UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2018~~2019

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition period from ____ to ____

Commission file number 1-11314

LTC PROPERTIES, INC.

(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.)

2829 Townsgate Road, Suite 350

Westlake Village, California 91361

(Address of principal executive offices, including zip code)

(805) 981-8655

(Registrant’s telephone number, including area code)

Indicate by check mark whether registrant (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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☑	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ☐	Emerging growth company ☐
		(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, $.01 par value	LTC	New York Stock Exchange

The number of shares of common stock outstanding on May ~~4, 2018~~2, 2019 was ~~39,628,835.~~

39,738,695.

Table of Contents

LTC PROPERTIES, INC.

FORM 10-Q

March 31, ~~2018~~2019

INDEX


PART I -- Financial Information		Page

Item 1.	Financial Statements
	Consolidated Balance Sheets	3
	Consolidated Statements of Income and Comprehensive Income	4
	Consolidated Statements of Equity	5
	Consolidated Statements of Cash Flows	56
	Notes to Consolidated Financial Statements	67
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2025
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3240
Item 4.	Controls and Procedures	3240
PART II -- Other Information

Item 1.	Legal Proceedings	3341
Item 1A.	Risk Factors	3341
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3341
Item 6.	Exhibits	3442

Table of Contents

LTC PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except per share)



	March 31, 2018		December 31, 2017		March 31, 2019		December 31, 2018
	(unaudited)		(audited)		(unaudited)		(audited)
ASSETS
Investments:
Land	$	121,496	$	124,041	$	125,898	$	125,358
Buildings and improvements		1,236,605		1,262,335		1,313,952		1,290,352
Accumulated depreciation and amortization		(292,222)		(304,117)		(322,535)		(312,959)
Operating real estate property, net		1,065,879		1,082,259		1,117,315		1,102,751
Properties held-for-sale, net of accumulated depreciation: 2018—$23,223; 2017—$1,916		20,182		3,830
Properties held-for-sale, net of accumulated depreciation: 2019—$1,916; 2018—$1,916						3,830		3,830
Real property investments, net		1,086,061		1,086,089		1,121,145		1,106,581

Mortgage loans receivable, net of loan loss reserve: 2018—$2,351; 2017—$2,255		233,383		223,907
Mortgage loans receivable, net of loan loss reserve: 2019—$2,461; 2018—$2,447						244,314		242,939
Real estate investments, net		1,319,444		1,309,996		1,365,459		1,349,520
Notes receivable, net of loan loss reserve: 2018—$166; 2017—$166		16,402		16,402
Notes receivable, net of loan loss reserve: 2019—$198; 2018—$128						19,558		12,715
Investments in unconsolidated joint ventures		30,289		29,898		27,515		30,615
Investments, net		1,366,135		1,356,296		1,412,532		1,392,850

Other assets:
Cash and cash equivalents		3,784		5,213		6,715		2,656
Restricted cash						2,108		2,108
Debt issue costs related to bank borrowings		540		810		2,775		2,989
Interest receivable		16,456		15,050		22,176		20,732
Straight-line rent receivable, net of allowance for doubtful accounts: 2018—$726; 2017—$814		68,017		64,490
Straight-line rent receivable, net of allowance for doubtful accounts: 2019—$0; 2018—$746						42,455		73,857
Lease incentives		21,321		21,481		2,263		14,443
Prepaid expenses and other assets		2,877		2,230		5,342		3,985
Total assets	$	1,479,130	$	1,465,570	$	1,496,366	$	1,513,620
LIABILITIES
Bank borrowings	$	120,500	$	96,500	$	146,900	$	112,000
Senior unsecured notes, net of debt issue costs: 2018—$1,079; 2017—$1,131		566,888		571,002
Senior unsecured notes, net of debt issue costs: 2019—$900; 2018—$938						528,900		533,029
Accrued interest		4,114		5,276		4,193		4,180
Accrued incentives and earn-outs		9,041		8,916
Accrued expenses and other liabilities		21,724		25,228		28,220		31,440
Total liabilities		722,267		706,922		708,213		680,649
EQUITY
Stockholders’ equity:
Common stock: $0.01 par value; 60,000 shares authorized; shares issued and outstanding: 2018—39,629; 2017—39,570		396		396
Common stock: $0.01 par value; 60,000 shares authorized; shares issued and outstanding: 2019—39,739; 2018—39,657						397		397
Capital in excess of par value		857,426		856,992		862,376		862,712
Cumulative net income		1,121,142		1,100,783		1,233,302		1,255,764
Cumulative distributions		(1,225,589)		(1,203,011)		(1,316,314)		(1,293,383)
Total LTC Properties, Inc. stockholders’ equity		753,375		755,160		779,761		825,490
Non-controlling interests		3,488		3,488		8,392		7,481
Total equity		756,863		758,648		788,153		832,971
Total liabilities and equity	$	1,479,130	$	1,465,570	$	1,496,366	$	1,513,620

See accompanying notes.

Table of Contents

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(amounts in thousands, except per share, unaudited)


	Three Months Ended				Three Months Ended
	March 31,				March 31,
	2018		2017		2019		2018
Revenues:
Rental income	$	34,505	$	35,035	$	28,024	$	34,505
Interest income from mortgage loans		6,816		6,748		7,311		6,816
Interest and other income		489		839		521		489
Total revenues		41,810		42,622		35,856		41,810
Expenses:
Recovery of written-off straight-line rent receivable						(9,600)		—
Interest expense		7,829		7,471		7,467		7,829
Depreciation and amortization		9,444		9,359		9,607		9,444
Provision (recovery) for doubtful accounts		8		(38)
Provision for doubtful accounts						83		8
Transaction costs		4		22		—		4
Property tax expense						4,386		—
General and administrative expenses		4,797		4,740		4,571		4,797
Total expenses		22,082		21,554		16,514		22,082
Operating income		19,728		21,068		19,342		19,728
Income from unconsolidated joint ventures		631		445		1,085		631
Net income		20,359		21,513		20,427		20,359
Income allocated to non-controlling interests						(81)		—
Net income attributable to LTC Properties, Inc.						20,346		20,359
Income allocated to participating securities		(88)		(97)		(92)		(88)
Net income available to common stockholders	$	20,271	$	21,416	$	20,254	$	20,271

Earnings per common share:
Basic	$	0.51	$	0.54	$	0.51	$	0.51
Diluted	$	0.51	$	0.54	$	0.51	$	0.51

Weighted average shares used to calculate earnings per common share:
Basic		39,451		39,366		39,532		39,451
Diluted		39,454		39,612		39,874		39,454

Dividends declared and paid per common share	$	0.57	$	0.57	$	0.57	$	0.57

Comprehensive Income:
Net income	$	20,359	$	21,513	$	20,427	$	20,359
Comprehensive income	$	20,359	$	21,513	$	20,427	$	20,359

See accompanying notes.

Table of Contents

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)


					Capital in		Cumulative				Total		Non-
	Common Stock				Excess of		Net		Cumulative		Stockholder's		Controlling		Total
	Shares		Amount		Par Value		Income		Distributions		Equity		Interests		Equity
Balance—December 31, 2017	39,570	$	396	$	856,992	$	1,100,783	$	(1,203,011)	$	755,160	$	3,488	$	758,648
Common Stock cash distributions ($0.57 per share)	—		—		—		—		(22,578)		(22,578)		—		(22,578)
Issuance of restricted stock	82		—		—		—		—		—		—		—
Stock option exercises	5		—		123		—		—		123		—		123
Stock-based compensation expense	—		—		1,376		—		—		1,376		—		1,376
Net income	—		—		—		20,359		—		20,359		—		20,359
Other	(28)		—		(1,065)		—		—		(1,065)		—		(1,065)
Balance—March 31, 2018	39,629	$	396	$	857,426	$	1,121,142	$	(1,225,589)	$	753,375	$	3,488	$	756,863
Common Stock cash distributions ($0.57 per share)	—		—		—		—		(22,590)		(22,590)		—		(22,590)
Issuance of restricted stock	9		—		(8)		—		—		(8)		—		(8)
Stock-based compensation expense	—		—		1,521		—		—		1,521		—		1,521
Net income	—		—		—		68,936		—		68,936		—		68,936
Non-controlling interest contributions	—		—		—		—		—		—		1,081		1,081
Other	(3)		—		(107)		—		—		(107)		—		(107)
Balance—June 30, 2018	39,635	$	396	$	858,832	$	1,190,078	$	(1,248,179)	$	801,127	$	4,569	$	805,696
Common Stock cash distributions ($0.57 per share)	—		—		—		—		(22,600)		(22,600)		—		(22,600)
Proceeds from common stock issued, net of issuance costs	22		1		928		—		—		929		—		929
Stock-based compensation expense	—		—		1,487		—		—		1,487		—		1,487
Net income	—		—		—		34,920		—		34,920		17		34,937
Non-controlling interest contributions	—		—		—		—		—		—		2,882		2,882
Non-controlling interest distributions	—		—		—		—		—		—		(17)		(17)
Other	—		—		(21)		—		—		(21)		—		(21)
Balance—September 30, 2018	39,657	$	397	$	861,226	$	1,224,998	$	(1,270,779)	$	815,842	$	7,451	$	823,293
Common Stock cash distributions ($0.57 per share)	—		—		—		—		(22,604)		(22,604)		—		(22,604)
Stock-based compensation expense	—		—		1,486		—		—		1,486		—		1,486
Net income	—		—		—		30,766		—		30,766		78		30,844
Non-controlling interest distributions	—		—		—		—		—		—		(48)		(48)
Balance—December 31, 2018	39,657	$	397	$	862,712	$	1,255,764	$	(1,293,383)	$	825,490	$	7,481	$	832,971
Cumulative effect of the adoption of the ASC 842	—		—		—		(42,808)		—		(42,808)		—		(42,808)
As Adjusted Balance at January 1, 2019	39,657	$	397	$	862,712	$	1,212,956	$	(1,293,383)	$	782,682	$	7,481	$	790,163
Common Stock cash distributions ($0.57 per share)	48		—		—		—		(22,931)		(22,931)		—		(22,931)
Issuance of restricted stock	78				(1)						(1)				(1)
Stock-based compensation expense	—		—		1,689		—		—		1,689		—		1,689
Net income	—		—		—		20,346		—		20,346		81		20,427
Non-controlling interest contributions	—		—		—		—		—		—		919		919
Non-controlling interest distributions	—		—		—		—		—		—		(89)		(89)
Other	(44)		—		(2,024)		—		—		(2,024)		—		(2,024)
Balance—March 31, 2019	39,739	$	397	$	862,376	$	1,233,302	$	(1,316,314)	$	779,761	$	8,392	$	788,153

Table of Contents

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands, unaudited)


	Three Months Ended March 31,				Three Months Ended March 31,
	2018		2017		2019		2018
OPERATING ACTIVITIES:
Net income	$	20,359	$	21,513	$	20,427	$	20,359
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,444		9,359		9,607		9,444
Stock-based compensation expense		1,376		1,259		1,689		1,376
Income from unconsolidated joint ventures		(631)		(445)		(1,085)		(631)
Income distributions from unconsolidated joint ventures		543		356		1,105		543
Straight-line rental income		(3,440)		(2,867)		(1,238)		(3,440)
Lease incentives funding		(380)		(3,441)
Adjustment for collectibility						1,926		—
Lease incentives funded						—		(380)
Amortization of lease incentives		540		527		87		540
Provision for doubtful accounts		8		(38)		83		8
Non-cash interest related to contingent liabilities		126		226		—		126
Other non-cash items, net		323		314		252		323
Increase in interest receivable		(1,406)		(1,185)		(1,444)		(1,406)
Decrease in accrued interest payable		(1,162)		(416)
Increase (decrease) in accrued interest payable						13		(1,162)
Net change in other assets and liabilities		(4,107)		(4,112)		(4,635)		(4,107)
Net cash provided by operating activities		21,593		21,050		26,787		21,593
INVESTING ACTIVITIES:
Investment in real estate properties						(15,971)		—
Investment in real estate developments		(8,591)		(3,443)		(6,957)		(8,591)
Investment in real estate capital improvements		(534)		(742)		(259)		(534)
Capitalized interest		(259)		(170)		(260)		(259)
Proceeds from sale of real estate, net						225		—
Investment in real estate mortgage loans receivable		(9,610)		(4,384)		(1,454)		(9,610)
Principal payments received on mortgage loans receivable		37		10,958		65		37
Investments in unconsolidated joint ventures		(380)		(914)		(293)		(380)
Payment of working capital reserve		—		(439)
Proceeds from payoff of joint venture agreements						3,400		—
Advances and originations under notes receivable						(6,953)		—
Principal payments received on notes receivable		—		25		41		—
Net cash (used in) provided by investing activities		(19,337)		891
Net cash used in investing activities						(28,416)		(19,337)
FINANCING ACTIVITIES:
Bank borrowings		24,000		3,500		36,900		24,000
Repayment of bank borrowings		—		(110,600)		(2,000)		—
Proceeds from issuance of senior unsecured notes		—		100,000
Principal payments on senior unsecured notes		(4,166)		(4,167)		(4,167)		(4,166)
Proceeds from common stock issued		—		14,578
Stock option exercises		123		—		—		123
Distributions paid to stockholders		(22,578)		(22,552)		(22,931)		(22,578)
Financing costs paid		—		(301)
Distributions paid to non-controlling interests						(90)		—
Other		(1,064)		(1,658)		(2,024)		(1,064)
Net cash used in financing activities		(3,685)		(21,200)
(Decrease) increase in cash and cash equivalents		(1,429)		741
Cash and cash equivalents, beginning of period		5,213		7,991
Cash and cash equivalents, end of period	$	3,784	$	8,732
Net cash provided by (used in) financing activities						5,688		(3,685)
Increase (decrease) in cash, cash equivalents and restricted cash						4,059		(1,429)
Cash, cash equivalents and restricted cash, beginning of period						4,764		5,213
Cash, cash equivalents and restricted cash, end of period					$	8,823	$	3,784

Supplemental disclosure of cash flow information:
Interest paid	$	8,669	$	7,574	$	7,202	$	8,669
Non-cash investing and financing transactions:
Right of use asset					$	1,445	$	—
Lease liability					$	1,445	$	—
Contribution from non-controlling interests					$	919	$	—

See accompanying notes.

~~Table of Contents~~

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~CONTINUED~~

(Unaudited)

1.General

LTC Properties, Inc., a health care real estate investment trust ~~(or REIT)~~(“REIT”), was incorporated on May 12, 1992 in the State of Maryland and commenced operations on August 25, 1992. We invest primarily in seniors housing and health care properties primarily through sale-leaseback transactions, mortgage financing and structured finance solutions including mezzanine lending. We conduct and manage our business as one operating segment, rather than multiple operating segments, for internal reporting and internal ~~decision making~~decision-making purposes. Our primary objectives are to create, sustain and enhance stockholder equity value and provide current income for distribution to stockholders through real estate investments in seniors housing and health care properties managed by experienced operators. Our primary seniors housing and health care property classifications include skilled nursing centers ~~(or SNF)~~(“SNF”), assisted living communities ~~(or ALF)~~(“ALF”), independent living communities ~~(or ILF)~~(“ILF”), memory care communities ~~(or MC)~~(“MC”) and combinations thereof. To meet these objectives, we attempt to invest in properties that provide opportunity for additional value and current returns to our stockholders and diversify our investment portfolio by geographic location, operator, property classification and form of investment.

We have prepared consolidated financial statements included herein without audit and in the opinion of management have included all adjustments necessary for a fair presentation of the consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission ~~(or SEC)~~(“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ~~(or GAAP)~~(“GAAP”) have been condensed or omitted pursuant to rules and regulations governing the presentation of interim financial statements. The accompanying consolidated financial statements include the accounts of our company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 are not necessarily indicative of the results for a full year.

No provision has been made for federal or state income taxes. Our company qualifies as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. As such, we generally are not taxed on income that is distributed to our stockholders.

