filing by certain lessees and borrowers for bankruptcy protection. As a result we have identified certain investments in skilled nursing properties that we determined had been impaired. These assets were determined to be impaired primarily because the estimated undiscounted future cash flows to be received from these investments are less than the carrying values of the investments.
During 2003, we recorded an impairment charge of $1,260,000. Of this charge, $31,000 was to fully reserve a mortgage loan on one skilled nursing facility that was closed in 2002 and not reopened or sold. Additionally, we recorded a $1,303,000 impairment related to certain interest only REMIC Certificates net of a $74,000 adjustment of an impairment loss, recognized in the fourth quarter of 2002, related to our investment in REMIC Certificates. This
47
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
$1,303,000 impairment charge had been previously recognized in comprehensive income as a fair market value adjustment on available-for-sale REMIC Certificates as described inNote 6. Real Estate Investments.As more fully described inNote 2. Summary of Significant Accounting Policies, to the extent there are defaults, unrecoverable losses or prepayments of principal on the underlying mortgages resulting in reduced cash flows, the subordinated REMIC Certificates we hold would bear the first risk of loss. During management’s periodic evaluation of the realizability of expected future cash flows from the mortgages underlying our investment in REMIC certificates, there were indications that certain expected future cash flows would not be realized by the REMIC Trust. Accordingly, we recorded a net $1,229,000 impairment charge during 2003, to reflect the estimated impact on future cash flows from loan prepayments occurring during, or expected to occur subsequent to, the first quarter of 2003 related to certain subordinated REMIC Certificates we held.
During 2002, we recorded an impairment charge of approximately $7,807,000 ($710,000 of which is included in net loss from discontinued operations). The impairment charge included the write-down of $1,000,000 for one owned skilled nursing property as a result of our agreeing to a rent reduction and $710,000 for one assisted living property that was subsequently sold at less than net book value, a $1,600,000 write-down of two mortgages on two skilled nursing properties and a $4,497,000 valuation adjustment of the subordinated REMIC Certificates held by us. Of the $1,600,000 write-down, $600,000 was for a skilled nursing property that had closed and defaulted on the loan and $1,000,000 was for a loan on a skilled nursing property whose operator was reporting losses from operations and requesting temporary loan payment modifications. Relative to the $4,497,000 charge and as more fully described inNote 2. Summary of Significant Accounting Policiesto the extent there are defaults, unrecoverable losses or prepayments of principal on the underlying mortgages resulting in reduced cash flows, the subordinated REMIC Certificates held by us would bear the first risk of loss. As a result, during 2002 we recorded this $4,497,000 charge of which, $1,215,000 was for loans paying off prior to maturity and reducing the value of our I/ O REMIC Certificates, $500,000 was for one skilled nursing property that closed, $1,282,000 was for a loan on one skilled nursing property that we, as loan servicing agent for the REMIC Trust, agreed could pay the loan off at a $1,000,000 reduction in principal and $1,500,000 was for one skilled nursing property whose operator advised us that the operator was considering either closing the property or attempting to convert the building to an alternative use. During management’s periodic evaluation of the realizability of expected future cash flows from the mortgages underlying our REMIC Certificates, there were indications that a portion of the underlying mortgage collateral would not be realized by the REMIC Trust. Accordingly, we recorded an impairment charge in current period earnings.
During 2001, we recorded an impairment charge of approximately $28,584,000, ($8,937,000 of which is included in net loss from discontinued operations in accordance with SFAS No. 144). The impairment charge included the write-down of the carrying value to the estimated fair value, less cost to sell, of 14 owned skilled nursing properties of $16,755,000, notes receivable determined to be uncollectable of $1,500,000, pre-bankruptcy debt securities of ALC of $9,829,000 and $500,000 in lease termination costs. Of the $16,755,000 charge, $13,677,000 was for nine closed properties, $2,484,000 was for three properties that were leased at reduced lease values and $594,000 was for two properties that were sold. The fair values were based on current appraisals or other third-party opinions of value and other estimates of fair value such as estimated discounted future cash flows.
We believe we have recorded valuation adjustments on all assets for which there are permanent impairments. However, the long-term care industry has experienced significant adverse changes which have resulted in operating losses by certain of our lessees and borrowers and in some instances the filing by certain lessees and borrowers for bankruptcy protection. Thus, we cannot predict what, if any, impairment charge may be needed in the future.
6.
Real Estate Investments
Mortgage Loans. During the year ended December 31, 2003, we received principal repayments totaling $11,422,000 on two mortgage loans, and scheduled principal payments of $1,464,000. One mortgage loan with an outstanding principal balance of $1,707,000 that was secured by one long-term care property was purchased from the REMIC Trust for cash of $1,707,000 in connection with the termination of the 1993-1 REMIC Pool.
At December 31, 2003, we had 37 mortgage loans secured by first mortgages on 30 skilled nursing properties with a total of 3,681 beds and eight assisted living residences with 369 units located in 19 states. At December 31, 2003,
48
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the mortgage loans had interest rates ranging from 9.5% to 12.6% and maturities ranging from 2004 to 2018. In addition, the loans contain certain guarantees, provide for certain facility fees and generally have 25-year amortization schedules. The majority of the mortgage loans provide for annual increases in the interest rate based upon a specified increase of 10 to 25 basis points. At December 31, 2003 and 2002, the estimated fair value, based on the net present value of the future cash flows discounted at 10.5%, of the mortgage loans was approximately $74,511,000 and $85,429,000, respectively. Scheduled principal payments on mortgage loans are $7,021,000, $3,538,000, $9,223,000, $11,753,000, $12,680,000 and $28,530,000 in 2004, 2005, 2006, 2007, 2008 and thereafter.
Owned Properties and Lease Commitments. During 2003, we purchased two skilled nursing properties with a total of 98 beds from CLC. We paid cash of $1,215,000 for the two properties which CLC used to repay the outstanding loan balance due to a REMIC pool originated by us.
During 2003, we sold eight skilled nursing properties for a total sales price of $16,227,000. We recognized a $2,299,000 gain on these sales and used $3,758,000 of proceeds to pay down mortgage loans and $2,595,000 of proceeds to repay outstanding borrowings under our Secured Revolving Credit. The remaining $9,311,000 of net proceeds was used to fund the partial redemption of our Series A Preferred Stock.
Subsequent to December 31, 2003 we purchased a 120 bed skilled nursing property in Texas for a total of $3,389,000 in cash. Additionally, we sold a 72 bed skilled nursing property in Georgia for $1,500,000 and will recognize a $975,000 gain in the first quarter of 2004. We used $1,250,000 of the net proceeds to pay down a mortgage note payable.
Owned properties are leased pursuant to non-cancelable operating leases generally with an initial term of 10 to 30 years. Many of the leases contain renewal options and one contains an option for a limited time that permits the operator to purchase three properties. The leases provide for fixed minimum base rent during the initial and renewal periods. The majority of our leases contain provisions for specified annual increases over the rents of the prior year and are generally computed in one of four ways depending on specific provisions of each lease: (i) a specified percentage increase over the prior year, generally 2%; (ii) the higher of (i) or a calculation based on the Consumer Price Index; (iii) as a percentage of facility net patient revenues in excess of base amounts or (iv) specific dollar increases. Each lease is a triple net lease which requires the lessee to pay all taxes, insurance, maintenance and repairs, capital and non-capital expenditures and other costs necessary in the operations of the Company resulting from the adoption of these provisions of
SFAS 125.

3.   SUPPLEMENTAL CASH FLOW INFORMATION

     The details of net changes in other assets and liabilitiesfacilities. Contingent rent income for the years ended December 31, 1996, 19952003, 2002 and 19942001 was not significant in relation to contractual base rent income.
Depreciation expense on buildings and improvements, including properties owned under capital leases and properties classified as discontinued operations as required by SFAS No. 144, was $12,783,000, $14,197,000, and $13,695,000 for the years ended December 31, 2003, 2002 and 2001.
Future minimum base rents receivable under the remaining non-cancelable terms of operating leases are: $45,160,000, $45,569,000, $46,645,000, $47,640,000, $46,354,000 and $384,189,000 for the years ending December 31, 2004, 2005, 2006, 2007, 2008 and thereafter.
In August 2001, the Financial Accounting Standards Board (or FASB) issued SFAS No. 144“Accounting for the Impairment or Disposal of Long-Lived Assets,” which was required to be adopted in fiscal years beginning after December 15, 2001. SFAS No. 144 on asset impairment supercedes SFAS No. 121,“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,”and provides a single accounting model for long-lived assets to be disposed of. Subsequent to January 1, 2002, and in accordance with SFAS No. 144, properties held-for-sale on the balance sheet includes only those properties available for immediate sale in their present condition and for which management believes that it is probable that a sale of the property will be completed within one year. Properties held-for-sale are carried at the lower of cost or fair value less estimated selling costs. No depreciation expense is recognized on properties held-for-sale once they have been classified as follows:

 

                                                                   1996              1995              1994
                                                              ---------------   ---------------   --------------

(Increase) in interest receivable                                    $  (875)          $  (741)        $   (462)
(Increase) decrease in prepaid, other assets and allowance               (99)             (285)             475
Increase (decrease) in accrued interest                                2,819             1,224             (755)
Increase (decrease) in accrued expenses and other liabilities          1,112            (1,276)           1,464
                                                                     -------           -------         --------
                     Net change                                      $ 2,957           $(1,078)        $    722
                                                                     =======           =======         ========

Non-cash investing and financing transactions:
    Securitization of mortgage loans for REMIC Certificates          $80,962           $     -         $127,640



                                      42
such. In accordance with the implementation provisions of SFAS No. 144, the operating results of real estate assets designated as held-for-sale subsequent to January 1, 2002, are included in discontinued operations in the consolidated statement of operations. In addition, all gains and losses from real estate sold are also included in discontinued operations. As required by SFAS No. 144, gains and losses on prior years related to assets included on discontinued operations in 2002 have been reclassified to discontinued operations for comparative purposes. Assets designated as held-for-sale
49
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    

                                                                   1996            1995            1994
                                                              --------------   -------------   -------------

  Issuance of mortgage loans payable for REMIC Certificates
                                                                      31,525               -               -
  Conversion of debentures into common stock                          18,813          19,357          33,306
  Assumption of mortgage loans payable relating to
   acquisitions of real estate properties                              9,641          13,407           3,337
 
  Assumption of capital lease obligations                                  -           5,965               -
  Minority interest                                                    8,932           1,041               -


4.   REAL ESTATE INVESTMENTS
 
MORTGAGE LOANS

     During 1996,— (Continued)
prior to January 1, 2002 have been accounted for under SFAS No. 121 and accordingly, gains and losses from these assets have not been included in discontinued operations.
Set forth in the Company invested $99,440,000 in mortgage loans secured by,
among other things, first mortgages on 31 skilled nursing facilities with a
total of 4,077 beds and five assisted living residences with a total of 177
units and certain borrower guarantees. The mortgage loans, which individually
range from $305,000 to $11,250,000 in principal amount, have an initial weighted
average interest rate of 10.42%, have stated maturities of 5 to 20 years,
generally have 25-year amortization schedules, and provide for certain facility
fees.  Mosttable below are the components of the loans providenet loss from discontinued operations (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the year ended December 31,
2003
2002
2001
Rental income
 
$
772
 
 
$
1,425
 
 
$
2,253
 
Interest income from mortgage loans
 
 
—
 
 
 
—
 
 
 
10
 
Interest and other income
 
 
149
 
 
 
226
 
 
 
258
 
 
 
 
 
 
 
 
 
 
 
 
Total revenues
 
 
921
 
 
 
1,651
 
 
 
2,521
 
Interest expense
 
 
271
 
 
 
311
 
 
 
475
 
Depreciation and amortization
 
 
509
 
 
 
695
 
 
 
1,650
 
Impairment charge
 
 
—
 
 
 
710
 
 
 
11,913
 
Legal expenses
 
 
8
 
 
 
(37
)
 
 
—
 
Operating and other (income) expenses
 
 
(35
)
 
 
510
 
 
 
256
 
 
 
 
 
 
 
 
 
 
 
 
Total expenses
 
 
753
 
 
 
2,189
 
 
 
14,294
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from discontinued operations
 
$
168
 
 
$
(538
)
 
$
(11,773
)
 
 
 
 
 
 
 
 
 
 
REMIC Certificates. The outstanding principal balance and the weighted-average pass through rate for annual interest rate increases in the initial rate based upon a specified increase, which range from 10 to 12.5 basis
points.  Approximately $9,825,000senior certificates (held by third parties) and the carrying value of the loans duesubordinated certificates (held by us) as of December 31, 2003 and 2002 were as follows(dollar amounts in 1997 will be paid off once
the Company completes a sale-leaseback transaction for the same amount on
assisted living facilities that are being constructed.

     In March 1996, the Company provided non-recourse mortgage loans secured by
long-term care facilities to three of its wholly owned subsidiaries and to
certain partnerships in which the Company was a general partner totaling
$31,525,000.  Concurrent with the closing of the loans, the Company completed a
real estate investment conduit ("REMIC") transaction in which loans totaling
$112,487,000, including the $31,525,000 originated in 1996, were exchanged for
mortgage pass-through certificates for an equal amount.  See "REMIC
Certificates."  See Note 5 - Other Long-term Obligations.

     thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2003
2002
Senior
Senior
Certificates
Subordinated
Certificates
Subordinated
Certificates
Certificates
Principal
Rate
Carrying Value
Principal
Rate
Carrying Value
1993-1 Pool(1)
 
$
–
 
 
 
–
 
 
$
–
 
 
$
28
 
 
 
7.1
%
 
$
238
 
1994-1 Pool
 
 
3,184
 
 
 
10.0
%
 
 
19,029
 
 
 
16,796
 
 
 
10.0
%
 
 
19,308
 
1996-1 Pool
 
 
67,895
 
 
 
7.6
%
 
 
9,560
 
 
 
74,812
 
 
 
7.5
%
 
 
9,754
 
1998-1 Pool
 
 
79,358
 
 
 
6.5
%
 
 
33,073
 
 
 
89,978
(2)
 
 
6.4
%
 
 
35,119
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
61,662
 
 
 
 
 
 
 
 
 
 
$
64,419
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) 
The 1993-1 Pool was fully retired through mortgage payments at maturity in 2003 with no realized credit losses during its term.
(2) 
Included in the 1998-1 Pool assets are $0 at December 31, 2003 and $7,879,000 at December 31, 2002 of certificates originated in the 1993-1 Pool that are excluded from the amount outstanding presented for the 1993-1 Pool.
At December 31, 1996,2003 and 2002, the Company had 67 mortgage loans receivable secured
by first mortgage loansaggregate effective yield of the subordinated certificates, based on 73 skilled nursing facilitiesexpected future cash flows with a total of 8,672
bedsno unscheduled prepayments, was 15.4% and 11 assisted living residences with 588 units located in 23 states. The
mortgage loans, which have a carrying amount of approximately $177,262,000 at17.04%, respectively. Income on the subordinated certificates was as follows for the years ended December 31, 1996, are reflected2003, 2002 and 2001 (dollar amounts in the Company's financial statements net of
$1,000,000 of loan loss reserves. The mortgage loans, which individually range
from $302,500 to $11,240,000 in principal amount, have current interest rates
ranging from 9.16% to 13.2% with final payments due from 1997 to 2017. The
minimum future principal payments from the mortgage loans at December 31, 1996
are as follows: $11,617,000 in 1997, $3,035,000 in 1998, $5,095,000 in 1999,
$7,189,000 in 2000, $7,327,000 in 2001 and $143,999,000 thereafter.

                                       43
thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
2003
2002
2001
1993-1 Pool
 
$
22
 
 
$
736
 
 
$
929
 
1994-1 Pool
 
 
2,085
 
 
 
2,510
 
 
 
3,847
 
1996-1 Pool
 
 
1,991
 
 
 
2,614
 
 
 
3,128
 
1998-1 Pool
 
 
5,866
 
 
 
7,110
 
 
 
7,212
 
 
 
 
 
 
 
 
 
 
 
 
 
$
9,964
 
 
$
12,970
 
 
$
15,116
 
 
 
 
 
 
 
 
 
 
 
50
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)— (Continued)
As sub-servicer for all of the above REMIC CERTIFICATESpools, we are responsible for performing substantially all of the servicing duties relating to the mortgage loans underlying the REMIC Structure

     Certificates and act as the special servicer to restructure any mortgage loans that default.
The Company has organized itselfREMIC Certificates retained by us, represent the non-investment grade certificates issued in the securizations. Furthermore, because of the highly specialized nature of the underlying collateral (long-term care properties), there is an extremely limited market for these securities. Because REMIC Certificates of this nature trade infrequently, if at all, market comparability to the certificates we retain is very limited.
We use certain assumptions and estimates in determining the fair value allocated to the retained interest at the time of initial sale and each subsequent measurement date in accordance with SFAS No. 140. These assumptions and estimates include projections concerning the expected level and timing of future cash flows, current interest rate environment, estimated spreads over the U.S. Treasury Rate at which the retained certificates might trade, expectations regarding credit losses, if any, expected weighted-average life of the underlying collateral and discount rates commensurate with the risks involved. These assumptions are reviewed periodically by management. If these assumptions change, the related asset and income would be affected. Key economic assumptions used in measuring the retained interests at December 31, 2003, were as follows: a U.S. Treasury Rate of 4.3%, market spread on “B” rated certificates of 950 basis points over the applicable U.S. Treasury Rate, a weighted average discount rate on unrated and interest only certificates of 29.0%, weighted-average life of 151 months and no expected annual credit losses. At December 31, 2003, key economic assumptions and the sensitivity of the current fair value of cash flows on the REMIC Certificates retained by us to immediate 10% and 20% adverse changes in those assumptions are as follows: (dollar amounts in thousands):
 
 
 
 
 
 
 
 
 
Estimated
Carrying
Retained Interests in REMIC Securitizations:
Fair Value
Amount
Available-for-sale REMIC Certificates
 
$
9,778
 
 
$
9,778
 
Held-to-maturity REMIC Certificates
 
 
38,395
 
 
 
51,884
 
 
 
 
 
 
 
 
Totals
 
$
48,173
 
 
$
61,662
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10% Adverse
20% Adverse
Change Decline
Change Decline
Key Assumption Sensitivity Analysis:
in Fair Value
in Fair Value
Average Spread and Discount Rate Assumption
 
 
 
 
 
 
 
 
Average Spread on “B” rated certificates – 950 basis points
 
$
264
 
 
$
521
 
Average discount rate on Unrated and I/ O Certificates – 29.0%
 
 
2,010
 
 
 
3,799
 
 
 
 
 
 
 
 
Total
 
$
2,274
 
 
$
4,320
 
 
 
 
 
 
 
 
U.S. Treasury Rate Assumption (4.3%)
 
$
120
 
 
$
235
 
 
 
 
 
 
 
 
Weighted-Average Life Assumption (151 Months)
 
$
1,712
 
 
$
3,096
 
 
 
 
 
 
 
 
Expected Credit Loss Assumption (No Expected Losses)
 
$
4,571
 
 
$
9,142
 
 
 
 
 
 
 
 
As more fully described inNote 2. Summary of Significant Accounting Policies, to the extent there are defaults, unrecoverable losses or prepayments of principal on the underlying mortgages resulting in reduced cash flow, the subordinated REMIC Certificates held by us would bear the first risk of loss. During management’s periodic evaluation of the realizability of expected future cash flows from the mortgages underlying our REMIC Certificates there were indications that a portion of the underlying mortgage collateral would not be realized by the REMIC Trust. Accordingly, we recorded a net $1,229,000 impairment charge during 2003, to reflect the estimated impact on future cash flows from loan prepayments occurring during, or expected to occur subsequent to, the first quarter of 2003 related to certain subordinated REMIC Certificates we held. We recorded an impairment charge in 2002 of $4,497,000 related to the valuation adjustment of the subordinated REMIC Certificates held by us. SeeNote 5. Impairment Chargefor a discussion of the impairment indicators.
51
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Subsequent to December 31, 2003, at our election, we paid $3,661,000 to acquire a mortgage loan that was in default in the 1994 REMIC pool. The amount paid represents the outstanding balance of the loan which approximated the fair value.
During 2001, we sold certain REMIC Certificates classified as available-for-sale, with a net book value of $19,035,000 prior to a valuation reserve of $1,010,000. The sale resulted in net proceeds of $17,894,000 and a realized loss of $1,141,000.
As of December 31, 2003 and 2002, available-for-sale certificates were recorded at their fair value of approximately $9,778,000 and $13,073,000, respectively. Unrealized holding losses on available-for-sale certificates of $427,000, $1,435,000 and $803,000 were included in comprehensive income for the years ended December 31, 2003, 2002 and 2001, respectively.
7.     Asset Securitizations
LTC is a REIT and, as such, makes its investments with the intent to hold them for long-term purposes. However, from
time-to-time, securitization transactionsmortgage loans may be entered intotransferred to a REMIC (securitization) when a securitization provides the Companyus with the best available form of raising
capital to be used to makefund additional long-term investments, considering the
Company'sinvestments. When contemplating a securitization, consideration is given to our current and expected future interest rate posture and liquidity and leverage position, as well as overall economic and financial market trends. As of December 31, 1996 the Company2003 we had completed threefour securitization transactions, the last being in 1998. We may again employ this type of financing in the future should we determine the financing environment is appropriate for this type of transaction.
From our past securitizations, we receive annual sub-servicing fees, which range from 1.0 to 2.0 basis points of the outstanding mortgage loan balances in each of the REMIC pools. Additionally, through the REMIC Certificates retained by us from past securitizations, (the
"1993-1 Pool", the "1994-1 Pool"we receive cash flows and the "1996-1 Pool").

     The Company structures its securitizations throughrights to future cash flows resulting from cash received on the creationunderlying mortgage loans in the REMIC pools. All of athe investors in the REMIC in a two-step process. Under this structure, a wholly-owned special-purpose
bankruptcy remote corporation (LTC REMIC Corp.) is formedCertificates and the mortgagesREMIC Trusts themselves have no recourse to be securitized are transferredour assets for failure by any obligor to such entity without recourse by the Company.
From this special-purpose corporation, the loans are transferred to a trust (the
"REMIC Trust") and exchanged for commercial mortgage pass-through certificates
(the "REMIC certificates") issued by the REMIC Trust which represent beneficial
ownership interests in the REMIC Trust assets (the mortgages). The certificates
include various levels of senior and subordinated certificate classes, as well
as interest only (I/O) certificates and a minor residual class. The senior
certificates and the residual class (which historically have represented between
66% and 81% of the certificates for the three securitization transactions) are
then sold to outside third-party investors through a private placement under
Rule 144A of the Securities Act of 1933, as amended. The subordinated
certificates, which generally provide a level of credit enhancement to the
senior certificates, alongpay when due, or comply with the cash proceeds from the sale of the senior
certificates are retained by LTC REMIC Corp. as consideration for the initial
transferany provisions of the mortgage loans tocontracts. The REMIC Certificates are classified separately on the balance sheet and interest income earned shown separately on the income statement. Sub-servicing fees and related fees associated with the REMIC Trust. NeitherCertificates are included in other income.
Certain cash flows received from and paid to REMIC Trusts are as follows (dollar amounts in thousands):
 
 
 
 
 
 
 
 
 
Year Ended
2003
2002
Cash flow received on retained REMIC Certificates
 
$
12,515
 
 
$
16,624
 
Servicing and related fees received
 
$
186
 
 
$
298
 
Servicing advances made
 
$
690
 
 
$
725
 
Repayments of servicing advances
 
$
782
 
 
$
618
 
At December 31, 2003 scheduled distributions of principal on REMIC Certificates retained by us are: $6,689,000, $8,138,000, $9,799,000, $6,540,000, $3,239,000 and $27,230,000 for the Company nor LTC
REMIC Corp. is obligated to purchase anyyears ending December 31, 2004, 2005, 2006, 2007, 2008 and thereafter. These amounts are based upon the scheduled remaining amortization periods of the REMIC Trust assets or assume any
liabilities.