~~New Accounting Pronouncements~~

~~In May 2014,~~Restricted Cash. During the ~~Financial Accounting Standards Board (or FASB) issued Accounting Standards Update (or ASU) 2014-09,~~ ~~Revenue from Contracts with Customers, which outlines~~third quarter of 2017, a ~~comprehensive model~~170-bed skilled nursing center in our portfolio was evacuated due to damages caused by Hurricane Harvey. This property is located in Texas and operated under a triple net master lease agreement. We periodically evaluate properties for ~~entities to use~~impairment when events or changes in ~~accounting for revenue arising from contracts with customers. ASU 2014-09 states~~circumstances indicate that “~~an entity recognizes revenue to depict~~ the ~~transfer of promised goods~~asset may be impaired or ~~services to customers in an~~the carrying amount ~~that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.”~~ While this ASU specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate. Additionally, the FASB has issued targeted updates to clarify specific implementation issues of ASU 2014-09. These updates include ~~ASU 2016-08,~~ ~~Principal versus Agent Considerations (Reporting Revenue Gross versus Net),~~ ~~ASU 2016-10,~~ ~~Identifying Performance Obligations and Licensing,~~ ~~and ASU 2016-12,~~ ~~Narrow-Scope Improvements and Practical Expedients.~~ ~~The new standard and its amendments are effective on January 1, 2018, and permit reporting entities to apply the standard using~~ ~~either a modified retrospective approach, by recording a cumulative-effect adjustment to equity as~~ of the ~~beginning~~asset may not be recoverable through future undiscounted cash flows. Based upon a quarterly assessment of this property using the recoverability test, we concluded the property has not been impaired.

As of March 31, 2019, the gross value and the carrying value of the ~~fiscal year~~property were $1,796,000 and $896,000 respectively.

The provisions of ~~adoption or~~our triple net lease agreements impose certain obligations on our operators including:

Acquire property insurance, subject to certain criteria;

Continue paying rent in the event of any property damage or destruction; and

Return the leased property back to us at the end of the lease term, in the same condition originally received.

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

~~full retrospective approach~~. ~~We have assessed~~

During the second quarter of 2018, our ~~revenue streams~~operator provided us with insurance proceeds of $2,619,000 to ~~identify any differences~~be used for remediation of the property as noted in ~~the timing, measurement or presentation of revenue recognition. We have evaluated~~ the provisions of ASU 2014-09 and its related updates and closely monitored developments and additional guidance to determine the potential impact of the new standard. We have concluded that adoption of this standard does not have an impact on our results of operations or financial condition, as our revenue consists of rental income from leasing arrangements and interest income from loan arrangements, both of which are specifically excluded from ASU 2014-09. We adopted this standard using the modified retrospective adoption method on January 1, 2018.

~~In February 2016, the FASB issued ASU No. 2016-02 (or ASU 2016-02),~~ ~~Leases (Topic 842)~~. The objective of this ASU is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. ASU 2016-02 modifies existing guidance by requiring lessees to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance of operating leases.~~ASU 2016-02 requires the lessors to identify lease and non-lease components of a~~master lease agreement. ~~ASU 2016-02 will govern~~Accordingly, we have classified the recognition of revenue for lease components. Revenue related to non-lease components under lease agreements will be subject to the revenue recognition standard, upon adoption of this ASU. Entities are required to use a modified retrospective approach for leases that exist or are entered into after January 1, 2017, the beginning of the earliest comparative period presented in the 2019 consolidated financial statements with a cumulative adjustment to the opening balance of retained earnings. In January 2018, the FASB proposed to amend ASU 2016-02 allowing the lessors,insurance proceeds as a practical expedient, an election to not separate the non-lease components from the related lease components and instead, to account for those components as a single lease component (if certain criteria are met). The practical expedient option is available as a single election that must be consistently applied to all existing leases at the date of adoption. Furthermore, in March 2018, the FASB agreed to issue an amendment to ASU 2016-02 that would provide an entity the optional transition method to make January 1, 2019, the initial application date of the ASU, rather than January 1, 2017. Consequently, entities that elect both the practical expedient and the optional transitional method will apply the new lease ASU prospectively to leases commencing or modified after January 1, 2019, and will not be required to apply the disclosures under the new lease ASU to comparative periods.

Consistent with present standards, we will continue to account for lease revenue on a straight-line basis when applicable. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We have begun our process for implementing this guidance, including identifying any non-lease components in our lease arrangements. We will continue to evaluate this guidance and the impact to us, as both lessor and lessee,restricted cash on our consolidated financial statements.

New Accounting Pronouncements

New Accounting Standards Adopted by Our Company

In August 2016, ~~FASB~~the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-15 ~~(or~~ (“ASU ~~2016-15)~~2016-15”), Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (A Consensus of the Emerging Issues Task Force). ASU 2016-15 provides guidance that reduces the diversity in practice of the classification of certain cash receipts and cash payments within the statement of cash flows. This guidance is effective for fiscal periods beginning after December 15, 2017. We adopted this standard on January 1, 2018. The adoption of this guidance did not have a material impact on our financial statements.

Revenue Recognition ASC Topic 606. On January 1, 2018, we adopted Accounting Standard codification (“ASC”) Topic 606, Revenue From Contracts With Customers (“ASC 606”) using the modified retrospective adoption method. ASC 606 outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. We evaluated the impact of this standard by assessing our revenue streams to identify any differences in the timing, measurement or presentation of revenue recognition. We concluded that adoption of this standard did not have an impact on our results of operations or financial condition, as our revenue consists of rental income from leasing arrangements and interest income from loan arrangements, both of which are specifically excluded from ASC 606.

Leases ASC Topic 842. In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02 (“ASU 2016-02”), Leases. ASU 2016-02 and its amendments have now formally entered into the FASB codification as ASC Topic 842, Leases (“ASC 842”). The objective of ASC842 is to establish the principles for lessees and lessors to apply for reporting useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease.

ASC 842 requires lessees to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance of operating leases.

ASC 842 requires the lessors to identify lease and non-lease components of a lease agreement. Revenue related to non-lease components under lease agreements will be subject to the revenue recognition standard, upon adoption of this standard. Also, the new standard narrows definition of initial direct costs. Accordingly, upon adoption of the new standard, certain costs (primarily legal costs related to lease negotiations) should be expensed rather than capitalized.

Further, per ASC 842 lessors are required to assess the probability of collecting substantially all of the lease payments. The standard defines collectibility as lessee’s ability and intent to pay. If collectibility of substantially all of the lease payments through maturity is not probable, the lease income recorded during the period would be limited to lesser of the income that would have been recognized if collection were probable, and the lease payments received. If the assessment of collectibility changes, any difference between the lease income that would have been recognized and the lease payments should be

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recognized as an adjustment to lease income. At adoption, lessors are required to perform a lease-by-lease analysis for collectibility of all lease payments through maturity. If at adoption, it is not probable that substantially all of the lease obligations through maturity will be collected, a cumulative adjustment to equity should be made to reflect all of the lease obligations which are not probable to be collected. Under the new standard, collections of rent subsequent to the straight-line rent receivable write-off are considered recoveries of amounts previously written-off and are recognized as a contra-expense rather than rental revenue until the cumulative amount of the recovery recognized equals the amount of straight-line rent receivable written-off.

Additionally, ASC 842 provides lessors with the option to elect a practical expedient allowing them to not separate lease and non-lease components and instead, to account for those components as a single lease component. This practical expedient is limited to circumstances in which: (i) the timing and pattern of transfer are the same for the non-lease component and the related lease component and (ii) the lease component, if accounted for separately, would be classified as an operating lease. This practical expedient causes an entity to assess whether a contract is predominantly lease-based or service-based and recognize the entire contract under the relevant accounting guidance (i.e., predominantly lease-based would be accounted for under ASC 842 and predominantly service-based would be accounted for under the ASC 606). This practical expedient option is available as a single election that must be consistently applied to all existing leases at the date of adoption. Also, ASC 842 provides a practical expedient that allows companies to use an optional transition method. Under the optional transition method, a cumulative adjustment to equity during the period of adoption is recorded and prior periods would not require restatement. Consequently, entities that elect both the practical expedient and the optional transitional method will apply the new lease ASC prospectively to leases commencing or modified after January 1, 2019 and will not be required to apply the disclosures under the new lease standard to comparative periods.

ASC 842 has subsequently been amended by other issued Accounting Standards Update (“ASU”) to clarify and improve the standard as well as to provide certain practical expedients. In December 2018, the FASB issued ASU 2018-20 (“ASU 2018-20”), Narrow-Scope Improvements for Lessors, which amends ASC 842 to require the lessors to exclude the lessor costs that are directly paid by the lessee to third parties on lessor’s behalf from variable payments. However, the lessor costs that are paid by the lessor and reimbursed by the lessee are required to be included in variable payments. Furthermore, ASC 842 allows for several practical expedients which permit the following: no reassessment of lease classification or initial direct costs and use of the standard’s effective date as the date of initial application. In March 2019, the FASB issued ASU 2019-01 (“ASU 2019-01”), Leases (Topic 842),Codification Improvements which provides clarification regarding presentation and disclosures. ASC 842 and its amendments are effective January 1, 2019.

Adoption of ASC 842. On January 1, 2019, we adopted ASC 842using the modified retrospective approach as of the adoption date, whereby the cumulative effect of adoption was recognized on the adoption date and prior periods were not restated.

Upon adoption of the standard, we elected the practical expedients provided for in ASC 842, including:

No reassessment of whether any expired or existing contracts were or contained leases;

No reassessment of the lease classification for any expired or existing leases;

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No reassessment of initial direct costs for any existing leases; and

No separation of lease and non-lease components.

As a lessee, we have an office lease agreement with a 5-year remaining term which was classified as an operating lease under ASC 840. Due to election of the package of practical expedients, upon adoption of ASC 842 this lease agreement will continue to be classified as operating lease. For the three months ended March 31, 2019, we recorded $75,000 of rent expense related to this lease agreement. Adoption of ASC 842 resulted in recording a right-of use asset and a lease liability of $1,445,000 which represents the present value of the remaining minimum lease payments using our incremental borrowing rate.

As a lessor, our properties are leased subject to non-cancelable operating leases. 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 facilities. Upon adoption of ASC 842, we recorded real estate taxes that are reimbursed by our operators as Rental Income with a corresponding Property tax expense in the Consolidated Statements of Income and Comprehensive Income. For the three months ended March 31, 2019, we have recognized $4,335,000 in Rental Income related to reimbursement of real estate taxes from our operators.

Furthermore, upon adoption of ASC 842, we assessed the probability of collecting substantially all of our lease payments through maturity. As previously reported, we have been monitoring Anthem Memory Care (“Anthem”), Thrive Senior Living, LLC (“Thrive”), Preferred Care, Inc. (“Preferred Care”) and Senior Care Centers, LLC. (“Senior Care”) due to cash flow concerns, performance concerns and/or bankruptcy filing. In conjunction with adoption of ASC 842, we evaluated our straight-line rent receivable and lease incentive balances related to the noted operators and determined that we do not have the level of collectibility certainty required by the standard to record the straight-line rent receivable. Accordingly, we wrote-off the straight-line rent receivable and lease incentive balances associated with these leases. Also, since the new guidance does not provide for general reserve for straight-line rent receivable, we wrote-off our 1% general straight-line rent receivable reserve. These balances totaled $42,808,000 and were written-off to equity effective January 1, 2019 as required by ASC 842.

During the three months ended March 31, 2019, we recognized $9,600,000 of cash rent received from Anthem, Thrive, Preferred Care and Senior Care as a contra-expense titled Recovery of written-off straight-line rent receivable on the consolidated statements of income and comprehensive income as required by ASC 842.

New Accounting Standards Not Yet Adopted by Our Company

In ~~January 2017,~~2016, the FASB issued ASU No. ~~2017-01(or~~ 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU ~~2017-01),~~ ~~Business Combinations (Topic 805): Clarifying Definition of~~2016-13”). This standard requires a ~~Business~~.new forward looking “expected loss” model to be used for receivables, held-to-maturity debt, loans, and other instruments. ASU 2017-01 clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework establishes a screen for determining whether an integrated set of assets and activities is a business and narrows the definition of a business, which is expected to result in fewer transactions being accounted for as business combinations. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. This update2016-13 is effective for fiscal years, and ~~for~~ interim periods within those years, beginning after December 15, 2019, and early adoption is permitted for fiscal years beginning after December 15, ~~2017, with early adoption permitted for transactions~~2018. We are currently evaluating the impact that the standard will have ~~not been reported in previously issued (or available to be issued) financial statements. We adopted ASU 2017-01 during the second quarter of 2017. Historically,~~on our acquisitions qualified as either a business combination or asset acquisition. The adoption of this ASU did not have a material impact on the company’s results of operations or financial condition as most of our acquisitions of investment properties will continue to qualify as asset acquisitions.

~~In February 2017, the FASB issued ASU No. 2017-05 (or ASU 2017-05),~~ ~~Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets.~~ ASU 2017-05 defines an in-substance nonfinancial asset and clarifies guidance related to partial sales of nonfinancial assets. This standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. The adoption of this ASU did not have a material impact on the consolidated financial ~~statements and related notes.~~statements.

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2.Real Estate Investments

Assisted living communities, independent living communities, memory care communities and combinations thereof are included in the assisted living property classification (or collectively ALF).

Any reference to the number of properties or facilities, number of units, number of beds, number of operators and yield on investments in real estate are unaudited and outside the scope of our independent registered public accounting firm’s review of our consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board.

Owned Properties. The following table summarizes our investments in owned properties at March 31, ~~2018~~2019 (dollar amounts in thousands):


								Average									Average
			Percentage		Number	Number of		Investment				Percentage		Number	Number of		Investment
	Gross		of		of	SNF	ALF	per		Gross		of		of	SNF	ALF	per
Type of Property	Investments		Investments		Properties(1)	Beds	Units	Bed/Unit		Investment		Investment		Properties (1)	Beds	Units	Bed/Unit
Assisted Living	$	784,229	56.0	%	105	—	5,962	$	131.54	$	821,167	56.8	%	104	—	5,959	$	137.80
Skilled Nursing		577,808	41.2	%	75	9,204	261	$	61.05		587,410	40.6	%	72	8,893	261	$	64.17
Under Development(2)		28,729	2.0	%	—	—	—		—		25,952	1.8	%	—	—	—		—
Other(3)		10,740	0.8	%	1	118	—		—		11,067	0.8	%	1	118	—		—
Totals	$	1,401,506	100.0	%	181	9,322	6,223
Total										$	1,445,596	100.0	%	177	9,011	6,220

⁽¹⁾

We own properties in 28 states that are leased to 29 different operators.

⁽²⁾

Represents ~~three~~two development projects, consisting of a ~~66-unit~~ 78-unit ALF/MC located in ~~Illinois,~~Oregon and a 110-unit ILF/ALF/MC in ~~Wisconsin and a 143-bed SNF in Kentucky.~~Wisconsin.

⁽³⁾

Includes three parcels of land held-for-use, and one behavioral health care hospital.

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Owned properties are leased pursuant to non-cancelable operating leases generally with an initial term of 10 to 15 years. 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 facilities. Many of the leases contain renewal options. 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 that are generally computed in one of four ways depending on specific provisions of each lease:

(i)

a specified percentage increase over the prior year’s rent, generally between 2.0% and 3.0%;

(ii)

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.

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During the three months ended March 31, ~~2018~~2019, we terminated a lease agreement and ~~2017,~~transitioned two operating senior housing communities under the lease agreement to a new operator. As a result of the lease termination, we ~~invested~~wrote-off $1,926,000 straight-line rent receivable to contra-revenue in accordance with the ~~following in development~~newly adopted ASC 842.

Future minimum base rents receivable under the remaining non-cancelable terms of operating leases excluding the effects of straight-line rent receivable, amortization of lease incentives and ~~improvement projects~~renewal options are as follows (in thousands):

Three months ended March 31, 2018

Three months ended March 31, 2017


Developments

Improvements


Developments


Improvements

Assisted Living Communities

$
6,803

$
122

$
2,941

$
41

Skilled Nursing Centers

1,788

279

502

701

Other

—

133

—

—

Totals

$
8,591

$
534

$
3,443

$
742

~~Properties held-for-sale. The following summarizes our properties held-for-sale as of March 31, 2018~~ ~~(dollar amounts in thousands):~~

Number

of

Gross

Accumulated

Number of

State

Type of Property

Properties

Investment

Depreciation

Beds/units

Ohio (1)

ALF

5

$
29,332

$
17,574

251

Pennsylvania (1)

ALF

1

8,327

3,733

69

Texas

ALF

1

5,746

1,916

140

Totals

7

$
43,405

$
23,223

460


	Annual Cash
	Rent (1)
2019	$	101,223
2020		140,189
2021		131,128
2022		121,228
2023		124,492
Thereafter		729,390

⁽¹⁾

Represents ~~a portfolio of six assisted living communities that~~contractual annual cash rent, except for four master leases which are ~~leased under a master lease agreement expiring~~based on ~~April 30, 2018. Subsequent to March 31, 2018, we sold these properties~~agreed upon cash rents. See below for ~~$67,500.~~more information.