     General Description of the Certificates

     With respectunderlying mortgages, which may be subject to the Company's REMIC securitizations, the certificates
issued represent beneficial ownership interestschange. Currently in the REMIC Trust and can be
grouped into four categories; senior, subordinated, interest-only
(subordinated), and residuals. The certificates are designated in alphabetical
format (e.g. "A", "B", "C", etc.) with each class of certificates having a later
alphabetical designation being subordinated to each class of certificates having
an earlier alphabetical designation (except for in general, the class R and LR
certificates which share in seniority rank to the class "A" certificates). The
certificates sold to outside third-party investors are referred to herein as the
"Senior certificates" while the certificates transferred to and retained by the
Company as part of the sale proceeds are referred to as the "Subordinated
Certificates." Both classes of these certificates have stated principal
balances, as well as stated interest rates known as the "pass-through rate." In
addition, the I/O certificatesour portfolio we have no principal denomination, but rather they
are entitled to interest distributions which typically represent the spread
between the monthly cash interest received from the underlying mortgage collateral and the monthly amount paid by the REMIC Trust in interest
distributions on the outstanding pass-through certificates. Interest on each
outstanding class of the certificates accrues in arrears at the respective pass-
through rate applicable to the certificates and is

                                      44
loans held
52
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)— (Continued)
for securitization. Quantitative information relating to subserviced mortgage loans including delinquencies and net credit losses is as follows(dollar amounts in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
2003
2002
2001
Average balance of loans in REMIC pools
 
$
224,742
 
 
$
294,984
 
 
$
340,607
 
Year-end balance of loans in REMIC pools
 
$
213,291
 
 
$
245,248
 
 
$
334,394
 
Net credit losses
 
$
2,157
 
 
$
1,284
 
 
$
0
 
Net credit losses to average REMIC pool loans
 
 
1.0
%
 
 
0.4
%
 
 
0
%
Delinquencies (greater than 30 days) to year-end REMIC pool loans
 
 
0.8
%
 
 
1.3
%
 
 
0.7
%
8.     CLC Healthcare, Inc.
In 2002 LTC Healthcare, Inc. changed its name to CLC Healthcare, Inc.
During 1998, we completed the spin-off of all CLC voting common stock through a taxable dividend distribution to the holders of our common stock, Cumulative Convertible Series C Preferred Stock and Convertible Subordinated Debentures. Upon completion of the distribution, CLC began operating as a separate public company. Beginning in September 1999, CLC began leasing skilled nursing properties owned or financed by us and from that date assumed certain leases of additional properties and closed certain properties owned by us. These properties were previously financed or leased to lessees and borrowers who experienced financial difficulties to such extent that the lessees and borrowers were not able to comply with lease provisions or debt provisions underlying the properties. As such, CLC assumed the leases of troubled facilities and was not able to pay, nor did we record as income, rent under CLC leases with us since 2000.
On October 6, 2003, CLC announced that it had signed an Agreement and Plan of Merger (or Agreement) with Center Healthcare and Center Healthcare’s wholly owned subsidiary, CHMS, Inc. The Agreement provided that in the merger, holders of each outstanding share of CLC’s common stock would receive in cash $1.00 per share of common stock. CLC held a special meeting of its stockholders on November 12, 2003, and the merger was approved by the required sixty-six and two thirds percent of CLC common stockholders. After the merger, CLC became a wholly owned subsidiary of Center Healthcare and ceased to be a publicly traded company. Center Healthcare is owned by an individual who was operating (under the management agreement discussed below) 19 skilled nursing properties owned by us and under lease to CLC. During 2003, we entered into a 30 year, triple-net master lease with Center Healthcare for these 19 properties and one property formerly operated by Sun. This new lease provides for rental payments of approximately $4,567,000 in the first year with a 3% escalation each year for the next 10 years, 2% each year for the following 10 years and 1% each year for the remaining 9 years. In 2003, we advanced Center Healthcare $2,300,000 for capital improvements to the 19 facilities to be expended within a 36 month period.
Our Chairman, President and Chief Executive Officer, Chief Financial Officer and Chief Investment Officer were Board members of CLC through the effective date of the merger at which time they were no longer CLC board members. Additionally, we have an indemnification agreement covering these officers who served as Board members of CLC and one former independent director of CLC.
In 2002, we sold a wholly owned subsidiary, LTC-Fort Tucum, Inc. to CLC for a $500,000 note (or Fort Tucum Note) bearing no interest for one year and thereafter interest at 8% annually for two years. LTC-Fort Tucum, then acquired two skilled nursing facilities in New Mexico subject to a mortgage loan payable monthly.to a REMIC pool originated by us. During 2003, we acquired these two facilities for $1,215,000 in cash and forgave the $500,000 note, which we had previously fully reserved. CLC used the $1,215,000 to repay the outstanding loan balance that was due to a REMIC pool originated by us. We leased these facilities, along with two other facilities in New Mexico previously operated by Sun, to a third party operator under a triple-net master lease beginning July 1, 2003. This master lease provided for rents of $763,000 in the initial year with 2.0% increases annually for 15 years. We also entered into a triple-net master lease beginning July 1, 2003, with a third party operator for four skilled nursing properties in Georgia, all of which subsequently have been sold. These Georgia properties were formerly operated by CLC.
53
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In 2003, we purchased from CLC all the furniture, fixtures and equipment in 19 properties for $1,843,000. Additionally, we purchased all the furniture, fixtures and equipment at CLC’s corporate office for $967,000. We have included the furniture, fixtures and equipment at the 19 properties and the corporate office in the master lease with Center Healthcare.
During 2003 and 2002 we did not recognize any rental income from CLC. During 2003 CLC did not owe us any rent due to a forbearance agreement effective March 1, 2003. During 2002 CLC owed us $3,000,000 in rent that they were unable to pay. However in 2003, Center Healthcare paid us rent of $1,465,000 after they began operating the 19 properties in September 2003.
Effective October 19, 2003, we amended the secured line of credit with CLC waiving the change of control provisions in this line of credit and in the Promissory Note discussed below, to allow CLC to satisfy certain conditions of the Agreement and Plan of Merger dated October 6, 2003 (discussed above). The amendment also changed the nature of the loan from a secured revolving line of credit to a secured term loan and extended the maturity date to October 1, 2008. The initial principal amount of the note is $8,867,000 which represented the balance due on the secured line of credit including unpaid interest, and rents due and unpaid through April 30, 2003. Additionally, the amendment reduced the interest rate to 8.0% compounded monthly and accruing to the principal balance from October 1, 2003 through September 30, 2004, and 8.0% compounded monthly payable in cash quarterly in arrears beginning October 2004. The book value of the note was $4,046,000 at December 31, 2003. At December 31, 2002 there was $4,741,000 outstanding under the line of credit. During 2003 we did not record any accrued interest on this note. During 2002, CLC paid, and we recorded as income, interest on its line of credit with us totaling $540,000. In 2001, we did not receive or record as income interest on this line of credit.
Additionally, we hold a Promissory Note (or Note) issued by HHI in the face amount of $9,150,000. The original Note was received in December 2001 in exchange for our right to receive 1,238,076 shares of ALC common stock distributed concurrently with ALC’s emergence from bankruptcy on December 31, 2001. The Note is for a term of five years and bears interest at 5.0%, compounded annually and accruing to the principal balance plus interest at 2.0% on the principal payable in cash annually. The Note is a full recourse obligation of HHI and is secured by all of the assets owned now or in the future by HHI and contains a provision for acceleration should there be a change of control of HHI or CLC. We agreed to waive this provision to allow CLC to enter into the Agreement and Plan of Merger (discussed above). During 2003, we purchased from HHI $1,177,000 face value of ALC Senior Notes for $1,177,000 plus accrued interest and $566,000 face value of ALC Junior Notes for $566,000. SeeNote 10. Marketable Debt Securitiesfor discussion of ALC’s redemption of these notes. At December 31, 2003, HHI owned 1,452,794 shares of ALC common stock with a fair market value based on the closing price of ALC stock at December 31, 2003 of $11,259,000 and a market value of $11,622,000 based upon a third party Security and Exchange Commissions Form 4 filing reporting a bulk purchase of 557,209 shares at $8.00 per share. At December 31, 2003, the book value of the $9,150,000 Note was $5,245,000 which represented the fair market value of the 1,238,076 shares acquired by HHI on December 31, 2001 including a $2,150,000 increase in the Note during 2003 which we allowed HHI to upstream to CLC. CLC returned $1,200,000 to us which was applied as a reduction in the line of credit with CLC. In January 2003, we received, in accordance with the terms of the Note, $140,000 from CLC representing the 2.0% interest on the then outstanding principal balance which is payable in cash in arrears. During 2003 we did not accrue any interest income on the Note. In March 2004, we received $196,000 from CLC representing the 2.0% interest on the outstanding principal balance at December 31, 2003 in accordance with the terms of the Note.
All of the aforementioned transactions between and CLC and us were approved by the respective disinterested and/or independent members of the Board of Directors of each company. All interested and/or non-independent Board members abstained from any such vote.
During 2001, we sold all 180,000 shares of CLC common stock we owned at December 31, 2000. The shares were sold to CLC for $225,000, excluding selling commissions, which was the fair market value as of the date of sale. We recognized a loss of $386,000 on the sale of these shares. We sold these shares because the Tax Relief Extension Act of 1999 (or 99 Act) provided that, subject to certain exceptions for taxable years commencing after December 31, 2000, a REIT may not own more than 10% of the total value of the securities of any corporation. Without qualifying
54
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as safe harbor debt, securities under the 99 Act include the line of credit provided by us to CLC. In order to qualify as safe harbor debt and retain REIT status, we were required to hold only such debt or the shares.
9.     Notes Receivable
During 2003 we received $2,843,000 in principal re-payments prior to maturity on three notes. $2,000,000 of the notes paid off represented the down payment on a property that was sold in the fourth quarter of 2003. During 2003 we advanced $2,150,000 under the Note with HHI and $1,200,000 was repaid by CLC as discussed inNote 8. CLC Healthcare, Inc.
During 2002, in conjunction with the sale of five skilled nursing properties, we received a 10-year, $3,550,000 note with a face rate of 7.0%, which we discounted to $2,631,000 for an effective rate of 13.0%. In addition, monthlywe advanced $468,000 to an operator under a line of credit. We received $1,736,000 in principal distributions are also made. There-payments at maturity on three notes related to properties sold in previous years.
10.     Marketable Debt Securities
During 2003 we purchased $1,383,000 face value of ALC Senior Notes and $670,000 face value of ALC Junior Notes. $1,177,000 face value of the Senior Notes and $566,000 face value of the Junior Notes were purchased from CLC as discussedin Note 8. CLC Healthcare Inc.Additionally we purchased from a third party $206,000 face value of the Senior Notes for $186,000 plus accrued interest and principal distributions$103,000 face value of the Junior Notes for $85,000. During 2003 $281,000 of the Senior Notes were mandatorily redeemed by ALC as a result of ALC’s sale of assets securing the notes. The notes were redeemed at face value plus accrued interest. Also during 2003, we received $279,000 face value of Junior Notes representing paid-in-kind interest.
At December 31, 2003, we owned $8,186,000 face value of ALC Senior Notes with a face rate of 10%, payable semi-annually in arrears and maturing on January 1, 2009. At December 31, 2003, we also owned $4,095,000 face value of ALC Junior Notes with a face rate of 8% payable in additional new Junior Notes through 2004 and thereafter payable in cash, payable semi-annually in arrears and maturing on January 1, 2012. On December 31, 2003, ALC announced the mandatory redemption of all of the outstanding Senior and Junior Notes and deposited with the trustee of the notes an amount sufficient to pay the redemption amount and all interest due. In the fourth quarter of 2003, we recognized non-operating income of $1,970,000 related to the reversal of the discount recorded on the Senior and Junior Notes redeemed, and in January 2004 received cash in the amount of $12,374,000 as full redemption of these securities including accrued and unpaid interest.
11.     Debt Obligations
Bank Borrowings. On December 26, 2003, we entered into a new three year Unsecured Credit Agreement with three banks. The Unsecured Credit Agreement provides for a revolving line of credit for up to $45,000,000 and for the inclusion of additional banks and an expansion of the line under certain circumstances. There are madeno scheduled maturities other than the three year term.
The pricing of the Unsecured Credit agreement varies between LIBOR plus 2.75% and LIBOR plus 3.25% depending on our leverage ratio. We had no outstanding balances under this agreement as of December 31, 2003, however, had we borrowed our interest rate would have been LIBOR plus 3.00%.
In January 2004 we borrowed $21,000,000 under the Unsecured Credit Agreement and used $4,500,000 to pay early, mortgage debt that was due in January 2005 and used $16,500,000 to fund the partial redemption of our Series A Preferred Stock. In February 2004 we repaid the $21,000,000 from proceeds from the allocated cash flows
received byredemption of ALC Senior and Junior Notes and from some of the REMIC Trustproceeds from the underlying mortgages. Paymentsissuance of our Series F Preferred Stock. SeeNote 10. “Marketable Debt Securities”andNote 12. “Stockholders Equity.”
Under financial covenants contained in the Unsecured Credit Agreement which are made
firstmeasured quarterly we are required to satisfy the certificates' pass-through rate requirementsmaintain, among other things, (i) a ratio, of total indebtedness to total asset value, not greater than .5 to 1.0, (ii) a ratio not greater than .35 to 1.0 of secured debt to total asset value (iii) a ratio not less than 2.5 to 1.0 of EBITDA to interest expense, and (iv) a ratio of not less than 1.45 to 1.0 for quarters ending through June 30, 2004, and then principal distributions are made, bothnot less than 1.50 to 1.0 of EBITDA to fixed charges. We were in ordercompliance with all covenants when we
55
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
first drew under this agreement in 2004 and currently have no amounts outstanding under the Unsecured Credit Agreement.
For 2002 and 2001 we had a Secured Revolving Credit that was scheduled to expire on October 2, 2004. We cancelled this credit on December 30, 2003, and expensed as additional interest expense $2,075,000 of certificate seniority. As
such,the remaining unamortized debt issuance costs. The credit facility required us to pay an additional fee of 4% of the outstanding available commitment level as of October 2, 2002. Accordingly, we paid a fee of $3,000,000 (4% of the commitment balance of $75,000,000 on October 2, 2002) to extend the Secured Revolving Credit to October 2, 2004. It was primarily the remaining unamortized portion of this fee that we expensed when we cancelled the credit. Another provision of this agreement required certain levels of commitment reductions as a result of asset sales, financings, equity offerings and repayment of mortgages.
In addition, on October 2, 2002, we issued 1,500,000 book value units (or BVU), to the extent therelenders under the Secured Revolving Credit. The BVUs have been disclosed as a contingent liability at December 31, 2003 and 2002. The number of BVUs issued represented 20,000 BVUs for each $1,000,000 of outstanding commitment ($75,000,000) as October 2, 2002. For the BVUs to have value to the lenders our book value per common share at September 30, 2004, would have to be in excess of $10.92. As an example, should our book value per common share at September 30, 2004, be $11.00, the lenders would receive a total of $120,000 representing $.08 per share times 1,500,000 BVUs. At December 31, 2003, our book value per common share was $10.09 and as a result, the BVUs have no current value and we recognized no expense in the periods presented for the BVUs. Should the BVUs have an intrinsic value at a future reporting period, we will recognize as expense the intrinsic value over the remaining life of the BVUs, adjusted for any change in the intrinsic value at subsequent future reporting periods. We are defaults or unrecoverable lossesobligated to pay the lenders any amounts due to them relating to the BVUs as of September 30, 2004, even though we have terminated the Secured Revolving Credit.
Mortgage Loans Payable
Maturity dates, weighted average interest rates and amounts due at maturity on the underlying
mortgages resultingour mortgage loans payable were(dollar amounts in reduced cash flows, the Subordinated Certificates held by
the Company would bear the first risk of loss. thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maturity
December 31, 2003
Rate
December 31, 2002
Rate
2004
 
$
—
 
 
 
—
 
 
$
4,161
 
 
 
11.70
%
2005
 
 
13,412
 
 
 
10.41
%
 
 
28,249
 
 
 
8.63
%
2006
 
 
47,673
 
 
 
8.63
%
 
 
37,831
 
 
 
9.25
%
2007
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
2008
 
 
15,938
 
 
 
7.27
%
 
 
16,262
 
 
 
7.27
%
Thereafter
 
 
46,291
 
 
 
8.55
%
 
 
46,903
 
 
 
8.55
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
123,314
 
 
 
 
 
 
$
133,406
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 1996 none2003 and 2002, the aggregate carrying value of the three REMIC pools had experienced any realized losses nor had any of the
Company's REMIC Certificate investments been determinedreal estate properties securing our mortgage loans payable was $171,429,000 and $187,481,000, respectively.
Subsequent to be permanently
impaired.

     REMIC Transactions

     On March 29, 1996, the Company securitized approximately $112,487,000 of
loans by creatingDecember 31, 2003, we paid off a mortgage loan payable to a REMIC which, in turn, issued mortgage pass-through
certificates for the same amountPool we originated in the formamount of various classes$4,525,000 and $1,250,000 on another mortgage loan. Both loans had scheduled maturities in 2005.
Bonds Payable and Capital Leases.At December 31, 2003 and 2002, we had outstanding principal of certificates
(the "1996-1 Pool")$6,640,000 and $6,960,000, respectively on multifamily tax-exempt revenue bonds that are secured by five assisted living properties in Washington. These bonds bear interest at a variable rate that is reset weekly and matures during 2015. For the year ended December 31, 2003, the weighted average interest rate, including letter of credit fees, on the outstanding bonds was 4.4%. As partAdditionally, at December 31, 2003 and 2002, we had outstanding principal of the securitization, the Company sold
approximately $90,552,000$3,961,000 and $4,021,000, respectively on a multi-unit housing tax-exempt revenue bond that bears interest at 8.75% and matures in 2025 and is secured by one assisted living property in Oregon.
56
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
At December 31, 2003 and 2002, we had outstanding principal of certificates to third parties at an effective$4,085,000 and $4,380,000, respectively, under capital lease obligations. The capital leases are secured by four assisted living residences, have a weighted average interest rate of 7.19%.  The Company retained7.6% and mature at various dates through 2013.
As of December 31, 2003 and 2002, the remaining $21,935,000 face
amountaggregate gross investment in real estate properties securing our bonds payable and capital leases was $26,078,000 and $26,078,000, respectively.
Senior Mortgage Participation Payable. In 2002, we completed a loan participation transaction whereby we issued a $30,000,000 Senior Participation interest in 22 of such Certificates which are effectively subordinated in rightour first mortgage loans that had a total unpaid principal balance of payment to the certificates sold to third parties.  Included$58,627,000 in the REMIC
Certificates are interest-only certificates which have no face amount but are
entitledParticipation Loan Pool. The Participation Loan Pool had a weighted average interest rate of 11.6% and a weighted average scheduled term to receive cash flows designated as interest.maturity of 77 months. The Senior Participation is secured by the entire Participation Loan Pool. We received net proceeds from the REMIC transaction wereissuance of the Senior Participation of $29,750,000 that was used to repay borrowingsreduce commitments and amounts outstanding under our Secured Revolving Credit.
The Senior Participation receives interest at a rate of 9.25% per annum, payable monthly in arrears, on the Company's linesthen outstanding principal balance of credit.  Thethe Senior Participation. In addition, the Senior Participation receives all mortgage loans represented byprincipal collected on the certificates
consistedParticipation Loan Pool until the Senior Participation balance has been reduced to zero. We retain interest received on the Participation Loan Pool in excess of 34 mortgage loans, including the loans provided9.25% paid to the Company's
wholly owned subsidiaries andSenior Participation. The ultimate extinguishment of the Senior Participation is tied to the limited partnerships totaling $31,525,000,
and were secured by 55 skilled nursing facilities in 17 states.  The mortgageunderlying maturities of loans in the REMIC pool had an initial weighted average mortgage interest rate
of 10.69% and a weighted average remaining termParticipation Loan Pool which range from 14 to stated maturity of
approximately 107176 months.  Concurrently with the closing of the REMIC
transaction, the Company's interest rate swap agreement entered into in May 1995
was terminated at a cost of approximately $1,500,000 and was included as a
component of the transactions cost in the determination of the fair value of the
assets received in the transaction. 
 
     During 1993 and 1994, the Company securitized approximately $242,340,000 of
loans by creating REMICs which, in turn, issued mortgage pass-through
certificates for the same amount in the form of various classes of certificates
(the 1993-1 and 1994-1 Pools, respectively).  As part of these securitizations,
the Company sold approximately $158,664,000 of certificates to third parties
(the "Senior certificates") and retained $83,676,000 face amount of the
Certificates.

     REMIC Certificates As of December 31, 19962003, there are 21 loans remaining in the outstanding certificate principalParticipation Loan Pool, the Senior Participation balance was $18,250,000 and the weighted average pass-throughinterest rate was 11.58%. We have accounted for the Senior certificates (all heldparticipation transaction as a secured borrowing under SFAS No. 140“Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”
Liability for 9.5% Series A Preferred Stock Redemption. As required by outside third parties) inSFAS No. 150, we classified the 1993-1, 1994-1Series A Preferred Stock that was mandatorily redeemable on December 31, 2003 as a liability as a result of our December 2003 announced redemption of 1,225,680 shares of Series A Preferred Stock.
Scheduled Principal Payments.Total scheduled principal payments for our mortgage loans payable, bonds payable and 1996-1 REMIC pools were
$59,223,000, $47,649,000, and $85,338,000, and 7.5%, 9.2% and 7.2%,
respectively. Ascapital lease obligations as of December 31, 1996,2003 were $3,023,000, $16,312,000, $47,388,000, $2,190,000, $16,279,000 and $52,808,000 in 2004, 2005, 2006, 2007, 2008 and thereafter. To the extent we receive principal payments on the mortgage loans securing the Senior Participation Payable, scheduled principal payments at December 31, 2003 were $860,000, $2,899,000, $1,018,000, $10,278,000 and $3,195,000 in 2004, 2005, 2006, 2007 and 2008.
Fair Value.The estimated fair value of the Subordinated Certificates held by the Company in the 1993-1, 1994-1 and 1996-1
REMIC pools were $29,461,000, $37,236,000 and $32,237,000, respectively.

     As ofSenior Participation Payable was $19,133,000 at December 31, 19952003 based on the net present value of the future cash flows discounted at 7.0%. The estimated fair value of the mortgage loans payable, bonds payable and capital lease obligations approximated their carrying values at December 31, 2003.
12.     Stockholders’ Equity
Preferred stock.Preferred Stock is comprised of four series of cumulative redeemable preferred stock summarized as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares outstanding at
Carrying Value at
December 31,
Liquidation
December 31,
Value Per
Dividend
Issuance
2003
2002
share
Rate
2003
2002
Series A Cumulative Preferred Stock
 
 
1,838,520
 
 
 
3,069,200
 
 
$
25.00
 
 
 
9.5
%
 
$
23.99
 
 
$
23.98
 
Series B Cumulative Preferred Stock
 
 
1,988,000
 
 
 
1,993,000
 
 
$
25.00
 
 
 
9.0
%
 
$
23.91
 
 
$
23.90
 
Series C Cumulative Convertible Preferred Stock
 
 
2,000,000
 
 
 
2,000,000
 
 
$
19.25
 
 
 
8.5
%
 
$
18.80
 
 
$
18.80
 
Series E Cumulative Convertible Preferred Stock
 
 
2,200,000
 
 
 
—
 
 
$
25.00
 
 
 
8.5
%
 
$
23.84
 
 
 
—
 
Dividends on the Series A Preferred Stock and Series B Preferred Stock are cumulative from the date of original issue and are payable monthly to stockholders of record on the first day of each month. In December 2003 we announced the redemption of 40% of our outstanding certificate principal balance and
the weighted average pass-through rate for the Senior certificates (all held by
outside third parties) in the 1993-1 and 1994-1

                                       45
Series A Preferred Stock or 1,225,680 shares. Accordingly, we
57
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

REMIC pools were $70,128,000 and $72,858,000, and 7.5% and 9.1%, respectively.
As— (Continued)
recognized a preferred stock redemption charge of December 31, 1995,$1,241,000 related to the estimated fair valueoriginal issue costs of the Subordinated
Certificates held byshares we redeemed. In 2004, we announced the Company in the 1993-1 and 1994-1 REMIC pools were
$31,251,000 and $36,349,000, respectively.

     For the years ended December 31, 1996, 1995 and 1994, income recorded by
the Company under the effective interest method for its investments in the
Subordinated REMIC Certificates for the 1993-1, 1994-1 and 1996-1 REMIC pools
was $5,603,000, $5,118,000 and $3,662,000 in 1996, $5,628,000, $5,275,000 and $0
in 1995, and $6,767,000, $1,156,000and $0 in 1994, respectively.

     As partredemption of the REMIC transaction discussed above, the Company serves as the
sub-servicer and, in such capacity, is responsible for performing substantially all of the servicing duties relating to the mortgage loans represented by the
certificates.  The Company receives monthly fees equal to a fixed percentageremaining 1,838,520 outstanding shares of the then outstanding mortgage loans in the REMIC which, in management's opinion,
represent currently prevailing terms for similar transactions.  In addition, the
Company will act as the special servicer to restructure any mortgage loans in
the REMIC that are in default.  At December 31, 1996,Series A Preferred Stock and all of the payments
currently due on its REMIC Certificates were received.

INTEREST RATE SWAP AGREEMENTS

     In November 1996,1,988,000 outstanding shares of Series B Preferred Stock. Accordingly, we will recognize the Company entered into a one-year forward ten-year
interest rate swap agreement (the "November 1996 Agreement")$1,861,000 and $2,168,000 of original issue costs related to hedge a
$50,180,000 firm commitment to purchase assisted living facilities.  The terms
of the commitment provide for an initial lease term of twelve yearsSeries A and an lease
rate of 9.90% on each facility acquired. The Company will finance this
commitment with fixed rate financing, and as such, has utilized an interest rate
swap to "lock-in" the rate at which such financing will be obtained.  Interest
rate swaps are contractual agreements between the Company and third parties to
exchange fixed and floating interest payments periodically without the exchange
of the underlying principal amounts (notional amounts).  Under the November 1996
Agreement, the Company will be credited with interest at the three-month LIBOR
and will incur interest at a fixed rate of 6.835% on a $40,000,000 notional
amount beginning on November 7, 1997.  The November 1996 Agreement will be
terminated on or before November 7, 1998 which is the latest date on which the
Company expects to fully fund the commitment and have long-term financing in
place.  At December 31, 1996, the Company had an unrealized gain of $251,000
under the November 1996 Agreement.  (See Note 9).

     In September 1995, the Company entered into a seven-year forward interest
rate swap agreement (the "September 1995 Agreement") to hedge a securitization
which is expected to be completed by the end of 1997. As of December 31, 1996,
the Company believes that it is probable that the securitization transaction
will occur as scheduled. Under the September 1995 Agreement, beginning on March
31, 1997 and continuing semi-annually thereafter, the Company is to be credited
interest at the six month LIBOR and incur interest at a fixed rate of 6.64% on a
notional amount of $60,000,000 which is being accounted forSeries B Preferred Stock, respectively, as a hedge. This
effectively "locked-in" the net interest margin on $60,000,000 principal amount
of senior certificates the Company anticipates will be soldpreferred stock redemption charge in the securitization transaction. Concurrent with the closingfirst quarter of the hedged
transaction, any gains2004. During 2003, we purchased and losses associated with the interest rate swap will be
included as a componentretired 5,000 shares of the proceeds of the transaction. The September 1995
Agreement will be terminated at the earlier of (i) an anticipated securitization
transaction to be completed during the second half of 1997 or (ii) November 17,
1997. At December 31, 1996, the Company had an unrealized loss of $253,000 under
the September 1995 Agreement.

                                       46
 

 

                             LTC PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     At December 31, 1996, the total notional amount of the interest rate swap
agreements with off-balance sheet risk was $100,000,000.

REAL ESTATE PROPERTIES AND LEASE COMMITMENTS

     During 1996, the Company acquiredSeries A Preferred Stock for approximately $45,345,000 22 assisted
living facilities ("ALFs") in Alabama, Idaho, Oklahoma, Oregon, Texas and
Washington with a total of 820 units.  Eighteen of these ALFs were purchased for
a total of $38,495,000 and have been leased to Assisted Living Concepts, Inc.
("ALC") for a total annual rent of approximately $3,758,000 (subject to annual
increases) pursuant to long-term non-cancelable agreements.  Included in the
leases to ALC were five ALFs in Washington which were purchased for $11,280,000
and had been financed by the Company through the issuance of $8,300,000 of
multi-family tax-exempt revenue bonds in December 1995 that have a total cost of funds$100,000 and 5,000 shares of approximately 5.9%. As of December 31, 1996, the Company had acquired
all five of the Washington ALFs and had leased them to ALC generating an initial
annual rent of approximately $948,000.  The Company also acquired for
$14,450,000 four skilled nursing facilities in Alabama, Georgia and Tennessee
with a total of 472 beds.  See Note 5- Other Long-term obligations.

     During the twelve months ended December 31, 1996, six newly formed limited
partnerships, of which the Company, through certain of its subsidiaries, is the
general partner, acquired 16 skilled nursing facilities in Alabama, Arizona,
Iowa and TexasSeries B Preferred Stock for a total cost of approximately $54,063,000.  These facilities$97,000. No preferred shares were purchased subject to mortgage loans of approximately $9,641,000.  Under the
partnership agreements, the Company has guaranteed payment of a 10% preferred
return to the holders of the $8,932,000 in limited partnership interests. Under
certain circumstances, the limited partnership interests can be exchanged, at
the option of the holders,during 2002.
Our Series C Cumulative Convertible Preferred Stock is convertible into 628,5112,000,000 shares of the Company'sour common stock at exercise prices ranging from $13.00$19.25 per share. Dividends are payable quarterly. Total shares reserved for issuance of common stock related to $15.00 commencing in January and July
1997.  The mortgage loansthe conversion of $9,641,000 assumed by the Company have an initial
average interest rate of 11.64%, are due in 2002-2005 and are currently owned by
REMICs formed by the Company in 1993 and 1994.  In conjunction with these
REMICs, the Company sold senior certificates to third parties in 1993 and 1994
at a blended interest rate of approximately 7.1% and 8.9%, respectively, and
retained the remaining certificates.  See Note 5- Other Long-term obligations.

     The Company leases its owned long-term facilities under operating leases
generally with an initial term of ten to twelve years.  Many of the leases
contain renewal options and some contain options that permit the operators to
purchase the facilities.  The leases provide for a fixed minimum base rent
during the initial and renewal periods.  Most of the leases provide for annual
fixed rent increases or increases based on increases in consumer price indices
over the term of the lease.  Certain of the Company's leases provide for
additional rent through participation in incremental revenues generated by the
facilities, over a defined base period, effective at various times during the
term of the lease.  Each lease is a triple net lease which requires the lessee
to provide for the payment of all taxes, insurance, maintenance and other costs
of the facilities by the lessee.  Contingent rent income for the years ended
December 31, 1996, 1995 and 1994 was immaterial.

                                       47

 
                             LTC PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


     Future minimum base rents receivable under the remaining non-cancelable
terms of operating leases are as follows (dollars in thousands):


 
                               YEAR ENDING DECEMBER 31,
                               ------------------------

               1997                            $ 24,520
               1998                              24,083
               1999                              24,503
               2000                              23,553
               2001                              22,893
               Thereafter                       100,103


5.   DEBT OBLIGATIONS

SHORT TERM BORROWINGS

     The Company has a repurchase agreement with an institution (the "Repurchase
Agreement") whereby it may borrow up to $84,000,000 for general corporate and
real estate investment purposes at LIBOR plus 2.0% subject to annual renewal.
Under the Repurchase Agreement, the Company may borrow an amount based on the
Company's existing mortgage loans with no additional commitment or unused fees.
At December 31, 1996, thereSeries C Preferred Stock were $38,000,000 outstanding borrowings under the
Repurchase Agreement.  Under the terms of the agreement, borrowings are secured
by the mortgage loans of the Company and mature on or before November 15, 1997.
However, the Company has historically been able to renew the Repurchase
Agreement annually.

     The Company entered into a $25,000,000 unsecured revolving credit agreement
(the "Credit Agreement" as amended) with certain banks to provide the Company
with short term borrowings.  In May 1996, the terms of the Credit Agreement were
amended, including certain financial covenants, to increase the amount of the
line to $45,000,000 and to extend the expiration date from December 31, 1996 to
May 31, 1998.  Revolving credit borrowings, at the option of the Company,
accrued interest at the agent bank's base rate or LIBOR plus 1.50%.  Under the
Credit Agreement, the Company pays a commitment fee equal to .25% per annum of
the average unused commitment, an annual agency fee of $25,000 plus a one-time
commitment fee.  Borrowings under the Credit Agreement must be repaid annually
with a 30-day "zero-balance period."  The Credit Agreement contains, among other
things, certain financial covenants including an interest coverage ratio, ratio
of total liabilities to net worth, and ratio of funded debt to total net worth.
At December 31, 1996, the Company had $41,400,000 outstanding under the Credit
Agreement bearing an interest rate of approximately 7.2%.

                                       48

 
                             LTC PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


CONVERTIBLE SUBORDINATED DEBENTURES

     The following is a summary of Convertible Subordinated Debentures
outstanding2,000,000 shares at December 31, 19962003 and 1995:


                                                           
                                                           Conversion   
 Issue Date       Interest Rate         Maturity        Price per share           1996               1995
- -------------   -----------------   -----------------   ---------------    ------------------   ---------------

    1992                    9.75%   June 2004                     $10.00         $    843,000       $ 3,141,000
    1994                    8.50%   January 2000                  $15.00           22,023,000        30,000,000
    1995                    8.50%   January 2001                  $15.50           45,157,000        51,500,000
    1995                    8.25%   January 1999                  $15.50           10,000,000        10,000,000
    1996                    7.75%   January 2002                  $16.50           27,840,000                 -
    1996                    8.25%   July 2001                     $17.25           29,965,000                 -
                                                                                 ------------       -----------
                                                                                 $135,828,000       $94,641,000
                                                                                 ============       ===========


  The 9.75% debentures due 2004 are redeemable by the Company at any time at
100% of the principal plus accrued interest.  During the year ended December 31,
1996 and 1995, $2,298,000 and $19,357,000 in principal amount of such debentures
converted into 229,800 and 1,935,7002002.
In September 2003, we sold 2,200,000 shares of common stock, respectively.

  The 8.5% debentures due 2000 are not redeemable by the Company prior to
January 1, 1998.  During the year ended December 31, 1996, $7,977,000 of
debentures converted into 531,794 shares of common stock.  No debentures were
convertedour Series E Preferred Stock in 1995.

  The 8.5% debentures due 2001 and the 8.25% debentures due 1999 are not
redeemable by the Company.  During the year ended December 31, 1996, $6,343,000
of debentures converted into 409,224 shares of common stock.  No debentures were
converted in 1995.

   On February 5, 1996, the Company sold, through a public offering, $30,000,000
aggregate principal amount of 7.75% Convertible Subordinated Debentures due
January 1, 2002.  The debentures areoffering. We received $52,438,000 in net proceeds which we used to pay in full our Secured Revolving Credit. Our Series E Preferred Stock is convertible at any time prior to maturity
into shares of the Company'sour common stock at a conversion price of $16.50$12.50 per share of common stock, subject to adjustmentsadjustment under certain circumstances. The debenturesOn or after September 19, 2006 and before September 19, 2008, we have the right but not the obligation, upon not less than 30 nor more than 60 days’ written notice, to redeem shares of the Series E Preferred Stock, in whole or in part, if such notice is given within fifteen trading days of the end of the 30 day period in which the closing price of our common stock on the NYSE equals or exceeds 125% of the applicable conversion price for 20 out of 30 consecutive trading days, for cash at a redemption price of $25.00 per share, plus all accrued and unpaid dividends. On or after September 19, 2008, we, at our option, upon not less than 30 nor more than 60 days’ written notice, may redeem shares of the Series E Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus all accrued and unpaid dividends thereon. We may not otherwise redeem the Series E Preferred Stock before September 19, 2008, except in order to preserve our status as a real estate investment trust. Dividends are payable quarterly. Total shares reserved for issuance of common stock related to the conversion of Series E Preferred Stock were 4,400,000 at December 31, 2003.
In February 2004, we sold 4,000,000 shares of our Series F Preferred Stock in a registered direct placement. Dividends will be payable quarterly, beginning April 15, 2004. We may not redeemable byredeem the CompanySeries F Preferred Stock prior to January 1, 2001. TheFebruary 23, 2009, except as necessary to preserve our status as a real estate investment trust. On or after February 23, 2009, we may, at our option, redeem the Series F Preferred Stock, in whole or from time to time in part, for $25.00 per Series F Preferred Stock in cash plus any accrued and unpaid dividends to the date of redemption. We received $98,795,000 in net proceeds were
usedand we will use approximately $96,500,000 of the proceeds to repay borrowingsredeem all remaining outstanding undershares of our Series A and Series B Preferred Stock.
While outstanding, the Company's linesliquidation preferences of credit.the preferred stocks in the table above and our Series F Preferred Stock arepari passu. None have any voting rights, any stated maturity, nor are they subject to any sinking fund or mandatory redemption.
Common Stock. During the year ended December 31, 1996, $2,160,000 of debentures converted into
130,908 shares of common stock.

   On March 15, 1996, the Company filed a shelf-registration statement with the
Securities and Exchange Commission covering up to $125,000,000 of debt and
equity securities to be sold from time to time in the future.  The registration
statement was declared effective on April 4, 1996.  Pursuant to the shelf
registration, the Company, in August 1996, completed the sale of $30,000,000 of
8.25% Convertible Subordinated Debentures due 2001.  The debentures are
convertible into shares of the Company's common stock at a price of $17.25 and
are not redeemable by the Company.  Net proceeds from the offering were used to
repay short-term borrowings.  During the year ended December 31, 1996, $35,000
of debentures converted into 2,028 shares of common stock.

                                       49

 
                             LTC PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

OTHER LONG-TERM OBLIGATIONS

The following information relates to other long-term obligations as of December
31:


                                                                           1996              1995
                                                                     ----------------   ---------------

Mortgage loans payable, interest rates from 9.25%
to 12.00%, maturing 2002 to 2006                                          $54,205,000       $16,707,000
Multi-family tax-exempt revenue bonds, variable interest (4.35%
 at 12/31/96), maturing at various dates to 2015                            8,300,000         8,300,000
 
Obligations under capital leases, effective interest rates
                                                                     ----------------       -----------
from 7.49% to 7.92%, maturing at various dates to 2013                      5,739,000         5,965,000
                                                                          -----------       -----------
 
      Totals                                                              $68,244,000       $30,972,000
                                                                          ===========       ===========

                                                                                
  In 1996, the Company provided non-recourse mortgage loans to three of its
wholly owned subsidiaries and to certain newly formed limited partnerships in
which the Company is a general partner totaling $31,525,000.  During 1996, the
Company acquired, through the newly formed limited partnerships, 16 skilled
nursing facilities.  These facilities were purchased subject to mortgage loans
of approximately $9,641,000.  Also during 1996, the Company paid off one of its
outstanding mortgage loans totaling $3,331,000.

  Aggregate maturities of other long-term obligations, including capitalized
leases, are as follows: $630,000 in 1997, $931,000 in 1998, $1,009,000 in 1999,
$1,098,000 in 2000, $1,197,000 in 2001 and $63,379,000 thereafter.  These
obligations are secured by 31 long-term care facilities with a total net book
value of $81,915,000.  Five of the mortgage loans provide for annual increases
in the interest rate in an amount equal to 10 basis points with the interest
rates capped at 12%.

6.  FAIR VALUE OF FINANCIAL INSTRUMENTS

  The following estimated fair value amounts have been determined using
available market information and other valuation methods.  However, considerable
judgment is required to interpret market data and, therefore, the estimates
presented below are not necessarily indicative of the amounts the Company could
realize in a current market.

  Mortgage loans receivable are estimated by discounting future cash flow using
the current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.  At December 31, 1996 and
1995, the fair value of real estate mortgages amounted to approximately
$189,483,000 and $166,758,000, respectively.  The fair value of the Company's
REMIC Certificates as of December 31, 1996 and 1995 was estimated at
approximately $98,934,000 and $67,600,000, respectively, based upon expected
cash flows discounted at a market interest rate, adjusted to reflect the
inherent risk of prepayment and credit losses on an investment with similar
duration.  At December 31, 1996 and 1995, the September 1995 interest rate swap
had an unrealized loss of $253,000 and an unrealized gain of $2,424,000,
respectively.  The November 1996 interest rate swap had an unrealized gain of
$251,000, based on valuations from an investment bank.  Based on the quoted
market price of the Company's common stock and the conversion price of the
convertible debentures, the fair value of the debentures was estimated at
$159,365,000 at December 31, 1996 and $97,584,000 as of December 31, 1995.

                                       50

 
                             LTC PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7.  STOCKHOLDERS' EQUITY

    REPURCHASE OF COMMON STOCK

    During 1996, the Company2003, we repurchased and retired 120,000482,800 shares of common stock for an aggregate purchase price of approximately $1,831,000.

    OPTION PLAN$3,246,000, an average of $6.72 per share. The Company hasshares were purchased on the open market under a Board authorization to purchase up to 5,000,000 shares. Including these purchases, 2,348,200 shares have been purchased under this authorization. Therefore, we continue to have an open Board authorization to purchase an additional 2,651,800 shares.
During 2002 and 2001 we repurchased and retired 338,200 and 7,588,196 shares of common stock, respectively, for an aggregate purchase price of $2,333,000 and $41,737,000, respectively. Of the shares repurchased in 2001, 6,060,996 were purchased pursuant to a tender offer for 6,000,000 shares, plus up to 2% of outstanding shares as allowed by tender offer regulations, at $5.75 per share plus costs.
Subsequent to December 31, 2003, two of our limited partners exercised their conversion rights and exchanged their interests in five of our limited partnerships. In accordance with the partnership agreements, at our option, we issued 175,392 shares of our common stock. Since the market value of the common stock issued was greater than the book value of the partnership interests received, we will recognize in the first quarter of 2004 a $295,000 increase in the basis on the properties underlying the limited partnership interest acquired.
58
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other Equity. Other equity consists of the following(amounts in thousands):
 
 
 
 
 
 
 
 
 
 
December 31,
2003
2002
Notes receivable from stockholders
 
$
(2,792
)
 
$
(7,227
)
Unamortized balance on deferred compensation
 
 
—
 
 
 
(163
)
Accumulated comprehensive income
 
 
2,154
 
 
 
1,278
 
 
 
 
 
 
 
 
 
Total Other Equity
 
$
(638
)
 
$
(6,112
)
 
 
 
 
 
 
 
Deferred compensation is the value of restricted stock awards granted to employees. See“Stock Based Compensation Plans”below.
Accumulated comprehensive income represents the net increase in fair market value over the carrying value of our available-for-sale securities.
Stock Based Compensation Plans.During 1998 we adopted and our stockholders approved the 1998 Equity Participation Plan under which 500,000 shares of common stock have been reserved for stock based compensation awards. The 1998 Equity Participation Plan and our Restated 1992 Stock Option Plan (the "Plan"under which 500,000 shares of common stock were reserved (collectively “the Plans”) in whichprovide for the issuance of incentive and nonqualified stock options, may be
granted as either incentive or nonqualified options.  Incentive options may be
granted only to officers and employees of the Company, while nonqualified
options may be granted to directors, officers, consultants,restricted stock and other key
persons who provide services to the Company.  In 1995, the Plan was amended
("Amended and Restated Option Plan) to provide for issuance of restricted sharesstock based awards to officers, employees, non-employee directors and other key persons.  Underconsultants. The terms of the Amended and
Restated Plan,awards granted under the Plans are set by our compensation committee at its discretion; however, in the case of incentive stock options, vest over two to five years and are exercisable within
seventhe term may not exceed 10 years from the date of vesting.  In general, each option shallgrant. Total shares available for grant under the Plans as of December 31, 2003, 2002 and 2001 were 53,176, 4,276 and 28,776, respectively. All options outstanding vest over five years from the original date of grant. Unexercised options expire onseven years after the date specified in theof vesting.
Nonqualified stock option agreement, but not later than the tenth
anniversary of the date on which the option was granted.

  The following summarizes transactions regarding the nonqualified optionsactivity for the years ended December 31, 1994, 19952003, 2002 and 1996:

                                                              Shares          Option Price Per Share ($)
                                                         ----------------   ------------------------------

Outstanding at December 31, 1993                                 624,000                  10.000 to 12.250
  Granted                                                        215,500                  12.200 to 13.250
  Exercised                                                            -
  Canceled                                                             -                                 -
                                                                 -------
Outstanding at December 31, 1994                                 839,500                  10.000 to 13.250
  Granted                                                         27,000                  12.000 to 12.250
  Exercised                                                       (2,000)                           12.250
  Canceled                                                        (3,000)                           12.250
                                                                 -------
Outstanding at December 31, 1995                                 861,500                  10.000 to 13.250
  Granted                                                         18,000                            15.125
  Exercised                                                       (3,200)                 12.000 to 12.250
  Canceled                                                        (3,000)                           12.250
                                                                 -------
Outstanding at December 31, 1996                                 873,300                  10.000 to 15.125
                                                                 =======
 
Exercisable at December 31, 1994                                 170,500                  10.000 to 12.250
Exercisable at December 31, 1995                                 272,333                  10.000 to 13.250
Exercisable at December 31, 1996                                 436,466                  10.000 to 13.250
Available2001, was as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares
Weighted Average Price
2003
2002
2001
2003
2002
2001
Outstanding, January 1
 
 
569,500
 
 
 
545,000
 
 
 
509,000
 
 
$
5.63
 
 
$
5.41
 
 
$
5.74
 
Granted
 
 
—
 
 
 
30,000
 
 
 
102,000
 
 
 
—
 
 
$
7.63
 
 
$
5.29
 
Exercised
 
 
(245,629
)
 
 
—
 
 
 
—
 
 
$
5.40
 
 
 
—
 
 
 
—
 
Canceled
 
 
(38,000
)
 
 
(5,500
)
 
 
(66,000
)
 
$
5.61
 
 
$
5.26
 
 
$
7.73
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding, December 31
 
 
285,871
 
 
 
569,500
 
 
 
545,000
 
 
$
5.63
 
 
$
5.53
 
 
$
5.41
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercisable, December 31
 
 
85,671
 
 
 
214,300
 
 
 
102,000
 
 
$
5.59
 
 
$
5.47
 
 
$
5.55
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted stock activity for grant at December 31, 1994                         557,000
Available for grant at December 31, 1995                         533,000
Available for grant at December 31, 1996                         358,000


  In 1996, the Company's Boardyears ended December 31, 2003, 2002 and 2001 was as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2003
2002
2001
Outstanding, January 1
 
 
202,664
 
 
 
209,164
 
 
 
265,560
 
 
Granted
 
 
—
 
 
 
—
 
 
 
—
 
 
Vested
 
 
(40,852
)
 
 
(6,500
)
 
 
(6,500
)
 
Canceled
 
 
(10,900
)
 
 
—
 
 
 
(49,896
)
 
 
 
 
 
 
 
 
 
 
Outstanding, December 31
 
 
150,912
 
 
 
202,664
 
 
 
209,164
 
 
 
 
 
 
 
 
 
 
 
Compensation Expense
 
$
132,000
 
 
$
245,000
 
 
$
24,000
 
 
 
 
 
 
 
 
 
 
 
All restricted stock outstanding at December 31, 2003, vests ratably over six years if we meet certain financial objectives and the grantee remains employed by us. If, in any given year, we do not meet the stated financial objectives then the shares scheduled to vest in that year will not vest and the vesting period will be extended by one year. Future compensation expense will be recognized over the service period at the market price per share on the date of Directors approved the issuance of 160,000vesting. On January 1, 2003, 26,352 shares of restricted stock to certain employeesvested and non-employee directors
pursuant toduring the Company's Amended and Restated Option Plan.  The restricted
shares will vest over five years, beginning January 1998.

                                       51
year 14,500 vested as a
59
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

— (Continued)
result of an employee termination. Since the January 1, 2003, vesting was predicated on reaching certain financial targets at December 31, 2002, we recorded $180,000 compensation expense in 2002, which represented the number of shares vested multiplied by the closing stock price of $6.83 on January 2, 2003. Compensation expense of $132,000 was recognized in 2003 related to shares vesting ratably over five years. Of the $245,000 restricted stock compensation expense recognized in 2002, $180,000 related to shares vesting on January 1, 2003 as previously discussed and $65,000 related to shares vesting ratably over five years. Restricted stock compensation expense in 2001 of $24,000 related to shares vesting ratably over five years.
Dividends are payable on the restricted shares to the extent and on the same date as dividends are paid on all of the Company'sour common stock.

  In 1996, the Company adopted the disclosure requirement provision of SFAS 123
in accounting for stock-based compensation issued to employees.  
As of December 31, 19962003, 2002, and 1995,2001, there were 44,000285,871, 569,500 and 27,000545,000, options outstanding, respectively, that are subject to the disclosure requirements of SFAS 123 disclosure requirements.No. 123. The fair value of these options was estimated utilizing the Black-Scholes valuation model using the applicableand assumptions as of each respective grant date. The
significant assumptions usedNo options were granted in the Black-Scholes model include the expected
life and volatility of the options and the risk-free interest rate at the grant
date.2003. In determining the estimated fair valuesvalue for the options granted in 1996
and 1995,2002, the weighted average expected life assumption was sevenfive years,
respectively, the weighted average volatility assumptions used were 0.15was 0.49 and 0.16, respectively, andthe weighted average risk-freerisk free interest rate assumption was 6.6%, respectively.  Based on the results of the estimates, the weighted-average3.80%. The weighted average fair value of the options granted was estimated to be $0.63$1.44. In determining the estimated fair value for the options granted in 19962001, the weighted average expected life assumption was five years, the weighted average volatility was 0.49 and $0.62 in
1995. Management determined that therethe weighted average risk free interest rate was 4.48%. The weighted average fair value of the options granted was estimated to be $1.46. There was no material pro-forma effect on pro forma net income or earnings per share for the years endedending December 31, 19962003, 2002, and 1995.2001. The weighted average exercise price of the options were $13.55was $5.63, $5.46, and $12.45$5.34 and the weighted average remaining contractual lives were 7.7life was 1.6, 2.5, and 8.33.4, years as of December 31, 19962003, 2002, and 1995,2001, respectively.