During 2017, we issued a notice of default to Anthem Memory Care (“Anthem”) resulting from Anthem’s partial payment of minimum rent. Anthem operates 11 memory care communities under a master lease. We currently estimate that Anthem will pay $7,500,000 of annual cash rent during 2019. This amount represents approximately 50% of the contractual amount due under the lease in 2019. In accordance with the newly adopted ASC 842 lease accounting guidance, at January 1, 2019, we evaluated the collectibility of straight-line rent receivable and lease incentive balances related to Anthem and determined that it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as required by the ASC 842 transition guidance.

~~Property Sales.~~ WeDuring 2017, Preferred Care, Inc. (“Preferred Care”) and affiliated entities filed for Chapter 11 bankruptcy as a result of a multi-million-dollar judgment in a lawsuit in Kentucky against Preferred Care and certain affiliated entities. The affiliated entities named in the lawsuit operate properties in Kentucky and New Mexico. Preferred Care leases 24 properties under two master leases from us and none of the 24 properties are located in Kentucky or New Mexico. Those 24 properties are in Arizona, Colorado, Iowa, Kansas and Texas. The Preferred Care operating entities that sublease those properties did not file for bankruptcy. The court ordered deadline for affirmation or rejection of the lease has passed without action by Preferred Care, but they continue to pay rent to us in a timely manner. In accordance with the newly adopted ASC 842 lease accounting guidance, at January 1, 2019, we evaluated the collectibility of straight-line rent receivable and lease incentive balances related to Preferred Care and determined that it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as required by the ASC 842 transition guidance. We are working with Preferred Care on options for the portfolio which may include re-leasing or selling some of the properties.

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days from the petition date to assume or reject the lease. However, the Bankruptcy Code also provides that the court may extend this initial 120-day period for an additional 90 days. Accordingly, Senior Care has requested, and the court has approved an additional 90 days, which ends on July 2, 2019, to assume or reject the lease. As security under the lease, we hold a letter of credit in the amount of approximately $2,000,000, maintenance and repair escrows of approximately $2,200,000 and property tax escrows of approximately $1,800,000. Senior Care did not pay us December 2018 rent, but has paid us January to April 2019 rent, real estate property tax and maintenance deposits. We have previously requested a consensual termination of the lease and have requested Senior Care to reject our lease in bankruptcy. In accordance with the newly adopted ASC 842 lease accounting guidance, at January 1, 2019, we evaluated the collectibility of straight-line rent receivable and lease incentive balances related to Senior Care and determined that it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as required by the ASC 842 transition guidance. We are evaluating our options to transition or sell the properties ~~during~~under the lease with Senior Care.

During the three months ended March 31, 2019, we placed Thrive Senior Living, LLC. (“Thrive”) on a cash basis due to short-payment of contractual rent in November 2018 and ~~2017.~~non-payment of rent in December 2018 totaling $700,000. This rent was subsequently received in 2019. Thrive has not paid January to April 2019 rent. Subsequent to March 31, ~~2018,~~2019, we ~~sold~~issued a ~~portfolio~~notice of ~~six assisted living communities in Ohio~~default to Thrive. In accordance with the newly adopted ASC 842 lease accounting guidance, at January 1, 2019, we evaluated the collectibility of straight-line rent receivable and ~~Pennsylvania~~lease incentive balances related to Thrive and determined that it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as required by the ASC 842 transition guidance. We are working with ~~a total of 320 units for an aggregate price of $67,500,000. These properties have a combined net book~~Thrive and exploring our options to maximize the value of ~~approximately $16,350,000. As~~these real estate assets.

Our lease structure contains fixed annual rental escalations, which are generally recognized on a ~~result~~straight-line basis over the minimum lease period. Certain leases have annual rental escalations that are contingent upon changes in the Consumer Price Index and/or changes in the gross operating revenues of ~~this transaction, we expect to recognize a net gain on sale of approximately $48,000,000. These properties were classified as held-for-sale during~~ the ~~first quarter of 2018. See~~ ~~Properties held-for-sale~~ ~~abovefor more information.~~property.

913

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The following table summarizes components of our rental income for the three months ended March 31, 2019 and 2018 (in thousands):


Rental Income		2019			2018
Base cash rental income	$	24,314	(1)	$	31,455
Variable cash rental income		4,485	(2)		150	(2)
Straight-line rent receivable		1,238	(3)		3,440
Adjustment for collectibility		(1,926)	(4)		—
Amortization of lease incentives		(87)			(540)
Total	$	28,024		$	34,505

(1)

Decreased due to recognition of $9,600 of cash rent received from Anthem, Preferred Care, Senior Care and Thrive as contra-expense titled Recovery of written-off straight-line rent receivable on the consolidated statements of income and comprehensive income and decreased rent from properties sold in 2018, partially offset due to increased rent from acquisitions, developments and capital improvement projects. See Note 1. General for further discussion.

(2)

The 2019 variable rental income includes $150 related to contingent rental income and $4,335 related to our real estate taxes which were reimbursed by our operators. Per the provisions of ASC 842, any lessor cost, paid by the lessor and reimbursed by the lessee, must be included as a lease payment. As discussed above, we adopted ASC 842 using a modified retrospective approach as of the adoption date of January 1, 2019. Accordingly, we are not required to report this revenue stream for periods prior to January 1, 2019.

(3)

In accordance with the newly adopted ASC 842 lease accounting guidance, we evaluated the collectibility of lease payments through maturity and determined that it was not probable that we would collect substantially all of the contractual obligations from Anthem, Thrive, Preferred Care and Senior Care leases through maturity. Decreased due to these leases are placed on cash-basis.

(4)

Represents write-off of straight-line rent receivable related to a terminated lease discussed above.

Some of our lease agreements provide purchase options allowing the lessees to purchase the properties they currently lease from us. The following table summarizes information about purchase options included in our lease agreements (dollar amount in thousands):


	Type	Number
	of	of		Gross		Carrying	Option
State	Property	Properties		Investments		Value	Window
California	ALF/MC	2	$	38,895	$	37,248	2024-2029
Kansas	MC	2		25,692		23,727	2019-2021
Texas	MC	2		25,265		24,800	2025-2027
Virginia	ALF/MC	1		16,890		16,822	2026-2029
Total			$	106,742	$	102,597

Acquisitions and Developments: The following table summarizes our acquisition for the three months ended March 31, 2019 (dollar amounts in thousands):

Total

Number

Purchase

Transaction

Acquisition

Year

Type of Property

Price

Costs (1)

Costs

Properties

Beds/Units

2019

Assisted Living (2)

16,719

171

16,890

(1)

Represents cost associated with our acquisitions; however, upon adoption of ASU 2017-01, our acquisitions meet the definition of an asset acquisition resulting in capitalization of transaction costs to the properties’ basis. For our land purchases with forward development commitments, transaction costs are capitalized as part of construction in progress. Transaction costs per our consolidated statements of income and comprehensive income represents current and prior year transaction costs due to timing and terminated transactions.

(2)

We entered into a joint venture (“JV”) to purchase an existing operational 74-unit ALF/MC community. The non-controlling partner contributed $919 of equity and we contributed $15,971 in cash. Our economic interest in the real estate JV is approximately 95%.

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During the three months ended March 31, 2019 and 2018, we invested the following in development and improvement projects (in thousands):


	Three Months Ended March 31,
	2019				2018
Type of Property	Developments		Improvements		Developments			Improvements
Assisted Living Communities	$	4,507	$	256	$	6,803	$	122
Skilled Nursing Centers		2,450		—		1,788		279
Other		—		3		—		133
Total	$	6,957	$	259	$	8,591	$	534

Completed Developments. The following table summarizes our completed development during the three months ended March 31, 2019 (dollar amounts in thousands):

Number

Type

Number

Total

Type of Project

Properties

Property

Beds/Units

State

Investment

Development

SNF

143

Kentucky

22,451

Properties held-for-sale. The following table summarizes our property held-for-sale as of March 31, 2019 (dollar amounts in thousands):

Type

Number

Gross

Accumulated

State

Property

Properties

Investment

Depreciation

Beds/units

Texas

ILF

5,746

1,916

140

Mortgage Loans. The following table summarizes our investments in mortgage loans secured by first mortgages at March 31, ~~2018~~2019 (dollar amounts in thousands):

Type

Percentage

Number of

Investment

Gross

of

of

SNF

per

Interest Rate(1)

Maturity

Investments

Property

Investments

Loans(2)

Properties(3)

Beds

Bed/Unit

9.2%

2045

$
25,196

SNF

10.7
%
1

3

375

$
67.19

9.4%

2020

9,429

SNF

4.0
%
1

2

205

$
46.00

9.4%

2045

13,306

SNF

5.6
%
1

1

157

$
84.75

9.5%

2043

186,705

SNF

79.2
%
1

15

2,043

$
91.39

11.4%

2019

1,098

SNF

0.5
%
1

1

84

$
13.07

Totals

$
235,734

100.0
%
5

22

2,864

$
82.31


				Type	Percentage		Number of			Investment
		Gross		of	of				SNF	per
Interest Rate (1)	Maturity	Investment		Property	Investment		Loans (2)	Properties (3)	Beds	Bed/Unit
9.7%	2043	$	186,369	SNF	75.5	%	1	15	2,029	$	91.85
9.2%	2045		34,038	SNF	13.8	%	1	4	501	$	67.94
9.4%	2045		14,950	SNF	6.1	%	1	1	157	$	95.22
9.4%	2020		11,418	SNF	4.6	%	1	2	205	$	55.70
Total		$	246,775		100.0	%	4	22	2,892	$	85.33

⁽¹⁾

The majority of the mortgage loans provide for annual increases in the interest rate after a certain time period based upon a specified increase byof 2.25%.

⁽²⁾

Some loans contain certain guarantees, provide for certain facility fees and the majority of the mortgage loans have a 30-year ~~amortization schedules.~~term.

⁽³⁾

~~We have investments in~~The properties securing these mortgage loans are located in ~~two states that include mortgages to two operators.~~one state and are operated by one operator.

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

The following table summarizes our mortgage loan activity for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 (in thousands):


	Three months ended March 31,					Three Months Ended March 31,
	2018			2017		2019		2018
Originations and funding under mortgage loans receivable	$	9,610	(1)	$	4,384	$	1,454	$	9,610	(1)
Pay-offs received		—			(10,796)
Scheduled principal payments received		(37)			(162)		(65)		(37)
Net increase (decrease) in mortgage loans receivable	$	9,573		$	(6,574)
Mortgage loan (premiums)							—		(1)
Provision for loan loss reserve							(14)		(96)
Net increase in mortgage loans receivable						$	1,375	$	9,476

⁽¹⁾

During ~~the first quarter of~~ 2018, we funded an additional $7,400 under an existing mortgage loan for the purchase of a 112-bed skilled nursing center in Michigan. The incremental funding bears interest at 8.7%, fixed for five years, and escalating by 2.25% thereafter.

3.Investment in Unconsolidated Joint Ventures

Our ~~investment~~investments in unconsolidated joint ventures consists of a preferred equity investment and ~~two~~a mezzanine ~~loans~~loan which ~~are~~is accounted for as unconsolidated joint ventures in accordance with GAAP. The following table summarizes our ~~investment~~investments in unconsolidated joint ventures (dollar amounts in thousands):


	Type	Type		Total		Currently		Number			Type	Type		Total		Currently		Number
	of	of		Preferred		Paid in		of		Investment	of	of		Preferred		Paid in		of		Investment			Carrying
State	Properties	Investment		Return		Cash		Beds/ Units		Commitment	Properties	Investment		Return		Cash		Beds/ Units		Commitment			Value
Arizona	ALF/MC/ILF	Preferred Equity	(1)	15	%	6	%	585	$	25,650	ALF/MC/ILF	Preferred Equity	(1)	15	%	7	%	585	$	25,650		$	24,325
Florida	UDP-ALF/IL/MC	Mezzanine	(2)	15	%	10	%	99		2,900	ALF/IL/MC	Mezzanine	(2)	15	%	15	%	99		2,900	(3)		3,190	(3)
Florida	UDP-ALF/MC	Mezzanine	(2)	15	%	10	%	127		3,400
								811	$	31,950
Total																		684	$	28,550		$	27,515

⁽¹⁾

We have concluded that the JV is a ~~VIE~~variable interest entity (“VIE”) in accordance with GAAP. However, because we do not control the entity, nor do we have any role in the day-to-day management, we are not the primary beneficiary of the JV. Therefore, we account for the JV investment using the equity method.

⁽²⁾

We evaluated ~~these~~this acquisition, development and construction ~~(or ADC) arrangements~~(“ADC”) arrangement and determined that the characteristics are similar to jointly-owned investments or partnerships, and accordingly, ~~these investments are~~this investment is accounted for as unconsolidated joint ~~ventures~~venture under the equity method of accounting instead of loan accounting.

(3)

Since interest payments were deferred and no interest was recorded for the first twelve months of the loan, we used the effective interest method in accordance with GAAP to recognize interest income and recorded the difference between the effective interest income and cash interest income to the loan principal balance.

1016

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

The following table summarizes our capital contributions, income recognized, and cash interest received related to our investments in unconsolidated joint ventures (in thousands):

Three Months Ended March 31,

Type

2018

2017

of

Capital

Income

Cash Interest

Capital

Income

Cash Interest

Properties

Contribution

Recognized

Received

Contribution

Recognized

Received

ALF/MC/ILF

$
380

$
429

$
446

$
914

$
317

$
302

UDP-ALF/IL/MC

—

128

97

—

128

54

UDP-ALF/MC

—

74

—

—

—

—

$
380

$
631

$
543

$
914

$
445

$
356


	Type
	of			Capital			Income			Cash Interest
Year	Properties			Contribution			Recognized			Received
2019	ALF/MC/ILF		$	293		$	553		$	552
	ALF/IL/MC			—			128			121
	ALF/MC	(1)		—	(1)		404	(1)		432	(1)
Total 2019			$	293		$	1,085		$	1,105

2018	ALF/MC/ILF			380			429			446
	ALF/IL/MC			—			128			97
	ALF/MC	(1)		—	(1)		74	(1)		—	(1)
Total 2018			$	380		$	631		$	543

(1) We had a $3,400 mezzanine loan commitment for the development of a 127-unit seniors housing community in Florida with a total preferred return of 15%. The mezzanine loan was an ADC arrangement which we determined it to have characteristics similar to a jointly-owned arrangement and recorded it as an unconsolidated joint venture. During the first quarter of 2019, the mezzanine loan was paid off.