  FOUNDERS' STOCK
During 2003 a total of 245,629 options were exercised at a total option value of $1,327,000 and a total market value as of the exercise dates of $1,772,000. Subsequent to December 31, 2003, a total of 23,200 options were exercised at a total option value of $125,000 and a total market value as of the exercise dates of $343,000.
Effective January 1, 2003, we adopted SFAS No. 148“Accounting for Stock-Based Compensation — Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123“Accounting for Stock-Based Compensation” to provide alternative methods of transition to SFAS No. 123’s fair value method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 and APB Opinion No. 28“Interim Financial Reporting” to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy for stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS No. 148 provides three transition methods for entities that adopt the fair value recognition provisions of SFAS No. 123 for stock-based employee compensation. In May 1992, prioraddition to the completionprospective method originally provided under SFAS No. 123, SFAS No. 148 provides for a modified prospective method and a retroactive restatement method. We have adopted the prospective method and therefore will recognize compensation expense related to all employee stock-based awards granted, modified or settled after January 1, 2003.
Notes Receivable from Stockholders. In 1997, the Board of Directors adopted a loan program designed to encourage executives, key employees, consultants and directors to acquire common stock through the exercise of options. Under the program, we made full recourse, secured loans to participants equal to the exercise price of vested options plus up to 50% of the initial public offering,taxable income resulting from the Company issued 300,000exercise of options. Such loans bear interest at the then current Applicable Federal Rate (or AFR). In January 2000, the Board of Directors approved a new loan agreement (or New Agreement) for current executives and directors in the amounts of the then remaining principal balance of the original loans.
The new loan agreements provided that the interest rate would be 6.07% (AFR for an equivalent 3 to 9 year instrument) and interest payments were to be paid from dividends received on shares pledged as security for the New Agreements during the quarter in which the interest is due. If the dividend does not fully pay the interest due or if no dividend is paid, the unpaid interest is added to the principal balance. In addition, the notes also require the borrower to reduce principal by one-half of the difference between the most recent dividend received on the pledged shares and the interest paid on the loans from that dividend. During the first quarter of 2003 and all of 2002, the difference between the dividend paid and the current interest due on the outstanding loan balances was added to the loan
60
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
balance in accordance with the loan agreements. No dividend was paid on our common shares in 2001 and all interest due on these loans was added to the principal balances.
During 2001, we granted a stock price adjustment of the loans to officers and Board Members with such loans. The loans were adjusted to the sum of the shares collateralizing the notes times the net book value (or NBV) of a share of common stock as of September 30, 2001. The NBV per share at that date was $8.60 and the closing price as reported by the NYSE was $5.13. This total adjustment amounted to a non-cash charge of $2,453,000. We accounted for the shares underlying the loans that were modified under variable plan accounting as required by SFAS No. 123“Accounting for Stock Based Compensation.”
During 2003, one officer loan was repaid in full and in February 2004 the two additional loans were paid in full. As a result, subsequent to the February 2004 payments, we have no outstanding loans to employees or Board members. The two loans paid in February 2004 were to two Board members who sold shares of our common stock to repay the loans.
At December 31, 2003 we had three notes due from two former officers and the estate of a former Board member. These notes were not modified in 2003, 2002 or 2001 and the interest is paid quarterly and is current on all of these notes. These remaining original notes provide for the same calculation of the periodic principal reductions; however, interest is payable every quarter, regardless of receipt of a dividend. The original notes converted to fully amortizing loans with 16 quarterly payments in 2002. We received $4,444,000 in principal repayments on all notes during 2003. The original notes bear interest rates ranging from 5.77% to 6.63%. In February 2004 one note due from a former officer was repaid in full.
We currently have no loan programs for officers and/or directors and do not provide any guarantee to any officer and/or director or third party relating to purchases and sales of our equity securities.
At December 31, 2003, 2002 and 2001, loans totaling $2,792,000, $7,227,000 and $8,042,000, respectively were outstanding. At December 31, 2003, 2002 and 2001, the market value of the common stock securing these loans was approximately $4,392,520, $5,168,000 and $4,972,000, respectively.
13.     Commitments and Contingencies
It is our current policy and we intend to continue this policy that all borrowers of funds from us and lessees of any of our properties secure adequate comprehensive property and general and professional liability insurance that covers us as well as the borrower and/or lessee. Even though that is our policy, certain borrowers and lessees have been unable to obtain general and professional liability insurance because the cost of such insurance has increased substantially and some insurers have stopped offering such insurance for long term care facilities. Additionally, insurance companies have filed for bankruptcy protection leaving certain of our borrowers and/or lessees without coverage for periods that were believed to be covered prior to such bankruptcies. The unavailability and associated exposure as well as increased cost of such insurance could have a material adverse effect on the lessees and borrowers, including their ability to make lease or mortgage payments. Although we contend that as a non-possessory landlord we are not generally responsible for what takes place on real estate we do not possess, claims including general and professional liability claims, may still be asserted against us which may result in costs and exposure for which insurance is not available. Certain risks may be uninsurable, not economically insurable or insurance may not be available and there can be no assurance that we, a borrower or lessee will have adequate funds to cover all contingencies. If an uninsured loss or a loss in excess of insured limits occurs with respect to one or more of our properties, we could be subject to an adverse claim including claims for general or professional liability, could lose the capital that we have invested in the properties, as well as the anticipated future revenue for the properties and, in the case of debt which is with recourse to us, we would remain obligated for any mortgage debt or other financial obligations related to the properties. Certain losses such as losses due to floods or seismic activity if insurance is available may be insured subject to certain restrictionslimitations including large deductibles or forfeitures,co-payments and policy limits.
At December 31, 2003, we had a contingent commitment to the Foundersprovide Alterra $2,500,000 to be spent on improvements to properties we own and lease to Alterra. The money is to be spent over a three year period and will result in a rental rate increase equal to 10% of the Company.amount funded. The market valueagreement also provides for an additional $2,500,000
61
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
funding by us over the following three years to be spent on mutually agreed upon property expansion with a rental rate increase equal to 10% of shares
awarded (estimated at $5.00 per share) has been recorded as unearned stock grant
compensation and has been recorded as a reduction in capital in excess of par
value.  The unearned compensation is being charged to expense over a vesting
period ranging from two to five years.

  For the years ended December 31, 1996, 1995 and 1994, the Company recorded an
expense totaling $114,000, $221,000, and $372,000, respectively.

8.  DISTRIBUTIONS

  The Companyamount funded. SeeNote 3. Major Operatorsfor further discussions.
14.     Distributions
We must distribute at least 95%90% of itsour taxable income in order to continue to qualify as a real estate investment trust.  Distributions in a givenREIT. This distribution requirement can be satisfied by current year may exceed the Company's earnings and profits due to non-cash expenses such
as depreciation and amortization.  Under special tax rules for real estate
investment trusts, dividends declareddistributions or by distributions in the last quarter of the calendar year
and paid by January 31 of the following yearyear.
For federal tax purposes, distributions to stockholders are treated as paid on December 31ordinary income, capital gains, return of capital or a combination thereof. Distributions for 2003 and 2002 were cash distributions. There were no distributions to common stockholders in 2001.
The federal income tax classification of the year declared.  Distributions per share common stock distributions are broken down according to the
following categories for(unaudited):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
2003
2002
2001
Ordinary income
 
$
—
 
 
$
0.379
 
 
$
—
 
Non-taxable distribution
 
 
0.650
 
 
 
—
 
 
 
—
 
Section 1250 capital gain
 
 
—
 
 
 
0.021
 
 
 
—
 
Long term capital gain
 
 
—
 
 
 
—
 
 
 
—
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
0.650
 
 
$
0.400
 
 
$
—
 
 
 
 
 
 
 
 
 
 
 
15.     Net (Loss) Income Per Share
Basic and diluted net income tax purposes:


                                                    1996           1995           1994
                                                ------------   ------------   ------------
 
Ordinary income                                       $1.228          $1.05          $1.10
Non-taxable distribution                               0.107            .16              -
                                                      ------          -----          -----
   Total                                              $1.335          $1.21          $1.10
                                                      ======          =====          =====

 
                                       52

(loss) per share were as follows(in thousands except per share amounts):
 
 
 
 
 
 
 
 
 
 
 
 
 
For the year ended December 31,
2003
2002
2001
Net income (loss)
 
$
24,319
 
 
$
31,803
 
 
$
(2,908
)
Preferred stock redemption
 
 
(1,241
)
 
 
—
 
 
 
—
 
Preferred dividends
 
 
(16,596
)
 
 
(15,042
)
 
 
(15,077
)
 
 
 
 
 
 
 
 
 
 
Net income (loss) for basic net income per share
 
 
6,482
 
 
 
16,761
 
 
 
(17,985
)
7.75% debentures due 2002
 
 
—
 
 
 
—
 
 
 
—
 
Other dilutive securities
 
 
—
 
 
 
—
 
 
 
—
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) for diluted net income (loss) per share
 
$
6,482
 
 
$
16,761
 
 
$
(17,985
)
 
 
 
 
 
 
 
 
 
 
Shares for basic net income per share
 
 
17,836
 
 
 
18,371
 
 
 
23,924
 
Stock options
 
 
139
 
 
 
143
 
 
 
—
 
7.75% debentures due 2002
 
 
—
 
 
 
—
 
 
 
—
 
Other dilutive securities
 
 
—
 
 
 
—
 
 
 
—
 
 
 
 
 
 
 
 
 
 
 
Shares for diluted net income per share
 
 
17,975
 
 
 
18,514
 
 
 
23,924
 
 
 
 
 
 
 
 
 
 
 
Basic net income (loss) per share
 
$
0.36
 
 
$
0.91
 
 
$
(0.75
)
 
 
 
 
 
 
 
 
 
 
Diluted net income (loss) per share
 
$
0.36
 
 
$
0.91
 
 
$
(0.75
)
 
 
 
 
 
 
 
 
 
 
62
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                                                               
9.      Transactions with Assisted Living Concepts, Inc.

     In 1996, the Company's Board of Directors authorized an increase in the
Company's investment in assisted living facilities ("ALFs") from 10% to 20% of
its adjusted gross real estate investment portfolio (adjusted to include the
mortgage loans to third parties underlying the investment in REMIC
Certificates).  In addition, the Board of Directors also authorized an increase
in the Company's investment in properties operated by Assisted Living Concepts,
Inc. ("ALC"), an owner, operator— (Continued)
16.     Quarterly Financial Information (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the quarter ended
March 31,
June 30,
September 30,
December 31,
(in thousands except per share amounts)
2003
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues(1)
 
$
15,860
 
 
$
15,751
 
 
$
15,920
 
 
$
15,916
 
Net (loss) income from discontinued operations
 
$
(24
)
 
$
663
 
 
$
(185
)
 
$
2,013
 
Net income available to common stockholders(2)
 
$
123
 
 
$
2,624
 
 
$
2,129
 
 
$
1,606
 
Net (loss) income per common share from continuing operations net of preferred dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.01
 
 
$
0.11
 
 
$
0.13
 
 
$
(0.02
)
 
Diluted
 
$
0.01
 
 
$
0.11
 
 
$
0.13
 
 
$
(0.02
)
Net income (loss) per common share from discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
—
 
 
$
0.04
 
 
$
(0.01
)
 
$
0.11
 
 
Diluted
 
$
—
 
 
$
0.04
 
 
$
(0.01
)
 
$
0.11
 
Net income (loss) per common share available to common stockholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.01
 
 
$
0.15
 
 
$
0.12
 
 
$
0.09
 
 
Diluted
 
$
0.01
 
 
$
0.15
 
 
$
0.12
 
 
$
0.09
 
Dividends per share
 
$
0.10
 
 
$
0.15
 
 
$
0.15
 
 
$
0.25
 
2002
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues(1)
 
$
16,973
 
 
$
16,780
 
 
$
17,306
 
 
$
17,078
 
Net income (loss) from discontinued operations
 
$
(80
)
 
$
13,204
 
 
$
232
 
 
$
589
 
Net income available to common stockholders(3)
 
$
2,423
 
 
$
10,601
 
 
$
2,792
 
 
$
945
 
Net income (loss) per common share from continuing operations net of preferred dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.14
 
 
$
(0.14
)
 
$
0.14
 
 
$
0.02
 
 
Diluted
 
$
0.14
 
 
$
(0.14
)
 
$
0.14
 
 
$
0.02
 
Net income per common share from discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
—
 
 
$
0.72
 
 
$
0.01
 
 
$
0.03
 
 
Diluted
 
$
—
 
 
$
0.67
 
 
$
0.01
 
 
$
0.03
 
Net income per common share available to common stockholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.13
 
 
$
0.58
 
 
$
0.15
 
 
$
0.05
 
 
Diluted
 
$
0.13
 
 
$
0.55
 
 
$
0.15
 
 
$
0.05
 
Dividends per share
 
$
0.10
 
 
$
0.10
 
 
$
0.10
 
 
$
0.10
 
(1) 
As required by SFAS No. 144, revenues related to properties sold in 2003 and 2002 have been reclassified to discontinued operations for all periods presented.
(2) 
Includes impairment charges totaling $1,260.See Note 5. Impairment Charge for further discussion.
(3) 
Includes impairment charges totaling $7,807.See Note 5. Impairment Charge for further discussion.
NOTE: 
Quarterly and year-to-date computations of per share amounts are made independently. Therefore, the sum of per share amounts for the quarters may not agree with the per share amounts for the year. Computations of per share amounts from continuing operations, discontinued operations and net income (loss) are made independently. Therefore, the sum of per share amounts from continuing operations and discontinued operations may not agree with the per share amounts from net income (loss) available to common stockholders.
63
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A.
Controls and Procedures
Disclosure Controls and developer of ALFs whose securities are
listed on the American Stock Exchange, from 5% to 10% of its adjusted gross real
estate investment portfolio (which was approximately $626,516,000 as of December
31, 1996).  Currently, two of the Company's executive officers serve as members
of the Board of Directors of ALC.  As of December 31, 1996, three executive
officers of the Company own approximately 5.5% of ALC's common stock.  The
Company has discussed with its Board of Directors and anticipates increasing the
percentage of its adjusted gross real estate investment portfolio that can be
invested in ALFs and properties operated by ALC to 30% and 15%, respectively,
during 1997.  At December 31, 1996, the Company had investments in ALFs and
properties operated by ALC of approximately 10.64% and 6.48%, respectively of
the Company's total adjusted gross real estate investment portfolio.

     In July 1996, in connection with obtaining a $50,180,000 firm commitment to
purchase assisted living facilities through sale leaseback transactions with
ALC, the Company agreed to sell back four ALFs it acquired during 1996 in Texas
to ALC for approximately $7,589,000.  There was no gain or loss recognized on
the sale, however, the Company received an administration fee of approximately
$214,000 in conjunctionprocedures:Our management, with the saleparticipation of our Chief Executive Officer and Chief Financial Officer, have evaluated the four ALF facilities.  In connection
with the commitment, the Company entered into a one-year forward ten-year
interest rate swap agreementeffectiveness of our disclosure controls and procedures (as such term is defined in November 1996 to hedge the firm commitment to
purchase the assisted living facilities.  The terms of the commitment provide
for an initial lease term of twelve yearsRules 13a-15(e) and an lease rate of 9.90% on each
facility acquired. The Company will finance this commitment with fixed rate
financing, and as such, has utilized an interest rate swap to "lock-in" the rate
at which such financing will be obtained.  Interest rate swaps are contractual
agreements between the Company and third parties to exchange fixed and floating
interest payments periodically without the exchange of the underlying principal
amounts (notional amounts).  Under the November 1996 Agreement, the Company will
be credited with interest at the three-month LIBOR and will incur interest at a
fixed rate of 6.835% on a $40,000,000 notional amount beginning on November 7,
1997.  The November 1996 Agreement will be terminated on or before November 7,
1998 which is the latest date on which the Company expects to fully fund the
commitment and have long-term financing in place.  At December 31, 1996, the
Company had an unrealized gain of $251,00015d-15(e) under the November 1996 Agreement.

10.  SUBSEQUENT EVENTS

  On January 15, 1997, the Company sold, through a public offering, 1,000,000
sharesSecurities and Exchange Act of common stock at $17.75 per share.  Of the total net proceeds,
$17,300,000 was used to pay borrowings under the Company's unsecured line of
credit.

  During January 1997, the Company provided mortgage loans totaling
approximately $18,530,000 and acquired one skilled nursing facility for
$2,556,000.1934, as amended (or Exchange Act”). As of February 1, 1997, the Company had outstanding investment
commitments totaling $82,790,000, consisting of approximately $22,650,000 in
commitments to make mortgage loans and commitments for the acquisition of one
nursing and 25

                                       53

 
                             LTC PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

assisted living facilities for an aggregate purchase price of approximately
$60,140,000, including the remaining $35,330,000 commitment to Assisted Living
Concepts, Inc. discussed in Note 8. The Company expects to fund substantially
all of these commitments by the end of 1997.

  During January 1997, an additional $26,358,000 in principal amount of
debentures converted into 1,614,153 sharesthe period covered by this report based on such evaluation our Chief Executive Officer and Chief Financial Officer have concluded that, as of the Company's common stock.

11.    QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

  end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act.
In the fourth quarter of 2003, we engaged IC Consulting Services, LLC, an independent risk consulting and internal audit firm, to assist us in evaluating and documenting our controls and procedures.
Item 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following quarterly financial data summarizes the unaudited quarterly
results for the years ended December 31, 1996 and 1995:


                                                      QUARTER ENDED (RESTATED)
                        ---------------------------------------------------------------------------------
                              March 31          June 30           September 30           DECEMBER 31
                           ---------------   --------------   --------------------   --------------------
1996                                          (In thousands, except per share amounts)
- ----

Revenues                           $12,363          $12,920                $14,292                $15,355
Net income                          11,831            4,906                  5,636                  6,337
Net income per share                  0.63             0.26                   0.29                   0.32
Dividends per share                  0.315             0.34                   0.34                   0.34

                                                         QUARTER ENDED (1)
                        ---------------------------------------------------------------------------------
1995                          March 31          June 30           September 30           DECEMBER 31
- ----                    --------------------   ------------   --------------------   --------------------

                                              (In thousands, except per share amounts)
Revenues                            $7,505           $8,560                 $9,232                $10,272
Net income                           4,718            5,199                  4,971                  5,152
Net income per share                  0.26             0.29                   0.27                   0.28
Dividends per share                   0.29             0.29                  0.315                  0.315


(1) The Company has restated its results of operations for the year ended
    December 31, 1995 (See Note 1) which reflects a revisioninformation with respect to directors, set forth in reported net
    incomeour Proxy Statement relating to $18,384,000 from the previously reported amount of $20,040,000.
    Earnings per share has been revised to $1.01 per share from $1.10 per share.
    The quarterly information presented above for 1995 has not been revised to
    reflect the restatement because the quarterly data necessary to reflect the
    restatement is not available.

                                       54

 

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ACCOUNTING AND
          FINANCIAL DISCLOSURE

Not Applicable.


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

  Incorporated herein by reference from the Company's definitive proxy statement
for the Annual Meeting of Stockholders to be held May 19,18, 2004 under the caption “Election of Directors” is incorporated herein by reference. Our executive officers are:
Name
Age
Position
Andre C. Dimitriadis
63
Chairman, Chief Executive Officer, President and Director
Wendy L. Simpson
54
Vice Chairman, Chief Financial Officer and Director
Christopher T. Ishikawa
40
Executive Vice President and Chief Investment Officer
Alex J. Chavez
39
Senior Vice President and Treasurer
Andre C. Dimitriadis founded LTC Properties in 1992 and has been our Chairman and Chief Executive Officer since inception. In 2000 Mr. Dimitriadis also assumed the position of President. Mr. Dimitriadis is a director of Assisted Living Concepts, Inc.
Wendy L. Simpson has been Vice Chairman since April 2000 and Vice Chairman and Chief Financial Officer since July 2000. Prior to that she was a financial advisor to Coram Healthcare Corporation, a health care organization, from November 1999 through March 31, 2000. Ms. Simpson joined Coram as Executive Vice President and Chief Financial Officer in March 1998 and resigned in November 1999. Prior to joining Coram, Ms. Simpson was Executive Vice President, Chief Financial Officer, Chief Operating Officer and director of Transitional Hospitals Corporation from December 1994 to August 1997 and Senior Vice President and Chief Financial Officer from July 1994 to December 1994. Coram Healthcare commenced bankruptcy proceedings in August 2000. Ms. Simpson has been a director since 1995.
Christopher T. Ishikawa has served as Executive Vice President and Chief Investment Officer since February 2001. Mr. Ishikawa served as Senior Vice President and Chief Investment Officer from September 1997 through January 2001 and prior to that, he served as Vice President and Treasurer of LTC Properties since April 1995.
Alex J. Chavez has served as Senior Vice President and Treasurer since February 2001 and Vice President and Treasurer since December 1999. Prior to that, he served as Director of Finance since June 1996 and became Vice President in September 1997. Prior to joining LTC, he was employed by the international accounting firm of Ernst & Young LLP, where he served as an Audit Manager specializing in the health care and real estate industries from 1990 to 1996.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics (or Code of Ethics) that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, as well as directors, officers and employees. The Code of Ethics is posted on our website(www.ltcproperties.com)
64
and is available in print free of charge to any stockholder who requests a copy. Interested parties may address a written request for a printed copy of the code of Ethics to: Investor Relations. LTC Properties, Inc., 22917 Pacific Coast Hwy. Suite 350, Malibu, California 90265. We intend to satisfy the disclosure requirement regarding any amendment to, or a waiver of, a provision of the Code of Ethics for our principal executive officer, principal financial officer or controller, or persons performing similar functions by posting such information on our website.
Section 16(a) Compliance
Information with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, set forth in our Proxy Statement relating to the Annual Meeting of Stockholders to be filed
pursuant to Regulation 14A.

ITEM 11.  EXECUTIVE COMPENSATION

  Incorporatedheld on May 18, 2004 under the caption “Security Ownership of Certain Beneficial Owners and Management — Section 16(a) Beneficial Ownership Reporting Compliance,” is incorporated herein by reference fromreference.
Item 11.
EXECUTIVE COMPENSATION
Information relating to executive compensation, set forth in our Proxy Statement relating to the Company's definitive proxy statement
forAnnual Meeting of Stockholders to be held on May 18, 2004 under the caption “Executive Compensation,” is incorporated herein by reference. The Comparative Performance Graph and the Compensation Committee Report on Executive Compensation also included in the Proxy Statement are expressly not incorporated herein by reference.
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information relating to the security ownership of management and certain beneficial owners, set forth our Proxy Statement relating to the Annual Meeting of Stockholders to be held May 19, 1997, to be filed
pursuant to Regulation 14A.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

  Incorporated18, 2004 under the caption “Security Ownership of Certain Beneficial Owners and Management,” is incorporated herein by reference fromreference.
Information relating to securities authorized for issuance under our equity compensation plans, set forth in Item 5 of this report under the Company's definitive proxy statement
forcaption “Equity Compensation Plan Information,” is incorporated herein by reference.
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain relationships and related transactions, set forth in our Proxy Statement relating to the Annual Meeting of Stockholders to be held on May 19, 1997, to be filed
pursuant to Regulation 14A.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  Incorporated18, 2004 under the caption “Certain Relationships and Related Transactions,” is incorporated herein by reference fromreference.
Item 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information relating to the Company's definitive proxy statement
forfees paid to our accountant, set forth in our Proxy Statement relating to the Annual Meeting of Stockholders to be held on May 19, 1997, to be filed
pursuant to Regulation 14A.

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
          ON FORM 8-K.

  (a) 118, 2004 under the caption “Audit Committee — Audit and 2.  Consolidated Financial Statements and ConsolidatedNon-Audit Fees,” is incorporated herein by reference.
Item 15.
FINANCIAL STATEMENT SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
(a) Financial Statement Schedules
The consolidated financial statements and consolidated financial statement schedules listed in the accompanying index to consolidated financial statements
and consolidated financial statement schedules are filed as part of this annual report.

     3.
(b) Exhibits
The exhibits listed in the accompanying index to exhibits are filed as part of this annual report.

  (b)
(c) Reports on Form 8-K

     A report on Form 8-K was filed on January 30, 1996 reporting the Company's
financial results for the year ended December 31, 1995.

                                       55
None.
65
LTC PROPERTIES, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
                                  (ITEM 14(a)
(Item 15(a))

                                                                                              Page
                                                                                           ----------
1.   Financial Statements:
     --------------------

      Report of Independent Auditors....................................................           31
      Consolidated Balance Sheets at December 31, 1996 and 1995.........................           32
      Consolidated Statements of Income for the years ended December 31, 1996,                     33
            1995 and 1994...............................................................
      Consolidated Statements of Stockholders' Equity for the years ended                          34
            December 31, 1996, 1995 and 1994............................................
      Consolidated Statements of Cash Flows for the years ended December 31,                       35
       1996, 1995 and 1994..............................................................
      Notes to Consolidated Financial Statements........................................           36
 
2.   Financial Statement Schedules:
      VIII.    
II.
Valuation and Qualifying Accounts........................................           58
      XI.   Accounts
67
III.
Real Estate and Accumulated Depreciation....................................           59
      XII.  Depreciation
68
IV.
Mortgage Loans on Real Estate...............................................           62
Estate
73
All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule.

                                       56

66
LTC PROPERTIES, INC.
SCHEDULE VIII
                       II
VALUATION AND QUALIFYING ACCOUNTS
                               December 31, 1996

                                (In
(in thousands)
 
                                                                 Additions                                
                                       Balance         ----------------------------------                       Balance 
                                       at Beginning    Charged to          Charged to                           at end
           Description                 of period       Operations          other accounts       Deductions      of period
           --------------------------------------------------------------------------------------------------------------
           
           1994                                                                               
            Allowance for doubtful                                                            
                accounts                   $447             550                   -                    -            $997
                                       ========        ========            ========             ========        ======== 
           1995                                                                               
            Allowance for doubtful                                                            
                accounts                   $997               -                   -                    -            $997
                                       ========        ========            ========             ========        ======== 
           1996                                                                               
            Allowance for doubtful                                                            
                accounts                   $997               3                   -                    -          $1,000
                                       ========        ========            ========             ========        ======== 



                                      57
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at
Charge to
Balance at
Beginning of Period
Operations
End of Period
Allowance for Doubtful Accounts:
 
 
 
 
 
 
 
 
 
 
 
 
2003
 
$
1,280
 
 
$
—
 
 
$
1,280
 
2002
 
$
1,250
 
 
$
30
 
 
$
1,280
 
2001
 
$
1,250
 
 
$
—
 
 
$
1,250
 
67
LTC PROPERTIES, INC.
SCHEDULE XI
                   III
REAL ESTATE AND ACCUMULATED DEPRECIATION
                               December 31, 1996

                                                                                                                         
                                                 Initial Cost to                                    Gross Amount at which Carried  
                                                     Company                                            At Close of period         
                                          ----------------------------   Cost Capitalized -----------------------------------------
                                                          Building and   Subsequent to                   Building and              
Description            Encumbrances            Land       Improvements   Acquisition         Land        Improvements    Total (1) 
- -------------      --------------------   ----------------------------------------------- -----------------------------------------
         
Long-term care nursing facilities:                                                                                                 
Nursing Homes:                                                                                                                    
Demopolis, AL      $  10,668,066.99 (3)   $   70,786    $  2,141,276      $         -      $   70,786   $  2,141,276   $  2,212,062
Fort Payne, AL                      (3)       37,178       3,587,724                -          37,178      3,587,724      3,624,903
Jackson, AL                         (3)       63,641       2,620,000                -          63,641      2,620,000      2,683,640
Madison, AL                         (3)       30,083       2,327,808                -          30,083      2,327,808      2,357,891
Phoenix, AL                         (3)       59,089       2,122,670                -          59,089      2,122,670      2,181,760
Phoenix, AZ            7,797,583.12          431,750       6,764,084                -         431,750      6,764,084      7,195,834
Tucson, AZ             6,592,231.54          145,614       3,931,592                -         145,614      3,931,592      4,077,206
East Whittier, CA                 -          169,929       1,741,775                -         169,929      1,741,775      1,911,704
West Whittier, CA                 -          726,448       1,185,257                -         726,448      1,185,257      1,911,705
Yuba City, CA                     -          521,083       3,033,975                -         521,083      3,033,975      3,555,058
Bradenton, FL                     -          330,498       2,720,250                -         330,498      2,720,250      3,050,748
Clearwater, FL                    -          454,114       2,902,381                -         454,114      2,902,381      3,356,495
Crestview, FL                     -          140,000       2,305,979                -         140,000      2,305,979      2,445,979
San Destin, FL                    -          175,155       3,874,653                -         175,155      3,874,653      4,049,808
Gulf Breeze, FL                   -          600,000       6,020,146                -         600,000      6,020,146      6,620,146
Lecanto, FL                       -          350,795       2,664,455        2,251,990         350,795      4,916,445      5,267,240
Pensacola, FL                     -          190,000       4,295,297                -         190,000      4,295,297      4,485,297
Pensacola, FL                                230,000       4,663,032                -         230,000      4,663,032      4,893,032
Starke, FL                        -          113,000       4,782,546                -         113,000      4,782,546      4,895,546
Chicago Heights, IL               -          220,905       6,406,254                -         220,905      6,406,254      6,627,159
Alamagordo, NM                    -          314,215       3,567,268                -         314,215      3,567,268      3,881,483
Roswell, NM                       -           85,000       2,932,213                -          85,000      2,932,213      3,017,213
Great Falls, MT        4,335,297.45          397,217       3,433,391                          397,217      3,433,391      3,830,608
Rusk, TX                          -           34,174       2,399,045                -          34,174      2,399,045      2,433,219
Chesapeake, VA                    -          372,667       3,298,218                          372,667      3,298,218      3,670,885
Richmond, VA                      -          372,667       3,298,218                -         372,667      3,298,218      3,670,885
Tappahannock, VA                  -          372,667       3,298,218                -         372,667      3,298,218      3,670,885
Toppanish, WA          2,628,853 (4)         132,152       2,653,758                -         132,152      2,653,758      2,785,910
Vancouver, WA                    (4)          60,000       3,032,720                -          60,000      3,032,720      3,092,720
Jefferson, IA         10,554,832 (5)          36,272       1,932,778                -          36,272      1,932,778      1,969,050
Houston, TX                                  201,744       4,457,951                -         201,744      4,457,951      4,659,695
Houston, TX                                  361,655       3,771,839                -         361,655      3,771,839      4,133,493
Montgomery, AL         3,939,977 (6)         143,724       5,425,566                -         143,724      5,425,566      5,569,290
Carroll, IA                      (5)          60,016       1,020,271                -          60,016      1,020,271      1,080,287
Houston, TX                                  201,744       4,457,951                -         201,744      4,457,951      4,659,695
Woodbury, TN                                 100,000       2,900,000                -         100,000      2,900,000      3,000,000
Whiteright, TX         1,126,791             100,000       2,922,653                -         100,000      2,922,653      3,022,653
Granger, IA                      (5)          92,725       1,325,421                -          92,725      1,325,421      1,418,146
Bedford, TX                      (5)         344,683       3,195,303                -         344,683      3,195,303      3,539,985
Midland, TX            2,041,265              32,446       2,285,110                -          32,446      2,285,110      2,317,556
Tiptonville, TN                              100,000       2,450,000                -         100,000      2,450,000      2,550,000
Gardendale, AL                                83,660       6,316,340                -          83,660      6,316,340      6,400,000
Polk City, IA                    (5)          88,238       1,351,428                -          88,238      1,351,428      1,439,666
                                                                                                                                  
 
                                     Accum.      Orig. Construc-
                                     Deprec      tion/renovation      Date
Description                          (2) (3)     Date               Acquired
- -------------                      ----------    -------------     ----------

Long-term care nursing facilities:                                           
Nursing Homes:         
Demopolis, AL                      $112,246             1972        Jun. 1995
Fort Payne, AL                      202,835         1967/1973       Jun. 1995
Jackson, AL                         133,842             1964        Jun. 1995
Madison, AL                         127,640         1964/1974       Jun. 1995
Phoenix, AL                         119,802             1969        Jun. 1995
Phoenix, AZ                         655,290         1985/1992       May 1994
Tucson, AZ                          504,450             1985        Mar. 1993
East Whittier, CA                   161,433             1964        Sep. 1994
West Whittier, CA                   124,898             1964        Sep. 1994
Yuba City, CA                       555,383             1970        Jan. 1993
Bradenton, FL                       305,559             1989        Sep. 1993
Clearwater, FL                      387,360         1965/1993       Sep. 1993
Crestview, FL                       198,998             1988        Jun. 1994
San Destin, FL                      262,305             1986        Feb. 1995
Gulf Breeze, FL                     518,010             1984        Jun. 1994
Lecanto, FL                         445,201             1988        Sep. 1993
Pensacola, FL                       375,378             1972        Jun. 1994
Pensacola, FL                       401,645             1991        Jun. 1994
Starke, FL                          410,182             1989        Jun. 1994
Chicago Heights, IL                 524,818             1988        Sep. 1994
Alamagordo, NM                      485,440             1985        Mar. 1993
Roswell, NM                         511,603             1979        Nov. 1992
Great Falls, MT                     604,046         1960/1990       Dec. 1992
Rusk, TX                            279,030             1969        Mar. 1994
 
                                     Accum.      Orig. Construc-
                                     Deprec      tion/renovation      Date
Description                          (2) (3)     Date               Acquired
- -------------                      ----------    -------------     ----------

Chesapeake, VA                      173,090             1977        Oct. 1995
Richmond, VA                        173,090      1970/1975/1980     Oct. 1995
Tappahannock, VA                    173,090         1977/1978       Oct. 1995
Toppanish, WA                       146,429         1960/1970       Jun. 1995
Vancouver, WA                       172,831         1952/1994       Jun. 1995
Jefferson, IA                        64,105         1968/1972       Jan. 1996
Houston, TX                          90,254             1961        Jun. 1996
Houston, TX                          75,971         1964/1968       Jun. 1996
Montgomery, AL                      183,761         1967/1974       Jan. 1996
Carroll, IA                          35,324             1969        Jan. 1996
Houston, TX                          79,880             1967        Jun. 1996
Woodbury, TN                         62,200         1972/75/90      May  1996
Whiteright, TX                      106,990         1962/64/65      Jan. 1996
Granger, IA                          45,973             1979        Jan. 1996
Bedford, TX                         114,291             1960        Jan. 1996
Midland, TX                          82,770             1973        Feb. 1996
Tiptonville, TN                      56,833             1975        May  1996
Gardendale, AL                      121,781         1976/1984       May  1996
Polk City, IA                        44,981             1976        Jan. 1996

 

                                      58
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Initial Cost to
Gross Amount at which Carried at
Company
Costs
December 31, 2003
Capitalized
Construction/
Building and
Subsequent
Building and
Accum.
Renovation
Acq.
Encumbrances
Land
Improvements
to Acquisition
Land
Improvements
Total(1)
Deprec.(2)
Date
Date
Skilled Nursing Facilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alamogordo, NM
 
$
4,559
 
 
$
210
 
 
$
2,590
 
 
$
3
 
 
$
210
 
 
$
2,593
 
 
$
2,803
 
 
$
143
 
 
 
1985
 
 
 
Dec-01
 
Altoona, IA
 
 
 
(3)
 
 
105
 
 
 
2,309
 
 
 
186
 
 
 
105
 
 
 
2,495
 
 
 
2,600
 
 
 
655
 
 
 
1973
 
 
 
Jan-96
 
Atlanta, GA
 
 
4,525
(7)
 
 
175
 
 
 
1,282
 
 
 
3
 
 
 
175
 
 
 
1,285
 
 
 
1,460
 
 
 
259
 
 
 
1968
 
 
 
Sep-99
 
Atmore, AL
 
 
 
(4)
 
 
131
 
 
 
2,877
 
 
 
—
 
 
 
131
 
 
 
2,877
 
 
 
3,008
 
 
 
766
 
 
 
1967/1974
 
 
 
Jan-96
 
Bedford, TX(13)
 
 
 
(3)
 
 
283
 
 
 
511
 
 
 
404
 
 
 
283
 
 
 
915
 
 
 
1,198
 
 
 
706
 
 
 
1960/2002
 
 
 
Jan-96
 
Bradenton, FL
 
 
—
 
 
 
330
 
 
 
2,720
 
 
 
87
 
 
 
330
 
 
 
2,807
 
 
 
3,137
 
 
 
897
 
 
 
1989/2002
 
 
 
Sep-93
 
Canyon, TX(13)
 
 
—
 
 
 
196
 
 
 
506
 
 
 
211
 
 
 
196
 
 
 
717
 
 
 
913
 
 
 
166
 
 
 
1985/86
 
 
 
Jun-00
 
Carroll, IA
 
 
 
(3)
 
 
47
 
 
 
1,033
 
 
 
95
 
 
 
47
 
 
 
1,128
 
 
 
1,175
 
 
 
285
 
 
 
1969
 
 
 
Jan-96
 
Chesapeake, VA
 
 
—
 
 
 
388
 
 
 
3,469
 
 
 
8
 
 
 
388
 
 
 
3,477
 
 
 
3,865
 
 
 
1,127
 
 
 
1977/2002
 
 
 
Oct-95
 
Clovis, NM
 
 
—
 
 
 
561
 
 
 
5,539
 
 
 
—
 
 
 
561
 
 
 
5,539
 
 
 
6,100
 
 
 
331
 
 
 
1970
 
 
 
Dec-01
 
Clovis, NM
 
 
2,744
 
 
 
598
 
 
 
5,902
 
 
 
—
 
 
 
598
 
 
 
5,902
 
 
 
6,500
 
 
 
352
 
 
 
1969/95
 
 
 
Dec-01
 
Coffeyville, KS(13)
 
 
—
 
 
 
100
 
 
 
(100
)
 
 
—
 
 
 
100
 
 
 
(100
)
 
 
—
 
 
 
—
 
 
 
1962
 
 
 
May-97
 
Des Moines, IA(13)
 
 
—
 
 
 
115
 
 
 
2,096
 
 
 
1,308
 
 
 
115
 
 
 
3,404
 
 
 
3,519
 
 
 
542
 
 
 
1972
 
 
 
Sep-99
 
Dresden, TN
 
 
—
 
 
 
31
 
 
 
1,529
 
 
 
123
 
 
 
31
 
 
 
1,652
 
 
 
1,683
 
 
 
190
 
 
 
1966/2002
 
 
 
Nov-00
 
Gardendale, AL
 
 
—
 
 
 
84
 
 
 
6,316
 
 
 
—
 
 
 
84
 
 
 
6,316
 
 
 
6,400
 
 
 
1,572
 
 
 
1976/1984
 
 
 
May-96
 
Gardner, KS
 
 
5,300
(10)
 
 
896
 
 
 
4,478
 
 
 
316
 
 
 
896
 
 
 
4,794
 
 
 
5,690
 
 
 
632
 
 
 
1961/1974
 
 
 
Dec-99
 
Grapevine, TX
 
 
—
 
 
 
431
 
 
 
1,449
 
 
 
100
 
 
 
431
 
 
 
1,549
 
 
 
1,980
 
 
 
121
 
 
 
 
 
 
 
Jan-02
 
Granger, IA
 
 
 
(3)
 
 
62
 
 
 
1,356
 
 
 
80
 
 
 
62
 
 
 
1,436
 
 
 
1,498
 
 
 
369
 
 
 
1979
 
 
 
Jan-96
 
Griffin, GA
 
 
—
(7)
 
 
500
 
 
 
2,900
 
 
 
—
 
 
 
500
 
 
 
2,900
 
 
 
3,400
 
 
 
480
 
 
 
1969
 
 
 
Sep-99
 
Hereford, TX(13)
 
 
—
 
 
 
106
 
 
 
(106
)
 
 
2
 
 
 
106
 
 
 
(104
)
 
 
2
 
 
 
2
 
 
 
1985
 
 
 
Oct-01
 
Holyoke, CO
 
 
—
 
 
 
211
 
 
 
1,513
 
 
 
257
 
 
 
211
 
 
 
1,770
 
 
 
1,981
 
 
 
309
 
 
 
1963
 
 
 
Nov-00
 
Houston, TX
 
 
6,742
(6)
 
 
202
 
 
 
4,458
 
 
 
612
 
 
 
202
 
 
 
5,070
 
 
 
5,272
 
 
 
1,324
 
 
 
1961
 
 
 
Jun-96
 
Houston, TX
 
 
5,688
 
 
 
365
 
 
 
3,769
 
 
 
545
 
 
 
365
 
 
 
4,314
 
 
 
4,679
 
 
 
1,226
 
 
 
1964/1968
 
 
 
Jun-96
 
Houston, TX
 
 
 
(6)
 
 
202
 
 
 
4,458
 
 
 
612
 
 
 
202
 
 
 
5,070
 
 
 
5,272
 
 
 
1,324
 
 
 
1967
 
 
 
Jun-96
 
Jefferson, IA
 
 
9,998
(3)
 
 
86
 
 
 
1,883
 
 
 
176
 
 
 
86
 
 
 
2,059
 
 
 
2,145
 
 
 
523
 
 
 
1968/1972
 
 
 
Jan-96
 
Jacksonville, FL
 
 
 
 
 
 
486
 
 
 
1,981
 
 
 
30
 
 
 
486
 
 
 
2,011
 
 
 
2,467
 
 
 
144
 
 
 
 
 
 
 
Mar-02
 
Jessup, GA
 
 
—
(10)
 
 
35
 
 
 
465
 
 
 
63
 
 
 
35
 
 
 
528
 
 
 
563
 
 
 
77
 
 
 
1953
 
 
 
Dec-99
 
Lecanto, FL
 
 
—
 
 
 
351
 
 
 
2,665
 
 
 
2,251
 
 
 
351
 
 
 
4,916
 
 
 
5,267
 
 
 
1,430
 
 
 
1988
 
 
 
Sep-93
 
Manchester, TN
 
 
—
 
 
 
50
 
 
 
954
 
 
 
87
 
 
 
50
 
 
 
1,041
 
 
 
1,091
 
 
 
157
 
 
 
1957/67/78/2002
 
 
 
Nov-00
 
Mesa, AZ
 
 
—
 
 
 
305
 
 
 
6,909
 
 
 
1,695
 
 
 
305
 
 
 
8,604
 
 
 
8,909
 
 
 
1,975
 
 
 
1975/1996
 
 
 
Jun-96
 
Mesa, AZ(13)
 
 
 
 
 
 
420
 
 
 
3,258
 
 
 
36
 
 
 
420
 
 
 
3,294
 
 
 
3,714
 
 
 
739
 
 
 
1972
 
 
 
Oct-97
 
Midland, TX
 
 
1,934
 
 
 
33
 
 
 
2,285
 
 
 
—
 
 
 
33
 
 
 
2,285
 
 
 
2,318
 
 
 
644
 
 
 
1973
 
 
 
Feb-96
 
Montgomery, AL
 
 
3,587
(4)
 
 
242
 
 
 
5,327
 
 
 
—
 
 
 
242
 
 
 
5,327
 
 
 
5,569
 
 
 
1,418
 
 
 
1967/1974
 
 
 
Jan-96
 
Nacogdoches, TX
 
 
—
 
 
 
100
 
 
 
1,738
 
 
 
74
 
 
 
100
 
 
 
1,812
 
 
 
1,912
 
 
 
418
 
 
 
1973
 
 
 
Oct-97
 
Norwalk, IA
 
 
 
(3)
 
 
47
 
 
 
1,033
 
 
 
70
 
 
 
47
 
 
 
1,103
 
 
 
1,150
 
 
 
283
 
 
 
1975
 
 
 
Jan-96
 
Olathe, KS
 
 
—
 
 
 
520
 
 
 
1,872
 
 
 
43
 
 
 
520
 
 
 
1,915
 
 
 
2,435
 
 
 
288
 
 
 
1968
 
 
 
Sep-99
 
Phoenix, AZ
 
 
6,951
 
 
 
300
 
 
 
9,703
 
 
 
50
 
 
 
300
 
 
 
9,753
 
 
 
10,053
 
 
 
1,185
 
 
 
1985
 
 
 
Aug-00
 
Polk City, IA
 
 
 
(3)
 
 
63
 
 
 
1,376
 
 
 
41
 
 
 
63
 
 
 
1,417
 
 
 
1,480
 
 
 
369
 
 
 
1976
 
 
 
Jan-96
 
Portland, OR
 
 
—
 
 
 
100
 
 
 
1,925
 
 
 
457
 
 
 
100
 
 
 
2,382
 
 
 
2,482
 
 
 
582
 
 
 
1956/1974
 
 
 
Jun-97
 
Richland Hills, TX
 
 
—
 
 
 
144
 
 
 
1,656
 
 
 
181
 
 
 
144
 
 
 
1,837
 
 
 
1,981
 
 
 
106
 
 
 
1976
 
 
 
Dec-01
 
Richmond, VA
 
 
—
 
 
 
356
 
 
 
3,180
 
 
 
300
 
 
 
356
 
 
 
3,480
 
 
 
3,836
 
 
 
1,053
 
 
1970/1975/ 1980/2002
 
 
Oct-95
 
Ripley, TN
 
 
—
 
 
 
20
 
 
 
985
 
 
 
87
 
 
 
20
 
 
 
1,072
 
 
 
1,092
 
 
 
148
 
 
 
1951/2002
 
 
 
Nov-00
 
Roswell, NM
 
 
3,853
 
 
 
568
 
 
 
5,232
 
 
 
3
 
 
 
568
 
 
 
5,235
 
 
 
5,803
 
 
 
288
 
 
 
1975
 
 
 
Dec-01
 
Rusk, TX
 
 
—
 
 
 
34
 
 
 
2,399
 
 
 
115
 
 
 
34
 
 
 
2,514
 
 
 
2,548
 
 
 
873
 
 
 
1969
 
 
 
Mar-94
 
Sacramento, CA
 
 
—
 
 
 
220
 
 
 
2,929
 
 
 
—
 
 
 
220
 
 
 
2,929
 
 
 
3,149
 
 
 
774
 
 
 
1968
 
 
 
Feb-97
 
Salina, KS
 
 
—
 
 
 
100
 
 
 
1,153
 
 
 
502
 
 
 
100
 
 
 
1,655
 
 
 
1,755
 
 
 
385
 
 
 
1985
 
 
 
May-97
 
Tappahannock, VA(13)
 
 
—
 
 
 
375
 
 
 
1,327
 
 
 
65
 
 
 
375
 
 
 
1,392
 
 
 
1,767
 
 
 
847
 
 
 
1977/1978
 
 
 
Oct-95
 
Toppenish, WA
 
 
—
 
 
 
67
 
 
 
2,719
 
 
 
—
 
 
 
67
 
 
 
2,719
 
 
 
2,786
 
 
 
811
 
 
 
1960/1970
 
 
 
Jun-95
 
Tucson, AZ
 
 
5,876
 
 
 
276
 
 
 
8,924
 
 
 
50
 
 
 
276
 
 
 
8,974
 
 
 
9,250
 
 
 
1,090
 
 
 
1985/92
 
 
 
Aug-00
 
Tucumcari, NM
 
 
—
 
 
 
122
 
 
 
1,144
 
 
 
—
 
 
 
122
 
 
 
1,144
 
 
 
1,266
 
 
 
15
 
 
 
1976
 
 
 
Jun-03
 
Vancouver, WA
 
 
 
 
 
 
133
 
 
 
3,017
 
 
 
122
 
 
 
133
 
 
 
3,139
 
 
 
3,272
 
 
 
901
 
 
 
1952/1994
 
 
 
Jun-95
 
Whitewright, TX(13)
 
 
 
 
 
 
100
 
 
 
1,457
 
 
 
3
 
 
 
100
 
 
 
1,460
 
 
 
1,560
 
 
 
760
 
 
 
1962/1964/1965
 
 
 
Jan-96
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Skilled Nursing Facilities
 
 
61,757
 
 
 
11,982
 
 
 
142,350
 
 
 
11,453
 
 
 
11,982
 
 
 
153,803
 
 
 
165,785
 
 
 
32,061
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
68
LTC PROPERTIES, INC.
SCHEDULE XI
                   III
REAL ESTATE AND ACCUMULATED DEPRECIATION
                               December 31, 1996



                                                                         Initial Cost to
                                                                             Company
                                                           ----------------------------------------   Cost Capitalized
                                                                                     Building and     Subsequent to 
Description                         Encumbrances                Land                 Improvments      Acquisition
- -----------------------------       ---------------        -----------------------------------------------------------
           
Atmore, AL                                      (6)              23,142             2,985,308                       -    
Mesa, AZ                              4,519,902                 304,707             6,908,762                       -    
Houston, TX                                                     571,889             5,964,457                       -    
Roberta, GA                                                     100,000             2,400,000                       -    
Norwalk, IA                                     (5)              45,486             1,034,802                       -    
Altoona, IA                                     (5)             102,152             2,312,354                       -              
                                    -----------             -----------          ------------              ----------
          Sub-total                  54,204,799              10,295,110           163,422,497               2,251,990   
                                    -----------             -----------          ------------              ----------
                                                                                                                         
Assisted-living facilities:                                                                                              
Dodge City, KS                        1,678,763                  87,500             1,662,500                       -    
Great Bend, KS                        1,415,908                  86,842             1,563,159                       -    
McPherson, KS                         1,231,666                  75,000             1,575,000                       -    
Salina, KS                            1,413,023                  71,739             1,578,261                       -    
Longview, TX                                  -                  38,256             1,568,492                       -    
Marshall, TX                                  -                  38,256             1,568,492                       -    
Walla Walla, WA                       8,300,000 (7)             100,000             1,940,000                       -    
Greenville, TX                                                   42,098             1,565,286                       -    
Camas, WA                                       (7)             100,000             2,175,000                       -    
Grandview, WA                                   (7)             100,000             1,940,000                       -    
Vancouver, WA                                   (7)             100,000             2,785,000                       -    
Athens, TX                                                       95,678             1,511,707                       -    
Lufkin, TX                                                      100,000             1,950,000                       -    
Kennewick. WA                                   (7)             100,000             1,940,000                       -    
Gardendale, AL                                                   16,340             1,233,660                       -    
Jacksonville, TX                                                100,000             1,900,000                       -    
Kelso, WA                                                       100,000             2,500,000                       -    
Battleground, WA                                                100,000             2,500,000                       -    
Hayden, ID                                                      100,000             2,450,000                       -    
Klamath Falls, OR                                               100,000             2,300,000                       -    
Newport, OR                                                     100,000             2,050,000                       -    
Tyler, TX                                                       100,000             1,800,000                       -    
Wichita Falls, TX                                               100,000             1,850,000                       -    
Ada, OK                                                         100,000             1,650,000                       -    
                                    -----------             -----------          ------------              ----------
    Subtotal                         14,039,359               2,051,709            45,556,557                       -    
                                    -----------             -----------          ------------              ----------
Grand total                         $68,244,158             $12,346,818          $208,979,053              $2,251,990
                                    ===========             ===========          ============              ==========
 