4.Notes Receivable

Notes receivable consists of mezzanine loans and other loan arrangements. The following table is a summary of our notes receivable components as of March 31, ~~2018~~2019 and December 31, ~~2017~~2018 (in thousands):

At March 31, 2018

At December 31, 2017

Mezzanine loans
$
13,700

$
13,700

Other loans

2,868

2,868

Notes receivable reserve

(166)

(166)

Total
$
16,402

$
16,402

~~5.Lease Incentives~~

~~The followingsummarizes lease incentives by component as of March 31, 2018 and December 31, 2017~~ ~~(in thousands):~~

At March 31, 2018

At December 31, 2017

Non-contingent lease incentives

$
14,863

$
14,904

Contingent lease incentives

6,458

6,577

Totals

$
21,321

$
21,481


	At March 31, 2019		At December 31, 2018
Mezzanine loans	$	16,700	$	9,868
Other loans		3,056		2,975
Notes receivable reserve		(198)		(128)
Total	$	19,558	$	12,715

The following ~~table~~tables summarizes our ~~lease incentive~~notes receivable activity for the three months ended March 31, 2019 and 2018 ~~and 2017~~ ((dollar amounts in ~~thousands)~~thousands):

Three months ended March 31,

2018

2017

Funding

Amortization

Funding

Amortization
Non-contingent lease incentives
$
380

$
(421)

$
3,441

$
(360)
Contingent lease incentives

-

(119)

-

(167)
Totals
$
380

$
(540)

$
3,441

$
(527)


	Three Months Ended March 31,
		2019		2018
Advances under notes receivable	$	6,953	$	—
Principal payments received under notes receivable		(41)		—
Notes receivable reserve		(69)		—
Total	$	6,843	$	—

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

5.Lease Incentives

The following summarizes lease incentives by component as of March 31, 2019 and December 31, 2018 (in thousands):


		At March 31, 2019		At December 31, 2018
Non-contingent lease incentives	$	2,263	$	14,443

The following table summarizes our lease incentive activity for the three months ended March 31, 2019 and 2018(in thousands):


	Three Months Ended March 31,
	2019							2018
		Funding		Amortization		Adjustment			Funding		Amortization
Non-contingent lease incentives	$	—	$	(87)	$	(12,093)	(1)	$	380	$	(421)
Contingent lease incentives		—		—		—			—		(119)
Net increase (decrease) in lease incentives	$	—	$	(87)	$	(12,093)		$	380	$	(540)

(1)

In accordance with the newly adopted ASC 842 lease standard adopted on January 1, 2019, we wrote-off lease incentives related to leases for which we determined it is not probable we will collect substantially all of the contractual lease obligation through maturity. See Note 1. General for further discussion.

Non-contingent lease incentives represent payments made to our lessees for various reasons including entering into a new lease or lease amendments and extensions. Contingent lease incentives represent potential contingent earn-out payments that may be made to our lessees in the future, as part of our lease agreements. From time to time, we may commit to provide contingent payments to our lessees, upon our properties achieving certain rent coverage ratios. Once the contingent payment becomes probable and estimable, the contingent payment is recorded as a lease incentive. Lease incentives are amortized as a yield adjustment to rental income over the remaining life of the lease.

6.Debt Obligations

Bank Borrowings. ~~We have an Unsecured Credit Agreement that provides for a revolving line of~~During 2018, weamended and restated our unsecured credit upagreement to ~~$600,000,000. The Unsecured Credit Agreement matures~~replace the previous unsecured credit agreement, prior to its expiration on October 14, ~~2018~~2018. The amended credit agreement maintains the $600,000,000 aggregate commitment of the lenders under the prior agreement and provides for the opportunity to increase the commitment size of the credit agreement up to a total of $1,000,000,000. The amended credit agreement extends the maturity of the credit agreement to June 27, 2022 and provides for a one-year extension option at our discretion, subject to customary conditions. Additionally, the amended credit agreement decreases the interest rate margins and converts from the payment of unused commitment fees to a facility fee. Based on our leverage at March 31, ~~2018,~~2019, the facility provides for interest annually at LIBOR plus ~~150~~115 basis points and ~~an unused commitment~~a facility fee of 3520 basis points. At March 31, ~~2018,~~2019, we were in compliance with all covenants.

Senior Unsecured Notes. ~~During 2017, we amended our~~We have a $337,500,000 shelf agreement with affiliates and managed accounts of Prudential Investment Management, Inc. ~~(or Prudential) to increase our shelf commitment to $337,500,000.~~(“Prudential”).

~~The debt obligations by component as of March 31, 2018 and December 31, 2017 are as follows (dollar amounts in thousands):~~

At March 31, 2018

At December 31, 2017

Applicable

Available

Available

Interest

Outstanding

for

Outstanding

for

Debt Obligations

Rate(1)

Balance

Borrowing

Balance

Borrowing

Bank borrowings(2)

3.21%

$
120,500

$
479,500

$
96,500

$
503,500

Senior unsecured notes, net of debt issue costs

4.49%

566,888

67,833

571,002

63,667

Total

4.27%

$
687,388

$
547,333

$
667,502

$
567,167

⁽¹⁾

~~Represents weighted average of interest rate as of March 31, 2018.~~

⁽²⁾

Subsequent to March 31, 2018, we repaid $65,000 under our unsecured revolving line of credit. Accordingly, we have $55,500 outstanding under our unsecured revolving line of credit with $544,500 available for borrowing.

~~Our borrowings and repayments are as follows~~ ~~(in thousands):~~

Three months ended March 31,

2018

2017
Debt Obligations

Borrowings

Repayments

Borrowings

Repayments
Bank borrowings

$
24,000

$
—

$
3,500

$
(110,600)
Senior unsecured notes

—

(4,166)

100,000
(1)

(4,167)
Totals

$
24,000

$
(4,166)

$
103,500

$
(114,767)

⁽¹⁾

During 2017, we sold 15-year senior unsecured notes in the aggregate amount of $100,000 to a group of investors, which included Prudential, in a private placement transaction. The notes bear interest at an annual rate of 4.5%, have scheduled principal payments and mature on February 16, 2032.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

~~7.Equity~~The debt obligations by component as of March 31, 2019 and December 31, 2018 are as follows (dollar amounts in thousands):


		At March 31, 2019				At December 31, 2018
	Applicable			Available				Available
	Interest	Outstanding		for		Outstanding		for
Debt Obligations	Rate (1)	Balance		Borrowing		Balance		Borrowing
Bank borrowings	3.83%	$	146,900	$	453,100	$	112,000	$	488,000
Senior unsecured notes, net of debt issue costs	4.49%		528,900		98,000		533,029		93,833
Total	4.35%	$	675,800	$	551,100	$	645,029	$	581,833

(1)

Represents weighted average of interest rate as of March 31, 2019.

~~Equity activity was~~Our borrowings and repayments are as follows (in thousands):

Total

Equity

Balance at December 31, 2017

$
758,648

Net income

20,359

Stock-based compensation expense

1,376

Stock option exercise

123

Common stock dividends

(22,578)

Other

(1,065)

Balance at March 31, 2018

$
756,863


	Three Months Ended March 31,
	2019				2018
Debt Obligations		Borrowings		Repayments	Borrowings		Repayments
Bank borrowings	$	36,900	$	(2,000)	$	24,000	$	—
Senior unsecured notes		—		(4,167)		—		(4,166)
Total	$	36,900	$	(6,167)	$	24,000	$	(4,166)

7.Equity

Common Stock. We have anseparate equity distribution ~~agreement~~agreements (collectively, “Equity Distribution Agreement”) to ~~issue~~offer and sell, from time to time, up to $200,000,000 in aggregate offering price of shares of our ~~company~~ common ~~shares.~~stock. As of March 31, 2019, no shares had been issued under the Equity Distribution Agreement. Accordingly, at March 31, 2019, we had $200,000,000 available under the Equity Distribution Agreement.

During the three months ended March 31, ~~2017, we sold 312,881 shares of common stock for $14,578,000 in net proceeds under our equity distribution agreement. At March 31,~~2019 and 2018, ~~and 2017, we had $185,162,000 available under our equity distribution agreement.~~

~~During the three months ended March 31, 2018 and 2017,~~ we acquired ~~28,256~~44,543 shares and ~~35,563~~28,256 shares, respectively, of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.

Non-controlling Interests. ~~During 2017, we~~We have entered into ~~a partnership and acquired an 87-unit ALF and MC community for $10,000,000. Additionally,~~partnerships to develop and/or own real estate. Given that our limited members do not have the substantive kick-out rights, liquidation rights, or participation rights, we ~~entered into a partnership for~~have concluded that the acquisition of land and development of a 110-unit ILF/ALF/MC community in Wisconsin. The commitment totals approximately $22,471,000 including the land purchase. We hold a 90% economic interest in both partnerships. Sincepartnerships are VIEs. As we exercise power over and receive benefits from the ~~partnerships,~~VIEs, we are considered the primary ~~beneficiary of the partnerships.~~beneficiary. Accordingly, we consolidate the ~~partnerships~~VIEs and ~~carry~~record the non-controlling interests at cost.

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

As of March 31, 2019, we have the following consolidated VIEs (dollar amounts in thousands):


					Gross
Investment		Property			Consolidated			Non-Controlling
Year	Purpose	Type	State		Assets			Interests
2019	Owned real estate	ALF/MC	VA	$	16,890		$	919
2018	Owned real estate	ILF	OR		14,400	(1)		2,857	(1)
2018	Owned real estate and development	UDP	OR		6,193	(1)		1,081	(1)
2017	Owned real estate and development	UDP	WI		19,759	(2)		2,272	(2)
2017	Owned real estate	ALF/MC	SC		11,451			1,263
Total				$	68,693		$	8,392

(1)

We entered into a joint venture (“JV”) to develop, purchase and own senior housing properties. During the second quarter of 2018, the JV purchased land for the development of a 78-unit ALF/MC for a total anticipated project cost of $18,108. The non-controlling partner contributed $1,081 of cash and we committed to fund the remaining $17,027 project cost. During the third quarter of 2018, in a sale-leaseback transaction, the JV purchased an existing operational 89-unit ILF adjacent to the 78-unit ALF/MC we are developing for $14,400. The non-controlling partner contributed $2,857 of equity and we contributed $11,543 in cash. Upon completion of the development project, our combined economic interest in the JV will be approximately 88%. We account for the JV on a consolidated basis.

(2)

We entered into a partnership to own the real estate and develop a 110-unit ILF/ALF/MC community in Wisconsin. The commitment totals approximately $22,471.

Available Shelf ~~Registrations.~~Registration. We have an automatic shelf registration statement on file with the SEC, and currently have the ability to file additional automatic shelf registration statements, to provide us with capacity to publicly offer an indeterminate amount of common stock, preferred stock, warrants, debt, depositary shares, or units. We may from time to time raise capital under our automatic shelf registration statement in amounts, at prices, and on terms to be announced when and if the securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of the offering.

~~Table of Contents~~

~~LTC PROPERTIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~ ~~CONTINUED~~

~~(Unaudited)~~

Distributions. We declared and paid the following cash dividends (in thousands):

Three Months Ended March 31,

2018

2017

Declared

Paid

Declared

Paid

Common Stock

$
22,578
(1)
$
22,578
(1)
$
22,552
(1)
$
22,552
(1)


	Three Months Ended March 31,
	2019						2018
	Declared			Paid			Declared			Paid
Common Stock	$	22,931	(1)	$	22,931	(1)	$	22,578	(1)	$	22,578	(1)

⁽¹⁾

Represents $0.19 per share per month for the three months ended March 31, ~~2018,~~2019 and ~~2017.~~2018.

In April ~~2018,~~2019, we declared a monthly cash dividend of $0.19 per share on our common stock for the months of April, May and June 2019, payable on April 30, May 31, and June ~~29, 2018,~~28, 2019, respectively, to stockholders of record on April ~~20,~~22, May 23, and June ~~21, 2018,~~20, 2019, respectively.

Stock-Based Compensation. Under our 2015 Equity Participation Plan ~~(or~~ (“the 2015 ~~Plan)~~Plan”), 1,400,000 shares of common stock have been reserved for awards, including nonqualified stock option grants and restricted stock grants to officers, employees, non-employee directors and consultants. The terms of the awards granted under the 2015 Plan are set by our compensation committee at its discretion.

~~During the three months ended March 31, 2018 and 2017, no stock options were granted. The stock options exercised during the three months ended March 31, 2018 and 2017 were as follows:~~

Weighted




Average

Options

Exercise

Option

Market

Exercised

Price

Value

Value(1)

2018

5,000

$
24.65

$
123,000

$
205,000

2017

—

$
—

$
—

$
—

⁽¹⁾

~~As of exercise date.~~

~~At March 31, 2018, we had 20,000 stock options outstanding and exercisable. Compensation expense related to the vesting of stock options was $~~0 ~~and $2,000 for the three months ended March 31, 2018 and 2017, respectively.~~

~~The following table summarizes our restricted stock and performance based stock units activity for the three months ended March 31, 2018 and 2017:~~

Three months ended March 31,

2018

2017

Outstanding, January 1

244,181

210,573

Granted

147,990

132,641

Vested

(61,733)

(65,683)

Outstanding, March 31

330,438

277,531

1420

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

At March 31, 2019, we had 20,000 stock options outstanding and exercisable. During the three months ended March 31, 2019 and 2018, no stock options were granted. The stock options exercised during the three months ended March 31, 2019 and ~~2017,~~2018 were as follows:


		Weighted
		Average
	Options	Exercise		Option		Market
	Exercised	Price		Value		Value (1)
2019	—	$	n.a	$	—	$	—
2018	5,000	$	24.65	$	123,000	$	205,000

(1)

As of exercise date.

The following table summarizes our restricted stock and performance-based stock units activity for the three months ended March 31, 2019 and 2018:


	Three Months Ended March 31,
	2019			2018
Outstanding, January 1		325,750			244,181
Granted		139,112			147,990
Vested		(117,997)	(1)		(61,733)
Outstanding, March 31		346,865			330,438

(1)

Includes 48,225 performance-based stock units.

During the three months ended March 31, 2019 and 2018, we granted restricted stock and performance-based stock units under the 2015 Plan as follows:


	No. of	Price per			No. of	Price per
Year	Shares/Units	Share		Vesting Period	Shares/Units	Share		Vesting Period
2019					78,276	$	46.54	ratably over 3 years
					60,836	$	46.54	TSR targets (1)
					139,112

2018	81,819	$	38.18	ratably over 3 years	81,819	$	38.18	ratably over 3 years
	66,171	$	38.18	TSR targets (1)	66,171	$	38.18	TSR targets (1)
	147,990				147,990

2017	74,760	$	45.76	ratably over 3 years
	57,881	$	45.76	TSR targets (1)
	132,641

⁽¹⁾

Vesting is based on achieving certain total shareholder return ~~(or TSR)~~(“TSR”) targets in 4 years with acceleration opportunity in 3 years.

Compensation expense recognized related to the vesting of restricted common stock and performance-based stock units for the three months ended March 31, 2019 and 2018 ~~was~~were $1,689,000 and $1,376,000, ~~compared to $1,257,000 for the same period in 2017.~~respectively. At March 31, ~~2018,~~2019, the remaining compensation expense to be recognized related to the future service period of unvested outstanding restricted common stock and performance-based stock units are as ~~follows:~~follows (in thousands):


	Remaining		Remaining
	Compensation		Compensation
Vesting Date	Expense		Expense
2018	$	4,284,000
2019		4,100,000	$	4,655
2020		2,210,000		4,461
2021		238,000		2,503
	$	10,832,000
2022				189
Total			$	11,808

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

8.Commitments and Contingencies

At March 31, ~~2018,~~2019, we had commitments as follows (in thousands):


						Total									Total
	Investment			2018		Commitment		Remaining		Investment			2019		Commitment		Remaining
	Commitment			Funding		Funded		Commitment		Commitment			Funding		Funded		Commitment
Real estate properties (Note 2. Real Estate Investments)	$	91,668	(1)	$	9,093	$	47,590	$	44,078	$	77,882	(1)	$	7,216	$	53,003	$	24,879
Accrued incentives and earn-out liabilities ~~(2)~~		23,000			—		—		23,000		9,000			—		—		9,000
Lease incentives and rent abatements (Note 5. Lease Incentives)		6,090			1,388		3,633		2,457
Mortgage loans (Note 2. Real Estate Investments)		58,700	(3)		2,210		19,462		39,238		64,200	(2)		1,454		20,045		44,155
Joint venture investments (Note 3. Investments in Unconsolidated Joint Ventures)		25,650			380		23,393		2,257		25,650			293		23,976		1,674
Notes receivable (Note 4. Notes Receivable)		500			—		—		500		300			14		39		261
Totals	$	205,608		$	13,071	$	94,078	$	111,530
Total										$	177,032		$	8,977	$	97,063	$	79,969

⁽¹⁾

Represents commitments to purchase land and improvements, if applicable, and to develop, re-develop, renovate or expand seniors housing and health care properties.

⁽²⁾

~~During~~Represents $35,700 of commitments to expand and renovate the ~~three months ended March 31, 2018, we recorded non‑cash interest expense of $126 related to these contingent liabilities. At March 31, 2018,~~seniors housing and health care properties securing the ~~fair value of our contingent payments was $9,041.~~

⁽³⁾

~~Represents~~ ~~(1)~~ ~~above~~mortgage loans and $28,500 represents contingent funding upon the borrower achieving certain coverage ratios.