                                        Gross Amount at which Carried
                                              At Close of Period
                                --------------------------------------------      Accum.       Orig. Construc-  
                                               Building and                       Deprec       tion/renovation    Date
Description                          Land      Improvments        Total (1)       (2)(3)       Date               Acquired
- ----------------------------    --------------------------------------------    ----------     ---------------    ----------

                                                                                
Atmore, AL                           23,142       2,985,308       3,008,450         98,518         1967/1974       Jan. 1996
Mesa, AZ                            304,707       6,908,762       7,213,468        110,103         1975/1996       Jun. 1996
Houston, TX                         571,889       5,964,457       6,536,346        131,548              1967       Jun. 1996
Roberta, GA                         100,000       2,400,000       2,500,000         53,333              1964        May 1996
Norwalk, IA                          45,486       1,034,802       1,080,287         35,548              1975       Jan. 1996
Altoona, IA                         102,152       2,312,354       2,414,509         75,619              1973       Jan. 1996
                                -----------    ------------    ------------    -----------
          Sub-total              10,295,110     165,674,487     175,969,597     10,915,707
                                -----------    ------------    ------------    -----------
                                                                                
Assisted-living facilities:                                                     
Dodge City, KS                       87,500       1,662,500       1,750,000         49,896              1995       Dec. 1995
Great Bend, KS                       86,842       1,563,158       1,650,000         46,921              1995       Dec. 1995
McPherson, KS                        75,000       1,575,000       1,650,000         47,259              1994       Dec. 1995
Salina, KS                           71,739       1,578,261       1,650,000         47,352              1994       Dec. 1995
Longview, TX                         38,256       1,568,492       1,606,749         50,482              1995       Oct. 1995
Marshall, TX                         38,256       1,568,492       1,606,748         50,482              1995       Oct. 1995
Walla Walla, WA                     100,000       1,940,000       2,040,000         39,981              1996       Apr. 1996
Greenville, TX                       42,098       1,565,286       1,607,384         43,192              1995       Jan. 1996
Camas, WA                           100,000       2,175,000       2,275,000         34,524              1996        May 1996
Grandview, WA                       100,000       1,940,000       2,040,000         44,424              1996       Mar. 1996
Vancouver, WA                       100,000       2,785,000       2,885,000         44,043              1996       Jun. 1996
Athens, TX                           95,678       1,511,707       1,607,384         41,435              1995       Jan. 1996
Lufkin, TX                          100,000       1,950,000       2,050,000         40,169              1996       Apr. 1996
Kennewick. WA                       100,000       1,940,000       2,040,000         48,866              1996       Feb. 1996
Gardendale, AL                       16,340       1,233,660       1,250,000         23,786              1988        May 1996
Jacksonville, TX                    100,000       1,900,000       2,000,000         44,003              1996       Mar. 1996
Kelso, WA                           100,000       2,500,000       2,600,000         11,218              1996       Nov. 1996
Battleground, WA                    100,000       2,500,000       2,600,000          5,609              1996       Nov. 1996
Hayden, ID                          100,000       2,450,000       2,550,000          5,505              1996       Dec. 1996
Klamath Falls, OR                   100,000       2,300,000       2,400,000          5,192              1996       Dec. 1996
 
                                        Gross Amount at which Carried
                                              At Close of Period
                                --------------------------------------------      Accum.       Orig. Construc-  
                                               Building and                       Deprec       tion/renovation    Date
Description                          Land      Improvments        Total (1)       (2)(3)       Date               Acquired
- ----------------------------    --------------------------------------------    ----------     ---------------    ----------

Newport, OR                         100,000       2,050,000       2,150,000              0              1996       Dec. 1996
Tyler, TX                           100,000       1,800,000       1,900,000              0              1996       Dec. 1996
Wichita Falls, TX                   100,000       1,850,000       1,950,000              0              1996       Dec. 1996
Ada, OK                             100,000       1,650,000       1,750,000              0              1996       Dec. 1996
                                -----------    ------------    ------------    -----------
    Subtotal                      2,051,709      45,556,557      47,608,266        724,339
                                -----------    ------------    ------------    -----------
Grand total                     $12,346,818    $211,231,043    $223,577,863    $11,640,046
                                ===========    ============    ============    ===========
 

                                      59
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
��
 
 
Initial Cost to
Gross Amount at which Carried at
Company
Costs
December 31, 2003
Capitalized
Construction/
Building and
Subsequent
Building and
Accum.
Renovation
Acq.
Encumbrances
Land
Improvements
to Acquisition
Land
Improvements
Total(1)
Deprec.(2)
Date
Date
Assisted Living Residences:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ada, OK
 
 
—
 
 
 
100
 
 
 
1,650
 
 
 
—
 
 
 
100
 
 
 
1,650
 
 
 
1,750
 
 
 
324
 
 
 
1996
 
 
 
Dec-96
 
Arlington, OH
 
 
 
(12)
 
 
629
 
 
 
6,973
 
 
 
—
 
 
 
629
 
 
 
6,973
 
 
 
7,602
 
 
 
381
 
 
 
1993
 
 
 
Dec-01
 
Arvada, CO
 
 
6,626
(8)
 
 
100
 
 
 
2,810
 
 
 
276
 
 
 
100
 
 
 
3,086
 
 
 
3,186
 
 
 
519
 
 
 
1997
 
 
 
Aug-97
 
Athens, TX
 
 
—
 
 
 
96
 
 
 
1,510
 
 
 
1
 
 
 
96
 
 
 
1,511
 
 
 
1,607
 
 
 
332
 
 
 
1995
 
 
 
Jan-96
 
Bakersfield, CA
 
 
9,013
 
 
 
834
 
 
 
11,986
 
 
 
20
 
 
 
834
 
 
 
12,006
 
 
 
12,840
 
 
 
755
 
 
 
1998/2002
 
 
 
Dec-01
 
Battleground, WA
 
 
—
 
 
 
100
 
 
 
2,500
 
 
 
—
 
 
 
100
 
 
 
2,500
 
 
 
2,600
 
 
 
479
 
 
 
1996
 
 
 
Nov-96
 
Beatrice, NE
 
 
—
 
 
 
100
 
 
 
2,173
 
 
 
—
 
 
 
100
 
 
 
2,173
 
 
 
2,273
 
 
 
371
 
 
 
1997
 
 
 
Oct-97
 
Bexley, OH
 
 
15,938
(12)
 
 
306
 
 
 
4,196
 
 
 
—
 
 
 
306
 
 
 
4,196
 
 
 
4,502
 
 
 
229
 
 
 
1992
 
 
 
Dec-01
 
Bullhead City, AZ
 
 
—
 
 
 
100
 
 
 
2,500
 
 
 
—
 
 
 
100
 
 
 
2,500
 
 
 
2,600
 
 
 
428
 
 
 
1997
 
 
 
Aug-97
 
Burley, ID
 
 
—
 
 
 
100
 
 
 
2,200
 
 
 
—
 
 
 
100
 
 
 
2,200
 
 
 
2,300
 
 
 
381
 
 
 
1997
 
 
 
Sep-97
 
Caldwell, ID
 
 
—
 
 
 
100
 
 
 
2,200
 
 
 
—
 
 
 
100
 
 
 
2,200
 
 
 
2,300
 
 
 
381
 
 
 
1997
 
 
 
Sep-97
 
Camas, WA
 
 
 
(5)
 
 
100
 
 
 
2,175
 
 
 
—
 
 
 
100
 
 
 
2,175
 
 
 
2,275
 
 
 
447
 
 
 
1996
 
 
 
May-96
 
Central, SC
 
 
—
 
 
 
100
 
 
 
2,321
 
 
 
—
 
 
 
100
 
 
 
2,321
 
 
 
2,421
 
 
 
280
 
 
 
1998
 
 
 
Mar-99
 
Cordele, GA
 
 
—
 
 
 
153
 
 
 
1,455
 
 
 
82
 
 
 
153
 
 
 
1,537
 
 
 
1,690
 
 
 
211
 
 
 
1987/88/2002
 
 
 
Jul-00
 
Denison, IA
 
 
—
 
 
 
100
 
 
 
2,713
 
 
 
—
 
 
 
100
 
 
 
2,713
 
 
 
2,813
 
 
 
401
 
 
 
1998
 
 
 
Jun-98
 
Dodge City, KS
 
 
1,208
 
 
 
84
 
 
 
1,666
 
 
 
—
 
 
 
84
 
 
 
1,666
 
 
 
1,750
 
 
 
397
 
 
 
1995
 
 
 
Dec-95
 
Durant, OK
 
 
—
 
 
 
100
 
 
 
1,769
 
 
 
—
 
 
 
100
 
 
 
1,769
 
 
 
1,869
 
 
 
329
 
 
 
1997
 
 
 
Apr-97
 
Edmond, OK
 
 
 
(9)
 
 
100
 
 
 
1,365
 
 
 
526
 
 
 
100
 
 
 
1,891
 
 
 
1,991
 
 
 
326
 
 
 
1996
 
 
 
Aug-97
 
Elkhart, IN
 
 
—
 
 
 
100
 
 
 
2,435
 
 
 
—
 
 
 
100
 
 
 
2,435
 
 
 
2,535
 
 
 
396
 
 
 
1997
 
 
 
Dec-97
 
Erie, PA
 
 
 
(11)
 
 
850
 
 
 
7,477
 
 
 
—
 
 
 
850
 
 
 
7,477
 
 
 
8,327
 
 
 
1,070
 
 
 
1998
 
 
 
Oct-99
 
Eugene, OR
 
 
—
 
 
 
100
 
 
 
2,600
 
 
 
—
 
 
 
100
 
 
 
2,600
 
 
 
2,700
 
 
 
445
 
 
 
1997
 
 
 
Sep-97
 
Fremont,OH
 
 
—
 
 
 
100
 
 
 
2,435
 
 
 
—
 
 
 
100
 
 
 
2,435
 
 
 
2,535
 
 
 
423
 
 
 
1997
 
 
 
Aug-97
 
Ft. Collins, CO
 
 
—
 
 
 
100
 
 
 
2,961
 
 
 
—
 
 
 
100
 
 
 
2,961
 
 
 
3,061
 
 
 
387
 
 
 
1998
 
 
 
Mar-99
 
Ft. Collins, CO
 
 
—
 
 
 
100
 
 
 
3,400
 
 
 
—
 
 
 
100
 
 
 
3,400
 
 
 
3,500
 
 
 
398
 
 
 
1999
 
 
 
Jul-99
 
Ft. Meyers, FL
 
 
—
 
 
 
100
 
 
 
2,728
 
 
 
9
 
 
 
100
 
 
 
2,737
 
 
 
2,837
 
 
 
423
 
 
 
1998
 
 
 
Mar-98
 
Gardendale, AL
 
 
—
 
 
 
16
 
 
 
1,234
 
 
 
—
 
 
 
16
 
 
 
1,234
 
 
 
1,250
 
 
 
307
 
 
 
1988
 
 
 
May-96
 
Goldsboro, NC
 
 
—
 
 
 
100
 
 
 
2,385
 
 
 
1
 
 
 
100
 
 
 
2,386
 
 
 
2,486
 
 
 
261
 
 
 
1998
 
 
 
Mar-99
 
Grandview, WA
 
 
 
(5)
 
 
100
 
 
 
1,940
 
 
 
—
 
 
 
100
 
 
 
1,940
 
 
 
2,040
 
 
 
415
 
 
 
1996
 
 
 
Mar-96
 
Great Bend, KS
 
 
1,008
 
 
 
80
 
 
 
1,570
 
 
 
17
 
 
 
80
 
 
 
1,587
 
 
 
1,667
 
 
 
380
 
 
 
1995
 
 
 
Dec-95
 
Greeley, CO
 
 
—
 
 
 
100
 
 
 
2,310
 
 
 
270
 
 
 
100
 
 
 
2,580
 
 
 
2,680
 
 
 
443
 
 
 
1997
 
 
 
Aug-97
 
Greenville, NC
 
 
—
 
 
 
100
 
 
 
2,478
 
 
 
2
 
 
 
100
 
 
 
2,480
 
 
 
2,580
 
 
 
315
 
 
 
1998
 
 
 
Mar-99
 
Greenville, TX
 
 
—
 
 
 
42
 
 
 
1,565
 
 
 
—
 
 
 
42
 
 
 
1,565
 
 
 
1,607
 
 
 
343
 
 
 
1995
 
 
 
Jan-96
 
Greenwood, SC
 
 
—
 
 
 
100
 
 
 
2,638
 
 
 
 
 
 
 
100
 
 
 
2,638
 
 
 
2,738
 
 
 
340
 
 
 
1998
 
 
 
Mar-99
 
Hayden, ID
 
 
—
 
 
 
100
 
 
 
2,450
 
 
 
243
 
 
 
100
 
 
 
2,693
 
 
 
2,793
 
 
 
508
 
 
 
1996
 
 
 
Dec-96
 
Hoquiam, WA
 
 
—
 
 
 
100
 
 
 
2,500
 
 
 
—
 
 
 
100
 
 
 
2,500
 
 
 
2,600
 
 
 
435
 
 
 
1997
 
 
 
Aug-97
 
Jacksonville, TX
 
 
—
 
 
 
100
 
 
 
1,900
 
 
 
—
 
 
 
100
 
 
 
1,900
 
 
 
2,000
 
 
 
410
 
 
 
1996
 
 
 
Mar-96
 
Kelso, WA
 
 
—
 
 
 
100
 
 
 
2,500
 
 
 
—
 
 
 
100
 
 
 
2,500
 
 
 
2,600
 
 
 
536
 
 
 
1996
 
 
 
Nov-96
 
Kennewick. WA
 
 
 
(5)
 
 
100
 
 
 
1,940
 
 
 
—
 
 
 
100
 
 
 
1,940
 
 
 
2,040
 
 
 
419
 
 
 
1996
 
 
 
Feb-96
 
Klamath Falls, OR
 
 
—
 
 
 
100
 
 
 
2,300
 
 
 
—
 
 
 
100
 
 
 
2,300
 
 
 
2,400
 
 
 
439
 
 
 
1996
 
 
 
Dec-96
 
Lake Havasu, AZ
 
 
—
 
 
 
100
 
 
 
2,420
 
 
 
—
 
 
 
100
 
 
 
2,420
 
 
 
2,520
 
 
 
421
 
 
 
1997
 
 
 
Aug-97
 
Lakeland, FL
 
 
—
 
 
 
519
 
 
 
2,313
 
 
 
82
 
 
 
519
 
 
 
2,395
 
 
 
2,914
 
 
 
342
 
 
 
1968/74/96/2002
 
 
 
Jul-00
 
Longmont, CO
 
 
 
(8)
 
 
100
 
 
 
2,640
 
 
 
—
 
 
 
100
 
 
 
2,640
 
 
 
2,740
 
 
 
397
 
 
 
1998
 
 
 
Jun-98
 
Longview, TX
 
 
—
 
 
 
38
 
 
 
1,568
 
 
 
1
 
 
 
38
 
 
 
1,569
 
 
 
1,607
 
 
 
350
 
 
 
1995
 
 
 
Oct-95
 
Loveland, CO
 
 
 
(8)
 
 
100
 
 
 
2,865
 
 
 
270
 
 
 
100
 
 
 
3,135
 
 
 
3,235
 
 
 
519
 
 
 
1997
 
 
 
Sep-97
 
Lufkin, TX
 
 
—
 
 
 
100
 
 
 
1,950
 
 
 
—
 
 
 
100
 
 
 
1,950
 
 
 
2,050
 
 
 
413
 
 
 
1996
 
 
 
Apr-96
 
Madison, IN
 
 
—
 
 
 
100
 
 
 
2,435
 
 
 
—
 
 
 
100
 
 
 
2,435
 
 
 
2,535
 
 
 
412
 
 
 
1997
 
 
 
Oct-97
 
Marshall, TX
 
 
—
 
 
 
38
 
 
 
1,568
 
 
 
451
 
 
 
38
 
 
 
2,019
 
 
 
2,057
 
 
 
435
 
 
 
1995
 
 
 
Oct-95
 
McPherson, KS
 
 
862
 
 
 
79
 
 
 
1,571
 
 
 
—
 
 
 
79
 
 
 
1,571
 
 
 
1,650
 
 
 
376
 
 
 
1994
 
 
 
Dec-95
 
Millville, NJ
 
 
—
 
 
 
100
 
 
 
2,825
 
 
 
—
 
 
 
100
 
 
 
2,825
 
 
 
2,925
 
 
 
487
 
 
 
1997
 
 
 
Aug-97
 
Nampa, ID
 
 
—
 
 
 
100
 
 
 
2,240
 
 
 
23
 
 
 
100
 
 
 
2,263
 
 
 
2,363
 
 
 
431
 
 
 
1997
 
 
 
Jan-97
 
New Bern, NC
 
 
—
 
 
 
100
 
 
 
2,427
 
 
 
1
 
 
 
100
 
 
 
2,428
 
 
 
2,528
 
 
 
271
 
 
 
1998
 
 
 
Mar-99
 
Newark, OH
 
 
—
 
 
 
100
 
 
 
2,435
 
 
 
—
 
 
 
100
 
 
 
2,435
 
 
 
2,535
 
 
 
412
 
 
 
1997
 
 
 
Oct-97
 
Newport Richey, FL
 
 
—
 
 
 
100
 
 
 
5,845
 
 
 
296
 
 
 
100
 
 
 
6,140
 
 
 
6,241
 
 
 
1,066
 
 
 
1986/1995
 
 
 
Jan-98
 
69
LTC PROPERTIES, INC.
SCHEDULE XI
                   III
REAL ESTATE AND ACCUMULATED DEPRECIATION
                               December 31, 1996



(1)  The aggregate cost for federal income tax purposes.
(2)  Depreciation for building is calculated using a 35 year depreciation life
      for nursing facilities and 40 year life for assisted living facilities and
      additions to facilities (Lecanto, Florida). Depreciation for furniture and
      fixtures is calculated based on a 7- year life for all facilities.
(3)  This is a single note backed by five facilities 
(in Alabama.
(4)  This is a singlethousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Initial Cost to
Gross Amount at which Carried at
Company
Costs
December 31, 2003
Capitalized
Construction/
Building and
Subsequent
Building and
Accum.
Renovation
Acq.
Encumbrances
Land
Improvements
to Acquisition
Land
Improvements
Total(1)
Deprec.(2)
Date
Date
Newport, OR
 
 
—
 
 
 
100
 
 
 
2,050
 
 
 
—
 
 
 
100
 
 
 
2,050
 
 
 
2,150
 
 
 
394
 
 
 
1996
 
 
 
Dec-96
 
Niceville, FL
 
 
—
 
 
 
100
 
 
 
2,680
 
 
 
—
 
 
 
100
 
 
 
2,680
 
 
 
2,780
 
 
 
403
 
 
 
1998
 
 
 
Jun-98
 
Norfolk, NE
 
 
—
 
 
 
100
 
 
 
2,123
 
 
 
—
 
 
 
100
 
 
 
2,123
 
 
 
2,223
 
 
 
378
 
 
 
1997
 
 
 
Jun-97
 
Portland, OR
 
 
3,961
 
 
 
100
 
 
 
7,622
 
 
 
359
 
 
 
100
 
 
 
7,981
 
 
 
8,081
 
 
 
1,112
 
 
 
1986/2002
 
 
 
Jun-98
 
Rio Rancho, NM
 
 
—
 
 
 
100
 
 
 
8,300
 
 
 
40
 
 
 
100
 
 
 
8,340
 
 
 
8,440
 
 
 
1,232
 
 
 
1998
 
 
 
Mar-98
 
Rocky Mount, NC
 
 
—
 
 
 
100
 
 
 
2,494
 
 
 
1
 
 
 
100
 
 
 
2,495
 
 
 
2,595
 
 
 
292
 
 
 
1998
 
 
 
Mar-99
 
Rocky River, OH
 
 
10,485
(11)
 
 
760
 
 
 
6,963
 
 
 
—
 
 
 
760
 
 
 
6,963
 
 
 
7,723
 
 
 
955
 
 
 
1998
 
 
 
Oct-99
 
Roseville, CA
 
 
—
 
 
 
100
 
 
 
7,300
 
 
 
8
 
 
 
100
 
 
 
7,308
 
 
 
7,408
 
 
 
1,037
 
 
 
1998/2002
 
 
 
Jun-98
 
Salina, KS
 
 
1,006
 
 
 
79
 
 
 
1,571
 
 
 
—
 
 
 
79
 
 
 
1,571
 
 
 
1,650
 
 
 
376
 
 
 
1994
 
 
 
Dec-95
 
San Antonio, TX
 
 
 
(9)
 
 
100
 
 
 
1,900
 
 
 
—
 
 
 
100
 
 
 
1,900
 
 
 
2,000
 
 
 
351
 
 
 
1997
 
 
 
May-97
 
San Antonio, TX
 
 
 
(9)
 
 
100
 
 
 
2,055
 
 
 
—
 
 
 
100
 
 
 
2,055
 
 
 
2,155
 
 
 
372
 
 
 
1997
 
 
 
Jun-97
 
Shelby, NC
 
 
—
 
 
 
100
 
 
 
2,805
 
 
 
2
 
 
 
100
 
 
 
2,807
 
 
 
2,907
 
 
 
420
 
 
 
1998
 
 
 
Jun-98
 
Spring Hill, FL
 
 
—
 
 
 
100
 
 
 
2,650
 
 
 
—
 
 
 
100
 
 
 
2,650
 
 
 
2,750
 
 
 
398
 
 
 
1998
 
 
 
Jun-98
 
Springfield, OH
 
 
—
 
 
 
100
 
 
 
2,035
 
 
 
270
 
 
 
100
 
 
 
2,305
 
 
 
2,405
 
 
 
393
 
 
 
1997
 
 
 
Aug-97
 
Sumter, SC
 
 
—
 
 
 
100
 
 
 
2,351
 
 
 
—
 
 
 
100
 
 
 
2,351
 
 
 
2,451
 
 
 
293
 
 
 
1998
 
 
 
Mar-99
 
Tallahassee, FL
 
 
—
(9)
 
 
100
 
 
 
3,075
 
 
 
—
 
 
 
100
 
 
 
3,075
 
 
 
3,175
 
 
 
466
 
 
 
1998
 
 
 
Apr-98
 
Tiffin, OH
 
 
—
 
 
 
100
 
 
 
2,435
 
 
 
—
 
 
 
100
 
 
 
2,435
 
 
 
2,535
 
 
 
423
 
 
 
1997
 
 
 
Aug-97
 
Troy, OH
 
 
—
 
 
 
100
 
 
 
2,435
 
 
 
306
 
 
 
100
 
 
 
2,741
 
 
 
2,841
 
 
 
483
 
 
 
1997
 
 
 
May-97
 
Tulsa, OK
 
 
 
(9)
 
 
200
 
 
 
1,650
 
 
 
—
 
 
 
200
 
 
 
1,650
 
 
 
1,850
 
 
 
317
 
 
 
1997
 
 
 
Feb-97
 
Tulsa, OK
 
 
 
(9)
 
 
100
 
 
 
2,395
 
 
 
—
 
 
 
100
 
 
 
2,395
 
 
 
2,495
 
 
 
428
 
 
 
1997
 
 
 
Jun-97
 
Tucson, AZ
 
 
—
 
 
 
100
 
 
 
8,700
 
 
 
8
 
 
 
100
 
 
 
8,708
 
 
 
8,808
 
 
 
1,230
 
 
 
1998/2002
 
 
 
Jun-98
 
Tyler, TX
 
 
10,996
(9)
 
 
100
 
 
 
1,800
 
 
 
—
 
 
 
100
 
 
 
1,800
 
 
 
1,900
 
 
 
351
 
 
 
1996
 
 
 
Dec-96
 
Vacaville, CA
 
 
8,500
 
 
 
1,662
 
 
 
11,634
 
 
 
19
 
 
 
1,662
 
 
 
11,653
 
 
 
13,315
 
 
 
743
 
 
 
1998/2002
 
 
 
Dec-01
 
Vancouver, WA
 
 
 
(5)
 
 
100
 
 
 
2,785
 
 
 
—
 
 
 
100
 
 
 
2,785
 
 
 
2,885
 
 
 
571
 
 
 
1996
 
 
 
Jun-96
 
Waco, TX
 
 
—
 
 
 
100
 
 
 
2,235
 
 
 
—
 
 
 
100
 
 
 
2,235
 
 
 
2,335
 
 
 
402
 
 
 
1997
 
 
 
Jun-97
 
Wahoo, NE
 
 
—
 
 
 
100
 
 
 
2,318
 
 
 
—
 
 
 
100
 
 
 
2,318
 
 
 
2,418
 
 
 
405
 
 
 
1997
 
 
 
Jul-97
 
Walla Walla, WA
 
 
6,640
(5)
 
 
100
 
 
 
1,940
 
 
 
—
 
 
 
100
 
 
 
1,940
 
 
 
2,040
 
 
 
411
 
 
 
1996
 
 
 
Apr-96
 
Watauga, TX
 
 
—
 
 
 
100
 
 
 
1,668
 
 
 
—
 
 
 
100
 
 
 
1,668
 
 
 
1,768
 
 
 
296
 
 
 
1996
 
 
 
Aug-97
 
Wetherford, OK
 
 
—
 
 
 
100
 
 
 
1,669
 
 
 
592
 
 
 
100
 
 
 
2,261
 
 
 
2,361
 
 
 
384
 
 
 
1996
 
 
 
Aug-97
 
Wheelersburg, OH
 
 
—
 
 
 
100
 
 
 
2,435
 
 
 
—
 
 
 
100
 
 
 
2,435
 
 
 
2,535
 
 
 
413
 
 
 
1997
 
 
 
Sep-97
 
Wichita Falls, TX
 
 
—
 
 
 
100
 
 
 
1,850
 
 
 
—
 
 
 
100
 
 
 
1,850
 
 
 
1,950
 
 
 
359
 
 
 
1996
 
 
 
Dec-96
 
Wichita Falls, TX
 
 
—
 
 
 
100
 
 
 
2,750
 
 
 
—
 
 
 
100
 
 
 
2,750
 
 
 
2,850
 
 
 
469
 
 
 
1997
 
 
 
Sep-97
 
Worthington, OH
 
 
 
(12)
 
 
—
 
 
 
6,102
 
 
 
—
 
 
 
—
 
 
 
6,102
 
 
 
6,102
 
 
 
323
 
 
 
1993
 
 
 
Dec-01
 
Worthington, OH
 
 
 
(12)
 
 
—
 
 
 
3,402
 
 
 
—
 
 
 
—
 
 
 
3,402
 
 
 
3,402
 
 
 
199
 
 
 
1995
 
 
 
Dec-01
 
York, NE
 
 
—
 
 
 
100
 
 
 
2,318
 
 
 
—
 
 
 
100
 
 
 
2,318
 
 
 
2,418
 
 
 
405
 
 
 
1997
 
 
 
Aug-97
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assisted Living Residences
 
 
76,243
 
 
 
13,265
 
 
 
263,505
 
 
 
4,176
 
 
 
13,265
 
 
 
267,681
 
 
 
280,946
 
 
 
39,880
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Schools Trenton, NJ
 
 
—
 
 
 
100
 
 
 
6,000
 
 
 
3,170
 
 
 
100
 
 
 
9,170
 
 
 
9,270
 
 
 
1,435
 
 
 
1930/1998
 
 
 
Dec-98
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Schools
 
 
—
 
 
 
100
 
 
 
6,000
 
 
 
3,170
 
 
 
100
 
 
 
9,170
 
 
 
9,270
 
 
 
1,435
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
138,000
 
 
$
25,347
 
 
$
411,855
 
 
$
18,799
 
 
$
25,347
 
 
$
430,654
 
 
$
456,001
 
 
$
73,376
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) 
The aggregate cost for federal income tax purposes.
(2) 
Depreciation for building is calculated using a 35 year life for skilled nursing facilities and 40 year life for assisted living residences and additions to facilities. Depreciation for furniture and fixtures is calculated based on a 7 year life for all facilities.
(3) 
Single note backed by six facilities in Iowa and one facility in Texas.
(4) 
Single note backed by two facilities in Alabama.
(5) 
Single note backed by five facilities in Washington.
(6) 
Single note backed by two facilities in Texas.
(7) 
Single note backed by two facilities in Georgia
70
LTC PROPERTIES, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
(in Washington.
(5)  This is a single note backed by a total of seven facilities: Six thousands)
(8) 
Single note backed by three facilities in Colorado
(9) 
Single note backed by one facility in Florida, three facilities in Oklahoma, and three facilities in Texas
(10) 
Single note backed by one facility in Kansas and two facilities in Georgia
(11) 
Single note backed by one facility in Ohio and one facility in Pennsylvania.
(12) 
Single note backed by four facilities in Ohio.
(13) 
An impairment charge totaling $9,643 was taken against 8 facilities based on our estimate of the excess carrying value over the fair value of assets to be held and used, and the carrying value over the fair value less cost to sell in instances where management has determined that the company will dispose of the property as required by Statement of Accounting Standard No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.”
71
LTC PROPERTIES, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
(in Iowa
      and one in Texas
(6)  This is a single note backed by two facilities in Alabama.
(7)  This is a single note backed by five facilities in Washington.
(8)  The activitiesthousands)
Activity for the years ended December 31, 1994, 19952001, 2002 and 1996 are2003 is as follows:
 
 
 
 
 
 
 
 
 
 
Real Estate
Accumulated
& Equipment
Depreciation
Balance at December 31, 2000
 
$
468,498
 
 
$
47,181
 
 
Additions
 
 
73,107
 
 
 
13,695
 
 
Conversion of mortgage loans into owned properties
 
 
3,899
 
 
 
—
 
 
Impairment Charges
 
 
(16,755
)
 
 
—
 
 
Cost of real estate sold
 
 
(32,625
)
 
 
(2,293
)
 
 
 
 
 
 
 
Balance at December 31, 2001(1)
 
 
496,124
 
 
 
58,583
 
 
Additions
 
 
2,893
 
 
 
14,197
 
 
Conversion of mortgage loans into owned properties
 
 
3,967
 
 
 
—
 
 
Impairment Charges
 
 
(1,710
)
 
 
—
 
 
Cost of real estate sold
 
 
(31,618
)
 
 
(8,464
)
 
 
 
 
 
 
 
Balance at December 31, 2002
 
$
469,656
 
 
$
64,316
 
 
Additions
 
 
2,075
 
 
 
12,711
 
 
Additions purchased form Center Healthcare, Inc.
 
 
1,612
 
 
 
72
 
 
Conversion of mortgage loans into owned properties
 
 
—
 
 
 
—
 
 
Impairment Charges
 
 
—
 
 
 
—
 
 
Cost of real estate sold
 
 
(17,342
)
 
 
(3,723
)
 
 
 
 
 
 
 
Balance at December 31, 2003
 
$
456,001
 
 
$
73,376
 
 
 
 
 
 
 
 
 
                                                                  Real Estate           Accumulated
                                                                  & Equipment           Depreciation
                                                                  ------------          ------------
                
                Beginning balance                                 $ 28,560,689          $   768,213
                    Additions during period -
                          Additions                                 44,557,538            1,722,148
                    Deductions during period -
                          Cost of real estate sold                           -                    -
                                                                  ------------          -----------
                Balance at December 31, 1994                        73,118,227            2,490,361
                    Additions during period -
                          Additions                                 44,150,274            2,996,167
                    Deductions during period -
                          Cost of real estate sold                           -                    -
                                                                  ------------          -----------
                Balance at December 31, 1995                       117,268,501            5,486,528
                    Additions during period -
                          Additions                                113,959,361            6,214,190
                    Deductions during period -
                          Cost of real estate sold                  (7,650,000)             (60,672)
                                                                  ------------          -----------
                Balance at December 31, 1996                      $223,577,862          $11,640,046
                                                                  ============          ===========
(1) 
Includes amounts classified as properties held for sale as required by SFAS No. 144.
 

                                      60
72
LTC PROPERTIES, INC.
SCHEDULE XII
                         IV
MORTGAGE LOANS ON REAL ESTATE
                               DECEMBER
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Principal
Amount
of Loans
Current
Carrying
Subject to
Number of
Final
Monthly
Face
Amount of
Delinquent
Interest
Maturity
Balloon
Debt
Amount of
Mortgages
Principal or
State
Properties
Beds/Units
Rate(1)
Date
Amount(2)
Service
Mortgages
December 31, 2003
Interest
CO
 
 
2
 
 
 
230
 
 
 
12.00
 
 
 
2007
 
 
$
5,412
 
 
$
64
 
 
$
6,000
 
 
$
5,661
 
 
 
—
 
OH
 
 
1
 
 
 
150
 
 
 
10.89
 
 
 
2006
 
 
 
4,579
 
 
 
51
 
 
 
5,200
 
 
 
4,761
 
 
 
—
 
CA
 
 
1
 
 
 
212
 
 
 
10.66
 
 
 
2018
 
 
 
—
 
 
 
35
 
 
 
3,500
 
 
 
3,137
 
 
 
—
 
NE
 
 
1
 
 
 
47
 
 
 
11.91
 
 
 
2008
 
 
 
3,071
 
 
 
33
 
 
 
3,243
 
 
 
3,159
 
 
 
—
 
FL
 
 
1
 
 
 
94
 
 
 
10.52
 
 
 
2007
 
 
 
2,879
 
 
 
31
 
 
 
3,290
 
 
 
3,065
 
 
 
—
 
FL
 
 
1
 
 
 
191
 
 
 
12.25
 
 
 
2017
 
 
 
—
 
 
 
50
 
 
 
4,500
 
 
 
2,977
 
 
 
—
 
NE
 
 
1
 
 
 
44
 
 
 
11.91
 
 
 
2008
 
 
 
2,875
 
 
 
31
 
 
 
3,036
 
 
 
2,957
 
 
 
—
 
CA
 
 
1
 
 
 
151
 
 
 
10.40
 
 
 
2018
 
 
 
—
 
 
 
32
 
 
 
3,171
 
 
 
2,851
 
 
 
—
 
NE
 
 
1
 
 
 
44
 
 
 
10.73
 
 
 
2008
 
 
 
2,343
 
 
 
26
 
 
 
2,700
 
 
 
2,517
 
 
 
—
 
IA
 
 
1
 
 
 
44
 
 
 
11.91%
 
 
 
2009
 
 
 
2,273
 
 
 
24
 
 
 
2,400
 
 
 
2,342
 
 
 
—
 
SD
 
 
1
 
 
 
34
 
 
 
11.91%
 
 
 
2009
 
 
 
2,221
 
 
 
24
 
 
 
2,346
 
 
 
2,291
 
 
 
—
 
MT
 
 
1
 
 
 
34
 
 
 
12.15%
 
 
 
2013
 
 
 
2,078
 
 
 
24
 
 
 
2,346
 
 
 
2,284
 
 
 
—
 
AZ
 
 
1
 
 
 
144
 
 
 
12.40%
 
 
 
2004
 
 
 
2,174
 
 
 
26
 
 
 
2,400
 
 
 
2,186
 
 
 
—
 
Various
 
 
24
 
 
 
2,631
 
 
 
9.51%-12.55%
 
 
 
2003-2018
 
 
 
18,835
 
 
 
9,595
 
 
 
36,619
 
 
 
31,277
 
 
 
—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
38
(3)
 
 
4,050
 
 
 
 
 
 
 
 
 
 
$
48,740
 
 
$
10,046
 
 
$
80,751
 
 
$
71,465
 
 
 
—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) 
Represents current stated interest rate. Generally, the loans have 25-year amortization with principal and interest payable at varying amounts over the life to maturity with annual interest adjustments through specified fixed rate increases effective either on the first anniversary or calendar year of the loan.
(2) 
Balloon payment is due upon maturity, generally the 10th year of the loan, with various prepayment penalties (as defined in the loan agreement).
(3) 
Includes 37 first-lien mortgage loans as follows:
# of Loans
Original Loan Amounts
19
 $247-$2,000
10
$2,001-$3,000
5
$3,001-$4,000
1
$4,001-$5,000
2
$5,001-$6,000
0
 $6,001-$11,250
73
Activity for the years ended December 31, 1996

2001, 2002 and 2003 is as follows:
 
 
 
 
 
 
Balance at 2000
 
$
107,399
(1)
 
Conversion of notes to owned properties
 
 
(3,288
)
 
Impairment charges
 
 
(1,250
)
 
Collections of principal
 
 
(9,250
)
 
 
 
 
Balance at 2001
 
 
93,611
 
 
Conversion of notes to owned properties
 
 
(3,832
)(1)
 
Conversion of other notes to mortgage notes
 
 
518
 
 
Impairment charges
 
 
(1,600
)
 
Collections of principal
 
 
(6,022
)
 
 
 
 
Balance at 2002
 
 
82,675
 
 
Acquisition of mortgage note
 
 
1,707
 
 
Impairment charges
 
 
(31
)
 
Collections of principal
 
 
(12,886
)
 
 
 
 
Balance at 2003
 
$
71,465
 
 
 
 
 
                                                                                                                     
                                                                                  Final                         
                              Number
(1) 
As required by SFAS No. 144, a mortgage loan of Number of          Interest       Maturity           Balloon      
 STATE                        Facilities         Beds            Rate (A)          Date           Amount (B)    
- ---------                     ----------      ---------      -------------      --------        ------------   
             
Long-term care facilities:                                                                        
   FL                                2             251            10.750%       Mar. 2006       $  7,326,841    
   FL                                1             180             9.158%       Dec. 2006          6,212,944    
   MS                                3             400            10.320%       Oct. 2006         10,656,431    
   SC                                5             509            11.700%       Feb. 2003         11,118,772    
Various (2)                         73           7,920        9.75%-13.2%       Jun. 1997 -      134,891,128    
                                                                                Oct. 2017                       
                              --------        --------       -----------        ---------       ------------   
                                    84           9,260                                          $170,206,116    
                              ========        ========                                          ============    

 
                                                                            Loan Subject                   
                                                Carrying Amount$1,500 that converted to Delinquent        Current   
                              Face Amount       of Mortgages at               Principal          Monthly   
 STATE                        of Mortgages     December 31, 1995             or Interest       Debt Service 
- --------                      ------------     -----------------            -------------      ------------
         
Long-term care facilities:                                                                                 
   FL                         $  8,200,000     $     8,154,021              $          -          78,891.60 
   FL                            7,200,000           7,200,000                         -          61,203.05 
   MS                           11,250,000          11,240,003                         -         101,397.29 
   SC                           11,250,000          11,229,957                         -         113,127.66 
Various (2)                    141,790,842         140,437,709                 1,666,420       1,379,781.10 
                              ------------     ---------------              ------------       ------------
                              $179,690,842     $   178,261,690 (1)(3)(4)    $  1,666,420       1,734,401.00
                              ============     ===============              ============       ============
an owned property and was sold in 2002 has been reclassified to discontinued operations for all periods presented.
 

(A) Represents current stated interest rate. Generally, the loans have 25-year
amortization with principal and interest payable at varying amounts over the
life to maturity with annual interest adjustments through specified fixed rate
increases effective either on the first anniversary or calendar year of the
loan.

(B) Balloon payment is due upon maturity, principally on the 10th year of the
loan, wtih various prepayment penalties (as defined in the loan agreement).


(1) The aggregate cost for federal income tax purposes.
(2) Includes 63 first-lien mortgage loans secured by skilled nursing facilities
and assisted living facilities as follows:

 
                No. of loans    Original loan amounts:
                 
                     37         $  305,000 - $2,000,000
                     12         $2,000,001 - $3,000,000
                      5         $3,000,001 - $4,000,000
                      5         $4,000,001 - $5,000,000
                      4         $5,000,001 - $5,861,000
 

                                      61
74
LTC PROPERTIES, INC.
                                 SCHEDULE XII
                         MORTGAGE LOANS ON REAL ESTATE
                               DECEMBER 31, 1996


The loans (each of which is less than 3% of the total carrying amount) are
secured by properties located in Alabama, Arizona, Arkansas, California,
Colorado, Florida, Georgia, Illinois, Iowa, Kansas, Louisiana, Missouri,
Nebraska, Nevada, North Carolina, Ohio, Oklahoma, Oregon, Tennessee,Texas and
Washington.


                                                              
(3)  Mortgage loans on real estate reconciliation:

Balance at December 31, 1993                                     $  78,499,874
  Additions during period:
    New Mortgage loans                                             120,472,000
  Deletions during period:
    Sales of notes to REMIC                                       (127,639,788)
    Collections of principal                                        (8,549,726)
                                                                 -------------
Balance at December 31, 1994                                        62,782,360
  Additions during period:
    New Mortgage loans                                             101,907,720
  Deletions during period:
    Collections of principal                                        (2,633,765)
                                                                 -------------
  Balance at December 31, 1995                                   $ 162,056,315
    Additions during period:
      New Mortgage loans                                           130,964,857
    Deletions during period:
      Sales of notes to REMIC                                     (112,487,255)
      Collections of principal                                   $  (2,272,227)
                                                                 -------------
    Balance at December 31, 1996                                   178,261,690
                                                                 =============
 

4) None of the Company's mortgage loans have any prior liens. One mortgage loan
with a principal amount of $1,666,420 is subject to delinquent principal of
$11,095 and interest of $221,984 as of December 31, 1995.  No loan has been
renewed or extended.
5) The Company has established a general reserve totaling $1,000,000. No loan
has been written off against this reserve.

                                      62
INDEX TO EXHIBITS
(Item 15(b))
 
 
 
 
 
Exhibit
Number
Description
 
3
.1
 
Amended and Restated Articles of Incorporation of LTC Properties, Inc. (incorporated by reference to Exhibit 3.1 to LTC Properties, Inc.’s Current Report on Form 8-K dated June 19, 1997)
 
3
.2
 
Amended and Restated By-Laws of LTC Properties, Inc. (incorporated by reference to Exhibit 3.1 to LTC Properties, Inc.’s Form 10-Q for the quarter ended June 30, 1996)
 
3
.3
 
Articles Supplementary Classifying 3,080,000 shares of 9.5% Series A Cumulative Preferred Stock of LTC Properties, Inc. (incorporated by reference to Exhibit 3.2 to LTC Properties, Inc.’s Current Report on Form 8-K dated June 19, 1997)
 
3
.4
 
Articles of Amendment of LTC Properties, Inc. (incorporated by reference to Exhibit 3.3 to LTC Properties, Inc.’s Current Report on Form 8-K dated June 19, 1997)
 
3
.5
 
Articles Supplementary Classifying 2,000,000 Shares of 9.0% Series B Cumulative Preferred Stock of LTC Properties, Inc. (incorporated by reference to Exhibit 2.5 to LTC Properties, Inc.’s Registration Statement on Form 8-A filed on December 15, 1997)
 
3
.6
 
Certificate of Amendment to Amended and Restated Bylaws of LTC Properties, Inc. (incorporated by reference to Exhibit 3.1 to LTC Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998)
 
3
.7
 
Articles Supplementary Classifying 2,000,000 Shares of 8.5% Series C Cumulative Convertible Preferred Stock of LTC Properties, Inc. (incorporated by reference to Exhibit 3.2 to LTC Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998)
 
3
.8
 
Articles Supplementary Classifying 40,000 shares of Series D Junior Participating Preferred Stock of LTC Properties, Inc. (incorporated by reference to Exhibit 4.7 to LTC Properties, Inc.’s Registration Statement on Form 8-A filed on May 9, 2000)
 
3
.9
 
Articles Supplemental reclassifying 5,000,000 shares of Common Stock into Preferred Stock of LTC Properties, Inc. (incorporated by reference to Exhibit 3.1 to LTC Properties, Inc.’s Registration Statement on Form S-3 filed June 27, 2003)
 
3
.10
 
Certificate of Amendment to Amended and Restated Bylaws of LTC Properties, Inc. (incorporated by reference to Exhibit 3.10 to LTC Properties, Inc.’s Registration Statement on Form S-3, Amendment No. 2 filed August 29, 2003)
 
3
.11
 
Articles Supplementary Classifying 2,200,000 shares of 8.5% Series E Cumulative Convertible Preferred Stock of LTC Properties, Inc. (incorporated by reference to Exhibit 3.2 to LTC Properties, Inc.’s Registration Statement on Form 8-K filed September 16, 2003)
 
4
.1
 
Indenture dated September 23, 1994 between LTC Properties, Inc. and Harris Trust and Savings Bank, as trustee (incorporated by reference to Exhibit 4.2 to LTC Properties, Inc.’s Form 10-K for the year ended December 31, 1994)
 
4
.2
 
Second Supplemental Indenture dated as of September 21, 1995 to Indenture dated September 23, 1994 between LTC Properties, Inc. and Harris Trust and Savings Bank, as trustee with respect to $51,500,000 in principal amount of 8.5% Convertible Subordinated Debentures due 2001 (incorporated by reference to Exhibit 10.17 to LTC Properties, Inc.’s Form 10-Q for the quarter ended September 30, 1995)
 
4
.3
 
Third Supplemental Indenture dated as of September 26, 1995 to Indenture dated September 23, 1994 between LTC Properties, Inc. and Harris Trust and Savings Bank, as trustee with respect to $10,000,000 in principal amount of 8.25% Convertible Subordinated Debentures due 1999 (incorporated by reference to Exhibit 10.19 to LTC Properties, Inc.’s Form 10-Q for the quarter ended September 30, 1995)
 
4
.4
 
Fourth Supplemental Indenture dated as of February 5, 1996 to Indenture dated September 23, 1994 between LTC Properties, Inc. and Harris Trust and Savings Bank, as trustee with respect to $30,000,000 in principal amount of 7.75% Convertible Subordinated Debentures due 2002 (incorporated by reference to Exhibit 4.6 to LTC Properties, Inc.’s Form 10-K for the year ended December 31, 1995)
 
4
.5
 
Fifth Supplemental Indenture dated as of August 23, 1996 to Indenture dated September 23, 1994 between LTC Properties, Inc. and Harris Trust and Savings Bank, as trustee with respect to $30,000,000 in principal amount of 8.25% Convertible Subordinated Debentures due 2001 (incorporated by reference to Exhibit 4.5 to LTC Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1998)
75
LTC PROPERTIES, INC.
INDEX TO EXHIBITS (ITEM 12(A))

  Exhibit
  NUMBER      DESCRIPTION
              -----------
 
        3.1   Amended and Restated Articles of Incorporation of LTC Properties, Inc. (incorporated by
              reference to Exhibit 3.1 to Pre-Effective Amendment No. 4 to LTC Properties, Inc.'s
              Registration Statement on Form S-11 filed on August 7, 1992 (File No. 33-48085)
        3.2   By-Laws of LTC Properties, Inc. (incorporated by reference to Exhibit 3.2 to LTC Properties,
              Inc.'s initial Registration Statement on Form S-11 filed on May 22, 1992 (File No. 33-48085)
        3.3   Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.1 to LTC
              Properties, Inc.'s form 10-Q for the quarter ended June 30, 1996)
        4.1   Indenture dated August 25, 1992 between LTC Properties, Inc. and Harris Trust and Savings Bank,
              as trustee with respect to 9.75% Convertible Subordinated Debentures due 2004 (incorporated by
              reference to Exhibit 4.1 to LTC Properties, Inc.'s Form 10-K for the year ended December 31,
              1992)
        4.2   Indenture dated September 23, 1994 between LTC Properties, Inc. and Harris Trust and Savings
              Bank, as trustee (incorporated by reference to Exhibit 4.2 to LTC Properties, Inc.'s Form 10-K
              for the year ended December 31, 1994)
        4.3   First Supplemental Indenture dated as of September 23, 1994 to Indenture dated September 23,
              1994 between LTC Properties, Inc. and Harris Trust and Savings Bank, as trustee with respect to
              $30,000,000 in principal amount of 8.5% Convertible Subordinated Debentures due 2000
              (incorporated by reference to Exhibit 4.3 to LTC Properties, Inc.'s Form 10-K for the year
              ended December 31, 1994)
        4.4   Second Supplemental Indenture dated as of September 21, 1995 to Indenture dated September 23,
              1994 between LTC Properties, Inc. and Harris Trust and Savings Bank, as trustee with respect to
              $51,500,000 in principal amount of 8.5% Convertible Subordinated Debentures due 2001
              (incorporated by reference to Exhibit 10.17 to LTC Properties, Inc.'s Form 10-Q for the quarter
              ended September 30, 1995)
        4.5   Third Supplemental Indenture dated as of September 26, 1995 to Indenture dated September 23,
              1994 between LTC Properties, Inc. and Harris Trust and Savings Bank, as trustee with respect to
              $10,000,000 in principal amount of 8.25% Convertible Subordinated Debentures due 1999
              (incorporated by reference to Exhibit 10.19 to LTC Properties, Inc.'s Form 10-Q for the quarter
              ended September 30, 1995)
        4.6   Fourth Supplemental Indenture dated as of February 5, 1996 to Indenture dated September 23,
              1994 between LTC Properties, Inc. and Harris Trust and Savings Bank, as trustee with respect to
              $30,000,000 in principal amount of 7.75% Convertible Subordinated Debentures due 2002
              (incorporated by reference to Exhibit 4.6 to LTC Properties, Inc.'s Form 10-K for the year
              ended December 31, 1995)
       10.1   Employment contract with Andre C. Dimitriadis (incorporated by reference to Exhibit 10.2 to
              Pre-Effective Amendment No. 4 to LTC Properties, Inc.'s Registration Statement on Form S-11
              filed on August 7, 1992 (File No. 33-48085)
       10.2   Employment contract with William McBride III (incorporated by reference to Exhibit 10.3 to
              Pre-Effective Amendment No. 4 to LTC Properties, Inc.'s Registration Statement on Form S-11
              filed on August 7, 1992 (File No. 33-48085)
       10.3   1992 Stock Option Plan (incorporated by reference to Exhibit 10.4 to Post-Effective Amendment
              No. 4 to LTC Properties, Inc.'s Registration Statement on Form S-11 filed on August 7, 1992
              (File No. 33-48085)
 