~~Table~~Also, some of ~~Contents~~

~~LTC PROPERTIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~our lease agreements provide purchase options allowing the lessee to purchase the properties they currently lease from us. See ~~CONTINUED~~Note 2. Real Estate Investments

~~(Unaudited)~~

for a table summarizing information about our purchase options.

We are a party from time to time to various general and professional liability claims and lawsuits asserted against the lessees or borrowers of our properties, which in our opinion are not singularly or in the aggregate 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 our responsibility as a non-possessory landlord or mortgage holder. We believe that these matters are the responsibility of our lessees and borrowers pursuant to general legal principles and pursuant to insurance and indemnification provisions in the applicable leases or mortgages. We intend to continue to vigorously defend such claims.

9.Major Operators

We have ~~four~~three operators from each of which we derive approximately 10% or more of our combined rental revenue and interest income from mortgage loans. The following table sets forth information regarding our major operators as of March 31, ~~2018:~~2019:


	Number of		Number of		Percentage of				Number of		Number of		Percentage of
			SNF	ALF	Total		Total				SNF	ALF	Total		Total
Operator	SNF	ALF	Beds	Units	Revenue (1)		Assets		SNF	ALF	Beds	Units	Revenue (1)		Assets
Prestige Healthcare	23	—	2,898	93	17.2	%	16.3	%	24	—	3,010	93	17.9	%	17.0	%
Senior Lifestyle Corporation	—	23	—	1,457	11.6	%	10.9	%	—	23	—	1,457	11.6	%	10.5	%
Brookdale Senior Living	—	37	—	1,702	9.8	%	4.9	%	—	37	—	1,702	9.4	%	4.6	%
Senior Care Centers	11	—	1,444	—	9.5	%	7.5	%
Totals	34	60	4,342	3,252	48.1	%	39.6	%
Total									24	60	3,010	3,252	38.9	%	32.1	%

⁽¹⁾

Includes recovery of previously written-off straight-line rent receivable, rental income from owned properties and interest income from mortgage ~~loans.~~loans as of March 31, 2019 and excludes rental income due to lessee reimbursement of our real estate taxes and adjustment for collectibility.

Our financial position and ability to make distributions may be adversely affected if Prestige Healthcare, Senior Lifestyle Corporation, Brookdale Senior Living, ~~Senior Care Centers,~~ or any of our lessees and borrowers face financial difficulties, including any 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.~~

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

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.

10.Earnings per Share

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share amounts):


	Three Months Ended
	March 31,					March 31,
	2018			2017		2019		2018
Net income	$	20,359		$	21,513	$	20,427	$	20,359
Less net income allocated to participating securities:
Less income allocated to non-controlling interests							(81)		—
Less income allocated to participating securities:
Non-forfeitable dividends on participating securities		(88)			(97)		(92)		(88)
Net income available to common stockholders		20,271			21,416		20,254		20,271
Effect of dilutive securities:
Participating securities		—	(1)		97		92		—	(1)
Net income for diluted net income per share	$	20,271		$	21,513	$	20,346	$	20,271

Shares for basic net income per share		39,451			39,366		39,532		39,451
Effect of dilutive securities:
Stock options		3			11		4		3
Performance-based stock units		—	(2)		75		181		—	(2)
Participating securities		—	(1)		160		157		—	(1)
Total effect of dilutive securities		3			246		342		3
Shares for diluted net income per share		39,454			39,612		39,874		39,454

Basic net income per share	$	0.51		$	0.54	$	0.51	$	0.51
Diluted net income per share	$	0.51		$	0.54	$	0.51	$	0.51

⁽¹⁾

For the three months ended March 31, 2018, the participating securities have been excluded from the computation of diluted net income per share as such inclusion would be anti-dilutive.

⁽²⁾

At March 31, 2018, no performance-based stock units would be earned based on TSR targets.

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

11.Fair Value Measurements

In accordance with the accounting guidance regarding the fair value option for financial assets and financial liabilities, entities are permitted to choose to measure certain financial assets and liabilities at fair value, with the change in unrealized gains and losses reported in earnings. We did not elect the fair value option for any of our financial assets and financial liabilities.

The carrying amount of cash and cash equivalents approximates fair value because of the short-term maturity of these instruments. We do not invest our cash in auction rate securities. The carrying value and fair value of our financial instruments as of March 31, ~~2018~~2019 and December 31, ~~2017~~2018 assuming election of fair value for our financial assets and financial liabilities were as follows (in thousands):


	At March 31, 2018					At December 31, 2017					At March 31, 2019					At December 31, 2018
	Carrying		Fair			Carrying		Fair			Carrying		Fair			Carrying		Fair
	Value		Value			Value		Value			Value		Value			Value		Value
Mortgage loans receivable	$	233,383	$	302,671	(1)	$	223,907	$	278,224	(1)	$	244,314	$	297,355	(1)	$	242,939	$	295,492	(1)
Bank borrowings		120,500		120,500	(2)		96,500		96,500	(2)		146,900		146,900	(2)		112,000		112,000	(2)
Senior unsecured notes, net of debt issue costs		566,888		559,155	(3)		571,002		577,126	(3)		528,900		520,343	(3)		533,029		508,613	(3)
Accrued incentives and earn-outs		9,041		9,041	(4)		8,916		8,916	(4)

⁽¹⁾

Our investment in mortgage loans receivable is classified as Level 3. The fair value is determined using a widely accepted valuation technique, discounted cash flow analysis on the expected cash flows. The discount rate is determined using our assumption on market conditions adjusted for market and credit risk and current returns on our investments. The discount rate used to value our future cash inflows of the mortgage loans receivable at both March 31, ~~2018~~2019 and December 31, ~~2017~~2018 was ~~8.2% and 8.7%, respectively.~~9.0%.

⁽²⁾

Our bank borrowings bear interest at a variable interest rate. The estimated fair value of our bank borrowings approximated their carrying values at March 31, ~~2018~~2019 and December 31, ~~2017~~2018 based upon prevailing market interest rates for similar debt arrangements.

⁽³⁾

Our obligation under our senior unsecured notes is classified as Level 3 and thus the fair value is determined using a widely accepted valuation technique, discounted cash flow analysis on the expected cash flows. The discount rate is measured based upon management’s estimates of rates currently prevailing for comparable loans available to us, and instruments of comparable maturities. At March 31, 2019, the discount rate used to value our future cash outflow of our senior unsecured notes was 4.60% for those maturing before year 2026 and 4.80% for those maturing at or beyond year 2026. At December 31, 2018, the discount rate used to value our future cash outflow of our senior unsecured notes was ~~4.50%~~5.15% for those maturing before year 2026 and ~~4.75%~~5.40% for those maturing at or beyond year 2026. At December 31, 2017, the discount rate used to value our future cash outflow of our senior unsecured notes was 4.10% for those maturing before year 2026 and 4.30% for those maturing at or beyond year 2026.

⁽⁴⁾

Our accrued incentives and earn-outs are classified as Level 3. We estimated the fair value of the accrued incentives and earn‑out payments using a discounted cash flow analysis. The discount rate that we use consists of a risk‑free U.S. Treasury rate plus a company specific credit spread which we believe is acceptable by willing market participants. The discount rate used to value our accrued incentives and earn-outs was 6.7% at March 31, 2018 and 6.2% at December 31, 2017.

12.Subsequent Events

Subsequent to March 31, ~~2018~~2019 the following events occurred:

~~Real Estate:~~ We sold a portfolio of six assisted living communities in Ohio and Pennsylvania with a total of 320 units for an aggregate price of $67,500,000. These properties have a combined net book value of approximately $16,350,000. As a result of this transaction, we expect to recognize a net gain on sale of approximately $48,000,000. These properties were classified as held-for-sale during the first quarter of 2018. See ~~Note 2. Real Estate Investments~~ ~~for more information.~~

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~~LTC PROPERTIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~ ~~CONTINUED~~

~~(Unaudited)~~

~~Debt:~~ ~~We repaid $65,000,000 under our unsecured revolving line of credit. Accordingly, we have $55,500,000 outstanding under our unsecured revolving line of credit with $544,500,000 available for borrowing.~~

Equity: We declared a monthly cash dividend of $0.19 per share on our common stock for the months of April, May and June ~~201~~8,2019, payable on April 30, May 31, and June ~~29, 2018,~~28, 2019, respectively to stockholders of record on April ~~20,~~22, May 23, and June ~~21, 2018,~~20, 2019, respectively.

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Item 2.~~MANAGEMENT’S~~2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statement Regarding Forward Looking Disclosure

This quarterly report contains 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, adopted pursuant to the Private Securities Litigation Reform Act of 1995. Statements that are not purely historical may be forward-looking. You can identify some of the forward-looking statements by their use of forward-looking words, such as “believes,” “expects,” “may,” “will,” “could,” “would,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates” or “anticipates,” or the negative of those words or similar words. Forward-looking statements involve inherent risks and uncertainties regarding events, conditions and financial trends that may affect our future plans of operation, business strategy, results of operations and financial position. A number of important factors could cause actual results to differ materially from those included within or contemplated by such forward-looking statements, including, but not limited to, the status of the economy; the status of capital markets (including prevailing interest rates) and our access to capital; the income and returns available from investments in health care related real estate (including our ability to re-lease properties upon expiration of a lease term); the ability of our borrowers and lessees to meet their obligations to us; our reliance on a few major operators; our dependence on operators for revenue and cash flow; the bankruptcy, insolvency or financial deterioration of our lessees; potential limitations on our remedies when mortgage loans default; competition faced by our borrowers and lessees within the health care industry; regulation of the health care industry by federal, state and local governments; changes in Medicare and Medicaid reimbursement amounts (including due to federal and state budget constraints); compliance with and changes to regulations and payment policies within the health care industry; debt that we may incur and changes in financing terms; our ability to continue to qualify as a real estate investment trust; the relative illiquidity of our real estate investments; ~~potential limitations on our remedies when mortgage loans default;~~ and risks and liabilities in connection with properties owned through limited liability companies and partnerships. For a discussion of these and other factors that could cause actual results to differ from those contemplated in the forward-looking statements, please see the discussion under “Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017~~2018 and in our publicly available filings with the Securities and Exchange Commission. We do not undertake any responsibility to update or revise any of these factors or to announce publicly any revisions to forward-looking statements, whether as a result of new information, future events or otherwise.

Executive Overview

Business and Investment Strategy

We are a self-administered health care real estate investment trust ~~(or REIT)~~(“REIT”) that invests in seniors housing and health care properties ~~primarily~~ through sale-leaseback transactions, mortgage financing and structured finance solutions including mezzanine lending. We conduct and manage our business as one operating segment, rather than multiple operating segments, for internal reporting and internal ~~decision making~~decision-making purposes. Our primary objectives are to create, sustain and enhance stockholder equity value and provide current income for distribution to stockholders through real estate investments in seniors housing and health care properties managed by experienced operators.

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The ~~below~~following graph summarizes our gross investments as of March 31, ~~2018:~~2019:

Our primary seniors housing and health care property classifications include skilled nursing centers ~~(or SNF)~~(“SNF”), assisted living communities ~~(or ALF)~~(“ALF”), independent living communities ~~(or ILF)~~(“ILF”), memory care communities ~~(or MC)~~(“MC”) and combinations thereof. ALF, ILF, MC, and combinations thereof are included in the ALF ~~property~~communities classification. As of March 31, ~~2018,~~2019, seniors housing and long-term health care properties comprised approximately ~~99.4%~~99.3% of our real estate investment portfolio. We have been operating since August 1992.

Substantially all of our revenues and sources of cash flows from operations are derived from operating lease rentals, ~~and~~ interest earned on outstanding loans ~~receivable.~~receivable an income from investments in unconsolidated joint ventures. Our investments in owned properties and mortgage loans represent our ~~main~~primary source of liquidity to fund distributions and are dependent upon the performance of the operators on their lease and loan obligations and the rates earned thereon. To the extent that the operators experience operating difficulties and are unable to generate sufficient cash to make payments to us, there could be a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. To mitigate this risk, we monitor our investments through a variety of methods determined by ~~the~~property type ~~of health care facility~~ and operator. Our monitoring process includes periodic review of financial statements for each facility, periodic review of operator credit, scheduled property inspections and review of covenant compliance.

In addition to our monitoring and research efforts, we also structure our investments to help mitigate payment risk. Some operating leases and loans are credit enhanced by guaranties and/or letters of credit. In addition, operating leases are typically structured as master leases and loans ~~secure multiple properties.~~are generally cross-defaulted and cross-collateralized with other loans, operating leases or agreements between us and the operator and its affiliates.

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Real Estate Portfolio Overview

The following ~~table summarizes~~tables summarize our real estate investment portfolio by owned properties and mortgage loans and by type, as of March 31, ~~2018~~2019 (dollar amounts in thousands):


					Three Months Ended													Three Months Ended
			Percentage		March 31, 2018				Percentage		Number	Number of				Percentage		March 31, 2019				Percentage		Number	Number of
	Gross		of		Rental		Interest		of		of	SNF	ALF	Gross		of		Rental		Interest		of		of	SNF	ALF
Type of Property	Investments		Investments		Income		Income		Revenues		Properties(1)	Beds(2)	Units(2)
Owned Properties														Investments		Investments		Income (1)		Income		Revenues		Properties (2)	Beds (3)	Units (3)
Assisted Living														$	821,167	48.5	%	$	17,356	$	—	40.8	%	104	—	5,959
Skilled Nursing	$	813,542	49.7	%	$	17,133	$	6,816	58.0	%	97	12,068	261		587,410	34.7	%		17,624		—	41.4	%	72	8,893	261
Assisted Living		784,229	47.9	%		17,145		—	41.5	%	105	—	5,962
Under Development~~(3)~~(4)		28,729	1.8	%		—		—	—	%	—	—	—		25,952	1.5	%		—		—	—	%	—	—	—
Other~~(4)~~(5)		10,740	0.6	%		227		—	0.5	%	1	118	—		11,067	0.7	%		235		—	0.6	%	1	118	—
Totals	$	1,637,240	100.0	%	$	34,505	$	6,816	100.0	%	203	12,186	6,223
Total Owned Properties															1,445,596	85.4	%		35,215		—	82.8	%	177	9,011	6,220

Mortgage Loans
Skilled Nursing															246,775	14.6	%		—		7,311	17.2	%	22	2,892	—
Total Mortgage Loans															246,775	14.6	%		—		7,311	17.2	%	22	2,892	—

Total Portfolio														$	1,692,371	100.0	%	$	35,215	$	7,311	100.0	%	199	11,903	6,220


					Three Months Ended
			Percentage		March 31, 2019				Percentage		Number	Number of
	Gross		of		Rental		Interest		of		of	SNF	ALF
Summary of Properties by Type	Investments		Investments		Income (1)		Income		Revenues		Properties (2)	Beds (3)	Units (3)
Skilled Nursing	$	834,185	49.3	%	$	17,624	$	7,311	58.6	%	94	11,785	261
Assisted Living		821,167	48.5	%		17,356		—	40.8	%	104	—	5,959
Under Development (4)		25,952	1.5	%		—		—	—	%	—	—	—
Other (5)		11,067	0.7	%		235		—	0.6	%	1	118	—
Total Portfolio	$	1,692,371	100.0	%	$	35,215	$	7,311	100.0	%	199	11,903	6,220

⁽¹⁾

Includes $9,600 recovery of written-off straight-line rent receivable and excludes variable rental income of $4,335 related to our real estate taxes which were reimbursed by our operators and adjustment for collectibility.

(2)

We have investments in 2928 states leased or mortgaged to 3029 different operators.

⁽²⁾(3)

See Item 1. Financial Statements – Note 2. Real Estate Investments for discussion of bed/unit count.

⁽³⁾(4)

Represents ~~three~~two development projects consisting of a ~~66-unit~~ 78-unit ALF/MC located in ~~Illinois,~~Oregon and a 110-unit ILF/ALF/MC located in ~~Wisconsin and a 143-bed SNF located in Kentucky.~~Wisconsin.

⁽⁴⁾(5)

Includes three parcels of land held-for-use and one behavioral health care hospital.

As of March 31, ~~2018~~2019, we had ~~$1.3~~$1.4 billion in carrying value of net real estate investments, consisting of $1.1 billion or ~~82.3%~~82.1% invested in owned and leased properties and $0.2 billion or ~~17.7%~~17.9% invested in mortgage loans secured by first mortgages. Our investment in mortgage loans contain interest rates between 9.2% and 9.7%. Approximately 95.4% of those mortgage loans mature in 2043 and beyond.