                                       63
— Continued
 
 
 
 
 
Exhibit
Number
Description
 
4
.6
 
Sixth Supplemental Indenture dated as of December 30, 1998 to Indenture dated September 23, 1994 between LTC Properties, Inc. and Harris Trust and Savings Bank, as trustee with respect to $10,000,000 in principal amount of 8.25% Convertible Subordinated Debentures due 1999 (incorporated by reference to Exhibit 4.6 to LTC Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1998)
 
4
.7
 
Seventh Supplemental Indenture dated as of January 14, 1999 to Indenture dated September 23, 1994 between LTC Properties, Inc. and Harris Trust and Savings Bank, as trustee with respect to $10,000,000 in principal amount of 8.25% Convertible Subordinated Debentures due 1999 (incorporated by reference to Exhibit 4.7 to LTC Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1998)
 
4
.8
 
Rights Agreement dated as of May 2, 2000 (incorporated by reference to Exhibit 4.1 to LTC Properties, Inc.’s Registration Statement on Form 8-A filed on May 9, 2000)
 
10
.1
 
Pooling and Servicing Agreement, dated as of July 20, 1993, among LTC REMIC Corporation, as depositor, Bankers Trust Company, as Master Servicer, LTC Properties, Inc., as Special Servicer and originator and Union Bank, as trustee (incorporated by reference to Exhibit 10.11 to LTC Properties, Inc.’s Form 10-K for the year ended December 31, 1994)
 
10
.2
 
Pooling and Servicing Agreement, dated as of November 1, 1994, among LTC REMIC Corporation, as depositor, Bankers Trust Company, as Master Servicer, LTC Properties, Inc., as Special Servicer and originator and Marine Midland Bank, as trustee (incorporated by reference to Exhibit 10.13 to LTC Properties, Inc.’s Form 10-K dated December 31, 1994)
 
10
.3
 
Amended Deferred Compensation Plan (incorporated by reference to Exhibit 10.17 to LTC Properties, Inc.’s Form 10-K for the year ended December 31, 1995)
 
10
.4
 
Pooling and Servicing Agreement dated as of March 1, 1996, among LTC REMIC Corporation, as depositor, GMAC Commercial Mortgage Corporation, as Master Servicer, LTC Properties, Inc., as Special Servicer and Originator, LaSalle National Bank, as Trustee and ABN AMRO Bank, N.V., as fiscal agent (incorporated by reference to Exhibit 10.1 to LTC Properties, Inc.’s Form 10-Q for the quarter ended March 31, 1996)
 
10
.5
 
Amended and Restated 1992 Stock Option Plan (incorporated by reference to Exhibit 10.22 to LTC Properties, Inc.’s Form 10-K for the year ended December 31, 1996)
 
10
.6
 
Subservicing Agreement dated as July 20, 1993 by and between Bankers Trust Company, as Master Servicer and LTC Properties, Inc., as Special Servicer (incorporated by reference to Exhibit 10.25 to LTC Properties, Inc.’s Form 10-K/A for the year ended December 31, 1996)
 
10
.7
 
Custodial Agreement dated as of July 20, 1993 by and among Union Bank, as Trustee, LTC REMIC Corporation, as Depositor, and Bankers Trust Company as Master Servicer and Custodian (incorporated by reference to Exhibit 10.26 to LTC Properties, Inc.’s Form 10-K/A for the year ended December 31, 1996)
 
10
.8
 
Form of Certificates as Exhibit as filed herewith to the Pooling and Servicing Agreement dated as of July 20, 1993 among LTC REMIC Corporation, as Depositor, Bankers Trust Company, as Master Servicer, LTC Properties, Inc. as Special Servicer and Originator and Union Bank as Trustee (incorporated by reference to Exhibit 10.11 to LTC Properties, Inc.’s Form 10-K for the year ended December 31, 1994)
 
10
.9
 
Form of Certificates, Form of Custodial Agreement and Form of Subservicing Agreement as Exhibits as filed herewith to the Pooling and Servicing Agreement dated as of November 1, 1994 among LTC REMIC Corporation, as Depositor, Bankers Trust Company, as Master Servicer, LTC Properties, Inc. as Special Servicer and Originator and Marine Midland Bank as Trustee (incorporated by reference to Exhibit 10.13 to LTC Properties, Inc.’s Form 10-K for the year ended December 31, 1994)
 
10
.10
 
Form of Certificates, Form of Custodial Agreement and Form of Subservicing Agreement as Exhibits as filed herewith to the Pooling and Servicing Agreement dated as of March 1, 1996 among LTC REMIC Corporation, as Depositor, GMAC Commercial Mortgage Corporation, as Master Servicer, LTC Properties, Inc. as Special Servicer and Originator and LaSalle National Bank as Trustee and ABN AMRO Bank N.V., as Fiscal Agent (incorporated by reference to Exhibit 10.1 to LTC Properties, Inc.’s Form 10-Q for the quarter ended March 31, 1996)
 
10
.11
 
Subservicing Agreement dated as of May 14, 1998, by and between GMAC Commercial Mortgage Corporation, as Master Servicer, LTC Properties, Inc. as Subservicer (incorporated by reference to Exhibit 10.3 to LTC Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998)
76
LTC PROPERTIES, INC.
INDEX TO EXHIBITS (CONTINUED)

 

  EXHIBIT
  NUMBER      DESCRIPTION
              -----------
  
       10.4   Master Repurchase Agreement dated May 14, 1993 between LTC Properties, Inc. and Goldman Sachs
              Mortgage Company (incorporated by reference to Exhibit 10.5 to LTC Properties, Inc.'s Form 10-Q
              for the quarter ended June 30, 1993)
       10.5   Purchase Agreement dated July 28, 1993 between LTC Properties, Inc., LTC REMIC Corporation and
              Goldman Sachs Mortgage Company (incorporated by reference to Exhibit 10.6 to LTC Properties,
              Inc.'s Form 10-Q for the quarter ended June 30, 1993)
       10.6   Master Repurchase Agreement dated December 15, 1993 between LTC Properties, Inc. and Goldman
              Sachs Mortgage Company (incorporated by reference to Exhibit 10.7 to LTC Properties, Inc.'s
              Form 10-K for the year ended December 31, 1994)
       10.7   Amended and Restated 1992 Stock Option Plan (incorporated by reference to Exhibit 10.8 to LTC
              Properties, Inc.'s Form 10-K for the year ended December 31, 1994)
       10.8   Revolving Credit Agreement dated as of January 18, 1995 among LTC Properties, Inc., the lenders
              named therein and Sanwa Bank California, as agent for such lenders (incorporated by reference
              to Exhibit 10.9 to LTC Properties, Inc.'s Form 10-K for the year ended December 31, 1994)
       10.9   Transfer and Repurchase Agreement, dated as of July 20, 1993, between LTC Properties, Inc. and
              LTC REMIC Corporation (incorporated by reference to Exhibit 10.10 to LTC Properties, Inc.'s
              Form 10-K for the year ended December 31, 1994)
      10.10   Pooling and Servicing Agreement, dated as of July 20, 1993, among LTC REMIC Corporation, as
              depositor, Bankers Trust Company, as master servicer, LTC Properties, Inc., as special servicer
              and originator and Union Bank, as trustee (incorporated by reference to Exhibit 10.11 to LTC
              Properties, Inc.'s Form 10-K for the year ended December 31, 1994)
      10.11   Transfer and Repurchase Agreement, dated as of November 1, 1994, between LTC Properties, Inc.
              and LTC REMIC Corporation (incorporated by reference to Exhibit 10.12 to LTC Properties, Inc.'s
              Form 10-K for the year ended December 31, 1994)
      10.12   Pooling and Servicing Agreement, dated as of November 1, 1994, among LTC REMIC Corporation, as
              depositor, Bankers Trust Company, as master servicer, LTC Properties, Inc., as special servicer
              and originator and Marine Midland Bank, as trustee (incorporated by reference to Exhibit 10.13
              to LTC Properties, Inc.'s Form 10-K dated December 31, 1994)
      10.13   Deferred Compensation Plan of LTC Properties, Inc. (incorporated by reference to Exhibit 10.14
              to LTC Properties, Inc.'s Form 10-Q for the quarter ended June 30, 1995)
      10.14   Swap Agreement by and between Goldman Sachs Capital Markets, L.P., Goldman Sachs Group, L.P.
              and LTC Properties, Inc. dated May 23, 1995 (incorporated by reference to Exhibit 10.15 to LTC
              Properties, Inc.'s Form 10-Q for the quarter ended June 30, 1995)
      10.15   Swap Agreement by and between Goldman Sachs Capital Markets, L.P., Goldman Sachs Group, L.P.
              and LTC Properties, Inc. dated September 12, 1995 (incorporated by reference to Exhibit 10.16
              to LTC Properties, Inc.'s Form 10-Q for the quarter ended September 30, 1995)
      10.16   Amended and Restated Revolving Credit Agreement dated as of October 17, 1995 among LTC
              Properties, Inc., the lenders named therein and Sanwa Bank California, as agent for such
              lenders (incorporated by reference to Exhibit 10.19 to LTC Properties, Inc.'s Form 10-Q for the
              quarter ended September 30, 1995)
      10.17   Amended Deferred Compensation Plan (incorporated by reference to Exhibit 10.17 to LTC
              Properties, Inc.'s Form 10-K for the year ended December 31, 1995)
 

                                       64
— Continued
 
 
 
 
 
Exhibit
Number
Description
 
10
.12
 
Pooling and Servicing Agreement dated as of April 20, 1998 among LTC REMIC IV Corporation, LaSalle National Bank and LTC Properties, Inc. (incorporated by reference to Exhibit 10.4 to LTC Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998)
 
10
.13
 
Distribution Agreement, dated as of September 30, 1998, by and between LTC Properties, Inc. and LTC Healthcare, Inc. (incorporated by reference to Exhibit 10.5 to LTC Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998)
 
10
.14
 
Intercompany Agreement, dated as of September 30, 1998, by and between LTC Properties, Inc. and LTC Healthcare, Inc. (incorporated by reference to Exhibit 10.7 to LTC Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998)
 
10
.15
 
Tax Sharing Agreement, dated as of September 30, 1998, by and between LTC Properties, Inc. and LTC Healthcare, Inc. (incorporated by reference to Exhibit 10.8 to LTC Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998)
 
10
.16
 
LTC Properties, Inc. 1998 Equity Participation Plan (incorporated by reference to Exhibit 10.28 to LTC Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1998)
 
10
.17
 
Second Amended and Restated Employment Agreement between Andre C. Dimitriadis and LTC Properties, Inc. dated March 26, 1999 (incorporated by reference to Exhibit 10.28 to LTC Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1998), as amended by Amendment No. 1 thereto dated June 23, 2000
 
10
.18
 
Amended and Restated Employment Agreement between James J. Pieczynski and LTC Properties, Inc. dated March 26, 1999 (incorporated by reference to Exhibit 10.28 to LTC Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1998), as superceded by Separation Agreement effective July 1, 2000
 
10
.19
 
Amended and Restated Employment Agreement between Christopher T. Ishikawa and LTC Properties, Inc. dated March 26, 1999 (incorporated by reference to Exhibit 10.28 to LTC Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1998), as amended by Amendment No. 1 thereto dated June 23, 2000
 
10
.20
 
Amended and Restated Employment Agreement between Julia L. Kopta and LTC Properties, Inc. dated January 1, 2000 (incorporated by reference to Exhibit 10.33 to LTC Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1999), as amended by Amendment No. 1 thereto dated June 23, 2000
 
10
.21
 
Amended and Restated Employment Agreement between Wendy L. Simpson and LTC Properties, Inc. dated April 10, 2000, as amended by Amendment No. 1 thereto dated June 23, 2000 (incorporated by reference to Exhibit 10.22 to LTC Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2000)
 
10
.22
 
Promissory Note dated January 1, 2000, executed by Andre C. Dimitriadis in favor of LTC Properties, Inc. (incorporated by reference to Exhibit 10.23 to LTC Properties, Inc.’s Annual Report on Form 10-K for the
 
10
.23
 
year ended December 31, 2000) Promissory Note dated January 1, 2000, executed by James J. Pieczynski in favor of LTC Properties, Inc. (incorporated by reference to Exhibit 10.24 to LTC Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2000)
 
10
.24
 
Promissory Note dated January 1, 2000, executed by Wendy L. Simpson in favor of LTC Properties, Inc. (incorporated by reference to Exhibit 10.25 to LTC Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2000)
 
10
.25
 
Promissory Note dated January 1, 2000, executed by Christopher T. Ishikawa in favor of LTC Properties, Inc. (incorporated by reference to Exhibit 10.26 to LTC Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2000)
 
10
.26
 
Promissory Note dated January 1, 2000, executed by Edmund C. King in favor of LTC Properties, Inc. (incorporated by reference to Exhibit 10.27 to LTC Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2000)
 
10
.27
 
Promissory Note dated January 1, 2000, executed by Sam Yellen in favor of LTC Properties, Inc. (incorporated by reference to Exhibit 10.28 to LTC Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2000)
77
LTC PROPERTIES, INC.
INDEX TO EXHIBITS (CONTINUED)

 

  EXHIBIT
  NUMBER      DESCRIPTION
              -----------
 
      10.18   Pooling and Servicing Agreement dated as of March 1, 1996, among LTC REMIC Corporation, as
              depositor, GMAC Commercial Mortgage Corporation, as Master Servicer, LTC Properties, Inc., as
              Special Servicer and Originator, LaSalle National Bank, as Trustee and ABN AMRO Bank, N.V., as
              fiscal agent (incorporated by reference to Exhibit 10.1 to LTC Properties, Inc.'s Form 10-Q for
              the quarter ended March 31, 1996)
      10.19   Transfer and Repurchase Agreement by and between LTC Properties, Inc. and LTC REMIC Corporation
              dated as of March 1, 1996 (incorporated by reference to Exhibit 10.2 to LTC Properties, Inc.'s
              Form 10-Q for the quarter ended March 31, 1996)
      10.20   Second Amended and Restated Revolving Credit Agreement between LTC Properties, Inc. and Sanwa
              Bank California, as agent, dated as of May 21, 1996 (incorporated by reference to Exhibit 10.1
              to LTC Properties, Inc.'s Form 10-Q for the quarter ended June 30, 1996)
      10.21   Guarantee Agreement between Kansas-LTC Corporation, L-Tex GP, Inc., and L-Tex LP, Inc.,
              Rusk-Tex, LP, Inc., Texas-LTC Limited Partnership, as guarantors, and Sanwa Bank California, as
              the agent, dated as of May 21, 1996 (incorporated by reference to LTC Properties, Inc.'s Form
              10-Q for the quarter ended June 30, 1996)
      10.22   Amended and Restated 1992 Stock Option Plan (incorporated by reference to Exhibit 10.22 to LTC 
              Properties, Inc.'s Form 10-K for the year ended December 31, 1996)
      10.23   Swap Agreement by and between Goldman Sachs Capital Markets, L.P., Goldman Sachs Group, L.P. and 
              LTC Properties, Inc. dated November 15, 1996 (incorporated by reference to Exhibit 10.23 to LTC 
              Properties, Inc.'s Form 10-K for the year ended December 31, 1996)
      10.24   Swap Agreement by and between Goldman Sachs Capital Markets, L.P., Goldman Sachs Group, L.P. and 
              LTC Properties, Inc. dated February 11, 1997 (incorporated by reference to Exhibit 10.24 to LTC 
              Properties, Inc.'s Form 10-K for the year ended December 31, 1996)
      10.25   Subservicing Agreement dated as July 20, 1993 by and between Bankers Trust Company, as Master
              Servicer and LTC Properties, Inc., as Special Servicer as filed herewith
      10.26   Custodial Agreement dated as of July 20, 1993 by and among Union Bank, as Trustee, LTC REMIC 
              Corporation, as Depositor, and Bankers Trust Company as Master Servicer and Custodian as filed herewith
      10.27   Form of Certificates as Exhibit as filed herewith to the Pooling and Servicing Agreement dated as of July 20, 
              1993 among LTC REMIC Corporation, as Depositor, Bankers Trust Company, as Master Servicer, 
              LTC Properties, Inc. as Special Servicer and Originator and Union Bank as Trustee 
              (incorporated by reference to Exhibit 10.11 to LTC Properties, Inc.'s Form 10-K for the year
              ended December 31, 1994)
      10.28   Purchase Agreement dated November 16, 1994 between LTC REMIC Corporation, LTC Properties, Inc. and 
              Goldman Sachs & Co. as filed herewith
      10.29   Form of Certificates, Form of Custodial Agreement and Form of Subservicing Agreement as
              Exhibits as filed herewith to the Pooling and Servicing Agreement dated as of November 1, 1994 among LTC
              REMIC Corporation, as Depositor, Bankers Trust Company, as Master Servicer, LTC Properties, Inc.
              as Special Servicer and Originator and Marine Midland Bank as Trustee (incorporated by reference
              to Exhibit 10.13 to LTC Properties, Inc.'s Form 10-K for the year ended December 31, 1994)
      10.30   Purchase Agreement dated March 27, 1996 between LTC REMIC Corporation, LTC Properties, Inc.
              and Goldman Sachs & Co. as filed herewith
      10.31   Form of Certificates, Form of Custodial Agreement and Form of Subservicing Agreement as Exhibits as filed 
              herewith to the Pooling and Servicing Agreement dated as of March 1, 1996 among LTC REMIC Corporation, as 
              Depositor, GMAC Commercial Mortgage Corporation, as Master Servicer, LTC Properties, Inc. as Special 
              Servicer and Originator and LaSalle National Bank as Trustee and ABN AMRO Bank N.V., as Fiscal Agent 
              (incorporated by reference to Exhibit 10.1 to LTC Properties, Inc.'s Form 10-Q for the quarter ended 
              March 31, 1996)
       11.1   Computation of Net Income Per Share for the years ended December 31, 1996, 1995 and 1994 as
              filed herewith
       21.1   List of Subsidiaries as filed herewith
       23.1   Consent of Ernst & Young LLP with respect to the financial information of the Company as filed
              herewith
         27   Financial Schedules as filed herewith


                                       65
— Continued
 
 
 
 
 
Exhibit
Number
Description
 
10
.28
 
Senior Secured Revolving Credit Agreement dated October 31, 2000 (incorporated by reference to Exhibit 10.29 to LTC Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2000)
 
10
.29
 
First Amendment to Revolving Credit Agreement dated March 23, 2001 (incorporated by reference to Exhibit 10 to LTC Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001)
 
10
.30
 
Second Amendment to Revolving Credit Agreement dated May 29, 2001 (incorporated by reference to Exhibit 10.1 to LTC Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001)
 
10
.31
 
Secured Term Loan with Heller Healthcare Financial, Inc. dated June 29, 2001 (incorporated by reference to Exhibit 10.2 to LTC Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001)
 
10
.32
 
Second Amended and Restated Promissory Note with LTC Healthcare, Inc. dated June 8, 2001 (incorporated by reference to Exhibit 10.3 to LTC Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001)
 
10
.33
 
Security Agreement with LTC Healthcare, Inc. dated June 8, 2001 (incorporated by reference to Exhibit 10.4 to LTC Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001)
 
10
.34
 
Form of Individual Indemnity Agreements between LTC Properties and Andre Dimitriadis; Christopher Ishikawa; Julia Kopta; Wendy Simpson; Bary Bailey and Steven Stuart dated March 18, 2001 (incorporated by reference to Exhibit 10.34 to LTC Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2001)
 
10
.35
 
Employment Agreement between Alex J. Chavez and LTC Properties, Inc. dated September 4, 2001 (incorporated by reference to Exhibit 10.35 to LTC Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2001)
 
10
.36
 
Promissory Note between LTC Properties, Inc. and Healthcare Holdings, Inc. dated December 31, 2001 (incorporated by reference to Exhibit 10.36 to LTC Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2001)
 
10
.37
 
Security Agreement between LTC Properties, Inc. and Healthcare Holdings, Inc. dated December 31, 2001 (incorporated by reference to Exhibit 10.37 to LTC Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2001)
 
10
.38
 
Promissory Note dated January 30, 2002 between LTC Properties, Inc. and LTC-Fort Tucum, Inc. (incorporated by reference to Exhibit 10.1 to LTC Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002)
 
10
.39
 
Security Agreement dated January 30, 2002 between LTC Properties, Inc. and LTC-Fort Tucum, Inc. (incorporated by reference to Exhibit 10.2 to LTC Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002)
 
10
.40
 
Stock Purchase Agreement dated January 30, 2002 between LTC Properties, Inc. and LTC-Fort Tucum, Inc. (incorporated by reference to Exhibit 10.3 to LTC Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002)
 
10
.41
 
First Amendment to Second Amended and Restated Promissory Note dated October 1, 2002 between LTC Properties, Inc. and CLC Healthcare, Inc. (incorporated by reference to Exhibit 10.1 to LTC Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002)
 
10
.42
 
Purchases, Warranties, Participation and Servicing Agreement dated August 1, 2002 between Beal Bank, SSB and LTC BBCO, Inc. (incorporated by reference to Exhibit 10.2 to LTC Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002)
 
10
.43
 
Severance Agreement between LTC Properties, Inc. and Julia Kopta dated April 1, 2003 (incorporated by reference to Exhibit 10.1 to LTC Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003)
 
10
.44
 
Amended and Restated Promissory Note between LTC Properties, Inc. and Healthcare Holdings, Inc. dated July 9, 2003 (incorporated by reference to Exhibit 10.1 to LTC Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003)
78
LTC PROPERTIES, INC.
INDEX TO EXHIBITS — Continued
 
 
 
 
 
Exhibit
Number
Description
 
10
.45
 
Amended and Restated Security Agreement between LTC Properties, Inc. and Healthcare Holdings, Inc. dated July 9, 2003 (incorporated by reference to Exhibit 10.2 to LTC Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003)
 
10
.46
 
Second Amendment to Second Amended and Restated Promissory Note between LTC Properties, Inc. and CLC Healthcare, Inc. dated September 30, 2003 (incorporated by reference to Exhibit 10.1 to LTC Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
 
10
.47
 
Credit Agreement dated as of December 26, 2003 among LTC Properties, Inc. and Bank of Montreal, Chicago Branch, as Administrative Agent, Harris Nesbitt Corp. as Co-Lead Arranger and Book Manager and Key Corporate Capital, Inc. as Co-Lead Arranger and Syndication Agent (incorporated by reference to Exhibit 10.1 to LTC Properties, Inc.’s Current Report on Form 8-K dated January 26, 2004)
 
21
.1
 
List of subsidiaries
 
23
.1
 
Consent of Ernst & Young LLP with respect to the financial information of the Company
 
31
.1
 
Certification of the Chief Executive Officer of LTC Properties, Inc. pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
 
31
.2
 
Certification of the Chief Financial Officer of LTC Properties, Inc. pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
 
32
 
 
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to the Sarbanes-Oxley Act of 2002 (furnished herewith).
79
LTC PROPERTIES, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

                              LTC Properties, Inc.
                              Registrant



LTC Properties, Inc.
Registrant
Dated: December 6, 1997         By:   /s/ JAMES J. PIECZYNSKI
                                      ---------------------------
                                      JAMES J. PIECZYNSKI
                                      President and Chief Financial March 12, 2004
By: 
/s/ WENDY L. SIMPSON
WENDY L. SIMPSON
Vice Chairman, Chief Financial
Officer and Director
   
/s/
/s/ ANDRE C. DIMITRIADIS
ANDRE C. DIMITRIADIS
Chairman of the Board, Chief Executive December 6, 1997  
- ----------------------------------------                   Officer and Director          
 ANDRE C. DIMITRIADIS
 
/s/ NEAL M. ELLIOTT
March 12, 2004
/s/ WENDY L. SIMPSON
WENDY L. SIMPSON
Vice Chairman, Chief Financial Officer
and Director                     December 6, 1997
- ----------------------------------------
 NEAL M. ELLIOTT
 
/s/
March 12, 2004
/s/ EDMUND C. KING
- ----------------------------------------

EDMUND C. KING
Director                     December 6, 1997
 
 /s/ WENDY L. SIMPSON
- ----------------------------------------
WENDY L. SIMPSON                                            
March 12, 2004
/s/ TIMOTHY J. TRICHE
TIMOTHY TRICHE
Director                     December 6, 1997
 
 /s/
March 12, 2004
/s/ SAM YELLEN
- ----------------------------------------

SAM YELLEN
Director                     December 6, 1997
March 12, 2004


                                       66