For the three months ended March 31, ~~2018,~~2019, rental income and interest income from mortgage loans represented ~~82.5%~~78.2% and ~~16.3%~~20.4%, respectively, of total gross revenues. In most instances, our lease structure contains fixed annual rental escalations, which are generally recognized on a straight-line basis over the minimum lease period. Certain leases have annual rental escalations that are contingent upon changes in the Consumer Price Index and/or changes in the gross operating revenues of the property. ~~For those certain leases, the~~This revenue is not recognized until the appropriate contingencies have been resolved.

During the three months ended March 31, ~~2018,~~2019, there were no lease renewals. During the three months ended March 31, 2019, we transitioned two senior housing communities to a new operator. This transition had no economic impact on our rental income. As a result of this transition, we wrote-off $1.9 million of straight-line rent receivable as a contra-revenue adjustment, in accordance with the newly adopted Accounting Standard Codification (“ASC”). For the three months ended March 31, ~~2018,~~2019, we recorded ~~$3.4~~$1.2 million in straight-line rental income and ~~recovered a net~~amortization of lease incentive cost of $0.1 ~~million in straight-line rent receivable reserve.~~million. During the three months ended March 31, ~~2018,~~2019, we received ~~$31.6~~$28.8 million of cash rental ~~revenue~~income,

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which includes $4.3 million of operator reimbursements for our real estate taxes and ~~recorded amortization~~excludes $9.6 million of ~~lease incentives cost~~cash rent received and recognized as a contra-expense on the consolidated statements of ~~$0.5 million.~~income and comprehensive income titled Recovery of written-off straight-line rent receivable. See Note 1. General for further discussion. At March 31, ~~2018,~~2019, the straight-line rent receivable balance, net of reserves, on the balance sheet was ~~$68.~~0$42.5 million.

Update on ~~Anthem Memory Care and Preferred Care~~Certain Operators

During 2017, we issued a notice of default to Anthem Memory Care ~~(or Anthem)~~(“Anthem”) resulting from Anthem’s partial payment of minimum rent. Anthem operates ~~one property under development and ten operational~~11 memory care communities under a master lease. We ~~are~~ currently ~~not pursuing enforcement~~estimate that Anthem will pay $7.5 million of ~~our rights and remedies pertaining to known events~~annual cash rent during 2019. This amount represents approximately 50% of ~~default~~the contractual amount due under the ~~master~~ lease ~~and our guarantees,~~in 2019. In accordance with the ~~stipulation that Anthem Memory Care achieve certain level~~newly adopted ASC Topic 842, Leases (“ASC 842”) lease accounting guidance, at January 1, 2019, we evaluated the collectibility of ~~performance~~straight-line rent receivable and ~~pay a minimum of $5.2 million of cash rent for these 11 properties through December 31, 2018. We receive regular financial performance updates from~~lease incentive balances related to Anthem and ~~continue~~determined that it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to ~~monitor Anthem’s performance obligations under~~equity as required by the ~~master lease agreement closely.~~ASC 842 transition guidance.

~~Also, during~~During 2017, Preferred Care, Inc. ~~(or~~ (“Preferred ~~Care)~~Care”) and ~~several~~ affiliated entities filed for Chapter 11 bankruptcy as a result of a ~~multi-million dollar judgement~~multi-million-dollar judgment in a lawsuit in Kentucky against Preferred Care and certain affiliated entities. The affiliated entities named in the lawsuit operate properties in Kentucky and New Mexico. ~~According to Preferred Care, it is subject to the judgement~~

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~~because it was included in the lawsuit.~~ Preferred Care leases 2624 properties under two master leases from us and none of the 2624 properties are located in Kentucky or New Mexico. Those 2624 properties are in Arizona, Colorado, Iowa, Kansas ~~Texas~~ and ~~Virginia. Additionally, the~~Texas. The Preferred Care operating entities that sublease those properties did not file for bankruptcy. ~~Our annual rental revenue from~~The court ordered deadline for affirmation or rejection of the lease has passed without action by Preferred Care, ~~represented 6.8%~~but they continue to pay rent to us in a timely manner. In accordance with the newly adopted ASC 842 lease accounting guidance, at January 1, 2019, we evaluated the collectibility of straight-line rent receivable and lease incentive balances related to Preferred Care and determined that it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as required by the ASC 842 transition guidance. Furthermore, we placed Preferred Care on a cash basis on January 1, 2019. We are working with Preferred Care on options for the portfolio which may include re-leasing or selling some of the properties.

On December 4, 2018, Senior Care Centers, LLC. and affiliates and subsidiaries (“Senior Care”) filed for Chapter 11 bankruptcy as a result of lease terminations from certain landlords and on-going operational challenges. Pursuant to the U.S. Bankruptcy Code, Senior Care has an initial period of 120 days from the petition date to assume or reject the lease. However, the Bankruptcy Code also provides that the court may extend this initial 120-day period for an additional 90 days. Accordingly, Senior Care has requested, and the court has approved an additional 90 days, which ends on July 2, 2019, to assume or reject the lease. In December 2018 we placed Senior Care on a cash basis. As security under the lease, we hold a letter of credit in the amount of approximately $2.0 million, maintenance and repair escrows of approximately $2.2 million and property tax escrows of approximately $1.8 million. Senior Care did not pay us December 2018 rent, but has paid us January to April 2019 rent, real estate property tax and maintenance deposits. We have previously requested a consensual termination of the lease and have requested Senior Care to reject our lease in bankruptcy. In accordance with the newly adopted ASC 842 lease accounting guidance, at January 1, 2019, we evaluated the collectibility of straight-line rent receivable and lease incentive balances related to Senior Care and determined that it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as required by the ASC 842 transition guidance. We are evaluating our options to transition or sell the properties under the lease with Senior Care.

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During the three months ended March 31, ~~2018. Preferred Care is current~~2019, we placed Thrive Senior Living, LLC. (“Thrive”) on ~~its rent~~a cash basis due to usshort-payment of contractual rent in November 2018 and ~~provides us updates on~~non-payment of rent in December 2018 totaling $0.7 million. This rent was subsequently received in 2019. Thrive has not paid January to April 2019 rent. Subsequent to March 31, 2019, we issued a notice of default to Thrive. In accordance with the ~~bankruptcy proceedings.~~newly adopted ASC 842 lease accounting guidance, at January 1, 2019, we evaluated the collectibility of straight-line rent receivable and lease incentive balances related to Thrive and determined that it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as required by the ASC 842 transition guidance. We are working with Thrive and exploring our options to maximize the value of these real estate assets.

~~2018~~2019 Activities Overview

The following tables summarize our transactions during the three months ended March 31, ~~2018~~2019 (dollar amounts in thousands):

Investment in ~~Real Estate~~Owned Properties

Developments

Improvements

Assisted Living Communities

$
6,803

$
122

Skilled Nursing Centers

1,788

279

Other

—

133

Totals

$
8,591

$
534

~~Investment in Mortgage Loans~~

Originations and funding under mortgage loans receivable

$
9,610
(1)

Scheduled principal payments received

(37)

Net increase in mortgage loans receivable

$
9,573

Number

Type

Number

Initial

Total

Cash

Purchase

Transaction

Acquisition

State

Properties

Beds/Units

Yield

Price

Costs

Virginia

(1)

ALF/MC

7.4

16,719

171

16,890

⁽¹⁾

~~During the first quarter of 2018, we funded an additional $7,400 under~~We entered into a joint venture (“JV”) to purchase an existing ~~mortgage loan for~~operational 74-unit ALF/MC community. The non-controlling partner contributed $919 of equity and we contributed $15,971 in cash. Our economic interest in the ~~purchase of a 112-bed skilled nursing center in Michigan. The incremental funding bears interest at 8.7%, fixed for five years, and escalating by 2.25% thereafter.~~real estate JV is approximately 95%.

Investment in Development and Improvement projects


	Developments		Improvements
Assisted Living Communities	$	4,507	$	256
Skilled Nursing Centers		2,450		—
Other		—		3
Total	$	6,957	$	259

Completed Developments

Number

Type

Number

Total

Type of Project

Properties

Property

Beds/Units

State

Investment

Development

SNF

143

Kentucky

22,451

Investment in Mortgage Loans


Originations and funding under mortgage loans receivable	$	1,454
Scheduled principal payments received		(65)
Provision for loan loss reserve		(14)
Net increase in mortgage loans receivable	$	1,375

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Investment in Unconsolidated Joint Ventures


										Three Months Ended March 31, 2018
	Type	Type	Total		Currently		Number								Received	Type	Type	Total		Currently		Number													Received
	of	of	Preferred		Paid in		of		Investment		Capital		Recognized		Cash	of	of	Preferred		Paid in		of		Investment			Carrying			Capital		Recognized			Cash
State	Properties	Investment	Return		Cash		Beds/ Units		Commitment		Contribution		Income		Interest	Properties	Investment	Return		Cash		Beds/ Units		Commitment			Value			Contribution		Income			Interest
Arizona	ALF/MC/ILF	Preferred Equity	15	%	6	%	585	$	25,650	$	380	$	429	$	446	ALF/MC/ILF	Preferred Equity	15	%	7	%	585	$	25,650		$	24,325		$	293	$	553		$	552
Florida																ALF/IL/MC	Mezzanine	15	%	15	%	99		2,900	(1)		3,190	(1)		—		128			121
Florida(2)	UDP-ALF/IL/MC	Mezzanine	15	%	10	%	99		2,900		—		128		97	UDP/ALF/MC	Mezzanine	n.a		n.a	%	n.a		—			—			—		404	(2)		432	(2)
Florida	UDP-ALF/MC	Mezzanine	15	%	10	%	127		3,400		-		74		—
							811	$	31,950	$	380	$	631	$	543							684	$	28,550		$	27,515		$	293	$	1,085		$	1,105

(1)

~~Property Sales~~

(2)

We had a $3,400 mezzanine loan commitment for the development of a 127-unit seniors housing community in Florida with a total preferred return of 15%. During the first quarter of 2019, the mezzanine loan was paid off.

Notes Receivable


Advances under notes receivable	$	6,953
Principal payments received under notes receivable		(41)
Notes receivable reserve		(69)
Total	$	6,843

We did not sell properties during the three months ended March 31, 2018. Subsequent to March 31, 2018, we sold a portfolio of six assisted living communities in Ohio and Pennsylvania with a total of 320 units for an aggregate price of $67.5 million. These properties have a combined net book value of $16.4 million. As a result of this transaction, we expect to recognize a net gain on sale of approximately $48.0 million. These properties were classified as held-for-sale during the first quarter of 2018. See ~~Note 2. Real Estate Investments~~ ~~for more information.~~

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Health Care Regulatory Climate

The Centers for Medicare & Medicaid Services ~~(or CMS)~~(“CMS”) annually updates Medicare skilled nursing facility prospective payment system rates and other policies. On July 31, ~~2017,~~2018, CMS released a final rule updating ~~Medicare~~ skilled nursing facility rates and policies for fiscal year ~~2018, which began on October 1, 2017.~~2019. The final rule adopts a 2.4% payment increase, as mandated by the Bipartisan Budget Act of 2018. CMS ~~expects the rule to~~projects this update will increase overall payments to ~~SNFs~~skilled nursing facilities by ~~$370~~$820 million in fiscal year ~~2018, or 1.0%,~~2019 as compared to fiscal year ~~2017~~2018 levels. ~~The 1% update for fiscal year 2018 was set by Congress in 2015 legislation. In addition,~~Furthermore, CMS finalized a plan to replace the final rule updates Quality Reporting Program measures and adopts additional policies to implement the Value-Based Purchasing Program in fiscal year 2019. On April 27, 2017, CMS released an advance notice of proposed rulemaking or pre-rule, to request comments on the possibility of replacing the skilled nursing facility prospective payment system’s existing ~~case-mix classification model, the~~ Resource Utilization Groups, Version ~~4 (RUG-IV),~~IV (“RUG–IV”) case mix classification system with a new model beginning in fiscal year 2020. The new case mix classification system, called the ~~Resident Classification System, Version I (RCS-I). Among other features of this proposal, CMS anticipates that this model would more closely link facility~~“Patient-Driven Payment Model,” will base Medicare payment ~~to objective~~on resident ~~characteristics,~~needs rather than ~~minutes~~the amount of therapy ~~provided.~~a resident receives. CMS ~~intends~~also confirmed that the SNF Value-Based Purchasing (“VBP”) Program would go into effect beginning October 1, 2018, as required by statute. Under the VBP Program, CMS reduces Medicare payments to ~~propose case-mix refinements~~skilled nursing facilities by 2% and returns approximately 60% of the withheld amount to skilled nursing facilities based on their relative performance on a readmission measure. The remaining portion of the withheld amount will be retained in the Medicare Trust Fund. On April 19, 2019, CMS released a proposed rule to update skilled nursing facility rates and policies for fiscal year 2020, which starts October 1, 2019. CMS estimates that payments to skilled nursing facilities would rise by $887 million, or 2.5%, compared with fiscal year 2019 levels. CMS proposes to implement the Patient-Driven Payment Model in fiscal year 2020, as previously adopted, but CMS proposes to modify the definition of group therapy. CMS also proposes certain policy changes to the VBP and quality reporting program requirements that would affect Medicare payments to skilled nursing ~~facility prospective payment system proposed~~facilities. CMS is expected to release the final rule ~~which has not yet been released.~~by August 1, 2019.

On September 28, 2016, CMS released a final rule revising the requirements that long-term care facilities must meet to participate in the Medicare and Medicaid programs. This major rule addresses requirements for improving quality of care and patient safety, nursing facility staffing, care planning, infection control, and residents’ rights and compliance and ethics programs, among other key provisions. While the rule also banned pre-dispute arbitration agreements, that provision was stayed due to litigation challenging the requirement. On June 8, 2017, CMS published a proposed rule that would eliminate the prohibition on pre-dispute binding arbitration agreements and otherwise modify these requirements; this rule has not been finalized. There can be no assurance that these rules or future regulations modifying Medicare skilled nursing facility payment rates or other requirements for Medicare and/or Medicaid participation will not have an adverse effect on the financial condition of our borrowers and lessees which could, in turn, adversely impact the timing or level of their payments to us.

Congress periodically considers legislation revising Medicare and Medicaid policies, including legislation that could have the impact of reducing Medicare reimbursement for skilled nursing facilities and other Medicare providers, limiting state Medicaid funding allotments, encouraging home and community-based long-term care services as an alternative to institutional settings, or otherwise reforming payment policy for post-acute care services. On February 9, 2018, President Trump signed into law the Bipartisan Budget Act of 2018, which, as noted, establishes a ~~2.4 %~~2.4% increase to fiscal year 2019 Medicare skilled nursing facility rates; the update otherwise would have been based on the change in the skilled nursing facility market basket index, reduced by a productivity adjustment. There can be no assurances that enacted or future legislation will not have an adverse impact on the financial condition of our borrowers and lessees, which subsequently could materially adversely impact our company.

Additional reforms affecting the payment for and availability of health care services have been proposed at the federal and state level and adopted by certain states. Increasingly, state Medicaid programs are providing coverage through managed care programs under contracts with private health plans, which is intended to decrease state Medicaid costs. Congress and state legislatures can be expected

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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 methodologies 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~~third-party payors.

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Key Performance Indicators, Trends and Uncertainties

We utilize several key performance indicators to evaluate the various aspects of our business. These indicators are discussed below and relate to concentration risk and credit strength. Management uses these key performance indicators to facilitate internal and external comparisons to our historical operating results in making operating decisions and for budget planning purposes.

Concentration Risk. We evaluate by gross investment our concentration risk in terms of asset mix, real estate investment mix, operator mix and geographic mix. Concentration risk is valuable to understand what portion of our real estate investments could be at risk if certain sectors were to experience downturns. Asset mix measures the portion of our investments that are real property or mortgage loans. ~~In order to qualify~~The National Association of Real Estate Investment Trusts (“NAREIT”), an organization representing U.S. REITs and publicly traded real estate companies, classifies a company with 50% or more of assets directly or indirectly in the equity ownership of real estate as an equity ~~REIT, at least 75 percent of our total assets must be represented by real estate assets, cash, cash items and government securities.~~REIT. Investment mix measures the portion of our investments that relate to our various property classifications. Operator mix measures the portion of our investments that relate to our top five operators. Geographic mix measures the portion of our real estate investment that relate to our top five states.

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The following table reflects our recent historical trends of concentration risk (gross investment, in thousands):


	3/31/18		12/31/17		9/30/17		6/30/17		3/31/17		3/31/19		12/31/18		9/30/18		6/30/18		3/31/18
Asset mix:
Real property	$	1,401,506	$	1,392,122	$	1,359,586	$	1,354,369	$	1,305,918	$	1,445,596	$	1,421,456	$	1,414,267	$	1,401,303	$	1,401,506
Loans receivable		235,734		226,162		224,095		222,604		225,541		246,775		245,386		245,053		236,178		235,734
Investment mix:
Real estate investment mix:
Skilled nursing centers	$	813,542	$	803,691	$	803,853	$	802,361	$	799,298	$	834,185	$	810,570	$	814,194	$	814,208	$	813,542
Assisted living communities		784,229		781,770		754,927		752,591		711,489		821,167		804,021		802,484		787,373		795,036
Under development		28,729		22,215		14,685		11,805		9,250		25,952		41,186		31,602		25,077		17,922
Other(1)		10,740		10,608		10,216		10,216		11,422		11,067		11,065		11,040		10,823		10,740
Operator mix:
Prestige Healthcare(1)	$	247,769	$	238,184	$	236,105	$	234,601	$	231,657	$	259,907	$	258,519	$	258,186	$	249,311	$	247,769
Senior Lifestyle Corporation		189,226		189,226		189,025		189,025		201,862		190,368		190,368		189,945		189,945		189,226
Senior Care Centers		138,109		138,109		138,109		138,109		138,109		138,109		138,109		138,109		138,109		138,109
Anthem Memory Care												136,397		136,397		135,946		135,342		131,527
Brookdale Senior Living		126,991		126,991		126,991		126,991		126,991		126,991		126,991		126,991		126,991		126,991
Anthem Memory Care		131,527		126,120		121,138		117,807		113,978
Remaining operators		803,618		799,654		772,313		770,440		718,862		840,599		816,458		810,143		797,783		803,618
Geographic mix:
Texas	$	267,051	$	267,051	$	269,279	$	269,168	$	269,067	$	292,091	$	292,317	$	292,317	$	292,317	$	267,051
Michigan		235,579		225,994		223,916		222,412		219,467		247,718		246,329		245,996		237,121		235,579
Wisconsin		130,941		129,398		126,313		126,314		126,133		146,750		143,657		137,056		133,794		130,941
Ohio		115,321		115,321		115,258		115,236		99,300
Colorado		114,923		114,923		114,923		114,923		114,923		114,923		114,923		114,923		114,923		114,923
California												102,254		102,254		102,254		102,254		102,254
Remaining states		773,425		765,597		733,992		728,920		702,569		788,635		767,362		766,774		757,072		786,492

⁽¹⁾

We have three parcels of land ~~as of March 31, 2018. These parcels are~~ located adjacent to properties securing the Prestige Healthcare mortgage loan and are managed by Prestige.

Credit Strength. We measure our credit strength both in terms of leverage ratios and coverage ratios. Our leverage ratios include debt to gross asset value and debt to market capitalization. The leverage ratios indicate how much of our consolidated balance sheet capitalization is related to long-term obligations. Our coverage ratios include interest coverage ratio and fixed charge coverage ratio. The coverage ratios indicate our ability to service interest and fixed charges (interest). The coverage ratios are based on ~~adjusted~~ earnings before ~~gain or loss on sale of real estate,~~ interest, taxes, depreciation and amortization ~~(or Adjusted EBITDA).~~for real estate (“EBITDAre”) as defined by NAREIT. EBITDAre is calculated as net income available to common stockholders (computed in accordance with GAAP) excluding (i) interest expense, (ii) income tax expense, (iii) real estate depreciation and amortization, (iv) impairment write-downs of depreciable real estate, (v) gains or losses on the sale of depreciable real estate, and (vi) adjustments for unconsolidated partnerships and joint ventures. Leverage ratios and coverage ratios are widely used by ~~investors,~~

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investors, analysts and rating agencies in the valuation, comparison, rating and investment recommendations of companies. The following table reflects the recent historical trends for our credit strength measures:

Balance Sheet Metrics


	Quarter Ended														Quarter Ended
	3/31/18			12/31/17			9/30/17			6/30/17			3/31/17		3/31/19			12/31/18			9/30/18		6/30/18			3/31/18
Debt to gross asset value	38.3	%	(1)	37.6	%	(1)	36.8	%	(4)	37.1	%	(1)	35.6	%	37.1	%	(1)	35.2	%	(4)	36.4	%	36.1	%	(7)	38.3	%
Debt to market capitalization ratio	31.4	%	(2)	27.9	%	(2)	25.5	%	(5)	24.0	%		24.0	%	27.1	%	(2)	28.1	%	(5)	27.7	%	27.8	%	(8)	31.4	%
Interest coverage ratio~~(8)~~(9)	4.7	x	(3)	4.8	x		4.8	x	(6)	5.3	x	(7)	5.0	x	4.9	x	(3)	5.2	x	(6)	4.8	x	4.7	x		4.7	x
Fixed charge coverage ratio~~(8)~~(9)	4.7	x	(3)	4.8	x		4.8	x	(6)	5.3	x	(7)	5.0	x	4.9	x	(3)	5.2	x	(6)	4.8	x	4.7	x		4.7	x

⁽¹⁾

Increased ~~primarily~~ due to increase in outstanding debt ~~partially offset by the increase~~and decrease in gross asset value. The decrease in gross asset value ~~from acquisitions, additional development~~was primarily due to adoption of ASC 842 during the three months ended March 31, 2019. ASC 842 requires a lease-by-lease collectibility analysis of receivables and ~~capital improvement funding.~~related balances. Based on our assessment, we determined that it was not probable that we would collect substantially all of the contractual lease obligations for certain leases through maturity. Accordingly, we wrote-off the balance of straight-line rent receivable and lease incentives related to these leases as a cumulative adjustment to equity, as required by the transition guidance.

⁽²⁾

~~Increased primarily~~Decreased due to increase ~~in outstanding debt and decrease~~ in market capitalization.

⁽³⁾

Decreased ~~primarily~~ due to ~~increase~~decrease in ~~interest expense resulting from increase in average outstanding debt.~~other income compared to the fourth quarter of 2018. See (6) below for explanation.

⁽⁴⁾

Decreased due to decrease in outstanding debt partially offset by decrease in gross asset value.

⁽⁵⁾

Increased ~~primarily~~ due to decrease in market capitalization, partially offset by decrease in outstanding debt.

(6)

Increased due to decrease in interest expense and increase in other income from the net write-off of Senior Lifestyle contingent lease incentive and the related earn-out liability.

(7)

Decreased due to decrease in outstanding debt and increase in gross asset value from acquisitions partially offset by sold

properties and loan payoffs.

(8)

Decreased due to decrease in outstanding debt and increase in market capitalization.

⁽⁶⁾(9)

Decreased due to decrease in net income primarily related to a defaulted master lease, as previously discussed, that was placed on cash basis and the reduction of rent related to the properties sold in the second quarter of 2017, partially offset by acquisitions and capital improvement investments and increase in interest expense resulting from increase in outstanding debt.

⁽⁷⁾

~~Increase primarily due to decrease in interest expense resulting from decrease in average outstanding debt.~~

⁽⁸⁾

In calculating our interest coverage and fixed charge coverage ratios above, we use ~~Adjusted~~ EBITDAre, which is a financial measure not derived in accordance with U.S. generally accepted accounting principles ~~(or GAAP)~~(“GAAP”) (non-GAAP financial measure). ~~Adjusted~~ EBITDAre is not an alternative to net income, operating income or cash flows from operating activities as calculated and presented in accordance with GAAP. You should not rely on ~~Adjusted~~ EBITDAre as a substitute for any such GAAP financial measures or consider it in isolation, for the purpose of analyzing our financial performance, financial position or cash flows. Net income is the most directly comparable GAAP measure to ~~Adjusted EBITDA.~~EBITDAre.


	Quarter Ended															Quarter Ended
	3/31/18			12/31/17			9/30/17			6/30/17			3/31/17			3/31/19			12/31/18			9/30/18			6/30/18			3/31/18
Net income	$	20,359		$	19,834		$	20,616		$	25,377		$	21,513		$	20,427		$	30,844		$	34,937		$	68,936		$	20,359
Add/(less): Loss/(gain) on sale		—			1,240			—			(5,054)			—
Add: Impairment charges		—			—			—			1,880			—
Less: Gain loss on sale																	—			(7,984)			(14,353)			(48,345)			—
Add: Interest expense		7,829			7,683			7,644			7,151			7,471			7,467			7,215			7,497			7,655			7,829
Add: Depreciation and amortization		9,444			9,424			9,519			9,308			9,359			9,607			9,396			9,447			9,268			9,444
Total adjusted EBITDA	$	37,632		$	38,181		$	37,779		$	38,662		$	38,343
Total EBITDAre																$	37,501		$	39,471		$	37,528		$	37,514		$	37,632

Interest expense	$	7,829		$	7,683		$	7,644		$	7,151		$	7,471		$	7,467		$	7,215		$	7,497		$	7,655		$	7,829
Add: Capitalized interest		259			281			256			201			170			260			398			298			293			259
Interest incurred	$	8,088		$	7,964		$	7,900		$	7,352		$	7,641		$	7,727		$	7,613		$	7,795		$	7,948		$	8,088

Interest coverage ratio		4.7	x		4.8	x		4.8	x		5.3	x		5.0	x		4.9	x		5.2	x		4.8	x		4.7	x		4.7	x

Interest incurred	$	8,088		$	7,964		$	7,900		$	7,352		$	7,641		$	7,727		$	7,613		$	7,795		$	7,948		$	8,088
Total fixed charges	$	8,088		$	7,964		$	7,900		$	7,352		$	7,641		$	7,727		$	7,613		$	7,795		$	7,948		$	8,088

Fixed charge coverage ratio		4.7	x		4.8	x		4.8	x		5.3	x		5.0	x		4.9	x		5.2	x		4.8	x		4.7	x		4.7	x

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We evaluate our key performance indicators in conjunction with current expectations to determine if historical trends are indicative of future results. Our expected results may not be achieved and actual results may differ materially from our expectations. This may be a result of various factors, including, but not limited to

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 seniors housing industries; and

Changes in federal, state and local legislation.

Management regularly monitors the economic and other factors listed above. We develop strategic and tactical plans designed to improve performance and maximize our competitive position. Our ability to achieve our financial objectives is dependent upon our ability to effectively execute these plans and to appropriately respond to emerging economic and company-specific trends.

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Operating Results (unaudited, in thousands)


	Three Months Ended							Three Months Ended
	March 31,							March 31,
	2018		2017		Difference			2019		2018		Difference
Revenues:
Rental income	$	34,505	$	35,035	$	(530)	(1)	$	28,024	$	34,505	$	(6,481)	(1) (2)
Interest income from mortgage loans		6,816		6,748		68	(2)		7,311		6,816		495	(3)
Interest and other income		489		839		(350)	(3)		521		489		32
Total revenues		41,810		42,622		(812)			35,856		41,810		(5,954)

Expenses:
Recovery of written-off straight-line rent receivable									(9,600)		—		9,600	(1)
Interest expense		7,829		7,471		(358)	(4)		7,467		7,829		362	(4)
Depreciation and amortization		9,444		9,359		(85)			9,607		9,444		(163)
Provision (recovery) for doubtful accounts		8		(38)		(46)
Provision for doubtful accounts									83		8		(75)
Transaction costs		4		22		18			—		4		4
Property tax expense									4,386		—		(4,386)	(2)
General and administrative expenses		4,797		4,740		(57)			4,571		4,797		226	(5)
Total expenses		22,082		21,554		(528)			16,514		22,082		5,568

Operating income		19,728		21,068		(1,340)			19,342		19,728		(386)
Income from unconsolidated joint ventures		631		445		186	(5)		1,085		631		454	(6)
Net income		20,359		21,513		(1,154)			20,427		20,359		68
Income allocated to non-controlling interests									(81)		—		(81)
Net income attributable to LTC Properties, Inc.									20,346		20,359		(13)
Income allocated to participating securities		(88)		(97)		9			(92)		(88)		(4)
Net income available to common stockholders	$	20,271	$	21,416	$	(1,145)		$	20,254	$	20,271	$	(17)

⁽¹⁾

Decreased due to ~~a defaulted master lease,~~recognition of $9,600 of cash rent received from Anthem, Preferred Care, Senior Care and Thrive as ~~previously discussed, that was placed on cash basis~~contra- expense, in accordance with the newly adopted ASC 842 and ~~the reduction of~~decreased rent ~~related to~~from properties sold ~~during 2017,~~in 2018, partially offset by (2) below and increased rent from acquisitions, developments and capital improvement ~~investments.~~projects.

⁽²⁾

Increased due to recording $4,335 real estate taxes that are reimbursed by our operators as rental income with a corresponding property tax expense. We adopted ASC 842 using a modified retrospective approach as of the adoption date of January 1, 2019. Accordingly, we are not required to report the expense and revenue stream for periods prior to January 1, 2019.

(3)

Increased primarily due to mortgage originations and capital improvement ~~funding and increase in effective interest income on certain mortgage loans partially offset by payoffs.~~funding.

⁽³⁾(4)

Decreased due to ~~non-accrual~~a decrease in line of credit interest rate and lower debt outstanding under ~~certain notes receivable and prepayment premium income received during first quarter of 2017 partially offset by interest income from mezzanine loans.~~our senior unsecured notes.

⁽⁴⁾(5)

~~Increased~~Decreased primarily due to ~~a higher average line~~lower accrual of ~~credit outstanding balance and decrease~~incentive compensation in ~~capitalized interest related to development projects during the first quarter of 2018.~~2019.

⁽⁵⁾(6)

Increased primarily due to ~~income generated from~~the additional ~~funding under a preferred capital contribution commitment and income from~~interest related to a mezzanine loan ~~accounted for as an unconsolidated joint venture in accordance with GAAP~~ which was ~~previously deferred.~~paid off during the three months ended March 31, 2019.

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Funds From Operations Available to Common Stockholders

Funds from Operations ~~(or FFO)~~(“FFO”) available to common stockholders, basic FFO available to common stockholders per share and diluted FFO available to common stockholders per share are supplemental measures of a REIT’s financial performance that are not defined by GAAP. Real estate values historically rise and fall with market conditions, but cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time. We believe that by excluding the effect of historical cost depreciation, which may be of limited relevance in evaluating current performance, FFO facilitates comparisons of operating performance between periods.

We use FFO as a supplemental performance measurement of our cash flow generated by operations. FFO does not represent cash generated from operating activities in accordance with GAAP, and is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to net income available to common stockholders.

We calculate and report FFO in accordance with the definition and interpretive guidelines issued by ~~the National Association of Real Estate Investment Trusts (or NAREIT).~~NAREIT. FFO, as defined by NAREIT, means net income available to common stockholders (computed in accordance with GAAP) excluding gains or losses on the sale of real estate and impairment write-downs of depreciable real estate plus real

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estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Our calculation of FFO may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that have a different interpretation of the current NAREIT definition from us; therefore, caution should be exercised when comparing our FFO to that of other REITs.

The following table reconciles GAAP net income available to common stockholders to NAREIT FFO available to common stockholders (unaudited, amounts in thousands, except per share amounts):


	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2018			2017			2019			2018
GAAP net income available to common stockholders	$	20,271		$	21,416		$	20,254		$	20,271
Add: Depreciation and amortization		9,444			9,359			9,607			9,444
NAREIT FFO attributable to common stockholders	$	29,715		$	30,775		$	29,861		$	29,715
NAREIT FFO attributable to common stockholders per share:
Basic	$	0.75		$	0.78		$	0.76		$	0.75
Diluted	$	0.75	(1)	$	0.78	(1)	$	0.75	(1)	$	0.75	(1)
Weighted average shares used to calculate NAREIT FFO per share:
Basic		39,451			39,366			39,532			39,451
Diluted		39,603	(2)		39,612	(3)		39,874	(2)		39,603	(3)

⁽¹⁾

Includes the effect of the participating securities.

⁽²⁾

~~Diluted weighted average shares used to calculate FFO per share for~~Includes the ~~three months ended March 31, 2018 includes~~effect of stock option equivalents, participating securities and performance-based stock units.

(3)

Includes the effect of stock option equivalents and participating securities.

⁽³⁾

Diluted weighted average shares used to calculate FFO per share for the three months ended March 31, 2017 includes the effect of stock option equivalents, participating securities and performance based stock units.

Liquidity and Capital Resources

Sources and Uses of Cash

As of March 31, ~~2018,~~2019, we had a total of ~~$3.8~~$6.7 million of cash and cash equivalents, ~~$479.5~~$453.1 million available under our unsecured revolving line of credit, ~~$67.8~~$98.0 million available under our senior unsecured note shelf agreement and the potential ability to access the capital markets through the issuance of ~~$185.2~~$200.0 million of common stock under our equity distribution agreement. Subsequent to March 31, 2018, we repaid $65.0 million under our unsecured revolving line of credit. Accordingly, we have $544.5 million available under our unsecured line of credit.Equity Distribution Agreement. Furthermore, we have the ability to access the capital markets through the issuance of debt and/ or equity securities under an automatic shelf registration statement.

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We believe that our current cash balance, cash flow from operations available for distribution or reinvestment, our borrowing capacity and our potential ability to access the capital markets are sufficient to provide for payment of our current operating costs, meet debt obligations and pay common dividends at least sufficient to maintain our REIT status and repay borrowings at, or prior to, their maturity. The timing, source and amount of cash flows ~~provided by~~used in financing ~~activities~~ and ~~used in~~ investing activities are sensitive to the capital markets environment, especially to changes in interest rates. We continuously evaluate the availability of cost-effective capital and believe we have sufficient liquidity for additional capital investments in ~~2018.~~2019.

We expect our future income and ability to make distributions from cash flows from operations to depend on the collectibility of our rents and mortgage loans receivable. The collection of these loans and rents will be dependent, in large part, upon the successful operation by the operators of the seniors

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housing and health care properties we own or that are pledged to us. The operating results of the facilities will be impacted by 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 seniors housing and health care facilities, ability to control rising operating costs, and the potential for significant reforms in the health care industry. In addition, our 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 health care industry. We cannot presently predict what impact these proposals may have, if any. We believe that an adequate provision has been made for the possibility of loans proving uncollectible but we will continually evaluate the financial status of the operations of the seniors housing and health care properties. In addition, we will monitor our borrowers and the underlying collateral for mortgage loans and will make future revisions to the provision, if considered necessary.

Our investments, principally our investments in mortgage loans 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 our costs of financing our operations and the fair market value of our financial assets. Generally, our loans have predetermined increases in interest rates and our leases have agreed upon annual increases. Inasmuch as we may initially fund some of our investments with variable interest rate debt, we would be at risk of net interest margin deterioration if medium and long-term rates were to increase.

Our primary sources of cash include rent and interest receipts, borrowings under our primary unsecured credit facility, public and private issuances of debt and equity securities, proceeds from investment dispositions and principal payments on loans receivable. Our primary uses of cash include dividend distributions, debt service payments (including principal and interest), real property investments (including acquisitions, capital expenditures and construction advances), loan advances and general and administrative expenses. These sources and uses of cash are reflected in our Consolidated Statements of Cash Flows as summarized below (in thousands):


	Three months ended March 31,					Change	Three Months Ended March 31,					Change
Cash provided by (used in):	2018		2017			$	2019		2018			$
Operating activities	$	21,593	$	21,050	$	543	$	26,787	$	21,593	$	5,194
Investing activities		(19,337)		891		(20,228)		(28,416)		(19,337)		(9,079)
Financing activities		(3,685)		(21,200)		17,515		5,688		(3,685)		9,373
(Decrease) increase in cash and cash equivalents		(1,429)		741		(2,170)
Cash and cash equivalents, beginning of period		5,213		7,991		(2,778)
Cash and cash equivalents, end of period	$	3,784	$	8,732	$	(4,948)
Increase (decrease) in cash, cash equivalents and restricted cash								4,059		(1,429)		5,488
Cash, cash equivalents and restricted cash, beginning of period								4,764		5,213		(449)
Cash, cash equivalents and restricted cash, end of period							$	8,823	$	3,784	$	5,039

~~Operating Activities.~~ Cash provided by operating activities for the three months ended March 31, 2018 increased to $21.6 million compared to $21.1 million for the three months ended March 31, 2017 primarily due to higher lease incentive payments during the first quarter of 2017 as well as increased operating cash flow during the first quarter of 2018 from acquisitions, originations, completed developments and capital improvement projects partially offset by a decrease in rent related to a defaulted master lease placed on cash basis, as previously discussed, and the reduction of rent and interest related to the properties sold and mortgage loan payoffs in 2017.

~~Investing Activities.~~ Cash used in investing activities was $19.3 million for the three months ended March 31, 2018, compared to the cash provided by financing activities of $0.9 million for the comparable 2017 period. The increase in cash used was primarily due to increased development and loan funding in 2018 and a decrease in cash received from mortgage loan payoffs and proceeds from sale of real estate.

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~~Financing Activities.~~ Cash used by financing activities decreased to $3.7 million for the three months ended March 31, 2018, compared to the cash used by financing activities of $21.2 million for the comparable 2017 period primarily due to an increase in net borrowings in 2018 partially offset by proceeds from shares of common stock sold under our equity distribution agreement in 2017.

Debt Obligations

Bank Borrowings. We have an Unsecured Credit Agreement that provides for a revolving line of credit up to $600.0 ~~million.~~ million in aggregate commitment of the lenders and the opportunity to increase the

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commitment size of the credit agreement up to a total of $1.0 billion.The Unsecured Credit Agreement matures on ~~October 14, 2018~~June 27, 2022 and provides for a one-year extension option at our discretion, subject to customary conditions. Based on our leverage at March 31, ~~2018,~~2019, the facility provides for interest annually at LIBOR plus ~~150~~115 basis points and ~~an unused commitment~~a facility fee of 3520 basis points. At March 31, ~~2018,~~2019, we were in compliance with all covenants.

Senior Unsecured Notes. ~~During 2017, we amended our~~We have a $337.5 million shelf agreement with affiliates and managed accounts of Prudential Investment Management, Inc. ~~(or Prudential) to increase our shelf commitment to $337.5 million.~~(“Prudential”) with $98.0 million available for borrowing.

The debt obligations by component as of March 31, ~~2018~~2019 are as follows (dollar amounts in thousands):


	Applicable			Available		Applicable			Available
	Interest	Outstanding		for		Interest	Outstanding		for
Debt Obligations	Rate(1)	Balance		Borrowing		Rate (1)	Balance		Borrowing
Bank borrowings ~~(2)~~	3.21%	$	120,500	$	479,500	3.83%	$	146,900	$	453,100
Senior unsecured notes, net of debt issue costs	4.49%		566,888		67,833	4.49%		528,900		98,000
Total	4.27%	$	687,388	$	547,333	4.35%	$	675,800	$	551,100

⁽¹⁾

Represents weighted average of interest rate as of March 31, ~~2018.~~2019.

⁽²⁾

Our debt borrowings and repayments during the three months ended March 31, ~~2018~~2019 are as follows (in thousands):


Debt Obligations		Borrowings		Repayments		Borrowings		Repayments
Bank borrowings	$	24,000	$	—	$	36,900	$	(2,000)
Senior unsecured notes		—		(4,166)		—		(4,167)
Totals	$	24,000	$	(4,166)
Total					$	36,900	$	(6,167)

Equity

At March 31, ~~2018,~~2019, we had ~~39,628,835~~39,738,695 shares of common stock outstanding, equity on our balance sheet totaled ~~$753.4~~$788.2 million and our equity securities had a market value of ~~$1.5~~$1.8 billion. During the three months ended March 31, ~~2018,~~2019, we declared and paid ~~$22.6~~$22.9 million of cash dividends.

Subsequent to March 31, ~~2018,~~2019, we declared a monthly cash dividend of $0.19 per share on our common stock for the months of April, May and June ~~2018,~~2019, payable on April 30, May 31, and June ~~29, 2018,~~28, 2019, respectively, to stockholders of record on April ~~20,~~22, May 23, and June ~~21, 2018,~~20, 2019, respectively.

At-The-Market Program. ~~We have~~On March 1, 2019, we entered into annew separate equity distribution ~~agreement~~agreements (collectively, “Equity Distribution Agreement”) with four sales agents, ~~to issue~~replacing prior equity distribution agreements dated August 1, 2016. Under the terms of the new Equity Distribution Agreement, we may offer and sell, from time to time, up to $200.0 ~~million~~ in aggregate offering price of shares of our common ~~shares. The equity distribution agreement provides that sales~~stock. As of ~~common shares are to be made by means of ordinary brokers’ transactions, which may include block trades, or transactions that are deemed to be~~

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~~“at the market” offerings. During the three months ended~~ March 31, ~~2018, we did not sell any~~2019, no shares ~~of common stock~~had been issued under ~~our equity distribution agreement. At~~the Equity Distribution Agreement. Accordingly, at March 31, ~~2018,~~2019, we had ~~$185.2 million~~$200.0 available under ~~our equity distribution agreement.~~the Equity Distribution Agreement.

Available Shelf Registrations. We have an automatic shelf registration statement on file with the SEC and currently have the ability to file additional automatic shelf registration statements to provide us with capacity to publicly offer an indeterminate amount of common stock, preferred stock, warrants, debt, depositary shares, or units. We may from time to time raise capital under our automatic registration statement in amounts, at prices, and on terms to be announced when and if the securities are offered. The

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specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of the offering.

Stock-Based Compensation. During the three months ended March 31, ~~2018,~~2019, we granted restricted stock and performance-based stock units under the 2015 Plan as follows:

No. of

Price per

Shares/Units

Share

Vesting Period

81,819

$
38.18

ratably over 3 years

66,171

$
38.18

TSR targets (1)

147,990


No. of	Price per
Shares	Share		Vesting Period
78,276	$	46.54	ratably over 3 years
60,836	$	46.54	TSR targets (1)
139,112

⁽¹⁾

Vesting is based on achieving certain total shareholder return ~~(or TSR)~~(“TSR”) targets in 4 years with acceleration opportunity in 3 years.

Critical Accounting Policies

~~There~~Our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q are prepared in conformity with U.S. generally accepted accounting principles for interim financial information set forth in the Accounting Standards Codification as published by the Financial Accounting Standards Board, which require us to make estimates and assumptions regarding future events that affect the amounts reported in our financial statements and accompanying footnotes. We base these estimates on our experience and assumptions regarding future events we believe to be reasonable under the circumstances. Actual results could differ from those estimates and such differences may be material to the consolidated financial statements. We have ~~been no material changes from the~~described our most critical accounting policies ~~as previously disclosed~~ in our 2018 Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2017.~~2018.

There have been no changes to our critical accounting policies or estimates since December 31, 2018, with exception of the adoption of ASC Topic 842, Leases. Please refer to Note 1. General of these unaudited consolidated financial statements under Part 1, Item 1 of this Quarterly Report on Form 10-Q for information regarding recently adopted standards.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material changes in our market risk during the three months ended March 31, ~~2018.~~2019. For additional information, refer to Item 7A as presented in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Item 4. CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended). As of the end of the period covered by this report based on such evaluation our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective.

There has been no change in our internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

We are and may become from time to time a party to various claims and lawsuits arising in the ordinary course of business, which in our opinion are not singularly or in the aggregate anticipated to be material to our results of operations or financial condition. Claims and lawsuits may include matters involving general or professional liability asserted against the lessees or borrowers related to our properties, which we believe under applicable legal principles are not our responsibility as a non-possessory landlord or mortgage holder. We believe that these matters are the responsibility of our lessees and borrowers pursuant to general legal principles and pursuant to insurance and indemnification provisions in the applicable leases or mortgages. We intend to continue to vigorously defend such claims and lawsuits.

Item 1A. RISK FACTORS

There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017.~~2018.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended March 31, ~~2018,~~2019, we did not make any unregistered sales of equity securities.

During the three months ended March 31, ~~2018,~~2019, we acquired shares of common stock held by employees who tendered shares to satisfy tax withholding obligations. Specifically, the number of shares of common stock acquired from employees and the average prices paid per share for each month in the quarter ended March 31, ~~2018~~2019 are as follows:

Total Number


of Shares

Maximum

Purchased as

Number of

Average

Part of

Shares that May

Total Number

Price

Publicly

Yet Be

of Shares

Paid per

Announced

Purchased

Period

Purchased

Share

Plan

Under the Plan

January 1- January 31, 2018

—

$
—

—

—

February 1 - February 28, 2018

28,256

$
37.67

—

—

March 1 - March 31, 2018

—

$
—

—

—

Total

28,256

—

—


				Total Number
				of Shares	Maximum
				Purchased as	Number of
		Average		Part of	Shares that May
	Total Number	Price		Publicly	Yet Be
	of Shares	Paid per		Announced	Purchased
Period	Purchased	Share		Plan	Under the Plan
January 1- January 31, 2019	722	$	43.25	—	—
February 1 - February 28, 2019	20,345	$	46.70	—	—
March 1 -March 31, 2019	23,476	$	44.42	—	—
Total	44,543			—	—

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Item 6. Exhibits

3.1	LTC Properties, Inc. Articles of Restatement (incorporated by reference to Exhibit 3.1.2 to LTC Properties Inc.’s Current Report on Form 8‑K (File No. 1‑11314) filed June 6, 2016)

3.2	Bylaws of LTC Properties, Inc., as restated June 2, 2015 (incorporated by reference to Exhibit 3.2 to LTC Properties Inc.’s Current Report on Form 8-K (File No. 1-11314) filed June 5, 2015)

10.1	Equity Distribution Agreement, dated March 1, 2019, by and between LTC Properties, Inc. and JMP Securities LLC. (incorporated by reference to Exhibit 1.1 to LTC Properties Inc.’s Current Report on Form 8-K filed March 1, 2019)

10.2	Equity Distribution Agreement, dated March 1, 2019, by and between LTC Properties, Inc. and Credit Agricole Securities (USA) Inc. (incorporated by reference to Exhibit 1.2 to LTC Properties Inc.’s Current Report on Form 8-K filed March 1, 2019)

10.3	Equity Distribution Agreement, dated March 1, 2019, by and between LTC Properties, Inc. and KeyBanc Capital Markets Inc. (incorporated by reference to Exhibit 1.3 to LTC Properties Inc.’s Current Report on Form 8-K filed March 1, 2019)

10.4	Equity Distribution Agreement, dated March 1, 2019, by and between LTC Properties, Inc. and Mizuho Securities USA Inc. (incorporated by reference to Exhibit 1.4 to LTC Properties Inc.’s Current Report on Form 8-K filed March 1, 2019)

31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101	The following materials from LTC Properties, Inc.’s Form 10-Q for the quarter ended March 31, ~~2018,~~2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at March 31, ~~2018~~2019 and December 31, ~~2017;~~2018; (ii) Consolidated Statements of Income for the three months ended March 31, ~~2018~~2019 and ~~2017;~~2018; (iii) Consolidated Statements of Cash Flows for the three months ended March 31, ~~2018~~2019 and ~~2017;~~2018; and (iv) Notes to Consolidated Financial Statements

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	LTC PROPERTIES, INC.
	Registrant



Dated: May 9, ~~2018~~2019	By:	/s/ Pamela Kessler
		Pamela Kessler
		Executive Vice President, Chief Financial Officer and Corporate Secretary
		(Principal Financial and Accounting Officer)

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	Three months ended March 31, 2018				Three months ended March 31, 2017
	Developments		Improvements		Developments			Improvements
Assisted Living Communities	$	6,803	$	122	$	2,941	$	41
Skilled Nursing Centers		1,788		279		502		701
Other		—		133		—		—
Totals	$	8,591	$	534	$	3,443	$	742


	Total
	Equity
Balance at December 31, 2017	$	758,648
Net income		20,359
Stock-based compensation expense		1,376
Stock option exercise		123
Common stock dividends		(22,578)
Other		(1,065)
Balance at March 31, 2018	$	756,863